Partners Say ‘Blue Man Group’ Cash Misused

MANHATTAN (CN) - Two partners in the Blue Man Group claim in court that the troupe's management company "failed to collect millions of dollars of royalties" and neglected to pay them for years.

In a complaint filed in New York County Supreme Court, Akie and Ronald Topal, members of the BMGH Limited Partnership claim the enterprise, MAK Entertainment and Blue Man producer Makoto Degughi, "have been using BMGT's money and resources for their own benefit and committing waste."

The Topals say in the filing that they have been members of the partnership since its inception in 1991, and collectively own approximately a 5.5% percentage interest in it.

Blue Man Group, an award-winning stage production founded in New York City, currently has long-running productions in Las Vegas, Orlando, Fla., Boston, Chicago, and Berlin, and also does a national tour.

According to Fortune Magazine, over 60,000 people a week attend the various Blue Man Group performances, creating roughly $3.54 million revenue per week.

Those profits, according to the complaint, were meant to be distributed to stakeholders through BMGT. After BMGT's general partner died in 2003, the Topals say, the partnership agreement was amended and since then, "BMGT had a single function - to collect royalties ... for distribution to the individual partners."

They also say that "BMGT has no other business purpose, and by the terms of the amended partnership agreement, the BMGT partnership must terminate when it ceases to collect royalties from the Blue Man show creators."

The Topals claim that in 2010, following a dispute over royalties, the show's creators agreed through arbitration that they would pay BMGH a percentage of royalties on the show's gross until 2017, when the agreement would expire.

The Topals agreed to the deal, but they claim that in practice, "rather than collecting royalties which have not been paid and are past due, Respondents have pursued a scheme to create an installment payment plan in an effort to continue to misappropriate BMGT's funds."

"Having committed BMGT to the 2010 Royalty Agreement, Mr. Deguchi, as fiduciary of the partnership, was required to begin collecting royalties. He did not do that," the complaint says. "Instead, Deguchi used massive amounts of partnership money in a disloyal effort to prevent enforcement of the very agreement he signed."

The Topals claim that Degughi's theory for blocking the agreement was that "he had not signed it in his personal capacity, but only as BMGT's fiduciary."

They also assert that Degughi tried to vacate a pair of arbitration orders related to the deal, but that both attempts were thwarted by the New York Supreme Court Appellate Division in May 2014.

"This meritless litigation was part of Deguchi's overall strategy to extend BMGT's life beyond its otherwise impending termination date of 2017," the Topals claim.

The Topals say they learned of Degughi's alleged "self-dealing" during a review of the partnership's records.

They allege this review showed Degughi was using the partnership for his own benefit for years, and that "notations in the file indicate multiple expensive business class flights to Japan; expensive hotel stays (e.g., the Ritz Carlton); meals; train tickets; taxis; theatre tickets; purchases of merchandise, theatre programs, books and DVDs."

They also claim that "Mr. Deguchi used BMGT funds to pay himself amounts that purportedly represented phone and rent charges (increasing each year), without any original invoices or support for his allocation of such charges to BMGT."

Additionally, apart from writing checks to himself, the Topals say that "Mr. Deguchi has written multiple checks to his own personal business colleague James Walski."

One check to Walski, for $17,500, was paid, "without any explanation as to its purpose, without a supporting invoice, and without properly reflecting that payment on BMGT's financials."

The Topals say that "the connection between Mr. Deguchi and Mr. Walski, as reported in the press, is that Mr. Deguchi is the producer of 'Trip of Love,' a play that was created, directed and choreographed by Mr. Walski and set to open at the end of this year."

They contend "Trip of Love" is "a business pursuit that is wholly unrelated to BMGT's business of collecting Blue Man Group royalties." (26)

The Topals claim "at this point, BMGT's funds have dwindled so far that Mr. Deguchi, has been building an ever-growing accounts payable tab from which he plans to pay himself 'off the top'" and that "this growing tab appears to be at least $77,000."

Overall, they say, past-due royalties owed the partnership have reached $3 million.

The Topals seek damages for breach of contract and fiduciary duty, and a temporary restraining order and preliminary injunction until the arbitration and litigation proceedings are resolved.

They are represented by Carol Shahmoon with Shahmoon & Ellisen of New York, N.Y.

Peter Raymond, a lawyer who represents Deguchi, told The New York Post that the allegations are completely untrue. and that "Mr. Deguchi is in fact producing a new show, but it is completely separate and funds are not being in any way co-mingled.

He added that the Topals are set to receive "substantial" royalty payments in the near future.

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