Megadeth Founders Exchange Lawsuits

The founding members of popular '80s metal band Megadeth are banging their heads in court.

LOS ANGELES -- The founding members of popular '80s metal band Megadeth are banging their heads in court.

Two separate actions hinge on a purported settlement ending the bandmates' corporate partnership, and whether it was actually executed.

The dispute began with an action filed July 12 in U.S. District Court for the Southern District of New York (case no. 04 CV 5395) by Megadeth bassist David Ellefson against guitarist David Mustaine. The band's corporate entities -- Megadeth Inc., Majestic IV Inc. and MegaMerch Inc. -- are named as co-defendants.

Ellefson claims that although Megadeth began as a 50-50 partnership with Mustaine in 1983, he subsequently was assigned only a 20% interest in the group's shares when the group was incorporated in 1990.

He alleges that Mustaine subsequently claimed the lion's share of Megadeth's income -- estimated at more than $200 million since 1984 -- for himself and cut Ellefson out of revenues generated by song publishing and tour merchandise.

Ellefson is seeking at least $18.5 million in damages.

In a counterclaim filed July 29 in California Superior Court in L.A. (case no. BC319329), Mustaine maintains that Ellefson signed a May 14, 2004, settlement agreement that released Mustaine and the band's corporations from any legal claims. (Ellefson's claim alleges that the settlement agreement was executed under pressure and ultimately withdrawn.)

Mustaine seeks damages in an amount to be determined.

Ellefson's bitterly worded 30-page action accuses his erstwhile partner of fraud, defamation, libel, breach of fiduciary duty, violation of California corporation law, negligence and intentional infliction of emotional distress.

It depicts Mustaine as a chronic drug abuser who has entered rehabilitation programs approximately 17 times. (For his part, Ellefson admits he has been clean since entering rehab for drug and alcohol abuse problems in 1989.)

Ellefson's suit claims that Mustaine's drug abuse "began to affect his management of the partnership as early as 1988," and made the guitarist "arbitrary, egomaniacal and paranoid to the detriment of the group and the corporation."

Ellefson alleges that Mustaine retained exclusive control over advances paid by Megadeth's labels, and that he arbitrarily hired himself or his friends as producers.

Mustaine "generally used the record company advances ... as his own personal 'piggy bank,'" and diverted thousands of dollars for the purchase of recording equipment and the building of studios in his homes, according to the suit.

Ellefson claims that he received no part of the profits of the band's merchandising firm MegaMerch; that Mustaine failed to credit Ellefson's songwriting contributions and copyrighted all Megadeth compositions solely in his own name; and that Mustaine libeled Ellefson by accusing him of extortion in a May 2004 e-mail that was posted on Megadeth's Web site.

The suit also claims that Mustaine interfered with Ellefson's participation in two recording opportunities with Sanctuary Records.

Ellefson's action characterizes the purported May settlement as a "proposal" that was designed "to force ... Ellefson out of the group and the corporation." The proposed agreement "offered extraordinarily little compensation ... in return for virtually all [Ellefson's] rights, title and interest" in Megadeth.

As laid out in his own suit, Mustaine's defense against Ellefson's multitude of charges is simple: The bassist's claims were rendered moot when Ellefson delivered a signature page of the settlement agreement to Mustaine's attorneys.

According to Mustaine's breach-of-contract action, execution of the settlement agreement made Mustaine the sole owner of the Megadeth companies, and Ellefson "released plaintiffs from all past, present and future claims."

Mustaine alleges that Ellefson has breached the settlement agreement and denies the basic claims laid out in the bassist's suit. He seeks a declaration that the settlement agreement is valid and enforceable.

This exchange of suits is only the first salvo: Ellefson's attorney, Randall S.D. Jacobs of Bienstock & Michael in New York, says he plans to file an amended complaint within 30 days.