Scooter Braun's Company Files Suit Against Troy Carter Over Alleged $10M Loan Default
Carter says Braun's action doesn't 'just damage me; it’s also damaging to the young black executives coming behind me.'
Scooter Braun’s Ithaca Management Holdings filed suit in Los Angeles Superior Court on Wednesday against Troy Carter, his wife and his company, Atom Factory, alleging fraud and breach after Carter allegedly failed to pay back a $10 million loan.
The suit alleges Carter -- who left his post as Spotify’s global head of creator services earlier this month -- is in default of his obligation to pay back a loan secured under a June 3, 2016, promissory note in excess of $10 million, including outstanding principal, interest and other fees, according to documents obtained by Billboard.
Braun, who manages Ariana Grande and Justin Bieber, among others, is not mentioned as a plaintiff and his name never appears in the suit. However, sources tell Billboard that Ithaca is Braun’s $120 million investment fund that also acts as a holding company for his Scooter Braun Projects, as well as ownership interest in a number of music management companies.
According to the suit, Carter put up Atom Factory’s Culver City, California, property as collateral to secure the note, and on or about Sept. 23, 2016, executed and delivered a deed of trust, assignment of leases and rents, and other documents to Ithaca.
At the time the parties entered into the note, Carter, who is Lady Gaga’s former manager, and Atom Factory were involved in an arbitration with an unnamed party. According to the terms of the note, if AFACT (Carter’s LLC) settled the arbitration, AFACT had to pay Ithaca the cash proceeds received by Atom Factory from the arbitration minus expenses, including legal fees, or the amount due under the note, whichever was smaller.
The suit alleges that Atom Factory settled the arbitration in March 2018 without the consent of Ithaca, in violation of the terms of the note. Furthermore, the suit claims that AFACT committed tortious interference with a contract by transferring the settlement proceeds to unknown recipients and/or diverting the proceeds so that they were not received by AFACT, thereby not paying back Ithaca and breaching the agreement.
On Aug. 23, 2018, Ithaca sent written notice demanding AFACT pay in call all its obligations to Ithaca, but as of the filing, Ithaca had not received any money.
In addition to the monies owned, Ithaca is also claiming it is entitled to judicial foreclosure on Atom Factory’s Culver City property, as well as any resulting legal fees.
After initially telling TMZ, which reported the lawsuit on Wednesday, that he didn’t borrow money from Ithaca, Carter then told TMZ early Thursday morning that he did owe Ithaca money and that the repayment amount was being negotiated when Ithaca filed the lawsuit.
Carter provided Billboard with a written response to the allegations, which is below in full:
"Sadly, Scooter Braun, went back on his word. The fact is that I’ve never borrowed a dime from him, nor have I needed to. Ithaca has already received in excess of $12 million for my repurchase of the company. The equity they originally held became debt with collateral attached. Nothing out of the ordinary. He decided to file a lawsuit after we reached a stalemate on interpretations of the balance of debt.
"Our agreement on the new price was disavowed when the press ran a piece about me purchasing a piece of art at auction. Scooter called to congratulate me and within 24 hours I received an email from his attorney stating there no longer would be a discount on the deal since I could afford to purchase such a painting.
"I'm beyond disappointed that Scooter would file such a claim after I was the first person to support him when he was looking to launch Ithaca. I also advocated on his behalf to other management companies he wanted to acquire. I considered us friends.
"When I lost a client I volunteered to repurchase the company as a show of good faith. Ithaca declined. After a few months, I was surprised to hear that Scooter wanted me to return the money because the settlement with the client would take too long. He threatened to sabotage my reputation with a fraud claim if we didn’t reach a deal. A claim he knew to be incontestably untrue.
"When you lose a client it brings you to a point where you begin to question your status and sincerity of relationships. The only currency you’re left with is your reputation. Threatening fraud when someone is in such a [vunerable] position is the cruelest business tactic I’ve seen in my career. I lived through Death Row Records and some of the hardest guys in Philadelphia. Not one of them ever tried to extort me. It’s ironic how it now feels like I’m being extorted.
"I've done what I've done against all odds. There are only a handful of African-American executives left in our business and yet he’s okay with attempting to falsely ruin my reputation. It doesn’t just damage me; it’s also damaging to the young black executives coming behind me. I represent and helped build a culture he financially benefits from.
"Initially I took this personal, until I learned he did this to another manager who lost a big client. He bailed on him the same way and threatened him with fraud if the money wasn't returned.
"Losing money is a byproduct of business. But I’m not in the business of losing friendships over money.
"I built my career on honoring my commitments and will continue to do so."
Carter's response, which TMZ dubbed "playing the race card," didn't sit well with one black executive who told Billboard he had worked for Carter in the past. "I find it funny as hell for a black man in this music/entertainment world to pull the race card and say @scooterbraun is trying to hurt him because he’s a black exec,” the executive posted on Instagram, before removing it. "When someone gets the courage to air your shit out don't say it's because [you're] black."
Additional reporting by Hannah Karp.