A federal judge is refusing to dismiss a lawsuit that claims Capitol Christian Music Group (Capitol CMG) improperly bailed at the last minute on a done-deal to buy a Christian hip-hop label. The deal, not publicly known until the December lawsuit, would have seen the Universal Music Group (UMG) imprint acquire Reach Records, an Atlanta-based indie co-founded by the rapper Lecrae. But Reach says Capitol CMG and UMG then suddenly balked at the price and killed the sale. Related Lecrae Explains How Christian Music Became One of the Fastest Growing Genres in America Kristin Robinson Capitol CMG’s lawyers wanted a judge to dismiss the case at the outset, arguing the deal wasn’t final and it never misrepresented it as such. But in a decision Tuesday (July 21), Judge Waverly Crenshaw says that Reach’s accusations, if later proven true, would indeed put Capitol CMG in legal hot water. “The story alleged by Reach is an old and familiar tale,” the judge wrote. “The CEO either knew or should have known whether the purchase price was final, but he led Reach to believe it was, knowingly or oblivious to the truth, until closing.” Reach and Capitol allegedly only signed a letter of intent (LOI), not a finalized sale contract. But the judge says the price wasn’t up for further debate: “It is true that the LOI contemplated finalizing other issues. However, the process of finalizing the final purchase agreement does not lessen their agreement on the final agreed purchase price.” The ruling allows Reach’s lawsuit to move ahead into the discovery process, where both sides exchange evidence, and toward eventual rulings or a trial where the company must fully prove its accusations against Capitol CMG. Neither side immediately returned requests for comment on Wednesday (July 22). Related Christian Music Is Surging on Billboard’s Charts, Thanks to These Two Artists Xander Zellner Founded by Lecrae and Ben Washer in 2004, Reach has grown into a player in the burgeoning faith-based hip-hop/R&B space. In addition to Lecrae himself — whose 2014 album Anomaly reached No. 1 on the Billboard 200 — the label is home to Tedashii and Trip Lee and formerly to Andy Mineo, KB and others. According to Reach, it was Capitol CMG that approached it about a possible buyout last year — a move that came amid a recent boom in Christian music, partly fueled by its popularity on social media platforms like TikTok. But in its December lawsuit, Reach said the bigger label had scuttled the agreement “on the eve of closing the deal” by abruptly telling the smaller company that senior management had decided “the agreed-upon price was too high.“ The purchase price Capitol CMG agreed to pay for Reach was allegedly in the “multi-million dollar” range, but a specific price has not been disclosed in court filings. Reach claimed the sudden collapse of the deal had caused it serious harm, coming after it “altered parts of our business” to get ready for the merger. “We were literally at the finish line,” the company told Billboard in December. “It left us in complete shock.” Related Inside Contemporary Christian’s Heavenly Rise to Among the Fastest-Growing Genres In the U.S. Jessica Nicholson Ahead of Wednesday’s ruling, Capitol CMG’s lawyers argued the deal was never final, meaning there had been no contract to breach in the first place. But in his decision, Judge Crenshaw says the letter of intent explicitly states that the price “will not be subject to renegotiation” barring the discovery of “material adverse findings” during due diligence. “It is alleged that the only reason Capitol CMG offered to avoid closing was that the purchase price was too high,” the judge writes. “Accordingly, Reach has plausibly alleged the existence of an enforceable contract and CMG’s breach.” Capitol CMG also wanted the judge to dismiss Reach’s other key accusation of legal wrongdoing: That the bigger label had illegally misrepresented that the deal price was final. But in Wednesday’s decision, the judge said those accusations, too, were valid enough to move ahead. “On the eve of closing, CMG pulls out of the deal because of the purchase price. It has the temerity to do so after its CEO tells Reach that the investment committee approved the deal as well as the purchase price,” the judge writes. “This story is more than enough to particularly and plausibly allege intentional and negligent misrepresentation.”
