The $7.1 Million Lawsuit Against Kanye Is ‘Very Strong’

On Friday, the LA-based production company Phantom Labs sued Kanye West for $7.1 million, accusing him of failing to pay the firm for work it did on some of his highest-profile projects over the past year. He’s been racking up unpaid bills since October of 2021, according to a copy of the lawsuit obtained by VICE. Phantom claims that though it sent Kanye “multiple demand letters” asking him to settle his tab, he has “inexplicably” refused to pay up.

In the suit, Phantom claims it shelled out more than $1 million producing several Sunday Services for Kanye and $2.27 million on his Donda 2 listening party in Miami. The firm also says it spent $500,000 on a recording of the 2021 “Free Larry Hoover” benefit show he and Drake held in LA. And Phantom claims it put up millions more for various other projects of Kanye’s. Phantom spent $1.06 million producing his headline set at this year's Coachella before he canceled at the last minute. The company had agreed to front Kanye all that money based on “promises” he would pay back what it spent on his behalf, along with a 20 percent fee for its work. But he still hasn’t coughed up “one cent” of what he owes, the suit claims. 

Though the allegations against Kanye are pretty straightforward, there is one major wrinkle in the case, according to California-based attorney Scott Talkov, who specializes in business litigation. Phantom sued Kanye for breach of contract, but according to the suit, many of those contracts were established orally, whether during in-person meetings or over the phone. Others were executed via text messages and emails.

“It’ll turn every single oral conversation, and every text message, and every email into its own dispute,” Talkov told VICE. “Piecing together that puzzle can take years.”

VICE spoke to Talkov about the merits of Phantom’s suit against Kanye, how the rapper might go about fighting it, and who Talkov thinks will come out on top in the end. His take, in a nutshell: While this isn’t an open-and-shut case, things don’t look great for Kanye. 

VICE: Assuming the allegations the lawsuit contains are true, how strong of a case would you say Phantom Labs has against Kanye?

Scott Talkov: It’s a very strong case. Probably the greatest strength of the case is that he used the services, and he used the services repeatedly. When somebody doesn’t like a particular service, they would normally detail that in writing and say, “Gee, this set didn’t work, the lights didn’t work,” or whatever else. If there’s no documentation showing any disagreement as to the quality of the goods that were produced, he’s going to have a tough time making up stories now. He could say, “I told the production designer I didn’t like the colors. I told them I didn’t like the material they were using.” But that’s only going to go so far if there’s not a text message or an email [backing that up]. 

Phantom’s suit alleges that time and again, Phantom Labs performed a service for Kanye, he accepted that service, and then he just never paid for it. What do you think might account for that?

Usually, in my experience, it’s a sign of financial distress of some kind. When somebody’s trying to get out of paying for something that was completely performed, that’s very common when there’s insolvency issues. He’s had pretty public behavioral health challenges in the last few months, even years. And it may be that that is starting to trickle down into his financial life. It could also be a liquidity issue: It could be that he does have assets, but they’re not liquid, and he doesn’t want to sell that third or fourth house.

How might Kanye go about fighting this lawsuit, and what legal strategies could he use to do that?

In situations like this, oftentimes the defendant will come up with every excuse in the book about how the services rendered just weren’t good enough, and they didn’t meet this standard or that standard, when the truth is that they just don’t have the money. Maybe he’ll look around and see whether there were sign-offs on every little bit of work that they’re seeking to collect on. And for every item that maybe was verbally [agreed to], maybe he’s going to look for every ticky-tacky way—one might even say unethical way—to get out of this contract. He’s going to say, “I don’t remember that phone call where I said I wanted that $1 million addition to the set. Nothing’s in writing; there’s no confirmation from our side. And the contract says all modifications must be in writing, so—haha—I don’t owe you money.” That can be a common one. 

They will probably engage in delay tactics to kick the can down the road. Sometimes that works, in the sense that some of the plaintiff’s anger over the issues subsides over time. On a project this big, there are a number of people that touched it. You can seek to depose anybody and everybody related to the case. You can engage in voluminous discovery, where you seek every email from every employee at these large companies. He’s going to claim that he’s very important, so when they try to depose him, he’s going to have an excuse on why that day doesn’t work, and another excuse—nothing’s ever going to be quite the right date for him. He’ll try to delay his own deposition. 

The lawsuit notes that a lot of projects Phantom Labs undertook for Kanye were executed under oral agreements. How might that complicate things?

Oral agreements create ambiguity as to the scope of the work, as to the pricing, and as to approvals as the project continues. If you’re building something for someone and you don’t get approvals as the job goes along—even if they’ve liked what you’ve done so far—and then you’re done, they might say, “I don’t like it at all. It’s totally worthless to me.” But the truth is, they don’t have the money to pay for that item. Oral contracts are a common source of dispute and also a common source of defendants getting a discount. Discovery might show a plaintiff to be unable to prove the prices that were charged. When you’re trying to prove the reasonable value for services, you might need an expert. You might need other professionals who have produced similar quality concert sets to say, “This is the reasonable value of this thing. This is how much should have been charged even though nothing was set forth in writing.” That’s going to increase the cost of litigation, and it’s going to delay litigation. It’s going to prevent or make it harder to get summary judgment, wherein a matter can be decided without trial.

The suit also notes that various requests and promises were made “during in-person meetings, over the phone, in text messages, and in emails.” Do you think that means there might not have been formal contracts drawn up between Phantom Labs and Kanye?

Generally speaking, if there was a formal contract, it would have been attached to the complaint. Perhaps when [Phantom Labs] was given the opportunity to work with somebody of such fame and notoriety, they may have lowered their bar. They may have said, “Oh, this guy is so wealthy, he’s certain to pay me.” They may, at the end of the day, have let their guard down. Maybe they were OK with a looser credit standard or a lack of documentation because, “Gosh, we really don’t want to ask him to sign anything—he’s almost insulted that we don’t trust him.” But the truth is that rich and famous people have the same impulses as everyone else. They decide they don’t like you, they decide they don’t need your work, or they realize that they’re financially insolvent, and they’ll come up with excuses not to pay.

If all of the agreements between Kanye and Phantom Labs were made orally, in meetings, over the phone, and in texts and emails, how will that complicate things?

There’s nothing wrong with text message or email agreements. There’s no legal requirement that contracts be set forth in a formal document with boilerplate terms covering multiple pages. But some of those terms referred to as boilerplate actually apply when disputes arise. And the fewer details there are, the more ambiguities there are when issues arise. It’ll turn every single oral conversation, and every text message, and every email into its own dispute. Every party that was there who might have heard the conversation and each person that understood the context of that conversation will be a witness. Piecing together that puzzle can take years, and that will increase the cost of litigation. 

But more importantly, the more complicated the case, the bigger discount the defendant is going to get. If you have a black-and-white contract where somebody says, “I owe you $8 million, I agree to pay you on a certain date,” and they don’t pay it, that’s one of the simplest cases: You can file for summary judgment and obtain your judgment. But with all these oral contracts, text messages, side deals, and improper documentation, what you end up with is a lot of money in attorney’s fees and delays. It puts pressure on plaintiffs to take that [settlement] money now, whatever the discount, rather than delay until trial. 

How likely do you think it is that this case will be settled?

Ninety-eight percent or so of cases are settled. Even when people think their case is the one that won’t be the one that settles, it almost always does. This is also a case with damages that are fairly reasonable to estimate. 

It might be that the plaintiff doesn’t want parties to know that they took a discount on their bills, and they might ask for a confidentiality agreement, which wouldn’t come with a public trial. And the defendant may not want people to know that they didn’t pay their bills, which may scare off future vendors, and so they may also want the case to settle.

If Kanye does elect to settle, would you expect him to pay out less than the $7.1 million he allegedly owes Phantom Labs?

Absolutely. Discounts on oral contracts can be substantial. But it depends on the size of the plaintiff. If the plaintiff can withstand this loss for years during litigation, they might get a better deal than if it’s causing a substantial hardship for their company and they need that discounted sum to keep going.

How significant of a discount could Kanye get by settling? 

There could very well be millions in discounts based on lack of documentation. I think the amount [Phantom Labs] is demanding, that’s their best-case scenario. And they’re [likely] going to be accepting less than that.

How long do you think it might be before this case is resolved? 

The fact that it’s boiled over into court tells me that [this dispute has] already been happening behind closed doors, and Kanye’s team is not budging. So chances are this will go on for months, possibly years. I would guess, given the amount in dispute, probably about one year or so.

Drew Schwartz is a senior staff writer at VICE. Follow him on Twitter.