Fraud and the Fyre Festival Part 1: A legal analysis of the world’s worst music festival

“Never attribute to malice that which can be adequately explained by stupidity.” So instructs Hanlon’s razor, a philosophical guide for eliminating unlikely explanations for human behavior. This aphorism was top of mind when I sat down last weekend to watch Netflix’s popular new documentary, Fyre Festival: The Greatest Party that Never Happened.

The Fyre Festival disaster

Fyre Festival recounts the disastrous saga of a music festival of the same name. What was supposed to be a one-of-a-kind, luxury music festival on a desert island in the Bahamas turns into an unmitigated disaster. The festival is the brainchild of Billy McFadden, a 26 year-old serial entrepreneur and (now) convicted felon. Strangely enough, McFadden partnered with the rapper Ja Rule to launch Fyre, a then-fledgling (and now defunct) startup company determined to solve one of America’s most pressing problems: the difficulty of booking celebrities to appear at your kid’s birthday party and other special events. (Fyre’s solution? A smartphone app that would make booking a celebrity as easy as ordering a pizza.) Fyre Festival traces the music festival from its ill-conceived inception as a marketing ploy for the Fyre app to its train wreck ending.

In tracking McFadden, Fyre Festival harkens to Breaking Bad, and the transformation of Walter White from the well-intentioned high school chemistry teacher to a murderous drug kingpin. While McFadden never comes across nearly as affable as Mr. White, the documentary begs the question: was McFadden merely an incompetent, arrogant fool? Or was he a deliberate con man out to steal money? Or, third option: did he start as one and end up as the other?

From a legal perspective, it matters whether a defendant in a civil lawsuit acted with malicious intent, or merely out of negligence. The distinction determines the remedies available to any injured party. A plaintiff who is harmed by the negligence of a defendant is entitled to be compensated only for their actual damages. And under the American Rule—so distinguished from the British Rule—a successful plaintiff typically does not receive an award for their attorney’s fees. (Those amounts come out of any award for compensatory damages.) Not so with a “tort” claim—that is, a claim for intentional wrongdoing by a defendant. If a plaintiff can prove they were harmed by the fraud, malice, or “willful or wanton conduct” or the defendant, the court may award them attorney’s fees. And, more importantly, that plaintiff can be awarded punitive damages—that is, money damages meant to punish the wrongdoer by compensating the plaintiff above and beyond their actual damages.

So returning to the Fyre Festival: was McFadden only careless in marketing the festival, or was he deliberately stealing from guests?

The rocky start to the Fyre Festival planning

At least in the beginning, it seems possible that McFadden was overly ambitious and merely acting foolishly. Fyre Festival does begin with an impressive start. McFadden and Ja Rule leverage their social media savviness to announce the festival in a supermodel-laden promotional video. With the help of social media influencers, the festival sells 95% of its tickets in the first 48 hours after the announcement. (And that help did not come cheaply: Kendall Jenner, for instance, received a quarter-million dollars for a single post!)

For a moment, if you suspend your knowledge that it “never happened,” you can’t help but think that maybe McFadden could pull off the “greatest party.” McFadden seems to genuinely believe, in all earnestness, that he can deliver on the promises in the promotional video. He’s got the desert island, he’s got the bands, and he believes in the mission. And as one of the organizers said, “I never thought it would end like this. If I did, why would I have done it?” It would seem irrational for McFadden to deliberately market and sell tickets to a disastrous music festival, given the massive fallout to be expected.

Even at this early point, however, a modicum of foresight would have revealed the massive logistical challenges of hosting a music festival on a barren desert island in the Bahamas. It was certainly a long shot, and it was reckless for McFadden to market the festival the way he did.

Things go South very quickly

Things then devolve into a slow-motion train wreck. At each turn, the festival goes sideways. McFadden’s arrangement falls through with the owner of Norman’s Cay, the deserted island. Fun fact: Norman’s Cay was formerly owned by Pablo Escobar, and its landing strip and airport infrastructure are relics from the days when the island was used as a refueling stop on drug smuggling operations into the United States. The new owner of Norman’s Cay—eager to distance the island from its unsavory past—specifically instructs Fyre not to promote the island by reference to Pablo Escobar. You can guess what happens next: Fyre Festival’s very first marketing materials boast of the Escobar connection, and so the new owner boots the festival from the island.

The festival had only a slim chance of success on Norman’s Cay, but this twist leaves McFadden with mere weeks to find a new desert island in the Bahamas for the music festival. The new island, Great Exuma, is not at all deserted (a Sandals resort occupies a portion of the island). Further complicating matters, Fyre Festival is set for the same weekend as the national regatta, that is the Bahamian “Super Bowl” and Great Exuma’s busiest weekend of the year. Undeterred, Fyre Festival stakes out camp on a corner of the island that was under construction for a new condominium development. Think of the barren wasteland for the model house from Arrested Development, but with an oceanside breeze.

McFadden makes some very wrong decisions

This is when McFadden’s intent appears to shift to deliberate deceit. Fyre Festival’s promotional materials photoshop a map of Great Exuma to make it look as though the festival grounds are the entire (deserted) island. Fyre promises luxury lodging with lavish photos on its website. The actual lodging takes the form of FEMA emergency tents leftover from Hurricane Matthew. A small handful of bloggers catch wind of Fyre’s deceitful marketing and attempt unsuccessfully to pressure McFadden to publicly admit the truth. The $6 million contract with the caterer is cancelled for nonpayment, and the food budget is slashed for feeding the 6,000 people expected to attend. It takes some rather, Herculean efforts, shall we say, just to get Dasani water through customs.

Finally, McFadden goes fully to the Dark Side. Short on cash in the days leading up to the event, Fyre calls festival attendees and pressures them to load up cash on their bracelets (the festival was to be a cash-free event, so they said). “Most” guests, the salesperson said, were adding $3,000 to their bracelets. The injection of cash helped Fyre gain a bit more runway, but the writing is all over wall by this point. McFadden inexplicably resists calls to pull the plug on the festival in the days leading up to the big event.

The night before the festival, a huge rainstorm blows through Great Exuma and ruins the FEMA tents. (Nothing says a good time quite like a soaked mattress.) The festival is such a disaster that Fyre is forced to cancel the event before a single musical act takes the stage, but not until thousands of attendees arrive to the island.

Can McFadden be sued?

Returning to the core legal question of McFadden’s intent, fraud is the most natural cause of action in a civil action. The elements of a claim for fraud, under common law, require a showing that McFadden lied about something important (in legal jargon, “misrepresented material facts”) and with the intent that someone else would rely on his lies to their detriment.

Here, in the first 48 hours, when most all the tickets were sold, it’s doubtful that  McFadden deliberately lied about his plans for the Fyre Festival. It’s at least unclear whether McFadden acted with the purposeful intent to deceive. (McFadden’s legal defense does not benefit from statements like, “We’re selling a pipe dream to your average loser.”) But even if he did not deliberately lie, McFadden could be liable for fraud in a civil action based on some lesser showing of intent, that is if he acted with a “reckless disregard” for the truth. That standard clearly was met here. And by the end, McFadden clearly had “broken bad”: remarkably, he continued to devise new scam operations while out on bail awaiting a trial on criminal chares.

We will revisit the Fyre Festival case in this blog in a future post that will take a critical look at the first lawsuit that was filed on behalf of concertgoers against McFadden, right here in North Carolina. The plaintiffs in the lawsuit, Crossno v. McFarland, 17-CV-5724 (Wake County, NC), were granted a $5 million default judgment.

Are you the victim of a fraudulent scheme, or want to perform more due diligence than McFadden on a business plan? Contact Spengler & Agans for a consultation on a consumer protection action.

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