NEW YORK - Having through a morass of legal disputes for the past couple of years, the Butthole Surfers have found a new manager, negotiated their release from Capitol and signed a joint recording contract with Surfdog/Hollywood, become the center of an intense debate about ethics in the punk community, made a footnote in legal history by clarifying a gray area of copyright law, and reissued their back catalog on their own label, Latino Bugger Veil.

The new manager is Dave Kaplan, who also manages Brian Setzer and is president of Surfdog Records. "I met then in February or March," says Kaplan. "I don't know when it became official that we were working together. It was an evolutionary process. They don't easily welcome new people into their world, but I've always admired what they do. I think they're at a creative peak, on the verge of doing their greatest work. There's nobody else like them."

A division of Disney, Hollywood might seem an odd home for a band that has radically pushed the bounds of the sayable since the early '80s.

"No, I don't anticipate any problems," says Kaplan. "The label has a whole mew management team, Bob Cavallo [chairman of the Buena Vista Music Group, which includes Hollywood Records, Disney Records, and Disney Publishing] and Rob Cavallo [his son and Grammy-winning producer of the year in '98 for his work with Green Day and the Goo Goo Dolls] are both enthusiastic."

"Disney is also the company that put our 'Pulp Fiction,' says Rob Cavallo. "If an artist just wants to shock and can't back up what he's saying with an artistic vision, there would be a problem. But that isn't the case with the Butthole Surfers. I love how they make music, and we think they're capable of doing an album with three or four hit singles. They're ready to take the next step."

"Hollywood wanted us the most," says Paul Leary, Butthole guitarist. "There was other interest, but Rob is a bigwig, and he came all the way to Austin [Texas] to have lunch with us. He's a hell of a producer, and we didn't feel slimed after we met him. Usually when you meet people from a label, you feel slimed afterward."

"We'll communicate better because we can talk to the A&R guy on a technical level," says Gibby Haynes, Butthole singer. "Rob brings all that studio savvy to the table and, of course, the promise of riches beyond our imagination."

Formed in San Antonio and Austin during the early '80s, the Buttholes recorded two raucous EPs for Alternative Tentacles, label of the Dead Kennedys vocalist Jello Biafra, then switched to Touch and Go, the first of the important underground Chicago labels. They did not literally sign with Touch and Go, however. They made an oral agreement with Touch and Go's founder, Corey Rusk, to split the net profits 50-50.

The Buttholes recorded four albums ("Psychic…Powerless…Another Man's Sac," "Rembrandt Pussyhorse," "Locust Abortion Technician," "Hairway to Steven") and two EPs ("Cream Corn From The Socket Of Davis," "Widowermaker!") from 1984 to '89 that rank among the funniest and most original in rock history.

Homeless and touring relentlessly in their van, they became Touch and Go's best-selling act and a huge influence on underground music', their psychotic performance art shattering punk orthodoxy and opening up a new world of surreal imagery and humor. Touch and Go grew into a corporation with 17 current employees.

All the Butthole Surfer albums on Touch and Go topped our around 100,000 copies, according to their sales statements from the label, and the band member came to feel they had reached the limit of Touch and Go's distribution capabilities. After a brief and unhappy stay with the U.S. branch of Rough Trade, which ceased doing business in 1991, the Buttholes signed with Capitol later that year.

As language standards loosened, they began to get commercial radio play and MTV exposure for the first time, having minor hits with "Jesus Built My Hot Rod" and "Who Was In My Room Last Night." In the summer of 1996, they had a No. 1 single on the Modern Rock Tracks chart with "Pepper" from "Electric Larryland," which sold more than 625,000 copies, according to Soundscan. They even made their network TV debut on "Late Night With David Letterman."

Until the Buttholes started recording for Capitol, Rusk and the Buttholes had had the cordial relationship necessary to conduct business without a contract. After signing with Capitol, however, the band member came to believe Rusk was getting a free ride on their touring the Capitol's promotion. They became increasingly dissatisfied with Touch and Go's inability to keep the records in the stores. According to the band, Rusk refused to negotiate or even accept phone calls from the Buttholes' then manager, Tom Bunch, who now says Rusk "wanted to prove to his other acts that they couldn't survive without Touch and Go, so he did nothing with the Buttholes' back catalog."

On Dec. 4, 1995, the Buttholes faxed a demand that if Rusk wasn't going to do any promotion, he must change the profit split from 50-50 to 80-20. Rusk's lawyer responded that Touch and Go would continue to distribute the Butthole Surfers' product "in perpetuity" according to the original deal.

On Dec. 8, 1995, the Buttholes faxed a letter demanding that Touch and Go stop selling their records and return their master tapes. Rusk continued selling their records. In 1996, the Buttholes filed suit in Illinois district court and in summary judgment won $100,000 in damages and possession of their master tapes and copyrights.

According to Illinois law, an oral contract is over when either party says it is over. Rusk insisted that the oral agreement they had made is 1984 was forever and appealed.

On March 26 of this year, the U.S. Court of Appeals for the Seventh Circuit affirmed the lower court. Judge Terence Evans, writing the opinion for the three-judge panel, dismissed Touch and Go's claim to own the license for the Butthole Surfers' music in perpetuity as "without merit" and left it at that.

Touch and Go had further claimed that the unclear wording of Section 203 of the Copyright Act of 1976 established that the minimum amount of time for a grant of copyright was 35 years. Because of a 1993 decision in California (Rano v. Sipa Press), which held that a photographer had orally granted copyright of some photographs and that federal law had established a minimum of 35 years in such deals, Touch and Go had some precedent for this position.

Citing Legal commentators who found the Rano case "ridiculously incorrect," Evans said that the point of Section 203 was to safeguard authors from "unremunerative transfers" of copyrights and that Congress had clearly meant that 35 years would be a maximum period for a publisher to hold a copyright, even if the author had granted license for the life of the copyright or some period longer than 35 years.

The implication of Touch and Go's position was astonishing to the point of absurdity, according to the Buttholes' lawyer, Trip Aldredge. If the label had prevailed, every author, musician, photographer, and artist in America would be surrendering their copyrights for a minimum of 35 years. In essence, artists would be owned for their entire careers.

"If was fascinating smoke screen, but that's all it was," says Aldredge. "They had no other case. Corey insisted he had perpetual license and continued to sell their records after they withdrew their authorization. It's a really simple point, and their defense was Section 203, which doesn't mean what they said it meant.

"It's just common sense that a handshake deal should be terminable by either party, and that's the law in most states…The band agonized over suing Corey, but there was just no other option. My advice for everyone is get these agreements in writing."

Even more astonishing for the Buttholes is that the alternative press has been attacking the band on the grounds that it has violated the punk business ethic of working only with people you trust, staying away from lawyers and contracts, and creating licensing deals that should last forever.

"We won a victory for the little guy, and everyone is siding with Exxon," says Leary. "We would have loved to stay with Touch and Go. We had a good relationship for years. But no one would listen to our ideas, no one would take our calls. Trust had already broken down. That's when we asked for a bigger split. Wait till someone owns half your ass in perpetuity. And when it's forever, it's all your ass that they own. If Corey had won, it would have fucked every artist this side of Pluto."

"It's a business practice that I would associate more with the horrendous R&B deals of the '50s," says King Coffey, Butthole drummer. "The label controls your music more that you do? Them owning it in perpetuity is the foundation of punk rock? Why is that cool?"

Saying he had been the victim of "inaccuracies" in past articles, Rusk declined comment for this one, but conceded that a sympathetic story by Josh Goldfein in The Chicago Reader of April 16 was "less inaccurate than most."

In it, Rusk compared himself to Lenny Bruce at the end of his life, betrayed and "muttering to everyone about the law." Ian McKaye, head of Dischord in Washington, said in the story that the Buttholes had let "their greed totally upset the balance of the relationship." Goldfein worried that the Buttholes had broken the "code of mutual trust" that had built punk business. Bettina Richards, founder of Thrill Jockey, said the Buttholes had "screwed" themselves and "would have sold five times as many records with [Rusk] as they're going to sell now."

"When people get divorced, ugly things get said," McKaye now says. "I think Corey is a hundred percent trustworthy. He just didn't want to talk to their manager about a deal he had made 15 years before directly with the band. I think they were foolish to leave. They're not going to get a better deal anywhere else."

Upon return of their masters, the Buttholes boosted the sound levels, re-scanned the artwork, and made a 50-50 deal with Revolver in San Francisco for distribution that began in July. Their own label, the formerly fictitious Latino Bugger Veil, became an actual official business over the summer.

"From the first orders, we're selling more albums than we did with Touch and Go in the last year we were with them," says Haynes. "And we haven't done anything to promote them yet." They plan a boxed set in the next couple of years.

The Buttholes also have extricated themselves from Capitol, for whom they recorded the unreleased album "After The Astronaut" in 1997. Against the band's wishes, Capitol sent out review copies before it was finished, and a delicate relationship got volatile. Their former manager, Bunch, tried to engineer a separation of the parties, but soon the band and Bunch weren't getting along, either.

Bunch is suing the Buttholes for allegedly unpaid commissions, and the band is suing back for alleged conflict of interest and other charges.

The band has been legally unable to record for the past year and a half while the Capitol situation was sorted out.

"It's just nice to have my life back," says Leary, about to sign his release from Capitol; the label had no comment. "I'm looking forward to working again, but crap just seems to follow us around."

"Everything we do looks like a joke because of our name," says Haynes. "But this is my life, being a Butthole Surfer. I'm entitled to own that."

Charles M. Young is writing a biography of the Butthole Surfers.