Your band apparently has an oral band partnership deal, and this is why it's always better to put things in writing, which I hope you do now with your current bandmates.
Does you bandmate co-own the "master" sound recordings on your 1st album, and is the sound recording registered for copyright in the band's name? If so, then you owe this leaving member his agreed on share of the proceeds.
Did your bandmate co-write the songs on that album and are the songs registered for copyright in the writers' names? If so, then as a joint author, he's entitled to an accounting and his agreed on share of income from those songs.
Your bandmate has "publicity rights" to control his image, but he presumaby posed for photos and performed on audio and video recordings with the understanding that the band would exploit these things, so he wouldn't have a strong claim to stop those uses by the band.
A written band partnership agreement should provide that the band itself, and not any member, owns the band's name/trademark, and provide for "leaving member" terms.
If he's holding the master sound recording, you need a music lawyer who litigates for help to straighten out this mess. You also need to start putting things in writing to prevent future messes.
Avvo doesn't pay us for these responses, and I'm not your lawyer just because I answer this question or respond to any follow-up comments. If you want to hire me, please contact me. Otherwise, please don't expect a further response. We need an actual written agreement to form an attorney-client relationship. I'm only licensed in CA and you shouldn't rely on this answer, since each state has different laws, each situation is fact specific, and it's impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue.
And the lesson is.....PUT AGREEMENTS IN WRITING
Ms. Koslyn gave you solid advise, so now is time to consult an entertainment lawyer before things further out of hand.
I am neither your attorney, nor my answers or comments in AVVO.com create an attorney-client relationship with you. You may accept or disregard my free advice in AVVO.com at your own risk. I am a Patent Attorney, admitted to the USPTO and to the Florida Bar.
I agree with my colleagues. You need to consult with an entertainment attorney specializing in music to help you sort things out.
People who jointly author a work are considered (not surprisingly) co-authors, and they all have an ownership interest in the work. Conversely, if a work was complete prior to someone doing anything, then that later person is not a co-author. But if that person contributes something to the old work, then that person may have ownership rights in the combination of the old work with the new work, but not in the old work.
Does that make sense?
Also, you've shoe-horned so many issues into one question that it would take a novel to address all the issues, and a law suit to remedy them. If you want an actual resolution to this situation, rather than just a sounding board, then you must hire your own actual attorney.