Judge: Bruce G. Iwasaki, Case: 22STCV34567, Date: 2023-02-27 Tentative Ruling

Case Number: 22STCV34567    Hearing Date: February 27, 2023    Dept: 58

Judge Bruce G. Iwasaki

Hearing Date:             February 27, 2023

Case Name:                 Capucine Jackson v. Amaru Entertainment Inc.

Case No.:                    22STCV34567

Motion:                       Demurrer

Moving Party:             Defendant Amaru Entertainment Inc.

Opposing Party:          Plaintiff Capucine Jackson

Background

           This is an action involving breach of contract.  Capucine Jackson (Plaintiff) is the surviving spouse of Johnny Jackson (Jackson).  She alleges that Amaru Entertainment Inc. (Defendant) owes her certain statutory royalties under a May 21, 2001 agreement (Agreement) between Jackson and Defendant.  The royalties are presently held by SoundExchange, a third-party nonprofit organization that collects and distributes digital performance royalties.

           Plaintiff alleges four causes of action against Defendant for breach of contract, specific performance, declaratory relief, and injunctive relief.  

           Defendant demurs to the entire Complaint for failure to state sufficient facts.  Plaintiff filed an opposition and Defendant filed a reply.  Defendant’s counsel’s declaration satisfies the meet-and-confer requirements.  (Rothschild Decl., ¶ 3.)

Legal Standard

           A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice.  (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)  The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.”  (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.)  “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.”  (Code Civ. Proc., § 452.)  The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . ..” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) 

First Cause of Action – Breach of Contract

           Interpretation of a written contract is a question of law; when contractual language is clear and explicit, its meaning can be determined on demurrer.  (Baldwin v. AAA Northern California, Nevada & Utah Insurance Exchange (2016) 1 Cal.App.5th 545, 549.)

           To state a claim for breach of contract, a plaintiff must allege sufficient facts to establish: (1) a contract between the parties; (2) plaintiff's performance or excuse for nonperformance; (3) defendant's breach; and (4) damages to plaintiff from the breach. (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.)

           “Where a complaint is based on a written contract which it sets out in full, a general demurrer to the complaint admits not only the contents of the instrument but also any pleaded meaning to which the instrument is reasonably susceptible.” (Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 239.) “ ‘[W]here an ambiguous contract is the basis of an action, it is proper, if not essential, for a plaintiff to allege its own construction of the agreement. So long as the pleading does not place a clearly erroneous construction upon the provisions of the contract, in passing upon the sufficiency of the complaint, we must accept as correct plaintiff's allegations as to the meaning of the agreement.’ ” (Ibid.)  “While a plaintiff’s interpretation of the contract ultimately may prove invalid, it [is] improper to resolve the issue against her solely on her own pleading.”  (Ibid.)  “On a demurrer, the court must consider the sufficiency of the allegations, including any parol evidence allegations, to determine whether the contract is reasonably susceptible to plaintiff’s alleged interpretation.”  (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1128.)

           The Complaint sufficiently states a breach of contract claim.  Plaintiff attaches the contract as Exhibit A.  She asserts that Jackson has performed his obligations under the Agreement and that Defendant has breached by failing to pay the royalties that Jackson is owed.  (Complaint, ¶¶ 38-40.)

           Defendant makes three arguments: the text of the Agreement indicates that Plaintiff is only entitled to royalties from the sale of records; the claims are barred by the statute of limitations; and equitable relief is inappropriate because there is an adequate remedy at law.

           The Agreement states, in relevant part:

The following shall constitute the agreement (the “Agreement”) between Johnny Jackson p/k/a “Johnny J” (referred to herein as “Producer”) and Amaru Entertainment, Inc. (“Amaru”) with respect to the production of master recordings featuring the performances of Tupac Shakur (“Artist”) as more fully described on Schedule 1 through Schedule 5 attached hereto and incorporated herein by this reference (each a “Master” and collectively, the “Masters” ). The Masters may be embodied on record albums featuring the performances of Artist (each an “LP” and collectively, the “LPs”) for Amaru’s distributor (which is currently Interscope Records) (“Company”). . . .

4.        PRODUCER’S ROYALTY:

Conditioned upon Producer’s full and faithful performance of all material terms and provisions hereof, and the other agreements, representations and warranties made by Producer and contained herein, Producer shall be paid in respect of the sale by Company, or Company’s licensees, of phonograph records embodying the Masters, and in respect of any other exploitation by Company, or the Company’s licensees, of the Masters, the following royalties upon the terms hereinafter set forth:

           . . . .

b.        The royalty payable to Producer for sales of records which are not NRC [Normal Retail Channels] Net Sales shall bear the same respective proportions to Producer’s Royalty as the Artist Royalty for sales of records which are not NRC Net Sales bears to the royalty payable to Artist (or Amaru) for NRC Net Sales under the Artist Recording Agreement. . . . Without limiting the generality of the foregoing, Producer shall not earn any monies in respect of any exploitation of the Masters for which Artist is not entitled to be credited with, or does not earn, a royalty. Conversely, Producer will be entitled to royalties for all forms of exploitation of the Masters for which Artist is entitled to a royalty based upon the recording services of Artist.

(Complaint, Ex. A, italics added.)

Interpretation of the Agreement

Plaintiff contends that the last sentence of subdivision (b) entitles her to royalties.  In its reply, Defendant focuses on the introductory portion of Paragraph 4 of the Agreement and asserts that this “clearly and plainly limits royalties to royalties for sales by Company or Company’s licensees.”

“SoundExchange is a non-profit organization funded by a portion of the royalties that it collects from broadcasters on behalf of copyright owners who register with the organization.”  (WTGD 105.1 FM v. SoundExchange, Inc. (W.D.Va. Sep. 12, 2014, Civil Action No. 5:14-cv-00015) 2014 U.S.Dist.LEXIS 127743, *7; see also 17 U.S.C. § 114(g)(3).)  These royalties are obtained pursuant to statutory licenses.  “[R]egulations implementing the Copyright Act charge SoundExchange . . . with collecting the performance royalties from statutory license users . . . and distributing these royalties to the copyright owners in accordance with 17 U.S.C. § 114(g)(2)(A)-(D).)”  (Soundexchange, Inc. v. Sirius XM Radio, Inc. (D.D.C. 2014) 65 F. Supp. 3d 150, 152.) 

Defendant concedes that Plaintiff may be entitled to statutory royalties under 17 U.S.C. § 114(g)(1)(B) as a “nonfeatured recording artist” if there is a contract authorizing such payments.  Thus, the issue is whether the Agreement here authorizes such royalties.  Defendant’s position is that the Agreement is only as to any form of exploitation of the Masters by Defendant’s distributor and the distributor’s licensees and because SoundExchange is not a licensee, there is no entitlement to royalties.

           Defendant’s interpretation of the Agreement is reasonable.  SoundExchange’s role is not of a licensee; instead, it acts as a “copyright collective[] . . . which administer[s] statutory licenses and collect and distributes royalties on behalf of featured and non-featured artists, and owners of copyrights in music records.”  (H.Con.Res. No. 102, 117th Cong., 2nd Sess. (2022).)  It follows that SoundExchange itself is not a licensee and the introductory paragraph in Paragraph 4 serves to restrict the types of royalties to which Jackson is entitled.

On the other hand, assuming all facts pled as true, Plaintiff’s interpretation is also plausible.  Notably, Defendant fails to address the broad wording in subdivision (b).  The last two sentences of that subdivision seem to refer to a scenario in which the Producer’s royalties is directly tied to the Artist’s royalties.  Subdivision (b) generally discusses royalties for “sales of records which are not [Normal Retail Channel] Net Sales.”  It is unclear whether the parties to the Agreement contemplated the issue of statutory royalties in 2001, when the contract was drafted, or if such royalties are addressed in some other contract.  However, when these last two sentences are read in conjunction with the broad introductory paragraph on page 1 of the Agreement, which describes this as a contract between Jackson and Defendant “with respect to the production of master recordings featuring the performances of Tupac Shakur (“Artist”) as more fully described on Schedule 1 through Schedule 5,” these sentences can be construed more expansively than Defendant’s interpretation.

           The Court finds that the Agreement appears to have two reasonable interpretations and that Plaintiff’s interpretation is not “clearly erroneous.”  (Aragon-Haas v. Family Security Ins. Services, Inc., supra, 231 Cal.App.3d at p. 239.)  Accordingly, the demurrer is overruled as to Defendant’s argument against the First Cause of Action based on the interpretation of the Agreement.

Statute of limitations

Defendant also argues that Plaintiff’s First Cause of Action is time-barred because the royalty claims should have been brought when SoundExchange began collecting royalties in 2003.

A “ ‘ “demurrer on the ground of the bar of the statute of limitations will not lie where the action may be, but is not necessarily barred.” ’ ”(Favila v. Katten Muchin Rosenman LLP (2010) 188 Cal.App.4th 189, 224.) “ ‘ “It must appear clearly and affirmatively that, upon the face of the complaint [and matters of which the court may properly take judicial notice], the right of action is necessarily barred.” ’ ”  (Ibid.)  “ ‘Resolution of the statute of limitations issue is normally a question of fact.’ ”  (Paredes v. Credit Consulting Services, Inc. (2022) 82 Cal.App.5th 410, 427; Michaels v. Greenberg Traurig, LLP (2021) 62 Cal.App.5th 512, 538.) 

           A statute of limitations begins to run “at ‘the time when the cause of action is complete with all of its elements.’ ”  (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806.)  However, under a delayed discovery rule, “a cause of action accrues and the statute of limitations begins to run when the plaintiff has reason to suspect an injury and some wrongful cause, unless the plaintiff pleads and proves that a reasonable investigation at that time would not have revealed a factual basis for that particular cause of action. In that case, the statute of limitations for that cause of action will be tolled until such time as a reasonable investigation would have revealed its factual basis.” (Id. at p. 803.)

           The statute of limitations for a breach of written contract is four years.  (Code Civ. Proc., § 337, subd. (a).)

           Plaintiff argues there is no basis to begin the statute of limitations in 2003 She argues that she did not have knowledge of the facts until 2019, after she investigated the possibility of royalties with SoundExchange and completed the paperwork.  (Complaint, ¶ 27.)  In its reply, Defendant concedes that the delayed discovery rule could apply, but that Plaintiff has failed to allege any facts to implicate the doctrine.

           The Court agrees with Defendant.  In 2003, Jackson was still alive.  It is unclear why he did not pursue this claim between 2003, when SoundExchange formed, and 2008, the year he died.  Furthermore, there are no facts explaining Plaintiff’s efforts between 2008 and 2019 to investigate any potential claims.  Plaintiff passingly references that Jackson himself had “no reason to know that certain royalties weren’t being paid out” and that such facts “will be pled in an amended complaint, if necessary.” As noted above, further facts are also needed to plead delayed discovery. Therefore, the Court will sustain the demurrer on the first cause of action based on statute of limitations grounds, with leave to amend.

           The Court also notes that the extent of damages that Plaintiff is seeking is unclear.  The Complaint indicates that the royalties are believed to be “in excess of $500,000.”  (Complaint, ¶ 41.)  However, Plaintiff is vague as to the period for which these damages are sought–whether the alleged royalties are owed as far back as 2003, when SoundExchange began collecting royalties, or 2019, when she discovered the breach.  Plaintiff is instructed to clarify this issue in the amended complaint.

Second, third, and fourth causes of action – specific performance, declaratory relief, and injunctive relief

           Defendant argues that these claims are barred by Paragraph 14(k), which states:

k.        In the event of any breach of any provision by Amaru or Company, Producer’s sole remedy will be an action at law for damages, if any, and in no event will Producer be entitled or seek to enjoin or inhibit the distribution, exhibition, performance, or exploitation of the Masters.

           Defendant contends, these equitable causes of action are improper because Plaintiff has an adequate remedy at law for damages.  Plaintiff argues that she is seeking relief for “non-calculable amounts, i.e., the future damages Plaintiff will sustain absent Defendant’s delivery of the requisite [Letter of Direction] to SoundExchange.”

“Specific performance is an alternative remedy; the cause of action is for breach of contract.”  (5 Witkin, Cal. Procedure (6th ed. 2022) Pleading, § 780(1).) “To obtain a specific performance after a breach of contract, a plaintiff must generally show: ‘(1) the inadequacy of his legal remedy; (2) an underlying contract that is both reasonable and supported by adequate consideration; (3) the existence of a mutuality of remedies; (4) contractual terms which are sufficiently definite to enable the court to know what it is to enforce; and (5) a substantial similarity to the requested performance to that promised in the contract” (Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463, 472.)

           The specific performance cause of action requests Defendant to provide a Letter of Direction.  (See Complaint, ¶¶ 45-46.)  The purpose of this letter is to provide guidance to SoundExchange so it may pay royalties to Plaintiff.  (Id. at ¶ 46.)  This is the same as requesting money damages and is based upon the same acts as the breach of contract cause of action.  “[A] party may not obtain both specific performance and damages for the same breach of contract, either in single or multiple actions.”  (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 905.)  Thus, the demurrer is sustained on the specific performance claim.

           As to the declaratory relief cause of action, such allegations are sufficient if it sets forth facts “showing the existence of an actual controversy relating to the legal rights and duties of the respective parties under a contract and requests that the rights and duties be adjudged. ( Code Civ. Proc., § 1060.) If these requirements are met, the court must declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to a favorable declaration.”  (Bennett v. Hibernia Bank (1956) 47 Cal.2d 540, 549-550.) 

           The controversy is whether Plaintiff is entitled to the SoundExchange royalties.  (Complaint, ¶¶ 50-52.)  This is appropriate for declaratory relief and does not necessarily infringe on the Agreement’s limitation of remedies clause.  However, because the declaratory relief claim is based on the breach of contract claim (for which the demurrer is sustained because of statute of limitations grounds), the demurrer is also sustained on this cause of action.  (Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782, 794 [demurrer properly sustained on cause of action for declaratory relief that was “wholly derivative of” other causes of action on which demurrer had been properly sustained].)

           Finally, as to the injunctive relief, this is a remedy, not a cause of action.  (Shamsian v. Atlantic Richfield Co. (2003) 107 Cal.App.4th 967, 984-985.)  Moreover, the prayer for relief under injunctive relief requests that the Court “restrict and immediately enjoin the Defendant from licensing the Masters to digital radio companies and collecting digital performance royalties.”  This is prohibited under the Agreement because it limits distribution of the Masters.  Accordingly, the demurrer is sustained on the fourth cause of action.

Conclusion

           The demurrer is sustained in its entirety with 20 days leave to amend.