Case Number: EC061586    Hearing Date: August 08, 2014    Dept: A

Gilkyson v The Walt Disney Co.

DEMURRER & APPLICATION TO APPEAR PRO HAC VICE

Calendar: 5
Case No: EC061586
Date: 8/8/14

MP: Defendant, Disney Enterprises and Wonderland Music Company, Inc.
RP: Plaintiffs, Eliza Gilkyson, Tony Gilkyson, and Nancy Gilkyson

ALLEGATIONS IN FIRST AMENDED COMPLAINT:
The Plaintiffs are the heirs of Terry Gilkyson, who wrote songs that were used in the film “The Jungle Book”. The Defendants agreed to pay Terry Gilkyson $1,000 plus royalties for each song. The Defendants breached this agreement by failing to pay royalties for DVD releases of the movie, “The Jungle Book”. The Plaintiffs brought this action to seek damages for the failure to pay royalties for the VHS, DVD, and Blue-Ray releases of the movie.

CAUSES OF ACTION IN FIRST AMENDED COMPLAINT:
1) Breach of Contract
2) Breach of Implied Covenant of Good Faith and Fair Dealing
3) Declaratory Judgment

RELIEF REQUESTED:
1. Demurrer to 1st, 2nd, and 3rd causes of action.
2. Order authorizing Craig Barker to appear pro hac vice for the Plaintiffs.

DISCUSSION:
This hearing concerns the following:

1) the Defendants’ demurrer to the first, second, and third causes of action in the Complaint; and
2) the application of the Plaintiffs for an attorney to appear pro hac vice.

1. Demurrer
a. First Cause of Action for Breach of Contract
The Defendants argue that this cause of action is barred by the statute of limitations. When the dates alleged in the complaint show the action is barred by the statute of limitations, a general demurrer lies. Saliter v. Pierce Bros. Mortuaries (1978) 81 Cal.App.3d 292, 300.
This cause of action is based on the breach of a written contract. The statute of limitations for breach of a written agreement is four years under CCP section 337.
A review of the allegations reveals that the dates indicate that the claim was brought more than four years after the breach. The contract is identified in paragraph 67. The Plaintiffs allege that the parties agreed that Terry Gilkyson would receive the following for each song:

1) $1,000;
2) a 5 cent royalty for each piece of sheet music sold in the United States and Canada;
3) 50 percent of all net sums received by the publisher in connection with sheet music sales in all foreign countries except Canada; and
4) 50% of the net amount received by the music publisher on account of licensing or other disposition of the mechanical reproduction rights in the song.

The Plaintiffs allege in paragraph 71 of the First Amended Complaint that the Defendants breached the agreement by failing to pay royalties associated with the sale of “The Jungle Book” on DVD and Blue-Ray. This differs from the original Complaint, in which the Plaintiffs alleged that the Defendants had also failed to pay royalties associated with the sale of the “The Jungle Book” on VHS. The Plaintiffs removed the allegations regarding the sale on VHS with the filing of the First Amended Complaint.

The time to commence the Plaintiffs’ claim was within four years of the first failure to pay royalties. Mappa Music Co. v. Universal-Polygram Int’l Publ’g (C.D. Cal. Dec. 17, 2001) 2001 U.S. Dist. LEXIS 24554, 23-25. In Mappa Music, the Court considered a claim that the defendant had breached a letter agreement regarding the payment of royalties related to the song “Gonna Get Along Without Ya Now”. The Court analyzed California law regarding the statute of limitations and found that the cause of action accrued at the time of breach, which was the first failure to send the royalty payments under the contract. The Court found that this occurred in the late 1950s and that the four year statute of limitations under CCP section 337 ran in the early 1960s.
Further, the Court found that the fact that the agreement gave rise to an ongoing obligation to pay royalty payments did not change the Court’s conclusion. The cause of action accrued at the time of the first breach and the plaintiff could have sued for the royalties, an accounting of future profits, and an injunction to prohibit future exploitation. The Court found that the plaintiff was not permitted to proceed with a claim “after sitting on its rights for more than 40 years.”

As noted above, in the original Complaint, the Plaintiffs pleaded that the Defendants breached the contract by failing to make payments when “The Jungle Book” was sold on VHS. In the analysis of the demurrer to the original Complaint, the Court found that the Plaintiffs’ cause of action for breach of the agreement to pay the claimed royalties would have commenced when the Defendants allegedly failed to pay royalties on the VHS sales, which would have occurred in the 1980s and 1990s.
Under the “sham-pleading” doctrine, admissions in an original complaint that has been superseded by an amended pleading remain within the Court’s cognizance and the alteration of such statements by amendment designed to conceal fundamental vulnerabilities in a plaintiff’s case will not be accepted. Lockton v. O’Rourke (2010) 184 Cal. App. 4th 1051, 1061. When a party files an amended complaint and seeks to avoid the defects of a prior complaint either by omitting the facts that rendered the complaint defective or by pleading facts inconsistent with the allegations of prior pleadings, the policy against sham pleading permits the Court to take judicial notice of the prior pleadings and requires that the pleader explain the inconsistency. Owens v. Kings Supermarket (1988) 198 Cal. App. 3d 379, 384. If the party fails to do so the Court may disregard the inconsistent allegations and read into the amended complaint the allegations of the superseded complaint. Id.
In the pending case, the Court reads the allegations in the original Complaint about VHS sales into the First Amended Complaint. These allegations indicate that the Plaintiffs’ claims are barred by the statute of limitations because the Plaintiffs did not bring their claim within four years of the first failure to pay royalties.

Further, in the First Amended Complaint, the Plaintiffs allege in paragraph 71 that the Defendants breached the agreement in 2007, when the Defendants released “The Jungle Book” on DVD. The alleged breach would have occurred when the Defendants failed to pay the royalties associated with the DVD release. If the Court assumes that the movie was released on the last date of 2007, the Plaintiffs had four years from December 31, 2007, or until December 31, 2011 to bring this claim.
A review of the Court file reveals that the Plaintiffs commenced this action on November 15, 2013. Since the Plaintiffs did not commence the action by December 31, 2011, the dates in the pleadings indicate that the Plaintiffs’ first cause of action for breach of contract is barred by the statute of limitations.

The Plaintiffs attempted to plead around this defect by citing to the continuous accrual doctrine. The theory of continuous accrual is a response to the inequities that would arise if the expiration of the limitations period following a first breach of duty or instance of misconduct were treated as sufficient to bar suit for any subsequent breach or misconduct; parties engaged in long-standing misfeasance would thereby obtain immunity in perpetuity from suit even for recent and ongoing misfeasance. Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal. 4th 1185, 1198-1199. Under the continuous accrual doctrine, separate, recurring invasions of the same right can each trigger their own statute of limitations. Id.
For example, in Dryden v. Board of Pension Commrs. (1936) 6 Cal.2d 575, the plaintiff sued for a pension after the six-month period for the presentation of claims had expired. Since the right to pension payments is a continuing right, the expired limitations period did not bar the plaintiff from enforcing the right to present and future pension payments; instead, it barred past and accrued pension payments.
However, the Courts distinguish between an action to determine the existence of the right to payment from an action to recover installments which have fallen due. Baillargeon v. Department of Water & Power (1977) 69 Cal. App. 3d 670, 684. An action to determine the existence of the right precedes and is distinct from an action to recover installments. Mezey v. Cal. (1984) 161 Cal. App. 3d 1060, 1064. The claim to determine the existence of the right accrues when the breach of the right to payment initially occurs.
For example, in Mappa Music Co. v. Universal-Polygram Int’l Publ’g (C.D. Cal. Dec. 17, 2001) 2001 U.S. Dist. LEXIS 24554, the Court noted that although the contract created an ongoing obligation to pay royalty payments, this was not an installment contract, with payments due at certain times. Further, the Court found that the plaintiff had never received any royalty payments. Accordingly, the Court found that the time had run from the initial failure to make payments on the contract and that the plaintiff’s claim was barred.

In the pending case, the Plaintiffs do not plead that the Defendants failed to make certain payments due at certain times. The Plaintiffs allege in paragraph 71 that the Defendants have “continuously and continually” breached the contract to pay royalties. The Plaintiffs brought this action to determine the existence of their right to payment of royalties for releases on DVD, Blue-Ray, and similar media. This action is barred because the Plaintiffs did not bring the action to establish their right to payment within four years from the initial failure to make the royalty payments.

The Plaintiffs attempted to overcome this defect by pleading that they received a royalty statement each quarter. However, the Plaintiffs do not allege that the Defendants failed to make specific payments on the royalties for DVD or Blue-Ray releases. The Plaintiffs do not claim that the Defendants made payments and then stopped or that the Plaintiffs have a right to specific amounts. Instead, the Plaintiffs admit that the Defendants never paid royalties for the DVD or Blue-Ray release.
The Plaintiffs commenced this action to establish that they have a right to payment for the use the music in releases of “The Jungle Book”, e.g., for VHS, DVD, Blue-Ray, or similar releases of the movie. Under the case law, the Plaintiffs were required to bring this claim to establish that right from the first breach of their right to receive payments under the royalty agreement. As discussed above, the dates in the original Complaint and in the First Amended Complaint indicate that the Plaintiffs’ claim is barred.

Finally, the Court notes that Plaintiffs contend that the United States Supreme Court in Petrella v. MGM (U.S. 2014) 134 S. Ct. 1962 (U.S. 2014) overrules the holding in Mappa Music Co. v. Universal-Polygram Int’l Publ’g (C.D. Cal. Dec. 17, 2001) 2001 U.S. Dist. LEXIS 24554. This is not correct.
First, the Supreme Court in Petrella did not discuss Mappa or its holding. There is no language disapproving of, overruling, criticizing, or mentioning Mappa or its holding. Accordingly, the Supreme Court did not overrule Mappa.
Second, Petrella does not concern the statute of limitations for a breach of contract regarding royalty payments. Instead, Petrella concerned the issue of whether the defense of laches applied to a claim for copyright infringement under the Federal Copyright Act arising from the motion picture “Raging Bull”. The Supreme Court granted certiorari to resolve a conflict among the circuits regarding the equitable defense of laches and whether it could bar relief even when the plaintiff had brought the claim for infringement within the three-year statute of limitations. The Supreme Court found that the defense of laches did not bar claims brought within the three-year federal statute of limitations because each act of copyright infringement is a violation from which the statute of limitations begins to run.
There is no discussion or holdings concerning California law regarding the statute of limitations for breach of contract claims, the California continuous accrual doctrine, or the issues in the pending case. Instead, the Supreme Court in Petrella was discussing the federal scheme for the regulation of copyrights in the Federal Copyright Act. The Supreme Court’s decision was based on the remedies provided by the Federal Copyright Act, the three year statute of limitations in 17 USC section 507, and the separate-accrual rule that attends the copyright statute of limitations.
Accordingly, Supreme Court has not overruled the holding in Mappa. Further, there is no basis to apply the holding in Petrella to the pending case because there is no copyright issue. Instead, this case involves a breach of contract claim to establish the right to royalty payments. Since the dates in the pleadings establish that the Plaintiffs did not commence their claim within the four-year statute of limitations, there are grounds to sustain a demurrer.

Therefore, the Court will sustain the demurrer to the first cause of action for breach of contract.

It does not appear reasonable possible for the Plaintiffs to correct this defect by amendment. Further, on April 18, 2014, the Court sustained the demurrer to the first cause of action for breach of contract because the dates in the pleadings indicate that the claim is barred. The Court granted the Plaintiffs a single opportunity to plead around the statute of limitations defense (April 18, 2014 minute order, page 8). Since the Plaintiffs were unable to correct this defect, the Court will not grant leave to amend.

b. Second Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing
This cause of action was added without leave of Court. The original Complaint did not include a cause of action for breach of the implied covenant of good faith and fair dealing.
When a Court grants leave to amend after sustaining a demurrer, it is leave to amend only the cause of action to which the demurrer has been sustained. People ex rel. Department of Public Works v. Clausen (1967) 248 Cal. App. 2d 770, 785. On April 18, 2014, the Court sustained the Defendants’ demurrers to the following causes of action:

1) breach of contract;
2) unjust enrichment;
3) declaratory relief; and
4) breach of fiduciary duty.

The Court granted leave to amend with regards to the first, third, and fourth causes of action. The Court did not grant leave to amend with regards to the second cause of action. Accordingly, the Plaintiffs had leave to amend only the first, third, and fourth causes of action.
On April 30, 2014, the Plaintiffs filed a First Amended Complaint in which they removed the unjust enrichment and breach of fiduciary causes of action. However, the Plaintiffs added a new cause of action for breach of the implied covenant of good faith and fair dealing. Since the Plaintiffs did not have leave to add this cause of action, there are grounds to remove it by sustaining the Defendants’ demurrer.

In addition, the second cause of action is duplicative to the first. Under California law, there are grounds for a demurrer to a cause of action that adds nothing to a complaint by way of fact or theory. Rodrigues v. Campbell Industries (1978) 87 Cal. App. 3d 494, 501. The second cause of action alleges in paragraph 85 that the Defendants breached the contract by preventing the Plaintiffs from “enjoying the benefit of the bargain”, i.e., to receive payments. The second cause of action is based on the same facts, i.e., the Defendants failed to make any payments on the royalty agreements. The second cause of action is based on the same legal theory, i.e., breach of contract. The second cause of action seeks the same damages, i.e., amounts that the Defendants did not pay on the royalty agreement.
Accordingly, there are grounds to remove the second cause of action by sustaining a demurrer on the ground that the second cause of action is duplicative.

Finally, the cause of action is barred by the statute of limitations. As discussed above, the Plaintiffs’ cause of action commenced when the Defendant allegedly breached the agreement by failing to make a royalty payment for the use of the Plaintiffs’ intellectual property. Under California law, the time to commence the Plaintiffs’ claim based on the breach of a written agreement was four years from the first failure to make the royalty payment. Since the dates in the pleadings indicate that the statute of limitations bars the Plaintiffs’ claim, there are grounds for a demurrer to the second cause of action as well.

Therefore, the Court will sustain the demurrer to the second cause of action for breach of contract.

It does not appear reasonably possible for the Plaintiffs to correct this defect by amendment because the second cause of action was added without leave of Court and because it is duplicative. Further, on April 18, 2014, the Court sustained the demurrer to the first cause of action for breach of contract because the dates in the pleadings indicate that the claim is barred. The Court granted the Plaintiffs a single opportunity to plead around the statute of limitations defense (see April 18, 2014 minute order, page 8). Since the Plaintiffs were unable to correct this defect, the Court will not grant leave to amend.

c. Third Cause of Action for Declaratory Judgment
The Defendants argue that this cause of action is subject to a demurrer because it is derivative of their other claims. Under California law, when a court has sustained a demurrer based on the failure to state sufficient facts to support a claim, a demurrer is also properly sustained as to a claim for declaratory relief which is “wholly derivative” of the claim. Ball v. FleetBoston Financial Corp. (2008) 164 Cal. App. 4th 794, 800. For example, if declaratory relief is sought with reference to an obligation which has been breached and the right to commence an action for breach of contract is barred by the statute, the right to declaratory relief is likewise barred. Maguire v. Hibernia S. & L. Soc. (1944) 23 Cal. 2d 719, 734.
In their third cause of action for declaratory relief, the Plaintiffs seek a declaration in paragraph 94 that they are entitled to royalties in connection with the sales of “The Jungle Book” on DVD, on Blu-Ray, on digital download, and on any similar medium. This claim is based on the allegation that the Defendant breached the obligation to pay royalties. Since the analysis in the first cause of action reveals that this claim is barred by the statute of limitations, the Plaintiffs’ claim for declaratory relief is also barred.

Therefore, the Court will sustain the demurrer to the third cause of action.

It does not appear reasonable possible for the Plaintiffs to correct this defect by amendment. Further, on April 18, 2014, the Court sustained the demurrer to the third cause of action for breach of contract because the dates in the pleadings indicate that the claim is barred. The Court granted the Plaintiffs a single opportunity to plead around the statute of limitations defense (April 18, 2014 minute order, page 10). Since the Plaintiffs were unable to correct this defect, the Court will not grant leave to amend.

2. Application to Appear Pro Hac Vice
The Plaintiffs have filed an application for Craig Barker to appear pro hac vice. CRC rule 9.40 requires attorneys requesting permission to appear pro hac vice to include the following in their verified application:

1) proof of service on all parties that have appeared and on the State Bar of California;
2) the applicant’s residence and office address;
3) the courts to which the applicant has been admitted to practice and the dates of admission;
4) that the applicant is a member in good standing in those courts;
5) that the applicant is not currently suspended or disbarred in any court;
6) the title of court and cause in which the applicant has filed an application to appear as counsel pro hac vice in this state in the preceding two years, the date of each application, and whether or not it was granted;
7) the name, address, and telephone number of the active member of the State Bar of California who is attorney of record; and
8) payment of $50 to the State Bar of California.

G. Craig Barker, who is a resident of Texas, seeks leave to appear for the Defendants. A review of his verified application reveals that it complies with the requirements of CRC rule 9.40.
Accordingly, the Court will grant his application.

RULINGS:
1. Defendants’ Demurrer
SUSTAIN demurrers to first, second, and third causes of action without leave to amend.

2. Plaintiffs’ Application to Appear Pro Hac Vice
ISSUE order authorizing Craig Barker to appear pro hac vice for the Plaintiffs.