Gilkyson v. Disney Enters., Inc.

• Decision Date: 27 January 2016
• Docket Number: B260103
• Citation: 198 Cal.Rptr.3d 611,244 Cal.App.4th 1336
• Court: California Court of Appeals Court of Appeals
• Parties: Eliza GILKYSON et al., Plaintiffs and Appellants, v. DISNEY ENTERPRISES, INC. et al., Defendants and Respondents.

244 Cal.App.4th 1336

198 Cal.Rptr.3d 611

Eliza GILKYSON et al., Plaintiffs and Appellants,

v.DISNEY ENTERPRISES, INC. et al., Defendants and Respondents.

B260103

Court of Appeal, Second District, Division 7, California.

Filed January 27, 2016

Hunter, Molloy & Salcido, John Logan Hunter, Pasadena; Law Office of Craig Barker and Craig Barker, for Plaintiffs and Appellants Eliza Gilkyson, Tony Gilkyson and Nancy Gilkyson.

Horvitz & Levy, Frederic D. Cohen and Mark A. Kressel, Encino, for Defendants and Respondents Disney Enterprises, Inc. and Wonderland Music Company, Inc.

PERLUSS, P.J.

Eliza Gilkyson, Tony Gilkyson and Nancy Gilkyson, the adult children and heirs of songwriter Terry Gilkyson, sued Disney Enterprises, Inc. and its music publishing subsidiary Wonderland Music Company, Inc. (collectively Disney) alleging Disney had breached its contractual obligation to pay royalties in connection with the licensing or other disposition of the mechanical reproduction rights to Gilkyson's songs. The trial court dismissed the lawsuit after sustaining Disney's demurrer to the first amended complaint without leave to amend, ruling the Gilkyson heirs' causes of action were barred by the applicable statutes of limitations. Because the trial court erred in failing to apply the doctrine of continuous accrual, under which a portion of the Gilkyson heirs' contract claim is timely, we reverse.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Single–Song Contracts

Terry Gilkyson, a successful songwriter in the 1950's and 1960's and a member of the band The Easy Riders, wrote "The Bare Necessities" and several other songs for the popular animated film The Jungle Book, which was first released in 1967.¹ Several years prior to the film's release, Gilkyson signed single-song contracts with Disney's predecessor-in-interest, Walt Disney Productions, that deemed it the author of the songs and the owner of the copyright and obligated it to pay Gilkyson an initial fee of $1,000 for each song he wrote for the film, as well as specified royalties for sales of sheet music and for licensing or other disposition of the mechanical reproduction rights. The contract expressly excluded from that royalty obligation Disney's use of the songs in "motion pictures, photoplays, books, merchandising, television, radio and endeavors of the same or similar nature."

Pursuant to those contracts Disney paid Gilkyson over the years and, after his death in 1999, his heirs royalties for sheet music and for audio reproductions of Gilkyson's songs (vinyl records, compact discs (CDs) and digital downloads). However, Disney did not pay, and has never paid, Gilkyson or his heirs royalties for the use of his songs in any audiovisual medium, including digital video disc recordings (DVDs).

2. This Lawsuit

On November 15, 2013 the Gilkyson heirs sued Disney for breach of contract and several related claims alleging Disney had breached its contractual obligation to pay the Gilkyson heirs royalties in connection with the use of Gilkyson's songs on videocassette recordings (VHS tapes) and DVDs. In their original complaint the Gilkyson heirs alleged the DVD version of The Jungle Book released by Disney in 2007 included "The Bare Necessities" and additional songs that Gilkyson had written for the film but that had never before been released. Although Disney sold approximately four million DVDs containing Gilkyson's songs and received substantial profits, the complaint alleged it had failed to pay the Gilkyson heirs any per-unit royalty in connection with those sales. The Gilkyson heirs also alleged Disney failed to pay any royalties in connection with VHS tapes containing "The Bare Necessities," which were released some time prior to 2007.

Disney demurred to the complaint. While insisting its contractual obligation to pay mechanical reproduction royalties excluded use of Gilkyson's songs in any audiovisual medium, for purposes of its demurrer it confined its arguments to claiming each cause of action was time-barred under the applicable statutes of limitations. In particular, emphasizing the allegation the DVDs had been released in 2007, Disney argued the Gilkyson heirs' claim for breach of written contract accrued no later than 2007, thus making the claim, filed in November 2013, untimely under the governing four-year statute of limitations. In addition, the release of VHS tapes had occurred decades prior to 2007. Accordingly, Disney argued any claim for failure to pay royalties accrued at the first breach of contract in the 1990's, leaving all claims time-barred.

The Gilkyson heirs opposed the demurrer, arguing their claims were timely in their entirety under the continuing violation doctrine or, at a minimum, timely as to the claims for royalties due within the four years prior to their filing of the lawsuit in November 2013 pursuant to the continuous accrual doctrine explained in Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 151 Cal.Rptr.3d 827, 292 P.3d 871 (Aryeh ).

The trial court sustained Disney's demurrer, observing the claim for royalties began to accrue in 1991 when the VHS tapes of The Jungle Book were originally released and, at the latest, by December 31, 2007 when, by the Gilkyson heirs' own admission, the DVDs were released. Under either scenario, the court ruled, the Gilkyson heirs' claims were barred by the four-year statute of limitations for written contracts. The court granted the Gilkyson heirs leave to amend.

On April 30, 2014 the Gilkyson heirs filed a first amended complaint asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing and declaratory relief. The amended complaint contained substantially similar allegations as the original complaint with a few exceptions. The amended complaint added the allegation that Disney had released The Jungle Book 2 in 2008 and re-released The Jungle Book on Blu-ray format, digital download format and DVD in 2014. Although each of these products included Gilkyson songs, Disney failed to pay, and did not intend to pay in the future, the Gilkyson heirs any royalties in connection with its sales of those products. The amended complaint, in contrast to the original, omitted any reference to the 1991 release of The Jungle Book in VHS format.

The trial court sustained Disney's demurrer to the first amended complaint, this time without leave to amend, ruling the omission of allegations relating to the release of the film in VHS format was a sham pleading intended to avoid the limitations bar. In any event, the Gilkyson heirs' claims asserted in the first amended complaint accrued no later than 2007 with the first release of DVDs; and thus their claim for royalties, filed well after the expiration of the four-year statute of limitations applicable to written contracts, was time-barred. The court rejected the Gilkyson heirs' contention the continuous accrual doctrine rendered their claims timely for breaches within the four years preceding the filing of their complaint.

DISCUSSION

1. Standard of Review

A demurrer tests the legal sufficiency of the factual allegations in a complaint. We independently review the superior court's ruling on a demurrer and determine de novo whether the complaint alleges facts sufficient to state a cause of action or discloses a complete defense. (Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1100, 171 Cal.Rptr.3d 189, 324 P.3d 50 ; McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415, 106 Cal.Rptr.2d 271, 21 P.3d 1189.) We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which judicial notice has been taken. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 20, 40 Cal.Rptr.3d 205, 129 P.3d 394 ; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081, 6 Cal.Rptr.3d 457, 79 P.3d 569.) We liberally construe the pleading with a view to substantial justice between the parties. (Code Civ. Proc., § 452² ; Schifando, at p. 1081, 6 Cal.Rptr.3d 457, 79 P.3d 569.) The application of a statute of limitations based on facts alleged in the complaint is a legal question subject to de novo review. (Aryeh, supra, 55 Cal.4th at p. 1191, 151 Cal.Rptr.3d 827, 292 P.3d 871.)

2. The Court Erred in Sustaining the Demurrer to the First Amended Complaint

a. The statute-of-limitations bar and the continuous accrual doctrine

The statute of limitations, a legislatively prescribed time period to bring a cause of action, "exists to promote the diligent assertion of [the] claim[ ], ensure defendants the opportunity to collect evidence while still fresh, and provide repose and protection from dilatory suits once excess time has passed." (Aryeh, supra, 55 Cal.4th at p. 1191, 151 Cal.Rptr.3d 827, 292 P.3d 871 ; accord, Shively v. Bozanich (2003) 31 Cal.4th 1230, 1246, 7 Cal.Rptr.3d 576, 80 P.3d 676.) For breach of a written contract, that period is four years from the time the claim accrues. (§ 337.) Traditionally, a claim accrues " ‘ "when [it] is complete with all of its elements"—those elements being wrongdoing [or breach], harm, and causation.’ " (Aryeh, at p. 1191, 151 Cal.Rptr.3d 827, 292 P.3d 871 ; accord, Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 815, 107 Cal.Rptr.2d 369, 23 P.3d 601 (Howard Jarvis ) [statute of limitations runs from occurrence of the last element essential to the cause of action].) However, there are several recognized exceptions to this legislative time-bar, among them, the continuous accrual doctrine.

Under the continuous accrual doctrine each breach of a recurring obligation is independently actionable. (Aryeh, supra, 55 Cal.4th at p. 1199, 151 Cal.Rptr.3d 827, 292 P.3d 871 [" ‘[w]hen an obligation or liability arises on a recurring basis, a cause of action accrues each time a wrongful act occurs, triggering a new limitations period’ "]; see ibid. ["[b]ecause each new breach of such an obligation provides all...