HLC Properties, Ltd. v. MCA Records, Inc., B191608 (Cal. App. 5/16/2008)

• Decision Date: 16 May 2008
• Docket Number: B191608
• Court: California Court of Appeals Court of Appeals
• Parties: HLC PROPERTIES, LTD. et al., Plaintiffs and Appellants, v. MCA RECORDS, INC. et al., Defendants and Respondents.

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HLC PROPERTIES, LTD. et al., Plaintiffs and Appellants, v. MCA RECORDS, INC. et al., Defendants and Respondents.

B191608

Court of Appeal of California, Second Appellate District, Division Five

May 16, 2008

NOT TO BE PUBLISHED

Appeal from a judgment of the Superior Court of Los Angeles County, No. SC062601, Terry Friedman, Judge. Affirmed in part; reversed in part.

Law Offices of Mark A. Brodka, Mark A. Brodka; Greines, Martin, Stein, & Richland, Kent L. Richland and Cynthia E. Tobisman for Plaintiffs and Appellants.

Irell & Manella, Steven A. Marenberg, Philip M. Kelly and Kara D. McDonald for Defendants and Respondents.

TURNER, P. J.

I. INTRODUCTION

Plaintiffs, HLC Properties, Ltd. (HLC Properties) and Thomas E. O'Sullivan, as trustee for the Wilma Wyatt Crosby Trust (the trust), appeal from a judgment in their favor against defendants: MCA Records, Inc. (MCA); GRP Records, Inc.; UMG Recordings, Inc.; MCA, Inc.; and Universal Studios, Inc. Plaintiffs contend: they were denied their right to a jury trial; the summary adjudication motions were improperly granted; and they were the prevailing parties and, as such, were entitled to their costs. We conclude: the judgment must be set aside because plaintiffs were denied their right to a jury trial; the orders granting the summary adjudication motions may not be set aside; and the cost issue is now moot.

II. JURY TRIAL ISSUE

A. Overview

Plaintiffs contend they were denied their jury trial right. We will discuss the relevant facts and procedural aspects of their jury trial contention in chronological order. We will discuss the procedural and relevant factual matters as follows: the allegations in the pleadings; the procedural history of plaintiffs' jury trial request; an analysis of the jury trial issue based on the pleadings as they existed after the strictly equitable claims were removed from the litigation by defendants' two summary adjudication motions and plaintiffs' dismissal of the constructive trust and accounting causes of action; and an analysis of the jury trial issue as it relates to the evidence presented during the court trial.

B. First Amended Complaint And Answer

1. Preliminary allegations

The complaint was filed on July 31, 2000. The first amended complaint was filed on October 10, 2002. Plaintiff, HLC Properties, was formed in 1980 and was the successor to all of the property rights of Harry L. Crosby that existed after his death on October 14, 1977. Mr. O'Sullivan was the trustee of the trust, which was named and formed after Mr. Crosby's first wife died on November 1, 1952. The trust held a one-half community property interest in all of the property accumulated during the marriage of Mr. Crosby and his late wife. Plaintiffs' property rights included Mr. Crosby's royalties or income derived from recording contracts with Decca Records Inc. (Decca) and Decros Corporation (Decros).

2. Contract breach (first cause of action)

Mr. Crosby had a contractual relationship with Decca beginning on February 11, 1937. On March 29, 1943, Mr. Crosby entered into a written contract, which superseded all of their prior agreements, with Decca which granted it his exclusive services for the purpose of recording records. Decca was obligated to pay Mr. Crosby 15 percent of the established wholesale price of records retailing for $1 or more. If the wholesale price increased, Mr. Crosby's royalty was to increase by 10 percent on each record sold. Decca was also obligated to pay Mr. Crosby 50 percent of the proceeds of all public performances. Beginning January 1, 1972, defendants breached the 1943 contract by: failing to pay royalties at an agreed upon rate; releasing Mr. Crosby's recordings in media other than records and failing to pay appropriate royalties even if the recording could be released in cassette and compact disc format; reducing the royalty base by 10 and 20 percent on compact discs and tape cassettes respectively; computing royalties without regard to the obligation to pay greater sums when the wholesale price increased; failing to remit royalties on all sales; taking unauthorized deductions; recouping unauthorized "sessions costs"; and failing to account and pay for the public performance or broadcasting of Mr. Crosby's records.

On January 3, 1949, Mr. Crosby and Decros entered into a contract. Decros agreed to pay plaintiff 7.5 percent of the suggested retail price less taxes on shellac records with a price of $1 dollar or more. Further, on vinylite records pressed from specified master recordings, where the suggested retail price was $1 or more, the royalty rate under the 1949 contract was 5.25 percent. If an entity other than Decros outside the United States or Canada pressed a double disc record, there was a 7.5 percent royalty rate payable under enumerated circumstances. Moreover, as to other specified master records, Decros agreed to pay 2.5 cents on each double disc shellac record and 2.5 percent of the suggested retail price where the price was $1 or more on double disc vinylite records. The immediately foregoing royalties would be increased by 10 percent in the event of any increase in the wholesale price of records containing selections recorded by Mr. Crosby. Mr. Crosby was the majority shareholder in Decros. The intention of the 1949 contract was that Mr. Crosby, who was at the apex of his career, would share on a pro rata basis in future Decros profits. Finally, Decros was obligated to pay Mr. Crosby 25 percent of the net proceeds it received from the public performance and broadcasting of his recordings. Royalties were payable 45 days after the expiration of each calendar half year. Except as modified by an exhibit attached to the 1949 contract, there was no change in the obligation to pay royalties on recordings subject to the 1943 contract.

Beginning January 1, 1972, defendants breached the 1949 contract by: failing to pay royalties at an agreed upon rate; reducing the royalty base by 10 and 20 percent on compact discs and tape cassettes respectively; computing royalties without regard to the obligation to pay greater sums when the wholesale price increased; failing to remit royalties on all sales; taking unauthorized deductions; recouping unauthorized "sessions costs"; and failing to account and pay for the public performance or broadcasting of Mr. Crosby's records.

On May 10, 1956, Decros entered into another contract with Mr. Crosby. Decros agreed to pay Mr. Crosby royalties of: 7.5 percent of the suggested retail price less taxes for records retailing at $1 or more; 7 percent of the suggested retail price on double disc 45 and 33 1/3 revolutions per minute records where the price was $1 or more on records manufactured in Canada or the United States; and 7.5 percent of the established retail price less taxes for records manufactured outside Canada and the United States. These royalties would be increased by 10 percent of any increase in the wholesale price of records containing Mr. Crosby's recordings. Royalties were payable to Mr. Crosby 45 days after each "calendar half year." The 1956 contract did not modify the royalty obligations owed under the 1943 and 1949 contracts with Decca and Decros respectively. Beginning January 1, 1972, defendants breached the 1956 contract by: failing to pay royalties at an agreed upon rate; reducing the royalty base by 10 and 20 percent on compact discs and tape cassettes respectively; computing royalties without regard to the obligation to pay greater sums when the wholesale price increased; failing to remit royalties on all sales; taking unauthorized deductions; recouping unauthorized "sessions costs"; and failing to account and pay for the public performance or broadcasting of Mr. Crosby's records.

On April 2, 1986, HLC Properties entered into a contract with MCA. Under the terms of the 1986 agreement, the 1943, 1949, and 1956 contracts were amended to cover compact discs. The first amended complaint alleges that Mr. Crosby was to receive the same royalty rate as if the recording was produced on a black vinyl disc. Further, in light of Mr. Crosby's stature, MCA agreed to pay him a royalty rate equal to that of other artists under specified circumstances. The exact allegation is: "[I]n light of [Mr. Crosby's] stature as one of the most successful recording artists in history, [MCA] agreed to a `most favored nations' . . . clause which provided that should [MCA] agree to pay any of its artists a royalty which exceeds that artist's rate for top-line single disc LPs sold through normal retail channels, then it would immediately apply that royalty basis to [Mr. Crosby]." Not later than January 26, 1988, defendants breached their obligations by offering more favorable terms to other artists when calculating compact disc royalties than to plaintiffs. Defendants began paying other artists royalties based on the suggested retail price of the compact discs rather than the rate payable for black vinyl records. The breach of the duty to pay plaintiffs the same favorable terms offered to other artists was not discoverable until September 2001 after documents were produced during the early stages of this litigation.

According to the first amended complaint, plaintiffs and their predecessors had performed all of their obligations under the 1943, 1949, 1956, and 1986 contracts. As a direct result of defendants breaching the 1943, 1949, 1956, and 1986 contracts, plaintiffs suffered damages in excess of $16 million. Between January 1, 1994, and December 31, 1998, defendants understated the royalties due to plaintiffs by 221 percent.

3. Fraud (second cause of action)

In 1972, defendants devised a fraudulent scheme to reduce the amount of royalties payable to Mr. Crosby and plaintiffs. In 1985, representatives of HLC Properties inquired as to how defendants calculated Mr. Crosby's royalties. Defendants provided copies of several contracts but deliberately refused to reveal the existence of...