Monster, LLC v. Beats Elecs., LLC
| Decision Date | 25 August 2020 |
| Docket Number | B285994 |
| Parties | MONSTER, LLC et al., Plaintiffs, Cross-defendants and Appellants, v. BEATS ELECTRONICS, LLC et al., Defendants, Cross-complainants and Appellants. |
| Court | California Court of Appeals Court of Appeals |
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC595235)
APPEALS from judgments and postjudgment orders of the Superior Court of Los Angeles County, William F. Fahey, Judge. Judgments and postjudgment orders are affirmed.
The Ehrlich Law Firm, Jeffrey I. Ehrlich; Gorman & Miller and Kirk M. Hallam for Monster LLC and Noel Lee, Plaintiffs, Cross-defendants and Appellants.
Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Theane D. Evangelis, Bradley J. Hamburger and Daniel R. Adler for Beats Electronics, LLC, Defendants, Cross-complainants and Appellants.
Perkins Coie, David J. Burman, Bobbie J. Wilson, Donna M. Strain and Alisha C. Burgin for HTC America Holding, Inc., Defendant and Respondent.
Munger, Tolles & Olson, Robert L. Dell Angelo, Mark R. Yohalem and Allison B. Stein for Paul D. Wachter, Defendant and Respondent.
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Monster LLC and Noel Lee, its chief executive officer, sued Beats Electronics, LLC, HTC America Holding, Inc. and Paul D. Wachter, a member of Beats's board, alleging Beats, assisted by HTC and Wachter, engaged in a fraudulent scheme to deprive Monster and Lee of their interest in Beats and revenue from its products. Beats cross-complained against Monster, alleging it had breached the release and nondisparagement provisions in a 2009 agreement between the parties. The trial court entered judgments and postjudgment orders in favor of Beats, HTC and Wachter after they prevailed on summary judgment motions and a jury returned a verdict in favor of Beats on its cross-complaint. We affirm.
Monster and Lee1 filed this action in January 2015 against Beats, HTC, Wachter and Beats's founders Andre Young(popularly known as Dr. Dre) and Jimmy Iovine. The complaint alleged causes of action by Monster for fraud and deceit, aiding and abetting fraud and deceit, breach of duty of trust and confidence, aiding and abetting breach of duty of trust and confidence and unfair competition; and by Lee for fraud and deceit, breach of fiduciary duty, aiding and abetting breach of fiduciary duty and violations of various provisions of the California Corporations Code. The court sustained demurrers by Dr. Dre and Iovine without leave to amend, and they were dismissed from the case. Those dismissals are not at issue in this appeal.
Beats, HTC and Wachter filed separate motions for summary judgment, or in the alternative summary adjudication, in April 2016. In late August 2016, one week before the scheduled start of trial, the court granted all three motions. Judgment was entered in favor of HTC and Wachter, and Monster and Lee filed a timely notice of appeal.
Beats tried its cross-complaint against Monster to a jury in December 2017. Judgment was entered in favor of Beats for slightly more than $11.5 million, the attorney fees and costs it had incurred in defending against Monster's and Lee's claims. Monster and Lee filed a timely notice of appeal. The trial court amended the judgment in favor of Beats to include postjudgment interest. Monster and Lee filed another notice of appeal. Finally, after granting Beats's motion for attorney fees incurred to try its cross-complaint, the trial court entered a further amended judgment awarding Beats an addition $2.6 million. Monster and Lee filed a fourth notice of appeal.
We ordered all four appeals consolidated. On appeal Monster and Lee contend only that the trial court erred in granting summary judgment in favor of Beats, HTC and Wachter. They make no separate challenge to any of the court's other rulings or orders, including the damage award and attorney fees granted Beats on its cross-complaint, other than arguing, if we reverse the summary judgment orders, the other orders must be reversed as well.
Dr. Dre and Iovine entered into a five-year license agreement with Monster, an experienced audio-hardware company, in January 2008 for the manufacture and sale of "Beats by Dre" headphones. Monster manufactured and distributed the headphones; Dr. Dre and Iovine received royalty payments and agreed to engage in celebrity marketing activities.
Dr. Dre and Iovine founded Beats in October 2008. On August 20, 2009 Beats and Monster entered into an amended license and promotion agreement, which superseded the January 2008 agreement. The 2009 license agreement provided Beats, the licensor, owned all right, title and interest in and to "the Marks, Domain Names and Headphone Designs," and Monster owned all right, title and interest in and to "the Products, including all intellectual property embodied in them." Beats agreed to have Interscope Records (co-founded by Iovine) market and promote Beats products and Dr. Dre make promotional appearances.
The 2009 license agreement provided it would continue in effect until terminated. Each party was entitled to terminate the agreement for cause (a material breach of contract). Beats was also authorized to terminate the agreement "at any time on orafter the earlier of (i) January 7, 2013 [the termination date for the original license agreement] or (ii) the closing of a transaction that results in a Change of Control." The parties' operating agreement defined that term to include "the acquisition after the date of this Agreement, directly or indirectly, by any Person or group . . . of the beneficial ownership of Units of [Beats] possessing more than 50% of the total combined voting power of all outstanding units of [Beats]."
Beats was required to give at least one-year's notice of its intent to terminate the agreement, except, if based on a change of control, notice had to be provided only for "as long as reasonably possible." Upon termination Monster was required to transfer all ownership rights in the industrial designs of all Beats products to Beats or its assignee and to grant Beats or its assignee a perpetual, royalty-free, worldwide nonexclusive license on all intellectual property necessary for the continued manufacture and sale of all Beats-branded products.
As part of the consideration for the 2009 license agreement, Beats granted Monster or its designee a 5 percent ownership interest in the company. Monster designated Lee, through his living trust, to receive the Beats ownership interest. The separate agreement by which Lee acquired that interest (the 2009 unit grant and repurchase rights agreement) gave Lee the right to require Beats to repurchase his shares upon termination of the 2009 license agreement (a "put"). If termination occurred because of a change of control and Lee exercised his put right, he was to be paid "the amount and form of consideration paid to the other owners" in the change of control transaction.
In mid-2011 Beats agreed with a subsidiary of publicly traded HTC Corporation for HTC to purchase a 51 percent interest in Beats for $300 million. The parties memorialized the transaction in an August 11, 2011 agreement; the transaction closed on October 19, 2011. As the majority owner of the company, HTC appointed four of its executives as directors on Beats's seven-member board.
Once the Beats-HTC transaction closed, HTC, Beats and Beats's other shareholders, including Lee, executed an operating agreement that, among other provisions, gave the minority owners a put right requiring HTC to purchase, using a specific formula, their 49 percent interest in Beats after December 31, 2013 and gave HTC a right to purchase those minority shares any time on or after December 31, 2016.
In discussing the initial Beats-HTC transaction, Monster notes that in late December 2010, before Beats began its preliminary discussions with HTC, Iovine and Wachter had discussions about Beats's value in an acquisition. Wachter advised Iovine that a partial sale without giving up "real control" would discount the value by approximately 20 percent. In the same period Wachter told Iovine the
Following execution of the August 2011 agreement with HTC, Beats notified Monster it was invoking the termination provision in the 2009 license agreement. The parties agreed to a June 30, 2012 termination date. Notwithstanding that effectivedate, however, the parties agreed that Monster would retain the right to act as Beats's sales representative and distributor through the end of 2012 and also would retain the right to royalties and commissions through the end of 2013. The June 30, 2012 termination agreement included a mutual release of all claims existing as of June 30, 2012.
After the acquisition closed, HTC provided Beats with products and manufacturing services, including placing personnel in factories manufacturing Beats products to resolve supply chain issues. Between October 2011 and April 2012 HTC and Beats jointly developed and marketed several products, including headphones bundled with HTC phones.
In the first quarter of 2012, however, HTC's revenue declined, while Beats's revenue increased. According to HTC, its new chief financial officer became concerned the Beats's minority owners' right to require HTC to purchase their units at a price based...
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