Peterson v. Highland Music, Inc.

• Decision Date: 10 April 1998
• Docket Number: No. 95-56393.,No. 97-55599.,No. 97-55597.,95-56393.,97-55597.,97-55599.
• Citation: 140 F.3d 1313
• Parties: Richard PETERSON; Mike Mitchell; Lynne Easton; Norm Sundholm; Barry Curtis, Plaintiffs-Appellees, v. HIGHLAND MUSIC, INC., Defendant, and Gusto Records, Inc.; G.M.L., Inc., Defendants-Appellants. G.M.L., INC., a Missouri corporation; Highland Music, Inc., Plaintiffs-Appellants, v. Richard PETERSON; Mike Mitchell; Lynne Easton; Norm Sundholm; Barry Curtis; Gerald Dennon; Jerden Music, Inc., dba Jerden Industries, Inc., dba Great Northwest Music Company, BBDO Worldwide Inc., dba BBDO Worldwide Network, Defendants-Appellees. Richard PETERSON; Mike Mitchell; Lynne Easton; Norm Sundholm; Barry Curtis, Plaintiffs-Appellees, v. HIGHLAND MUSIC, INC.; Gusto Records, Inc.; G.M.L., Inc., Defendants-Appellants, and Stephen Hawkins, Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

140 F.3d 1313

Richard PETERSON; Mike Mitchell; Lynne Easton; Norm Sundholm; Barry Curtis, Plaintiffs-Appellees, v. HIGHLAND MUSIC, INC., Defendant, and Gusto Records, Inc.; G.M.L., Inc., Defendants-Appellants.

G.M.L., INC., a Missouri corporation; Highland Music, Inc., Plaintiffs-Appellants, v. Richard PETERSON; Mike Mitchell; Lynne Easton; Norm Sundholm; Barry Curtis; Gerald Dennon; Jerden Music, Inc., dba Jerden Industries, Inc., dba Great Northwest Music Company, BBDO Worldwide Inc., dba BBDO Worldwide Network, Defendants-Appellees.

Richard PETERSON; Mike Mitchell; Lynne Easton; Norm Sundholm; Barry Curtis, Plaintiffs-Appellees, v. HIGHLAND MUSIC, INC.; Gusto Records, Inc.; G.M.L., Inc., Defendants-Appellants, and Stephen Hawkins, Appellant.

No. 95-56393.

No. 97-55597.

No. 97-55599.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 3, 1998.

Decided April 10, 1998.

As Amended on Denial of Rehearing and Suggestion for Rehearing En Banc June 15, 1998.^*

Scott A. Edelman, Los Angeles, California; Jeannette M. Bazis, Minneapolis, Minnesota, Robert Besser, Pacific Palisades, California, for plaintiffs-appellants.

Robert Besser, Pacific Palisades, California, for defendants-appellants.

Scott A. Edelman, Los Angeles, California; Jeannette M. Bazis, Minneapolis, Minnesota, for defendants-appellees.

Appeals from the United States District Court for the Central District of California; William D. Keller, District Judge, Presiding. D.C. Nos. CV-93-04672-WDK-JGx, CV-96-022420-WDK, CV-93-04672-WDK.

Before: FLETCHER, MAGILL,^** and T.G. NELSON, Circuit Judges.

FLETCHER, Circuit Judge:

This case involves an attempt by the Kingsmen, a musical group, to secure a rescission of the contract by which they assigned to others the rights to their popular recording of the hit song, "Louie, Louie." We review three actions consolidated on appeal. In the first, the parties litigated the right to rescind. In the second, the defendants sought a declaratory judgment to limit the effect of the judgment of rescission.¹ In the third, the district court imposed contempt sanctions upon the defendants for their refusal to comply with the judgment of rescission. We affirm the district court in all respects.

I.

The facts of this procedurally convoluted case are relatively simple. The members of the Kingsmen seek to secure their rights to the master recordings (the "Masters") of their hit song, "Louie, Louie." The group made the recording over thirty years ago. They then sold the Masters to one Specter Records (first through their agent, Jerden Records, but ultimately on their own behalf) in return for nine per cent of any profits or licensing fees that the recording might generate. The Kingsmen and Specter entered into their contract in 1968. Specter's interest in the Masters was eventually transferred to Gusto Records and GML, who were the named defendants in the rescission action. The parties do not dispute that the Kingsmen have never received a single penny of the considerable royalties that "Louie, Louie" has produced over the past thirty years.

In 1993, the Kingsmen brought suit in federal district court in California for rescission of the contract, basing their claim entirely on actions (or inactions) by the defendants that fell within the four-year statutory limitations period. After a full trial, the district court ruled in plaintiffs' favor and granted the rescission, restoring possession of the Masters to the Kingsmen. Defendants refused to comply with that judgment, however, instead filing a declaratory action in federal district court in Tennessee. In the Tennessee action, defendants asked for a declaration that plaintiffs were not entitled to any of the income that continued to be generated by those licenses that pre-existed the rescission. In the meantime, defendants steadfastly refused to comply with the first judgment and to return possession of the Masters to the Kingsmen.

The district court in Tennessee transferred the declaratory action to the Central District of California, returning it to the district judge who had handled the original action. The judge ruled, on summary judgment, that the rescission enforced in the original action was effective as of the date when the Kingsmen formally declared their intention to rescind — the date of the filing of the complaint — and that defendants must pay to the Kingsmen any royalties or profits that accrued thereafter, whether from licenses entered into after the date of rescission or from licenses that preexisted that date. The district court also issued an order in aid of enforcement of its first judgment, commanding defendants to turn over the Masters to plaintiffs forthwith. Finally, on plaintiffs' motion, the district court found defendants in contempt of court for having flagrantly violated the first judgment by refusing to turn over the Masters in a timely fashion, and also by continuing to misappropriate profits from the Masters by holding themselves out as the owners of the Masters and entering into unauthorized licenses. Defendants appeal all of these rulings.

Highland Music and Stephen Hawkins (Highland's president and sole shareholder) are also parties to this appeal. Highland negotiated and managed many of the licenses issued by GML and Gusto for "Louie, Louie" and was a party to the declaratory action. Highland and Hawkins were both cited for contempt by the district court for aiding and abetting GML and Gusto in entering into the unauthorized, post-judgment licenses. They appeal these rulings.

This action fell within the district court's diversity jurisdiction. See 28 U.S.C. § 1332. The judgment of rescission, the declaratory judgment, and the contempt order are all appealable final orders. See 28 U.S.C. § 1291.

II. The Rescission Action

A.

Gusto and GML's primary contention on appeal in the rescission action is that the district court in California exceeded its authority under the Due Process Clause of the Federal Constitution in exercising personal jurisdiction over the defendants.² We review a district court's exercise of personal jurisdiction de novo. See Sinatra v. National Enquirer, 854 F.2d 1191, 1194 (9th Cir.1988).

Defendants' claim comes to us in a rather odd posture. Defendants filed a motion to dismiss for lack of personal jurisdiction at the outset of the proceedings below. The district court denied that motion, finding that plaintiffs had made out a prima facie case that an exercise of jurisdiction was proper. Defendants then failed to contest the issue of personal jurisdiction any further in the proceedings before the district court. They did state in their answer that lack of personal jurisdiction was an affirmative defense. However, they did not include the defense in any motion for summary judgment, nor request dismissal at the close of plaintiffs' case for lack of personal jurisdiction (although they moved for dismissal on several other grounds), nor, post trial, did they request the district court to dismiss on the grounds that plaintiffs had failed to carry their burden of proving personal jurisdiction. Nonetheless, defendants argue on appeal that the judgment below must be vacated because the present state of the record is insufficient to support a finding, by a preponderance of the evidence, that defendants were subject to the personal jurisdiction of the courts of California. This claim raises three issues: (1) Did defendants completely waive their right to appeal the district court's exercise of personal jurisdiction; (2) If not, against what evidentiary standard should that exercise of personal jurisdiction be judged on appeal, given the present posture of this case; and (3) Measured against the applicable standard, was the district court's conclusion that it could exercise jurisdiction over defendants correct?

1.

The federal rules of civil procedure provide that "A defense of lack of jurisdiction over the person ... is waived ... (B) if it is neither made by motion under this rule nor included in a responsive pleading...." Fed. R.Civ.P. 12(h)(1). The negative converse of this rule would thus suggest that it is not waived if raised by motion. Other circuits have reached this conclusion, holding that a defendant's motion to dismiss for lack of personal jurisdiction, without more, is sufficient to avoid the waiver provision embodied in Rule 12. See Brownlow v. Aman, 740 F.2d 1476, 1483 n. 1 (10th Cir.1984); Adden v. Middlebrooks, 688 F.2d 1147, 1156-57 (7th Cir.1982). However, Rule 12 does not say that there are no other means of waiving a defense of lack of jurisdiction over the person. Plaintiffs argue that, even though defendants contested the exercise of jurisdiction at the outset of the trial, their failure to raise the issue again at any point in this vigorously litigated proceeding should be construed as an acquiescence to suit in California and hence a waiver of any right to contest the court's in personam jurisdiction on appeal.

Plaintiffs' argument has some force. Rule 12(h)(1) specifies the minimum steps that a party must take in order to preserve a defense. It does not follow, however, that a party's failure to satisfy those minimum steps constitutes the only circumstance under which the party will be deemed to have waived a defense. Most defenses, including the defense of lack of personal jurisdiction, may be waived as a result of the course of conduct pursued by a party during litigation. See Continental Bank, N.A. v. Meyer, 10 F.3d 1293, 1296-97 (7th Cir.1993) (affirming district court's finding that defendants' conduct during litigation constituted waiver of personal jurisdiction); Yeldell v. Tutt, 913 F.2d 533, 538-39 (8th Cir.1990) (finding waiver where defendant raised personal jurisdiction defense in manner that was technically timely, but late in trial proceedings). For example, if a defendant were to engage in "sandbagging" by raising the issue of personal jurisdiction on a ...