Retro Video, Inc. v. Direct Holdings Americas, Inc.

• Decision Date: 28 July 2021
• Docket Number: B309882
• Court: California Court of Appeals Court of Appeals
• Parties: RETRO VIDEO, INC., Plaintiff and Appellant, v. DIRECT HOLDINGS AMERICAS, INC., et al., Defendants and Respondents.

RETRO VIDEO, INC., Plaintiff and Appellant, v. DIRECT HOLDINGS AMERICAS, INC., et al., Defendants and Respondents.

B309882

California Court of Appeals, Second District, First Division

July 28, 2021

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County No. 20STCV06971, Rupert A. Byrdsong, Judge. Reversed and remanded with directions.

Law Offices of Neil J. Fraser, Neil J. Fraser and James C. Carr for Plaintiff and Appellant.

Dentons US, Jason R. Scheiderer, Samantha Fahr, and Katherine R. McMorrow for Defendants and Respondents.

BENDIX, J.

Retro Video, Inc. (Retro Video) is in the business of licensing the rights to show publicly vintage video and film clips on behalf of the owners of the underlying footage from which the clips are derived. Retro Video alleges it licensed certain clips to respondent Direct Holdings Americas, Inc. (DHA) and Mosaic Media Investment Partners LLC (MMIP) for their inclusion in infomercials promoting Time Life (TL) Music compilations associated with particular genres or decades. According to Retro Video, its license agreements with DHA and MMIP allowed these clips to be used only in connection with specified music collections during the license terms, and the agreements did not permit DHA or MMIP to stream the clips on any media platform other than the TL Music website. Retro Video claims that DHA and MMIP-either directly or through their affiliates-violated these restrictions by streaming the clips on other media platforms, showing them to the public after the license terms had expired, and using them to promote music compilations that were not authorized by the licenses.

Retro Video filed suit against DHA, MMIP, several of their respective officers and directors, an entity that negotiated the licenses on behalf of DHA and MMIP, and the principals of that negotiating entity (collectively, respondents) for fraud and deceit, fraudulent concealment, civil conspiracy, breach of contract, breach of the implied covenant of good faith and fair dealing, intentional misrepresentation, negligent misrepresentation, unjust enrichment, constructive trust, and an accounting. The trial court thereafter sustained respondents' general demurrer to the complaint without leave to amend and dismissed the action with prejudice on the grounds the action is time-barred; Retro Video failed to plead sufficient facts to state causes of action for fraud and deceit, fraudulent concealment, civil conspiracy intentional misrepresentation, negligent misrepresentation unjust enrichment, constructive trust, and an accounting Retro Video's contract-based causes of action against all respondents other than DHA fail because the complaint did not plead Retro Video was in privity of contract with those respondents; and all causes of action are preempted by the federal Copyright Act.

On appeal, we reject respondents' argument that Retro Video failed to allege sufficient facts to state its fraud and deceit, fraudulent concealment, and intentional misrepresentation causes of action, along with their challenge to Retro Video's other causes of action that are predicated on DHA's and MMIP's alleged misrepresentations-the causes of action for negligent misrepresentation, unjust enrichment, constructive trust, and an accounting. We also conclude that Retro Video's breach of contract cause of action is preempted by federal copyright law because the clips come within the scope of copyright protection and that cause of action asserts a right equivalent to the exclusive rights protected by the copyright statutory scheme, and that Retro Video has failed to overcome the presumption of correctness accorded to the trial court's conclusion that the breach of the implied covenant of good faith and fair dealing cause of action is preempted. We, however, reject respondents' contention that Retro Video's other claims are preempted. Lastly, we conclude that because respondents' statute of limitations defense targets only portions of Retro Video's remaining causes of action, sustaining a general demurrer on that defense was error.

We thus reverse the trial court's order of dismissal, remand the matter to the trial court, and instruct it to vacate its order sustaining the demurrer without leave to amend and enter a new order: (a) sustaining the demurrer without leave to amend as to (i) the breach of contract cause of action, and (ii) the breach of the implied covenant of good faith and fair dealing cause of action; and (b) overruling the remainder of respondents' general demurrer.

FACTUAL AND PROCEDURAL BACKGROUND

We summarize only those facts pertinent to this appeal.

1.Retro Video's complaint

On February 19, 2020, Retro Video, on behalf of itself and as the successor in interest of Research Video, Inc. (Research Video), filed a complaint against DHA, which is registered and authorized to do business in California as Direct Holdings Global LLC (DHG); MMIP; Universal Media, Inc. (UMI) Christopher Hearing (Hearing); Theodore A. MacKinney (MacKinney); Kenneth Friedli (Friedli); Kelley Shine (Shine); Lisa Hollett (Hollett); Gary Newman (Newman); John Paige (Paige); and Eric Kulberg (Kulberg). The complaint alleges the following causes of action: (1) fraud and deceit; (2) fraudulent concealment; (3) civil conspiracy; (4) breach of contract; (5) breach of the implied covenant of good faith and fair dealing; (6) intentional misrepresentation; (7) negligent misrepresentation; (8) unjust enrichment; (9) constructive trust; and (10) an accounting.^[1]

Retro Video “is engaged in the business of licensing video and film footage clips for fees for commercial use by others.... on behalf of the owners of the materials....” Under Retro Video's contractual agreements with the footage's owners, “[o]wnership of the original programming from which the footage clips derive remains with the owners; however, [Retro Video] has specific authorization from the owners of the materials to enforce the terms and conditions of any licensing agreement and/or seek damages for breach of any licensing agreement....” Further, Retro Video's contracts with the owners of the clips entitle Retro Video to “an equal percentage share of the revenue generated by Retro [Video] through [its] placement of clips with customers... through license agreements.”

DHA acquired TL as a subsidiary in late 2003 or early 2004, “and, effective August 24, 2006, the entity known as TL was merged into and became part of DHG and thereafter operated under the corporate aegis of... DHA.” MMIP acquired DHA in 2012.

Retro Video and its predecessor in interest, Research Video, have licensed, ^[2] and Retro Video continues to license, to DHA and MMIP “video and film footage clips for use in infomercial advertising and promotion of [an] extensive library of music compilation compact discs, marketed to the general public under the brand name” TL Music.^[3] The clips licensed “are video/film footage of various music performance excerpts which directly correspond to and showcase the artists and tracks on a multitude of compact disc collections compiled and sold to the public by way of direct response advertising....” The TL Music infomercials “aired on television and streamed on internet sites and platforms....” Retro Video “was and is paid a fixed sum per licensed clip [that is] set forth in each license agreement....”

Each license was negotiated in Los Angeles and expressly limited the use of the clips identified therein for a particular named project, “each of which is a [TL] exclusive compact disc music compilation comprising multiple discs entitled in such a manner as to identify music genre or decade, for example ‘Country Music of Your Life', ‘Heart of Classic Rock', ‘Pop Memories of the ‘60s' and ‘Romancing the ‘70s.' ” (Italics omitted.) Each license contained “defined limitations on the media outlets and platforms upon which [respondents] are authorized to place the infomercials containing [Retro Video's] licensed materials.” From December 13, 2011 onward, the parties to the licenses agreed that “internet streaming use of [Retro Video's] clips would be restricted to ‘Internet Streaming on [the TL] Music website only.' ”^[4] (Italics omitted.)

“During some or all of the time period of the acts complained of herein, ” Hearing was the chief executive officer and president of DHA and a director of that entity; Friedli was the secretary, the chief financial officer, and a director of DHA; MacKinney was the chief financial officer of MMIP, and the secretary, the chief financial officer, and a chief operations officer of DHA; Newman was the vice-president of DHA; Hollett was a director of production for DHA and DHG; and Shine was a director of production for DHA. These six respondents were “personally involved in authorizing... the licensing of clips for infomercials from [Retro Video.]” Respondents Hearing, Friedli, MacKinney, Newman, and Hollett “executed some of the licenses and license renewals in issue herein....”

UMI is owned and operated by Paige and Kulberg. Paige, Kulberg, and UMI “are the agents of... DHA and MMIP and act[ ] on behalf of said entities in the acquisition of licenses for film and video clips from [Retro Video] for use in infomercials promoting TL music collections on various media outlets and platforms as is alleged” in the complaint.

Hearing Friedli, MacKinney, Newman, Hollett, Shine, Paige, and Kulberg “participated in the creation and pursuit of a strategy which knowingly and willfully used [Retro Video's] clips to advertise [TL] music CD collections when [respondents] knew, or reasonably should have known, use of the clips was unauthorized because the license agreements for the projects... were... expired, or the license agreements...