David Marks v. UMG Recordings, Inc.

• Court: Court of Appeals for the Ninth Circuit
• Decided: July 13, 2023
• Docket: 22-55453
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUL 13 2023 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

DAVID MARKS, an individual on behalf of No. 22-55453 himself and all others similarly situated, D.C. No. Plaintiff-Appellant, 2:21-cv-04043-MCS-JPR

v. MEMORANDUM* UMG RECORDINGS, INC., a Delaware corporation; CAPITOL RECORDS, LLC,

Defendants-Appellees.

Appeal from the United States District Court for the Central District of California Mark C. Scarsi, District Judge, Presiding

Argued and Submitted June 12, 2023 Pasadena, California

Before: BYBEE and CHRISTEN, Circuit Judges, and FITZWATER,** District Judge.

David Marks, a member of the Beach Boys between 1962 and 1964, appeals

a district court order dismissing his Second Amended Complaint (SAC) with

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Sidney A. Fitzwater, United States District Judge for the Northern District of Texas, sitting by designation. prejudice. Because the parties are familiar with the facts, we repeat them here only

as necessary. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm

the district court’s order in part, reverse it in part, and remand.

We review de novo the district court’s dismissal for failure to state a claim.

Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018). At the

motion to dismiss stage, the facts alleged in a complaint are accepted as true and

the complaint must plead “enough facts to state a claim to relief that is plausible on

its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

1. The district court dismissed Marks’ claim for breach of contract because

the court concluded that Marks failed to plead a “bargained-for agreement that

Defendants breached.” We agree. To plead a breach of contract claim, Marks

needed to plausibly allege the existence of a valid contract, see Troyk v. Farmers

Grp., Inc., 90 Cal. Rptr. 3d 589, 628 (Cal. Ct. App. 2009), which requires: (1)

parties that are capable of contracting; (2) their consent; (3) a lawful object; and (4)

“[a] sufficient cause or consideration,” Cal. Civ. Code § 1550. Consideration is

“[a]ny benefit conferred, or agreed to be conferred, upon the promisor, . . . to

which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to

be suffered, by such person, other than such as he is at the time of consent lawfully

bound to suffer, as an inducement to the promisor.” Cal. Civ. Code § 1605.

Marks concedes that he is not entitled to royalties for foreign digital

2 streaming of his music based on the parties’ original written agreement, but he

argues the parties impliedly modified their agreement by their conduct.1

Specifically, Marks argues that defendants impliedly agreed to pay him digital

streaming royalties in exchange for his forgoing suit to rescind the written

agreement on the grounds that the emergence of digital streaming in the recording

industry frustrated the purpose of the original contract. California recognizes that

forbearance, or declining to pursue legal remedies, is a valid form of consideration.

See Levine v. Tobin, 26 Cal. Rptr. 273, 274 (Cal. Dist. Ct. App. 1962). But “mere

forbearance to sue without agreement to forbear, or the mere act of forbearance if

not given for the promise, does not constitute a consideration.” Anglo Cal. Nat’l

Bank of S.F. v. Far WestLumber Co., 313 P.2d 10, 11 (Cal. Dist. Ct. App. 1957)

(citations omitted); see Wine Packing Corp. of Cal. v. Voss, 100 P.2d 325, 330

(Cal. Dist. Ct. App. 1940). Even though “[t]he promise to forbear may . . . be

implied as well as express,” Anglo Cal. Nat’l Bank, 313 P.2d at 11, to survive a

motion to dismiss, Marks needed to plausibly allege that his forbearance was part

of a bargained-for exchange with defendants, see Orcilla v. Big Sur, Inc., 198 Cal.

Rptr. 3d 715, 734 (Cal. Ct. App. 2016).

1 Marks signed his original written agreement with defendants in 1962. The parties executed a written amendment to the agreement in 1964, and amended it again in 1972 pursuant to a written settlement agreement. We use “written agreement” to refer to the 1962 contract as subsequently amended by the parties.

3 Defendants argue that Marks forfeited the forbearance theory of

consideration that he argues on appeal by failing to raise it in his opposition to

defendants’ motion to dismiss. We need not decide whether Marks forfeited this

claim because it fails on its merits.

Even if not forfeited, defendants argue that Marks failed to plausibly allege

that his forbearance from suit was part of a bargained-for exchange. Marks

contends that there are three reasons why the SAC’s allegations are sufficient: (1)

defendants operate a for-profit business that began paying Marks royalties for

foreign streaming to which he was not entitled under the written agreement; (2) the

SAC alleges (without any elaboration) that defendants paid royalties to dissuade

Marks from filing a rescission claim; and (3) under California law, Marks’ “act of

forbearance . . . itself” may be “evidence of an agreement to forbear,” Anglo Cal.

Nat’l Bank, 313 P.2d at 12 (citation omitted). We are not persuaded by Marks’

arguments. The SAC contains no factual allegations that Marks expressly or

impliedly communicated to defendants that he had a right to receive the digital

streaming royalties, that he expressly or impliedly communicated an intention to

rescind his written agreement, or that he otherwise communicated a choice to forgo

legal rights by accepting the digital streaming royalties. See E-P Constructors, Inc.

v. Peterson Tractor Co., 13 Cal. Rptr. 569, 572–73 (Cal. Ct. App. 1961); Anglo

Cal. Nat’l Bank, 313 P.2d at 10–11. The SAC also lacks allegations suggesting

4 that defendants asked Marks for anything in return as a condition for payment of

royalties, or that the parties expressly or impliedly communicated regarding the

foreign digital royalties at all. See Whelan v. Swain, 64 P. 560, 561 (Cal. 1901);

Levine, 26 Cal. Rptr. at 275; E-P Constructors, Inc., 13 Cal. Rptr. at 572–73.

Marks’ receipt of royalties and his failure to initiate suit, without more, are not

enough to show that forbearance was consideration for a bargained-for exchange

with defendants in which they provided royalties for foreign streaming. We affirm

the dismissal of Marks’ claim that the parties impliedly modified their written

contract.

2. Marks separately contends that defendants fraudulently misrepresented

the royalties paid to him because the royalty statements reflected a 50% royalty for

digital streaming revenue collected by foreign affiliates, without disclosing that

defendants had deducted an intercompany charge before calculating the 50%

royalty. Federal Rule of Civil Procedure 9(b) provides that “[i]n alleging fraud or

mistake, a party must state with particularity the circumstances constituting fraud

or mistake.” Fed. R. Civ. P. 9(b). “To properly plead fraud with particularity

under Rule 9(b), ‘a pleading must identify the who, what, when, where, and how of

the misconduct charged, as well as what is false or misleading about the

purportedly fraudulent statement, and why it is false.’” Davidson v. Kimberly-

5 Clark Corp., 889 F.3d 956, 964 (9th Cir. 2018) (quoting Cafasso, United States ex

rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011)).

Marks’ allegations fail to satisfy Rule 9’s heightened pleading standard.

First, because the SAC failed to plead a valid contract that covers digital streaming

royalties, it also failed to plausibly allege that defendants had a contractual duty to

disclose their method of calculating royalties paid for foreign digital streaming.

See, e.g., LiMandri v. Judkins, 60 Cal. Rptr. 2d 539, 543 (Cal. Ct. App. 1997)

(explaining that claims for misleading omissions or concealment under California

law require the plaintiff to show that the defendant had a duty to disclose the

relevant information based on the parties’ pre-existing relationship that originates

from “some sort of transaction between the parties”); L.A. Mem’l Coliseum

Comm’n v. Insomniac, Inc., 182 Cal. Rptr. 3d 888, 909–10 (Cal. Ct. App. 2015).

Second, the SAC contains no allegations that Marks would have acted differently

or taken any particular action had he known about defendants’ method of

calculating royalties. See Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1163

(9th Cir. 2012) (explaining that a plaintiff alleging fraud under California law must

allege that he “would not have acted as he did had he known of the concealed or

suppressed fact”). We affirm the dismissal of Marks’ fraud claim for failure to

satisfy Rule 9’s pleading requirements.

6 3. Because Marks’ breach of contract claim fails, his claim for breach of the

implied covenant of good faith and fair dealing also fails. See, e.g., San Diego

Hous. Comm’n v. Indus. Indem. Co., 80 Cal. Rptr. 2d 393, 403 (Cal. Ct. App.

1998) (“Where a breach of contract cannot be shown, there is no basis for finding a

breach of the covenant.” (citation omitted)). Apart from his claim for declaratory

relief, Marks does not dispute the district court’s dismissal of his remaining claims

or the district court’s conclusion that all of the remaining claims depend on the

viability of either his fraud or breach of contract allegations. See Miller v.

Fairchild Indus., Inc., 797 F.2d 727, 738 (9th Cir. 1986) (“[We] will not ordinarily

consider matters on appeal that are not specifically and distinctly argued in

appellant’s opening brief.”). We therefore affirm the dismissal of Marks’ claims

for accounting, account stated, and violations of California’s Business and

Professions Code.

4. The SAC includes a claim for declaratory relief. Specifically, the SAC

seeks a declaration that if defendants “do not have an ongoing obligation to pay for

digital streaming,” the parties’ agreement may be rescinded and/or that its purpose

has been frustrated. The district court dismissed Marks’ claim for declaratory

relief because it concluded that Marks was not entitled to rescission, and also

concluded that his declaratory relief claim was dependent on the merits of his

breach of contract and fraud claims. The district court did not address Marks’

7 request for a declaration that the purpose of the parties’ written agreement had

been frustrated by the music industry’s transition to digital streaming. Frustration

may serve as a potential ground for rescission when there is a complete failure of

consideration, see Cal. Civ. Code § 1689(b)(3), but it may also excuse a party from

prospectively performing his end of the bargain under a contractual agreement, see

Lloyd v. Murphy, 153 P.2d 47, 50 (Cal. 1944); Johnson v. Atkins, 127 P.2d 1027,

1029 (Cal. Dist. Ct. App. 1942). Marks seeks remand to the district court to pursue

declaratory relief on his rescission and frustration theories.

Defendants propose three alternative grounds for affirmance. First,

defendants argue that declaratory relief functions only as a remedy, not a

freestanding cause of action. We disagree. In California, “[a]ny person

interested . . . under a contract,” may bring an original action for a declaration

regarding their “legal rights and duties,” when there is an “actual controversy”

between the parties. Cal. Civ. Proc. Code § 1060; see Doe v. Gangland Prods.,

Inc., 730 F.3d 946, 960 (9th Cir. 2013); Maguire v. Hibernia Sav. & Loan Soc’y,

146 P.2d 673, 678 (Cal. 1944) (permitting a standalone claim for declaratory

relief); Nede Mgmt., Inc. v. Aspen Am. Ins. Co., 284 Cal. Rptr. 3d 122, 127–28

(Cal. Ct. App. 2021) (same).2

2 In response to a question at oral argument, defendants asserted that Marks’ request for declaratory relief is governed by federal law. This is the basis for (cont.)

8 Because: (1) Marks alleges the purpose of the written agreement has been

frustrated by the transformation of the recording industry from relying on the

manufacturing and sale of phonorecords to broad use of digital recordings; and (2)

defendants concede they have a binding written contract with Marks that obligates

them to pay royalties for their exclusive use of his master recordings, but they also

argue that they pay Marks royalties for foreign streaming on an entirely voluntary

basis; the requirement for an “actual controversy” is met here.

Defendants next argue that the district court did not err by dismissing

Marks’ request for declaratory relief because he failed to plausibly allege that the

purpose of the parties’ written agreement has been frustrated, and Marks is not

entitled to rescission because the SAC asserts Marks’ intention to retain the

royalties he received pursuant to the parties’ written contract. Neither argument is

sufficient to defeat the SAC at the Rule 12(b)(6) stage. The availability of

defendants’ argument that declaratory relief invokes only a remedy, not a freestanding cause of action. See City of Reno v. Netflix, Inc., 52 F.4th 874, 878 (9th Cir. 2022) (observing that the federal Declaratory Judgment Act “does not provide an affirmative cause of action where none otherwise exists” unless the plaintiff pleads a “defensive” declaratory action against a valid anticipated claim). Here, Marks does have a valid affirmative cause of action because California law unambiguously provides a claim for declaratory relief when there is an actual controversy about the parties’ rights and duties under a contract. See Hess v. Country Club Park, 2 P.2d 782, 783 (Cal. 1931); Tolle v. Struve, 12 P.2d 61, 62–63 (Cal. Ct. App. 1932); see also Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Tr. for S. Cal., 463 U.S. 1, 17 n.16 (1983) (“California may well regard its statute as having a more substantive purpose than the federal Act . . . .”).

9 declaratory relief in California does not depend on whether Marks’ claims will

ultimately succeed, see Maguire, 146 P.2d at 678, and as explained, Marks has

pleaded an “actual controversy” sufficient to state a claim for declaratory relief

under California law, Cal. Civ. Proc. Code § 1060. California law provides that

service of the SAC on defendants constituted sufficient notice that Marks intended

to rescind his written agreement and is also deemed an offer to “restore the benefits

received under the contract.” See Cal. Civ. Code § 1691. Second, the SAC alleges

that the purpose of the written agreement has been frustrated because Marks

contends that the agreement “presumed that the record labels’ main business was,

and always would be, the sale of phonorecords,” that the market for digital

streaming has almost entirely displaced the market for the sale of phonorecords,

and that Marks desires to be excused from performing his contractual duties for

this reason. Under Federal Rule of Civil Procedure 8(d)(3), Marks was entitled to

plead his rescission- and frustration-based declaratory relief claims in the

alternative if his claim for breach of an implied contract failed, even though these

claims were inconsistent with his breach of contract theory. See Fed. R. Civ. P.

8(d)(3).

Last, defendants argue that Marks’ request for declaratory relief is not ripe

because they have never threatened to cease paying Marks royalties for digital

streaming. This argument fails because a private party contractual dispute is ripe

10 when “there is a substantial controversy, between parties having adverse legal

interests, of sufficient immediacy and reality to warrant the issuance of a

declaratory judgment.” Golden v. Cal. Emergency Physicians Med. Grp., 782 F.3d

1083, 1086 (9th Cir. 2015) (quoting Principal Life Ins. Co. v. Robinson, 394 F.3d

665, 671 (9th Cir. 2005)). The “actual controversy” between the parties is ripe and

satisfies Article III because, as explained, there is a controversy over Marks’

entitlement to royalties for foreign digital streaming and over whether the purpose

of the parties’ written agreement has been frustrated.

We affirm the dismissal of Marks’ claims for: (1) breach of a modified

contract for royalties; (2) fraud; (3) breach of the implied covenant of good faith

and fair dealing; (4) account stated; (5) accounting, and (6) violations of

California’s Business and Professions Code. We reverse the district court’s

dismissal of the declaratory relief claim to the extent Marks seeks a declaration that

the purpose of the written agreement has been frustrated, or a declaration that he is

entitled to rescission of the parties’ contract. We leave to the district court to

decide what rights and remedies, if any, may be available if Marks is able to

establish the defense of frustration.

AFFIRMED IN PART, REVERSED IN PART, REMANDED.3

3 The parties shall bear their own costs on appeal.