On 01/30/2017 KEVIN SAURER filed a Contract - Other Contract lawsuit against GADFLY COMMUNICATIONS INC. This case was filed in Los Angeles County Superior Courts, Stanley Mosk Courthouse located in Los Angeles, California. The Judge overseeing this case is LUIS A. LAVIN. The case status is Pending - Other Pending.
Pending - Other Pending
Los Angeles County Superior Courts
Stanley Mosk Courthouse
Los Angeles, California
LUIS A. LAVIN
SAURER JEFF AKA HIPPIE SABOTAGE
SAURER JEFF FKA HIPPIE SABOTAGE
GADFLY COMMUNICATIONS INC
DOES 1 TO 10
GADFLY COMMUNICATIONS INC DBA IHIPHOP DISTRIBUTION
GADFLY COMMUNICATIONS INC DBA IHIPHOP DISTRIBUTION
GUTMAN ALAN S. ESQ.
GUTMAN ALAN S
JOHNSON NEVILLE LAWRENCE
BUSCH RICHARD STEVEN
Court documents are not available for this case.
Hearing08/04/2021 at 10:00 AM in Department 49 at 111 North Hill Street, Los Angeles, CA 90012; Non-Jury TrialRead MoreRead Less
Hearing07/28/2021 at 10:00 AM in Department 49 at 111 North Hill Street, Los Angeles, CA 90012; Final Status ConferenceRead MoreRead Less
Hearing03/25/2021 at 09:30 AM in Department 49 at 111 North Hill Street, Los Angeles, CA 90012; Further Status ConferenceRead MoreRead Less
Docketat 09:30 AM in Department 49; Further Status Conference (and a Trial Setting Conference) - HeldRead MoreRead Less
DocketMinute Order ( (Further Status Conference and a Trial Setting Conference)); Filed by ClerkRead MoreRead Less
DocketNotice of Ruling; Filed by Jeff Saurer (Plaintiff); Kevin Saurer (Plaintiff)Read MoreRead Less
DocketStatus Report (JOINT REPORT RE EQUITABLE ISSUES TO BE TRIED TO THE COURT); Filed by Jeff Saurer (Plaintiff); Kevin Saurer (Plaintiff); Gadfly Communications, Inc (Defendant) et al.Read MoreRead Less
Docketat 08:30 AM in Department 49; Trial Setting Conference - HeldRead MoreRead Less
Docketat 3:30 PM in Department 49; Trial Setting Conference - Not Held - Rescheduled by CourtRead MoreRead Less
DocketMinute Order ( (Trial Setting Conference)); Filed by ClerkRead MoreRead Less
DocketPROOF OF SERVICE OF SUMMONSRead MoreRead Less
DocketNOTICE OF CASE MANAGEMENT CONFERENCE AND ORDER TO SHOW CAUSE HEARINGRead MoreRead Less
DocketNotice of Case Management Conference; Filed by Kevin Saurer (Plaintiff); Jeff Saurer (Plaintiff); Hippie Sabotage (Legacy Party)Read MoreRead Less
DocketORDER TO SHOW CAUSE HEARINGRead MoreRead Less
DocketNotice of Case Management Conference; Filed by ClerkRead MoreRead Less
DocketOSC-RE Other (Miscellaneous); Filed by ClerkRead MoreRead Less
DocketNOTICE OF CASE MANAGEMENT CONFERENCERead MoreRead Less
DocketSUMMONSRead MoreRead Less
DocketCOMPLAINT 1. RESCISSION BASED ON FRAUD - ETCRead MoreRead Less
DocketComplaint; Filed by Kevin Saurer (Plaintiff); Jeff Saurer (Plaintiff)Read MoreRead Less
Case Number: BC648516 Hearing Date: June 23, 2020 Dept: 49
Superior Court of California
County of Los Angeles
Kevin Saurer, et al.,
Gadfly Communications, Inc. dba iHipHop Distribution., et al.,
Hearing Date: June 23, 2020
Department 49, Judge Stuart M. Rice
(1) Defendants’ Motion for Summary Judgment or Adjudication
(2) Cross-Complainant’s Motion for Summary Judgment or Adjudication
Moving Party: Defendants/Cross-Complainant Gadfly Communications, Inc. and Jeremy Gerson
Responding Party: Plaintiffs/Cross-Defendants Kevin Saurer and Jeff Saurer
Ruling: (1) Defendants’ motion is granted as to the second, third, fourth, fifth, and eighth causes of action for rescission based on illegality or public policy, rescission based on unconscionability, rescission based on mutual mistake, rescission based on unilateral mistake, and negligence. The motion is denied as to plaintiffs’ first, sixth, seventh, ninth, and eleventh causes of action for rescission based on fraud, fraud, breach of contract, breach of fiduciary duty, and declaratory relief causes of action.
The complaint alleges against defendant Gerson causes of action for fraud, negligence, and accounting. As set forth above, defendants’ motion for summary adjudication of plaintiffs’ negligence claim is granted and denied as to fraud. As to Gerson, the motion is also granted as to plaintiffs’ accounting cause of action. As to Gadfly, the motion is denied as to that cause of action.
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT/ADJUDICATION
Defendants move for summary judgment or adjudication in their favor on plaintiffs’ second amended complaint, which alleges causes of action for (1) rescission based on fraud, (2) rescission based on illegality or public policy, (3) rescission based on unconscionability, (4) rescission based on mutual mistake, (5) rescission based on unilateral mistake, (6) fraud, (7) breach of fiduciary duty, (8) negligence, (9) breach of contract, (10) accounting, and (11) declaratory relief.
Request for Judicial Notice
Plaintiffs’ Evidentiary Objections
Report of David A. Helfant (Exhibit 24)
Objections 1-13, which encompass the entire report by David A. Helfant, are sustained for lack of foundation. “The foundation required to establish the expert’s qualifications is a showing that the expert has the requisite knowledge of, or was familiar with, or was involved in a sufficient number of transactions involving the subject matter of the opinion.” (Howard Entertainment, Inc. v. Kudrow (2012) 208 Cal.App.4th 1102, 1115.) In response to plaintiffs’ objection to Helfant’s the entire report (objection 1), defendants cite page 31 in the report. The segment 31 in the report regarding Helfant’s qualifications as an expert state: “My qualifications are set forth hereinabove in Section I of this Report.” (Exhibit 24 at p. 31.) Section I is not included in defendants’ exhibit 24, or any other exhibit. Nor has the court been provided with any declaration or deposition testimony which establishes Helfant’s expert qualification.
Report of Thomas Mandelbaum (Exhibit 26)
Objections 14-20 are sustained for lack of foundation. Nothing in defendants’ evidence establishes Mandelbaum’s qualifications as an expert on the subject matter of the report.
Webpage from America’s Most Challenging High Schools – Jesuit (Exhibit 32)
Objection 21 is sustained for lack of foundation.
Defendants’ Evidentiary Objections
“Objections to specific evidence must be referenced by the objection number in the right column of a separate statement in opposition or reply to a motion . . ..” (Cal. Rules of Court, Rule 3.1354(b).) Defendants’ objections do not comply with rule 3.1354 because the objections are not numbered, and thus are not referenced by number in the right column of the separate statement in reply. Nonetheless, the court rules on the objections as follows:
Declaration of Jeff Saurer
All objections are overruled, except for objections to paragraphs 20 and 22, which are sustained for hearsay.
Declaration of Kevin Saurer
All objections are overruled, except for objections to paragraphs 20 and 22, which are sustained for hearsay.
“[T]he party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.)
“A defendant...has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action.” (Code Civ. Proc., § 437c, subd. (p)(2).)
Once the movant has met that burden, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists as to that cause of action or defense. (Code Civ. Proc., § 437c, subd. (p)(2).) The opposing party “may not rely upon the mere allegations or denials of its pleadings,” but rather “shall set forth the specific facts showing that a triable issue of material fact exists.” (Id.)
Timeliness of Rescission Causes of Action
“Rescission extinguishes a contract, rendering it void ab initio, as if it never existed.” (DuBeck v. California Physicians’ Service (2015) 234 Cal.App.4th 125, 1265.) Civil Code section 1691 prescribes the procedure for rescission of a contract:
Subject to Section 1693, to accomplish rescission of a contract, a party must promptly upon discovering the facts which entitle him to rescind if free from duress, menace, undue influence or disability and is aware of his right to rescind:
(a) Give notice of rescission to the party as to whom he rescinds; and
(b) Restore to the other party everything of value which he has received from him under the contract or offer to restore the same upon condition that the other party do likewise, unless the latter is unable or positively refuses to do so.
“It is not necessary that the notice to rescind shall be formal and explicit; it is sufficient that notice shall be given to the other party which clearly shows the intention of the person rescinding to consider the contract at an end.” (Wilson v. Lewis (1980) 106 Cal.App.3d 802, 809.)
Civil Code section 1693 qualifies the requirements set forth in section 1691 as follows:
When relief based upon rescission is claimed in an action or proceeding, such relief shall not be denied because of delay in giving notice of rescission unless such delay has been substantially prejudicial to the other party.
A party who has received benefits by reason of a contract that is subject to rescission and who in an action or proceeding seeks relief based upon rescission shall not be denied relief because of a delay in restoring or in tendering restoration of such benefits before judgment unless such delay has been substantially prejudicial to the other party; but the court may make a tender of restoration a condition of its judgment.
Further, even if defendants had met their initial burden, plaintiffs have presented evidence that raises a triable issue of material fact as to when plaintiffs first gave notice of rescission, including an email sent on April 9, 2014 by plaintiffs’ counsel to Gadfly indicating that the agreement is of no force. (See UMF 19.) Therefore, defendants’ argument that there is no triable issue of material fact as to whether plaintiffs’ rescission claims are time-barred is rejected.
First Cause of Action for Rescission Based on Fraud
Sixth Cause of Action for Fraud
The elements of fraud are (1) misrepresentation, (2) knowledge of falsity, (3) intent to defraud, i.e., to induce reliance, (4) justifiable reliance, and (5) resulting damage. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) Defendants’ motion as to plaintiffs’ fraud-related claims are based on their contention that there is no triable issue of material fact as to the misrepresentation, intent, or justifiable reliance elements of fraud.
“Promissory fraud,” a subspecies of the action for fraud and deceit, is “[a] promise to do something that necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) An action for promissory fraud may lie where a defendant fraudulently induces the plaintiff to enter into a contract. (Lazar, 12 Cal.4th at 639.) “In such cases, the plaintiff’s claim does not depend on whether the defendant’s promise is ultimately enforceable as a contract.” (Id.)
Plaintiffs’ fraud-based claims are based on their allegations that Gadfly made the following misrepresentations: (a) Gadfly was an experienced music company, (b) immediately upon entering into an agreement Gadfly would partner Hippie Sabotage with well-established artists resulting in lucrative payouts to plaintiffs, (c) Hippie Sabotage would be a top priority for Gadfly, (d) Gadfly would work tirelessly to secure projects for Hippie Sabotage, and (e) that Gadfly would provide a platform for Hippie Sabotage to build a prosperous career. (SAC ¶¶ 19-20, 62-63.)
To support their motion as to plaintiffs’ fraud-related claims, defendants proffered evidence showing the following: Gadfly is an entertainment company founded by Charles Wilson, who has over 25 years of experience developing and producing the work of recording artists. (UMF 1-2.) On October 18, 2013, Gadfly met with live booking agent Matthew Adler to discuss scheduling live shows for plaintiffs. (UMF 41.) Around October 23, 2013, Gadfly was able to add plaintiffs’ music to SiriusXM. (UMF 42.) Gadfly presented plaintiffs with opportunities to remix A3C festival-related artists. (UMF 43.) Additionally, Gadfly responded to at least one inquiry from a company on plaintiffs’ behalf (UMF 44), set up and administered plaintiffs’ SoundExchange account (UMF 45), and promoted plaintiffs by uploading music or negotiating the additional placement of plaintiffs’ music on distribution platforms, such as SoundCloud, iTunes, and EDM.com (UMF 46).
Gadfly also asked plaintiffs to prepare a set of music as a preview for what they could perform live, and then sent the playlist to David Gordoni at the Circle Talent Agency, Twist and Shout in Paris, France, and Matthew Adler. (UMF 47-48.) In December of 2013, Gadfly contacted Twist and Shout in Paris to promote plaintiffs throughout Europe. (UMF 49.) With Gadfly’s guidance, plaintiffs signed with Paradigm as their exclusive booking agency. (UMF 51.) Gadfly and its attorney negotiated with Universal Music in Sweden to address plaintiffs’ unauthorized remix of recording artist Tove Lo’s song “Habits (Stay High)” and to obtain a remix deal with Universal Music. (UMF 52.) Gadfly also met with numerous individuals to promote plaintiffs and to secure projects for them. (UMF 54.) During “Grammy Week,” Gadfly set up meetings to introduce plaintiffs to numerous high-level music executives. (UMF 55.) Gadfly paid plaintiffs $3,500 on February 4, 2014 because plaintiffs expressed a need for help with paying their rent. (UMF 58.) Jeremy Gerson did not intend to mislead plaintiffs. (UMF 62.)
Further, defendants have presented evidence showing that plaintiffs do not need a studio to record their music because they record on a computer in their home studio. (UMF 65, 67.) Plaintiffs never expressed the need to get into another studio. (UMF 66.) The evidence defendants cited in support of the aforementioned facts is sufficient to meet their prima facie burden of showing plaintiffs’ fraud-related claims have no merit because defendants made no misrepresentation.
In turn, plaintiffs presented evidence to support the following: Section 4.01(a)(2) of the subject agreement provides that “[t]he scheduling and booking of all studio time, as applicable will be done by [Gadfly].” (Plaintiffs’ Separate Statement iso Opposition (OMF) 64.) Jeremy Gerson, Gadfly’s product manager, told plaintiffs that he would book studio time for them. (Id.) Since this dispute arose between plaintiffs and Gadfly, plaintiffs have used studios outside their home to record music. (OMF 68.)
The procedure for recording is set forth in section 4, which explains that “prior to the commencement of recording, in each instance Producer, in consultation with [Gadfly], shall determine and mutually approve the following : [¶] (1) Selection of material to be recorded. [¶] (2) Selection of dates of recording.” (Plaintiffs’ Additional Facts and Evidence (PMF) 21.) Plaintiffs made numerous attempts to schedule their recording during phone calls, but Gadfly was unresponsive. (PMF) 42.) Gadfly never presented plaintiffs with an opportunity to remix recordings or record instrumental artists. (OMF 43.) Further, it is undisputed that Gadfly closes for a month from mid-December through mid-January every year. (PMF 33.) Although the agreement provided for multiple deliveries for the fourth quarter of 2013, Gadfly did not inform plaintiffs of this one-month closure. (PMF 34.)
On September 23, 2013, two days before plaintiffs signed the subject agreement, Gerson sent plaintiffs an email stating that he had several “immediate projects” that would be extremely lucrative for plaintiffs. (OMF 37.) Shortly after that email was sent, Gerson spoke with plaintiffs on the telephone and informed them that Gadfly would immediately partner plaintiffs with established artists and get them into a studio so that they could deliver albums quickly. (PMF 13.) Plaintiffs signed the agreement attached to Gerson’s September 25, 2013 email and submitted it, stating “[w]e are psyched to get to work.” (PMF 17.)
On September 30, 2013, Gerson stated in an email that he was “finalizing [his] plans to go to the West Coast to meet [plaintiffs].” (PMF 35.) However, neither Gerson nor Wilson traveled to California to meet with plaintiffs until late January 2014, after the deadlines for the first two albums for which plaintiffs were to receive additional advances had passed. (PMF 36.)
After plaintiffs executed the agreement, Gadfly did not discuss the first few albums with plaintiffs or recording procedures, did not connect plaintiffs with other artists for collaborations, and took no other steps to work with plaintiffs to meet the agreement’s delivery deadlines. (PMF 37.)
Plaintiffs’ have proffered sufficient evidence to raise a triable issue of material fact as to whether Gadfly and Gerson made misrepresentations to plaintiffs, including that Gadfly had several immediate projects for plaintiffs and that Gadfly intended to perform the terms of the subject agreement.
“[S]omething more than nonperformance is required to prove the defendant’s intent not to perform his promise. To be sure, fraudulent intent must often be established by circumstantial evidence.... However, if a plaintiff adduces no further evidence of fraudulent intent than proof of nonperformance of an oral promise, he will never reach a jury. (See Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169, 1183.)
To support their initial burden of proof regarding intent, defendants refer to Kevin Saurer’s deposition testimony that he did not know what Gerson’s frame of mind was. (UMF 60.) However, as plaintiffs note, Gadfly omitted the cited testimony from their evidence. Defendants also cite Gerson’s own testimony that he did not intend to mislead plaintiffs. (UMF 62.) This evidence is adequate to meet defendants’ initial burden of showing that there is no triable issue of material fact as to intent to defraud or induce reliance.
The circumstances described above, including but not limited to defendants’ failure to disclose to plaintiffs that Gadfly’s office would be closed for an entire month beginning in mid-December, are sufficient to raise a triable issue of material fact as to whether defendants intended to perform the terms of the contract.
“[A] plaintiff must show ‘justifiable’ reliance, i.e., circumstances were such to make it reasonable for [the] plaintiff to accept [the] defendant’s statements without an independent inquiry or investigation.” (OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 864.) “The reasonableness of the plaintiff’s reliance is judged by reference to the plaintiff’s knowledge and experience.” (Id.) “Except in the rare case where the undisputed facts leave no room for reasonable difference of opinion, the question of whether a plaintiff’s reliance is reasonable is a question of fact.” (Id.)
To support their argument that there is no triable issue of material fact as to whether plaintiffs reasonably relied on defendants’ alleged misrepresentations, defendants submitted evidence that in September 2013, before plaintiffs signed the agreement, plaintiffs represented that their attorney was reviewing it. (UMF 34.) Defendants also cite section 19 of the subject agreement, which “request[s]” that plaintiffs “consult with and be represented by an attorney who is knowledgeable about the subject of this agreement and the record and music and entertainment industries, to be advised about the content and effect of the provisions of this agreement, and to follow such attorney’s advice about entering into this agreement.” (UMF 114.)
Contrary to defendants’ assertion, however, the plain language of the contract does not contractually require plaintiffs to review the agreement with a lawyer; it merely requests that plaintiffs do so. The evidence defendants cite is insufficient for the court to conclude there is no triable issue of material fact as to plaintiffs’ reasonable or justifiable reliance.
Because there remains a triable issue of material fact as to each element of fraud, defendants’ motion is denied as to plaintiffs’ first and sixth causes of action which concern fraud.
Second Cause of Action for Rescission Based on Illegality or Public Policy
Under Civil Code section 1689, subdivision (b)(5), a party to a contract may rescind the contract if the contract is unlawful for causes which do not appear in its terms or conditions, and the parties are not equally at fault. “Unlawful” means: contrary to an express provision of law; contrary to the policy of express law, though not expressly prohibited; or otherwise contrary to good morals. (Civ. Code § 1667.) Under subdivision (b)(6) of section 1698, a contract may be rescinded “[i]f the public interest will be prejudiced by permitting the contract to stand.”
“Plainly, the statute [governing rescission] recognizes the propriety of rescission and restitution of a contract whose unlawfulness lies in contravention of public policy. (People ex. rel. Brown v. Barenfeld (1962) 203 Cal.App.2d 166, 182, superseded by statute on another ground, as stated in People ex rel. Grijalva v. Superior Court (2008) 159 Cal.App.4th 1072.)
For a contract to be valid, the parties must exchange promises that represent legal obligations. (Scottsdale Ins. Co. v. Essex Ins. Co. (2002) 98 Cal.App.4th 86, 95.) An agreement is illusory and there is no valid contract when one of the parties assumes no obligation. (Id.)
A contract is not illusory merely because one party has the unilateral right to terminate or modify it; if the contract is in force, both parties must abide by it. (Asmus v. Pacific Bell (2000) 23 Cal.4th 1, 16.) The California Supreme Court has explained that “illusory contracts [are defined] by what they are not.” (Id. at p. 15.)
“[P]romissory words are illusory if they are conditional on some fact or even that is wholly under the promisor’s control and bringing it about is left wholly to the promisor’s own will and discretion. This is not true, however, if the words used do not leave an unlimited option to the one using them. It is only true if the words used do not in fact purport to limit future action in any way.” (Id. at pp. 15-16.)
“[O]ne very significant restriction on what might otherwise be a party’s unfettered power to amend or terminate the agreement governing the parties’ relationship is the implied covenant of good faith and fair dealing. (Cobb v. Ironwood Country Club (2015) 233 Cal.App.4th 960, 965-966.) “The covenant operates as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.” (Id., internal quotation marks omitted.) “[T]he good faith and fair dealing implied covenant limits unilateral action by a contracting party.” (Harris v. TAP Worldwide, LLC (2016) 248 Cal.App.4th 373, 389.)
Further, “[a] contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.” (Civ. Code, § 1643.) In the same vein, when an agreement is silent as to notice, implied in a unilateral right to terminate an agreement is an accompanying obligation to do so upon reasonable and fair notice. (See Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, citing Asmus, 23 Cal.4th at 16.)
The Asmus court held that an employment security policy contained within an employment agreement was not illusory, despite the employer’s ability to unilaterally terminate or modify the policy, because if the policy remained in force, the employer “could not treat the contract as illusory by refusing to adhere to its terms; the promise was not optional with the employer and was fully enforceable until terminated or modified.” (Id. at p. 16.)
In Serpa, the court of appeal reversed the trial court’s order denying a motion to compel arbitration despite its provision that “the employer reserves the right to amend, modify, rescind, delete, or supplement or add to [its] provisions” in its sole discretion as it deems appropriate. (Id. at pp. 700, 705-708.) Since the agreement was silent on the issue of notice, the covenant of good faith and fair dealing “save[d] the agreement from being illusory and thus unconscionable.” (Id. at p. 708.)
Here, plaintiffs’ rescission claim is based in part on their allegation that the agreement is illusory and void due to its provision that Gadfly “shall have the right, exercisable at any time in [Gadfly’s] sole discretion, to terminate the term of this agreement.” (SAC ¶ 33; see also Defendants’ Exhibit 1, Section 18.04.) Similar to the rescission clause in Serpa, the provision in the agreement here is silent on the issue of notice. Thus, the covenant of good faith and fair dealing saves it from being illusory. Moreover, akin to Asmus, Gadfly’s promise to provide plaintiffs valuable services was not illusory, despite the provision that Gadfly could terminate the agreement, because as long as the contract was in force, Gadfly had concrete obligations to plaintiffs under the agreement.
The only case plaintiffs cite in their opposition to counter defendants’ argument that the agreement is not illusory is Kowal v. Day (1971) 20 Cal.App.3d 720. That case involved a contract for the sale of real property which contained a provision allowing the purchaser an unconditional and unilateral right to rescind at his pleasure. (Id. at p. 725) The buyer’s promise to purchase was thus illusory and failed as consideration. (Id.) Despite this lack of consideration, the court of appeal held that the buyer’s part performance in transferring possession of his automobile and other acts in reliance upon the existence of a contract rendered the contract enforceable. (Id.) The court characterized the seller’s use of the buyer’s automobile as consideration for the option to rescind the contract, thereby rendering the rescission clause an enforceable option. (Id. at p. 726.)
Kowal does not support plaintiffs’ argument that their agreement with Gadfly is illusory and thus subject to rescission. The court in Kowal noted that “[w]here a contract imposes no definite obligation on one party to perform, it lacks mutuality of obligation.” (Id.) Thus, the buyer’s promise to purchase the property failed as consideration because it “lack[ed] . . . any restrictive requirement of reasonable or good faith dissatisfaction in the rescission clause . . ..” (Id. at p. 724.) In the instant case, however, defendants had concrete obligations to plaintiffs to provide valuable services under the agreement as long as the contract was in effect. (See Petersen v. Hartell (1985) 40 Cal.3d 102, 110 [adequacy of consideration is tested as of the time the contract is formed and its determination should take into account the relationship between the parties and the object to be obtained by the contract].)Thus, this case is more akin to Asmus, in which the “plaintiffs obtained the benefits of the [contract] while it was operable” and “[the employer] was obligated to follow it as long as [it] remained in effect.” (Id. at 16.)
The issue of whether defendants fulfilled their obligations under the contract is pertinent to plaintiffs’ breach of contract claim, but not to the determination of whether the contract is illusory in the first place. (See Crail v. Blakely (1973) 8 Cal.3d 744, 753 [“the adequacy of consideration to support a contract must be determined as of the date the contract was entered into, and not in the light of subsequent events”].)
Thus, defendants’ motion for summary adjudication is granted as to plaintiffs’ second cause of action to the extent it is based on the illusoriness of the contract.
Section 16600 of the Business and Professions Code
Plaintiffs’ argues that the agreement violates section 16600 because it grants Gadfly the exclusive right to control plaintiffs with respect to every manner of earning money within the entertainment industry and was designed to prevent plaintiffs from obtaining any employment in the industry without Gadfly’s approval. (SAC ¶ 29.)
courts are reluctant to declare a contract void as against public policy, and will refuse to do so if by any reasonable construction it may be upheld. Whether or not a contract in any given case is contrary to public policy is a question of law to be determined from the circumstances of each particular case.” (Centeno v. Roseville Community Hospital (1979) 107 Cal.App.3d 62, 70-71, punctuations and citations omitted.) The courts do not strain to find a restraint of trade in contracts not intended to have that effect. (Keating v. Preston (1940) 42 Cal.App.2d 110, 122.)
“Statutes are interpreted in light of reason and common sense, and it may be stated as a general rule that courts will not hold to be in restraint of trade a contract between individuals, the main purpose and effect of which are to promote and increase business in the line affected, merely because its operations might possibly in some theoretical way incidentally and indirectly restrict trade in such a line. This view has often been sustained by the Supreme Court of the United States in analogous cases.” (Great Western Distillery Products v. John A. Wathen Distillery Co. (1937) 10 Cal.2d 442, 446., discussed in Quidel Corp. v. Superior Court (2019) 39 Cal.App.5th 530, review granted November 13, 2019, S258283.)
The Great Western court held that a contract making plaintiff, except one other, exclusive purchaser in California of defendant’s warehouse receipts for whiskey, was not void as contract restraining the exercise of lawful trade or business. (Great Western Distillery Products v. John A. Wathen Distillery Co. (1937) 10 Cal.2d 442, 449.) The court understood the contract as one that parties entered to promote a business, not to restrict any trade or business. (Id. at p. 445-446.) “[B]oth the purpose and effect of the contract are, not to restrict the sale of defendant’s receipts, but to create an instrumentality by which the receipts will be exploited and sold.” (Id. at p. 446.) “Such a limited restriction does not appear to affect the public interests and is obviously designed only to protect the respective parties in dealing with each other.” (Id. at p. 449.)
“The decisions in this state have recognized and applied the distinction made by authority elsewhere that if the public welfare be not involved and the restraint upon one party be not greater than protection to the other requires, the contract will be sustained although it in some degree may be said to restrain trade. (Great Western, 10 Cal.2d at pp. 448-449 [citing numerous cases by state and federal supreme courts]; see also Grogan v. Chaffee (1909) 156 Cal. 611, 615-616 [a contract restricting a purchaser of oil from selling the oil for less than a given price was not unlawful because it was “simply a means of securing the legitimate benefits of the reputation which his product may have attained].)
“[I]n Centeno v. Roseville Community Hospital (1979) 107 Cal.App.3d 62 . . . the Court of Appeal concluded a hospital’s exclusive arrangement with a radiology medical group to run the radiology department at the hospital was valid under section 16600. In that case, when a partner in the contracted medical group left that partnership, the hospital refused him access to the radiology facilities. He argued the hospital’s contract with the medical group was a restraint on his trade. . . . The court explained the agreements were examined ‘in view of the ends sought to be accomplished’ . . . .” (Quidel Corp. v. Superior Court (2019) 39 Cal.App.5th 530, 541, review granted November 13, 2019, S258283, internal citations omitted.) “[T]he court also explained: ‘Only through application of a balancing test are the California decisions consistent. Exclusive sales or marketing agreements are not per se against public policy if no significant impairment of free market activity obtains from the agreement.” (Id., quoting Centeno, at p. 69.)
“Thus, as long as a noncompetition provision does not negatively affect the public interests, is designed to protect the parties in their dealings, and does not attempt to establish a monopoly, it may be reasonable and valid.” (Quidel Corp., 39 Cal.App.5th at p. 542, citing Great Western, 10 Cal.2d at pp. 449-450.)
Here, plaintiffs do not clearly identify which terms of the agreement they assert are unlawful restraints on their trade or business. Plaintiffs’ omission to separate their “additional material facts” by issue has made it difficult to discern which of their additional facts pertain to their cause of action for rescission based on unlawful trade restraint. Each of the additional “facts” that the opposition memorandum of points and authorities refers to (59-60, 64, 67, and 77-78) concern actions taken after the contract was entered into and after a dispute had arisen between the parties, such as Gadfly’s letter threatening legal action if Hippie Sabotage performed services for anyone else or Wilson’s email to Davis stating that he will crucify plaintiffs in litigation (see PMF 60, 64). These actions are not pertinent to the court’s evaluation of whether the contract’s terms violate the prohibition of unreasonable restraints on trade because they were taken in response to a perceived breach of the subject contract by one party. (See Great Western, 10 Cal.2d at p. 446 [courts will not hold to be in restraint of trade a contract between individuals, intended to promote and increase business, merely because its operations might possibly in some theoretical way incidentally and indirectly restrict trade in such a line].)
The contract appoints Gadfly as plaintiffs’ personal manager, to “represent, advise and guide [plaintiffs] in connection with your career in the entertainment industry.” (Plaintiffs’ Exhibit A, Exclusive Recording Agreement, § 1.03.) In exchange for such services, Gadfly “shall receive twenty percent (20%) of all gross income” plaintiffs receive during the contract term. (Id.) The purpose of the contract is plainly to promote plaintiffs’ musical career through collaboration with Gadfly. This is bolstered by the undisputed fact that prior to contracting with Gadfly, plaintiffs had only earned “from $500 to $5,000” total as musicians, were giving away or selling their beats for $50, had not performed live as Hippie Sabotage, and had never sold a Hippie Sabotage song on iTunes. (Plaintiffs’ Separate Statement iso Opposition, Fact (PMF) 38.)
The characterization of the contract as one which furthers plaintiffs’ trade, rather than restrains it, through exclusive collaboration with Gadfly, is supported by both parties’ referring to their relationship a “partnership.” (See UMF 32 [plaintiffs sent email stating that they were “hyped about the partnership”]; see also Plaintiffs’ Exhibit E, Email from Jeremy Gerson to Hippie Sabotage [“In order for this partnership to succeed, we need to be in-synch at every step”].)
Plaintiffs have failed to proffer any evidence or authority showing that the purported restrictions in the contract go beyond protecting Gadfly’s benefit of its bargain with plaintiffs by allowing Gadfly some control over how to further the parties’ mutual interest in the success of plaintiffs’ musical endeavors. Gadfly’s receipt of a percentage of plaintiffs’ income related to their musical act functions to prevent plaintiffs from being unjustly enriched from the efforts Gadfly undertakes under the contract. Without these controls, Gadfly’s purpose in entering the contract could be vitiated.
Plaintiffs have not shown that the agreement affects the public interest sought to be protected under section 16600 or that the contract is designed to do anything other than protect the respective parties in dealing with each other. (Great Western, at p. 449; see also VL Systems, Inc. v. Unisen, Inc. (2007) 152 Cal.App.4th 708, 713 [“Freedom of contract is an important principle, and courts should not blithely apply public policy reasons to void contract provisions”]; see also Daun v. USAA Casualty Ins. Co. (2005) 125 Cal.App.4th 599, 608 [“agreements will not be declared void as against public policy unless they clearly contravene public policy as declared by statutory enactment or judicial decisions”].)
Plaintiffs have failed to raise a triable issue of material fact as to whether the agreement violated public policy as an unlawful restraint of trade within the meaning of Business and Professions Code section 16600. Therefore, Business and Professions Code section 16600 is insufficient as a matter of law as a basis for rescission of the contract.
Conflicts of Interest
In view of the lack of statutory enactment and judicial decisions declaring an agreement such as this one void for conflicts of interest, defendants’ motion is granted as to cause of action 2(c). (See Daun v. USAA Casualty Ins. Co. (2005) 125 Cal.App.4th 599, 608 [“agreements will not be declared void as against public policy unless they clearly contravene public policy as declared by statutory enactment or judicial decisions”]; see also Centeno v. Roseville Community Hospital (1979) 107 Cal.App.3d 62, 70-71 [“courts are reluctant to declare a contract void as against public policy, and will refuse to do so if by any reasonable construction it may be upheld”].)
Civil Code Section 3423
Civil Code section 3423, subd. (e) fails as a basis for rescission as a matter of law because that code section does not apply in this context. It states that no injunction may be granted to prevent a breach of contract other than where certain requirements are met. (Id.) Thus, it only functions in the context of a party seeking to specifically enforce a contract against the other. If 3423 were relevant in this action, it would be relevant to a claim by defendants for an injunction to enforce the contract. However, defendants’ cross-complaint seeks no injunction.
Labor Code Section 1182.12 – Cause of Action 2(e)
Labor Code Section 3700 – Cause of Action 2(f)
If the terms of the contract between the parties are precise and explicit and the evidence is reasonably susceptible of but a single inference, whether one is an employee or an independent contractor becomes a question of law for the court. (Robinson v. George (1940) 16 Cal.2d 238, 243.)
“A statute will be construed in light of the common law unless the Legislature clearly and unequivocally indicates otherwise.” (Arnold v. Mutual of Omaha Ins. Co (2011) 202 Cal.App.4th 580, 587.)
“(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance and in fact; and (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.” (Id.)
Part C inquires whether the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed by the hiring entity. (Dynamix, 4 Cal.5th at p. 961.) “[A] business cannot unilaterally determine a worker’s status simply by assigning the worker the label ‘independent contractor’ or by requiring the worker, as a condition of hiring, to enter a contract that designates the worker as an independent contractor.” (Id. at p. 962)
“As a matter of common usage, the term ‘independent contractor,’ when applied to an individual worker, ordinarily has been understood to refer to an individual who independently has made the decision to go into business for himself or herself.” (Id.) “Such an individual generally takes the usual steps to establish and promote his or her independent business—for example, through incorporation, licensure, advertisement, routine offerings to provide the services of the independent business to the public or to a number of potential customers, and the like.” (Id.)
The terms of a written contract between the parties may be a good indication of the nature of their relationship, but they are not necessarily conclusive on the issue. (See Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 952.)
Here, defendants have met their prima facie burden of showing that they did not have an employment relationship with plaintiffs. There is no indication that defendants retained under the contract or exercised any significant control over plaintiffs’ work. Plaintiffs admitted that they record their music on a computer in their home studio, which supports that they controlled the means and manner of producing the music under the contract. (Defendants’ UMF 65; see S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 350 [“[T]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the desired result”]; see also Arzate v. Bridge Terminal Transport, Inc. (2011) 192 Cal.App.4th 419, 426 [the right to control work details is the most important consideration].)
Further, the agreement itself memorializes plaintiffs’ status as independent contractors and not Gadfly’s employees: “In entering into this Agreement, and in providing services pursuant hereto, you have and shall have the status of independent contractor and nothing herein contained shall contemplate or constitute you as [Gadfly’s] agent or employee.” (See UMF 77.) This explicit term in the agreement is consistent with plaintiffs’ understanding, they stated they did not consider themselves to be Gadfly’s employees. (See UMF 78-80.) Gadfly’s expert testified that recording agreements are not considered employment agreements and could not identify any artist signed to a recording agreement who was considered an employee of the record label. (UMF 81-82.)
To meet their burden of raising a triable issue of material fact as to whether they were Gadfly’s employees, plaintiffs refer to section 4.01 of the agreement, which requires Gadfly’s mutual approval of selection of material to be recorded and the dates of recording. However, “cases freely allow parties to contradict ‘clear’ contract language and show their actual relationships.” (Pistone v. Superior Court (1991) 228 Cal.App.3d 672, 681; see also Mary Hopkins v. California Emp. Stabilization Com. (1948) 86 Cal.App.2d 15, 17 [holding band was independent contractor despite provision in agreement with a hotel that booked it stating that “[t]he employer shall at all times have complete control of the services which the employees will render” because band leader, not hotel, had complete control over hiring, firing, and compensation of the band members”].)
Further, although this provision suggests some degree of control retained by Gadfly, plaintiffs have repeatedly complained that Gadfly failed to actually participate in scheduling recording dates. Gadfly’s lack of control over plaintiffs’ music is consistent with the contract’s designation of plaintiffs as independent contractors and plaintiffs’ understanding that they were not Gadfly’s employees. (See Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 946-947 [“If control may be exercised only as to the result of the work and not the means by which it is accomplished, an independent contractor relationship is established”].) That there is no reasonable inference of an employment relationship under all the circumstances is further supported by both parties’ characterizations of their relationship as a partnership. (See UMF 32.)
There is no dispute that plaintiffs perform work that is different in nature from the type of work that Gadfly does. Gadfly is an entertainment company, the founder of which has over 25 years in developing and producing the work of recording artists. (UMF 1-2.) Plaintiffs are an electronic dance music duo. (UMF 4.) Plaintiffs are individuals who independently decided to promote their band’s music by entering into a contract with Gadfly. (See Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, 962 [“As a matter of common usage, the term ‘independent contractor,’ when applied to an individual worker, ordinarily has been understood to refer to an individual who independently has made the decision to go into business for himself or herself”].)
The subject contract and other undisputed facts establish as a matter of law that plaintiffs did not enter an employment relationship with Gadfly. Rather, by executing the subject agreement, they sought to promote their own, independent business. (See id. [an independent contractor “generally takes the usual steps to establish and promote its independent businesses—for example, through incorporation, licensure, advertisement, routine offerings to provide the services of the independent business to the public or to a number of potential customers, and the like”].)
The undisputed facts establish as a matter of law that Gadfly was not plaintiffs’ employer as contemplated by the Labor Code sections at issue. Therefore, the contract is not subject to rescission based on violation of public policy with respect to the Labor Code.
Defendants’ motion is granted as to plaintiffs’ second cause of action for rescission based on violation of public policy.
Third Cause of Action for Rescission Based on Unconscionability
Procedural and substantive unconscionability need not be present in the same degree; the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable, and vice versa. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.)
The core concern of the unconscionability doctrine is the “absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1145 [discussing unconscionability as a defense to a petition to compel arbitration].) The unconscionability doctrine ensures that contracts—particularly contracts of adhesion—do not impose terms that have been variously described as overly harsh, unduly oppressive, so one-sided as to shock the conscience, or unfairly one-sided. (Id.)
“[U]nconscionability requires a substantial degree of unfairness beyond ‘a simple old-fashioned bad bargain.’” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 911.) “A party cannot avoid a contractual obligation merely by complaining that the deal, in retrospect, was unfair or a bad bargain.” (Id.) “Not all one-sided contract provisions are unconscionable; hence the various intensifiers in our formulations: ‘overly harsh,’ ‘unduly oppressive,’ ‘unreasonably favorable.’” (Id.)
“An evaluation of unconscionability is highly dependent on context.” (Sanchez, 61 Cal.4th at p. 911.) It often “requires inquiry into the ‘commercial setting, purpose, and effect’ of the contract or contract provision.” (Id., citing Civ. Code, § 1670.5, subd. (b).)
Defendant moves for summary adjudication of plaintiff’s rescission for unconscionability cause of action claiming the agreement is not procedurally or substantively unconscionable and there is no precedent for voiding exclusive recording agreement for unconscionability.
Procedural unconscionability addresses the circumstances of the contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 243.)
Oppression arises from an inequality of bargaining power which results in no real negotiation or meaningful choice. (Id.) Surprise involves the extent to which the terms of the bargain are hidden in a “prolix printed form” drafted by a party having a superior bargaining position. (Id.) Procedural unconscionability requires either oppression or surprise, not both. (Id.)
“The California Supreme Court has consistently stated that ‘[t]he procedural element of an unconscionable contract generally takes the form of a contract of adhesion.’” (Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 646, quotations omitted.) “An adhesion contract is a standardized contract imposed upon the subscribing party without an opportunity to negotiate the terms.” (Id.)
Defendants have met their burden of showing that there is no triable issue of material fact as to whether the agreement was procedurally unconscionable. The terms of the agreement came as no surprise to plaintiffs, given that they admitted that they understood that they were entering into an exclusive agreement with Gadfly in which Gadfly would “get a piece of pretty much everything.” (UMF 71, 97.)
Plaintiffs contend that the agreement was nonetheless procedurally unconscionable because Gadfly was an established entertainment company, in a superior bargaining position to plaintiffs, who had never before signed a recording or management agreement. (See SAC ¶ 41.) Although this dynamic does support an inference of some degree of inequality in the parties’ bargaining power insofar as one may have been more sophisticated and financially better off, it alone is insufficient to establish oppression for the purpose of procedural unconscionability (See Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 88.) Oppression occurs “[w]here the parties to a contract have unequal bargaining power and the contract is not the result of real negotiation or meaningful choice.” (Id., emphasis added.)
Plaintiffs were not so unequally positioned that they did not have the power to negotiate the terms and had to accept on a take-it-or-leave-it basis. (See Gutierrez,. 114 Cal.App.4th at p. 88; see also Walnut Producers of California, 187 Cal.App.4th 634, 646 [adhesive contract signifies one which, imposed by a party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it].) To the contrary, plaintiffs took the opportunity to review and then actually negotiated the terms of the agreement. (UMF 32-37.) At one point, plaintiffs indicated to Gadfly that they were in the process of consulting their attorney, even though they never consulted one, which indicates that plaintiffs knew it was appropriate for them under the circumstances to obtain counsel to negotiate the agreement. (UMF 32-37.) This further weakens any assertion of procedural unconscionability.
Defendants aptly observe that if procedural unconscionability required no more than a degree of unequal bargaining power, then every exclusive recording agreement between an established company and an amateur musician would be procedurally unconscionable. (See VL Systems, Inc. v. Unisen, Inc. (2007) 152 Cal.App.4th 708, 713 [“[f]reedom of contract is an important principle, and courts should not blithely apply public policy reasons to void contract provisions”].)
Plaintiffs do not dispute that they were free to not enter the agreement and to solicit any number of other record labels instead. (UMF 98; see Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 911 [an evaluation of unconscionability is highly dependent on context, often requiring inquiry into the ‘commercial setting, purpose, and effect’ of the contract or contract provision].)
Plaintiffs have failed to raise a triable issue of material fact as to whether the agreement was procedurally unconscionable. No analysis of substantive unconscionability is required because the court may not refuse to enforce a contract unless it contains elements of both types of unconscionability. (See Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 87.) Therefore, defendants’ motion is granted as to plaintiffs’ third cause of action for rescission based on unconscionability.
Fourth Cause of Action for Rescission Based on Mutual Mistake
“In California a mutual mistake, whether of fact or law, which affects an essential element of the contract and is harmful to one of the parties is subject to rescission by the party harmed.” (Guthrie v. Times-Mirror Co. (1975) 51 Cal.App.3d 8798, 884, citing Civ. Code, § 1689, subd. (b)(1).) “It is settled that to warrant a unilateral rescission of a contract because of mutual mistake, the mistake must relate to basic or material fact, not a collateral matter.” (Wood v. Kalbaugh (1974) 39 Cal.App.3d 926, 932, citing Civ. Code §§ 1576, 1577, 1689.)
“The basic principle governing material misunderstanding is thus: no contract is formed if neither party is at fault or if both parties are equally at fault.” (County Sheriff’s Employee’s Assn. v. County of Merced (1987) 188 Cal.App.3d 662, 676.)
Plaintiffs allege that there was a fundamental mistake between the parties because the contract states “that Gadfly would work with plaintiffs to determine what music would be recorded and to book studio time. Gadfly contends that booking studio time was unnecessary and the agreement required plaintiffs to submit recordings to Gadfly. Accordingly, there was a fundamental difference in the parties’ understanding as to the recording process.” (SAC ¶ 47(a).) Plaintiffs further allege that mutual mistake provides a ground for rescission because the parties disagree on how many albums were owed under the agreement. (SAC ¶ 47(b).)
Plaintiffs’ claim for rescission based on mutual mistake is also based on the parties’ lack of a meeting of the minds as to who would be securing the immediate projects so that the album deliveries provided in the agreement could be met. (SAC ¶ 47(c).) Finally, plaintiffs allege that Gadfly represented that it would assist plaintiffs to meet album deliveries, but Gadfly did not receive any assistance from Gadfly in meeting the album deliveries. (SAC ¶ 47(d).)
Defendants have also shown that no alleged mistake as to number of albums is a ground for rescission. Plaintiffs testified that they were given the opportunity to and in fact did spend a significant amount of time reviewing the contract. That plaintiffs did not seek clarification on the number of albums despite negotiating that term supports the conclusion that plaintiffs may not now use their uncertainty, resulting from a failure to seek clarification, as a ground to rescind the contract. That plaintiffs did not seek clarification of this term also suggests that the exact number of albums was not material.
“Where parties are aware at the time the contract is entered into that a doubt exists in regard to a certain matter and contract on that assumption, the risk of the existence of the doubtful matter is assumed as an element of the bargain.” (Guthrie v. Times-Mirror Co. (1975) 51 Cal.App.3d 879, 885.) “Otherwise stated, the kind of mistake which renders a contract voidable does not include ‘mistakes as to matter which the contracting parties had in mind as possibilities and as to the existence of which they took the risk.’” (Id.) Because plaintiffs did not seek clarification about the number of albums due under the agreement, they may not use their lack of understanding as a ground for rescission.
Plaintiffs, on the other hand, have not set forth any facts that would show an imbalance so severe of the difference that would result from upholding an agreement requiring nine albums as opposed to six. A scenario can be imagined where a discrepancy regarding the number of albums owed under an agreement could be the major source of a dispute, such as where a party understood the agreement to require six albums, actually produced six albums, and was being sued by the other party, who understood the agreement as one to produce nine albums. Here, however, there is no indication in the parties’ papers and evidence that they disputed the number of albums the agreement called for prior to the commencement of this lawsuit. The purported difference in the parties’ understanding is inadequate to provide a ground for plaintiffs to rescind an agreement that they negotiated and received benefits from.
Considering the foregoing, defendants’ motion for summary adjudication of plaintiffs’ fourth cause of action for rescission based on mutual mistake is granted.
Fifth Cause of Action for Rescission Based on Unilateral Mistake
“A factual mistake by one party to a contract, or unilateral mistake, affords a ground for rescission in some circumstances.” (Donovan v. RRL Corp. (2001) 26 Cal.4th 261, 278.) Rescission of a contract based on a unilateral mistake of fact is allowed where the effect of the mistake is such that enforcement of the contract would be unconscionable. (Id.)
Seventh Cause of Action for Breach of Fiduciary Duty
“Our Supreme Court has acknowledged that it is difficult to enunciate the precise elements required to show the existence of a fiduciary relationship.” (Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 461, 632, citing Committee On Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 221.) “But the high court has noted that ‘before a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf of another or must enter into a relationship which imposes that undertaking as a matter of law.” (Oakland Raiders, at p. 631-632, citing Committee on Children’s Television, at p. 221.)
Although there is no case where a fiduciary relationship was specifically held to exist between a personal manager and an artist, the list of specific legal relationships is “not graven in stone.” (See Oakland Raiders, at p. 632.) Partnership or agency relationships have been held to impose fiduciary obligations. (See Cleveland v. Johnson (2012) 209 Cal.App.4th 1315, 1339.) Given the responsibilities a personal manager such as Gadfly has with respect to young, inexperienced artists, such as collecting royalties on their behalf, the court declines to find as a matter of law that no fiduciary relationship existed between the parties. Rather, there remains a triable issue of material fact as to whether the parties had a fiduciary relationship. Correspondingly, the court rejects defendants’ argument that they owed plaintiffs no fiduciary duties as a matter of law.
As to the breach element, plaintiffs raised a triable issue of material fact as to their breach of fiduciary duty claim based on the same evidence they proffered with respect to their breach of contract cause of action. They have submitted evidence showing that Gadfly did not discuss with plaintiffs the recording procedures or how the recording would be mutually preapproved, did not connect plaintiffs with other artists for collaboration, and took no steps to work with plaintiffs to meet the agreement’s delivery deadlines. (Plaintiffs’ AMF 27, 43)
Eighth Cause of Action for Negligence
Defendants properly characterize plaintiffs’ negligence claim as an improper attempt to morph their breach of contract claims into a tort claim. (Motion 23:24-25.) Because plaintiffs have raised to no triable issue of material fact as to whether defendants breached a duty of care towards plaintiffs, defendants’ motion is granted as to plaintiffs’ eighth cause of action for negligence.
Ninth Cause of Action for Breach of Contract
Tenth Cause of Action for Accounting
Eleventh Cause of Action for Declaratory Relief
Individual Defendant Jeremy Gerson – Respondeat Superior
Defendants’ argue that the motion should be granted with respect to plaintiffs’ fraud claim as asserted against Gerson because any alleged fraudulent acts were made within the scope of his employment. “Conduct committed within the scope of employment for purposes of respondeat superior liability requires ‘a nexus between the employee’s tort and the employment to ensure that liability is properly placed upon the employer.” (Inter Mountain Mortg., Inc. v. Sulimen (2000) 78 Cal.App.4th 1434, 1440-1441.)
Here, it is undisputed that Gerson is a project manager and at all relevant times was acting within the scope of his employment with Gadfly, including when he made the allegedly fraudulent misrepresentation that “immediate projects” would be available for plaintiffs. (UMF 3, OMF 37.) However, an agent is liable for his own acts “when his acts are wrongful in their nature,” regardless of whether the principal is liable or amenable to judicial action.” (Mears v. Crocker First Nat. Bank of San Francisco (1948) 84 Cal.App.2d 637, 642-643; see also James v. Marinship Corp. (1944) 25 Cal.2d 721, 742.) Therefore, the mere fact that Gerson was acting within the scope of his employment does not absolve him of individual liability for fraud merely because it creates a ground for imposing vicarious liability on Gadfly.
As to the accounting cause of action, the motion is granted as to Gerson because there is no indication that Gerson personally has a relationship with plaintiffs that would make an accounting appropriate.
Therefore, defendants’ motion for summary adjudication is granted with respect to Gerson on plaintiffs’ negligence and accounting causes of action but denied as to the fraud cause of action.
With respect to defendant Gerson only, the motion is granted as to plaintiffs’ accounting cause of action. As to Gadfly, the motion is denied as to that cause of action.
CROSS-COMPLAINANT’S MOTION FOR SUMMARY JUDGMENT/ADJUDICATION
Cross-complainant Gadfly moves for summary judgment or adjudication in its favor on each of cause of action in the cross-complaint for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) fraud, (4) negligent misrepresentation, and (5) accounting. Cross-defendants’ assertion that this motion violates California Rules of Court, Rule 3.1350(b) has not impacted this ruling. Both parties’ objections are overruled.
The cross-complaint’s breach of contract, breach of implied covenant, and the fraud claims mirror plaintiffs’ allegations in their complaint, with respect to which the court has already determined that there exists a material issue of disputed fact. The court’s determination in defendants’ motion for summary judgment or adjudication of the complaint that a triable issue of material fact exists as to plaintiff’s claim for rescission based on fraud precludes summary adjudication of the cross-complainant’s claim for breach of contract in Gadfly’s favor. The disputed issues of material fact as to plaintiffs claim for rescission based on fraud, as well as its breach of contract claim, preclude summary adjudication in Gadfly’s favor on causes of action one through three of the cross-complaint.
Further, cross-defendants’ expert has raised a triable issue of material fact as to damages, which is an essential element of each substantive cause of action in the cross-complaint. (See Cross-Defendants’ Separate Statement in Opposition to Cross-Complainant’s Motion, Fact 96; Cross-Defendants’ Exhibit DD.) A cross-complainant has met its burden of showing that there is no defense to a cause of action if that party has proved each element of the cause of action entitling the party to judgment on the cause of action. (Code Civ. Proc., § 437c, subd. (p)(1).) Because damages are an element of a breach contract cause of action, a party cannot obtain judgment on such a claim in an amount to be determined later. (Paramount Petroleum Corp. v. Superior Court) 227 Cal.App.4th 226, 238.) The same holds true for the other causes of action for breach of the implied covenant of good faith and fair dealing, fraud, and negligent misrepresentation.
A motion for summary adjudication shall be granted if it completely disposes of a cause of action, affirmative defense, claim for damages, or issue of duty. (Code Civ. Proc., § 437c, subd. (h)(1).) Thus, summary adjudication of a claim for breach of contract leaving damages to be determined later at trial “is not permitted by the language of the summary adjudication statute, the legislative history of the statute, and the case authority interpreting it.” (Paramount Petroleum Corp. v. Superior Court) 227 Cal.App.4th 226, 238; see also DeCastro Chodorow & Burns, Inc. v. Superior Court (1996) 47 Cal.App.4th 410, 419 [“Since the cause of action must still be tried, much of the same evidence will be considered by the court at the time of trial”].) Because there remains a disputed issue of material fact as to what damages (if any) Gadfly is entitled to, summary adjudication at this stage would be not dispose of an entire cause of action.
The court rejects Gadfly’s argument that Paramount Petroleum is distinguishable because the plaintiff there “sought summary adjudication on the issue of [defendant]’s liability for breach of contract, but not on the element of damages.” (Id. at 233.) Gadfly contends that unlike that plaintiff, Gadfly seeks summary adjudication of each element, including whether Gadfly has “suffered damages,” an issue which Gadfly defines as the damages “element.” (See Reply 2:17-19.) This definition, which does not include the amount of damages, is inconsistent with the purpose of the summary adjudication statute and the case law interpreting it. (See DeCastro West Chodorow & Burns, Inc. v. Superior Court (1996) 47 Cal.App.4th 410, 419 [“we are unaware of anything in the legislative history of the 1990 amendment which indicates an intent to permit summary adjudication of only one component of the damages element cause of action, which does not dispose of the entire cause of action”].)
Gadfly’s motion is also denied as to its accounting cause of action because whether cross-defendants owe Gadfly money remains very much in dispute.
For the foregoing reasons, cross-complainant’s motion for summary judgment or adjudication of the cross-complaint is denied in full. Gadfly is ordered to give notice of these rulings.
Date: June 23, 2020
Honorable Stuart M. Rice
Judge of the Superior Court