In Monster, LLC v. Superior Court of Los Angeles County, 2017 Cal.App. LEXIS 570 (June 21, 2017), the California Court of Appeal for Second Appellate District, Division Seven, issued a Writ of Mandate directing the Los Angeles Superior Court to set aside its ruling denying a right to a jury trial on a cross-complaint when attorney’s fees were the only element of damage.
Monster, LLC, a leading AV audio equipment company, and its principal, Noel Lee (collectively “Monster”) had entered into licensing agreement with Beats Electronics, LLC (“Beats”), a renowned producer of audio products founded by Andre Young (Dr. Dre) and Jimmy Iovine, to design and manufacture a new line of headphones, including the “Beats by Dre” line. A provision in the licensing agreement granted Beats the right to terminate the agreement if there was a “change in control” of Beats, i.e., a 51 percent change of ownership interest at which time Monster would be required to transfer its ownership rights in all Beats-branded products to Beats, and grant Beats a non-exclusive license to use any intellectual property for those products. A mobile manufacturer, HTC, agreed to purchase 51 percent in Beats for $300 million. Beats notified Monster of the “change in control” and that Beats was terminating the agreement. Within a month after Monster complied with the provisions in the licensing agreement, HTC “loaned” Beats $200 million, which Beats then used to purchase back half of HTC’s 51 percent interest. A few months later, Beats sold its company to Apple for $3 billion.
Monster brought suit against, inter alia, Beats, contending that Beats engaged in a fraudulent scheme to divest Monster of its interest in Beats and the “Beats by Dre” line of headphones. Beats asserted waiver as an affirmative defense, claiming that Monster’s claims were barred by certain release provisions entered into by and between the parties in subsequent contracts. Beats also filed a cross-complaint against Monster for breaches of contract, setting forth the same position, and contending that Beats was damaged in the form of the attorney’s fees incurred to defend against Monster’s claims.
After summary judgment was granted in favor of Beats on Monster’s complaint, Beats argued that the attorney’s fees demanded as damages in its cross-complaint to enforce the releases and defend against Monster’s complaint should be decided by noticed motion pursuant to Civil Code section 1717, rather than by a jury. Beats argued that section 1717 was applicable because its cross-claims qualified as an action to “enforce the contract” and that section 1717 effectively withdrew the jury right when the damages sought on breach of contract consisted only of attorney’s fees. Monster argued that because Beats was seeking its attorney’s fees as a form of contract damages on its cross-claims, it was entitled to a jury trial on the issue. After briefing, the trial court entered an order denying Monster a jury trial, and directing that the amount of Beat’s attorney’s fees be resolved through noticed motion under Civil Code section 1717.
Monster petitioned the Court of Appeal for a Writ of Mandate directing the trial court to vacate its order, and enter a new order granting a jury trial on the issue of attorney's fees.
The Court of Appeal issued an order to show cause, and thereafter granted the Petition, finding the trial court erred in denying Monster’s right to a jury trial on Beats’ contract damages. The Court of Appeal confirmed that California courts consistently distinguish between attorney’s fees which are sought as a prevailing party, as an incident of a cause of action, and those that are affirmatively sought as damages as part of the cause of action. The Court of Appeal also recognized that the California Constitution affords civil litigants the right to a jury trial in suits seeking to recover damages for breach of contract. The Court of Appeal found that because Beats did not seek to recover its attorney’s fees as prevailing party on the fraud claims alleged in the complaint under section 1717, but rather elected to seek its attorney’s fees as damages on its cross-claims for breach of contract, and because there was no final resolution on Beats’ cross-complaint, Beats’ damages in the form of attorney’s fees were part of the relief sought, which must be pled and proven at trial.
To read the decision, please click here.
About the author:
Gary J. Lorch is a partner in the Los Angeles office of Gordon & Rees. He is a member of the firm's Commercial Litigation, Intellectual Property, Franchise Law and Insurance practice groups. Mr. Lorch has nearly thirty years of litigation experience, in both the state and federal district courts throughout the State of California, handling cases from initial client consultation through trial and appeal. Mr. Lorch's practice covers a wide-range of business and business related matters such as intellectual property claims (including copyright infringement, trademark infringement and misappropriation of trade secrets litigation), contract disputes, corporation, partnership and joint venture disputes, shareholder disputes, class actions, unfair competition and related claims under California Business and Professions Code sections 17200 and 17500, litigation under the Federal Debt Collection Practices Act and the California Rosenthal Debt Collection Practices Act, financial institution litigation, franchise disputes, insurance disputes (coverage and "bad faith" litigation), professional liability defense (attorneys, architects, insurance agents), and product liability matters.
Elizabeth B. Vanalek is an associate at Gordon & Rees and has experience covering a wide range of insurance and business related matters. Her business related experience includes contract and shareholder disputes, unfair competition and related claims under California Business and Professions Code sections 17200 and 17500, litigation under the Federal Debt Collection Practices Act and the California Rosenthal Debt Collection Practices Act, and product liability matters.