Opinion
Case No. 3:19-cv-00239-MMD-CLB
2023-01-30
Michael J. FLYNN, et al., Plaintiffs, v. Michael LOVE, et al., Defendants.
Michael J. Flynn, Rancho Santa Fe, CA, Pro Se. Philip Stillman, Miami Beach, FL, Pro Se. John Storino, Pro Hac Vice, Jenner & Block LLP, Chicago, IL, Michael McNamara, Pro Hac Vice, Jenner & Block LLP, Los Angeles, CA, Vincent H. Chieffo, Pro Hac Vice, Greenberg Traurig, LLP, Los Angeles, CA, Jason Hicks, Julianna Simon, Pro Hac Vice, Mark E. Ferrario, Greenberg Traurig, LLP, Las Vegas, NV, for Defendant Jacqueline Love. Vincent H. Chieffo, Pro Hac Vice, Greenberg Traurig, LLP, Los Angeles, CA, Jason Hicks, Julianna Simon, Pro Hac Vice, Mark E. Ferrario, Greenberg Traurig, LLP, Las Vegas, NV, for Defendant Michael Love. Mark E. Ferrario, Jason Hicks, Julianna Simon, Pro Hac Vice, Greenberg Traurig, LLP, Las Vegas, NV, for Defendants Michael E. Love, Meleco, Inc.
Michael J. Flynn, Rancho Santa Fe, CA, Pro Se. Philip Stillman, Miami Beach, FL, Pro Se. John Storino, Pro Hac Vice, Jenner & Block LLP, Chicago, IL, Michael McNamara, Pro Hac Vice, Jenner & Block LLP, Los Angeles, CA, Vincent H. Chieffo, Pro Hac Vice, Greenberg Traurig, LLP, Los Angeles, CA, Jason Hicks, Julianna Simon, Pro Hac Vice, Mark E. Ferrario, Greenberg Traurig, LLP, Las Vegas, NV, for Defendant Jacqueline Love. Vincent H. Chieffo, Pro Hac Vice, Greenberg Traurig, LLP, Los Angeles, CA, Jason Hicks, Julianna Simon, Pro Hac Vice, Mark E. Ferrario, Greenberg Traurig, LLP, Las Vegas, NV, for Defendant Michael Love. Mark E. Ferrario, Jason Hicks, Julianna Simon, Pro Hac Vice, Greenberg Traurig, LLP, Las Vegas, NV, for Defendants Michael E. Love, Meleco, Inc. ORDER MIRANDA M. DU, CHIEF UNITED STATES DISTRICT JUDGE
I. SUMMARY
This action arises from contractual disputes pertaining to a settlement involving the copyrights to 35 songs and events surrounding these songs dating back to the 1960s. Plaintiffs Michael Flynn and Philip Stillman filed a fourth amended complaint against Defendants Michael Love (both individually and as trustee of the Michael Love Family Trust ("Love")), his wife Jacquelyne Love ("Jacquelyne"), and Meleco, Inc. (collectively, "Defendants"). (ECF No. 121 ("FAC").) Defendants answered the FAC and, in doing so, asserted two counterclaims: (1) declaratory judgment and (2) unjust enrichment. (ECF No. 244 at 49-50.) Before the Court is Plaintiffs' motion to dismiss both counterclaims. (ECF No. 247 ("Motion").) For the reasons discussed below, the Court denies Plaintiffs' Motion.
Plaintiffs are both attorneys licensed in Massachusetts. (ECF No. 121 at 2.) Plaintiffs are representing themselves. The Court notes that Plaintiffs Sheridan's and Tabb's claims against Defendants were previously dismissed without prejudice. (ECF No. 22.) The Court construes the FAC as being brought by Michael Flynn and Philip Stillman only.
The parties filed a response and reply to Plaintiffs' Motion. (ECF Nos. 256, 258.)
II. BACKGROUND
As relevant to the Motion, Plaintiffs' FAC asserts several claims arising from disputes over three contingency fee agreements the parties executed in 1992, 1993, and 1994 (collectively, "the Agreements"). (ECF No. 121.) In response, Defendants asserted two counterclaims for (1) declaratory judgment as to the validity of the Agreements and amounts of money owed between the parties and (2) unjust enrichment. (ECF No. 244 ("Countercomplaint").) As for the first counterclaim ("Counterclaim I"), Defendants seek a declaratory judgment that: (1) all three Agreements are invalid and unenforceable; (2) Love properly exercised his statutory right to void the Agreements under Cal. Bus. & Prof. Code § 6147; (3) Love overpaid Plaintiffs under the Agreements and is thus entitled to recover at least $2,000,000 in restitution; (4) Plaintiffs' assigned interests in the copyrights to 35 Beach Boys songs are invalid under the Copyright Act, 17 U.S.C. § 304 et seq.; (5) Love's only recovery from a previous settlement was an upfront cash settlement and 50% assignment of songwriter royalties; and (6) Love owes Plaintiffs nothing in relation to the royalties and Agreements overall. (Id. at 49.) As for the second counterclaim ("Counterclaim II"), Defendants allege that, through their payments under the void Agreements, Plaintiffs received and unjustly retained at least $2,000,000 of Defendants' money. (Id. at 50.)
The Court previously granted in part, and denied in part, Defendants' motion to dismiss Plaintiffs' Third Amended Complaint with leave to amend. (ECF No. 120 at 23.) Plaintiffs subsequently filed the FAC, which the Court now treats as the operative complaint. (See generally ECF No. 121.)
Beyond the foregoing procedural history, the Court incorporates by reference the additional background facts discussed in its previous order resolving Plaintiffs' motion to strike and motion for partial summary judgment and Defendants' motion to dismiss. (ECF No. 120 at 2-6.) III. DISCUSSION
Plaintiffs seek dismissal under Fed. R. Civ. P. 12(b)(6) on three grounds. First, Counterclaim I fails because it is a "mirror image" of Plaintiffs' competing declaratory judgment claim in the FAC. (ECF No. 247 at 4-5.) Second, Counterclaim II warrants dismissal because unjust enrichment does not exist as a standalone claim under California law. (Id. at 5-6.) Lastly, Plaintiffs argue that both counterclaims are time-barred under Cal. Civ. Proc. Code § 340.6. (Id. at 6-7.) The Court will address Plaintiffs' arguments in turn. However, the Court will first address which jurisdiction's law applies to the counterclaims.
A party may file a Rule 12(b) motion to respond to affirmative claims other than those made in the original complaint (e.g., counterclaims), as Defendants asserted here. See, e.g., Too Marker Prods., Inc. v. Creation Supply, Inc., 911 F. Supp. 2d 1114, 1115-16 (D. Or. 2012) (addressing a plaintiff's Rule 12(b)(6) motion to dismiss the defendant's tort counterclaim).
A. Choice of Law
The parties raise several state-law claims, but they cite to both California and Nevada law in their briefs. The Court reminds the parties that it already addressed which jurisdiction's law applies to claims like those raised in the Countercomplaint. The Court previously concluded that California law applies to unjust enrichment and declaratory judgment claims in this action. (Id. at 7-8.) So, by extension, California law applies to Defendants' declaratory judgment and unjust enrichment counterclaims because California still has "the most significant relationship" to this action. See Cleary v. News Corp., 30 F.3d 1255, 1265 (9th Cir. 1994) ("A district court in diversity jurisdiction must apply the law of the forum state to determine the choice of law."); GMC v. Eighth Jud. Dist. Ct. of Nev., 122 Nev. 466, 134 P.3d 111, 116-17 (2006) (holding that Nevada uses the most-significant-relationship test from the Restatement (Second) of Conflict of Laws to govern choice-of-law issues); Restatement (Second) of Conflict of Laws § 145 (Am. Law Inst. 1971). Although Defendants reside and do business in Nevada, and the Agreements do not include a choice-of-law clause, Defendants' counterclaims both stem from the Agreements, which were all executed and largely performed in California. Further, Plaintiff Flynn also resides in California, and the 1992 Agreement provides that Cal. Bus. & Prof. Code §§ 6200-6206 govern any disputes over fees charged for the services performed. (ECF No. 121 at 111-112.) The parties therefore had a "justified expectation" that California law, not Nevada law, would apply to disputes arising under the Agreements. See Restatement (Second) of Conflict of Laws § 6(2)(d).
Having resolved the choice-of-law issue, the Court now considers Plaintiffs' Motion, applying California law.
B. Plaintiffs' Motion to Dismiss
1. Declaratory judgment (Counterclaim I)
Plaintiffs urge the Court to dismiss Counterclaim I because it is a "mirror image" of Plaintiffs' competing declaratory judgment claim in the FAC. (Id. at 4-5.) In response, Defendants argue that Counterclaim I should not be dismissed because it is distinct from, and "seeks additional relief beyond," Plaintiffs' declaratory judgment claim (ECF No. 256 at 6-7.) For the reasons below, the Court agrees with Defendants. See Leadsinger, Inc. v. BMG Music Pub., 512 F.3d 522, 533 (9th Cir. 2008) ("[I]t is within a district court's discretion to dismiss an action for declaratory judgment.") (internal citations omitted); Englewood Lending Inc. v. G&G Coachella Invs., LLC, 651 F. Supp. 2d 1141, 1145 (C.D. Cal. 2009) (recognizing that all relief granted under the Declaratory Judgment Act "is discretionary").
While the parties' competing declaratory judgment claims are quite similar, the Counterclaim I raises theories of recovery and legal issues that the Court may not otherwise reach in resolving the FAC. See Stickrath v. Globalstar, Inc., Case No. C07-1941 TEH, 2008 WL 2050990, at *4 (N.D. Cal. May 13, 2008) (recognizing that "it is not always appropriate to strike [or dismiss] declaratory judgment counterclaims simply because they concern the same subject matter or arise from the same transaction as the complaint," and declining to strike when "the counterclaim may seek different relief, in addition to raising legal issues that the court may not reach in resolving the complaint and affirmative defenses").
Indeed, both parties seek declaratory relief concerning the validity of the Agreements and the parties' respective interests in the copyrights to 35 Beach Boys songs and Love's songwriter royalties. (ECF Nos. 121 at 67-69, 244 at 49.) To this extent, Counterclaim I resembles a "direct mirror image" of the FAC. See, e.g., BOKF, NA v. Estes, Case No. 3:17-cv-0694-LRH-WGC, 2018 WL 10517233, at *1 (D. Nev. Apr. 10, 2018) (dismissing declaratory relief counterclaims because they are "the direct mirror image" of the complaint, and because "there is a complete identity of the legal and factual issues between the parties' competing claims"). However, Counterclaim I raises new legal theories and seeks relief beyond the scope of Plaintiffs' competing claim. Defendants specifically seek a declaratory judgment concerning (1) Defendants' statutory right to void the Agreements under California statute, and (2) Defendants' entitlement to restitution of at least $2,000,000 due to overpayment under the Agreements. (ECF No. 244 at 49.) Thus, a decision on the FAC's merits would not render Counterclaim I moot. Counterclaim I therefore "serve[s] a useful purpose in clarifying and settling the legal relations in issue." United States v. Washington, 759 F.2d 1353, 1357 (9th Cir. 1985); see also, e.g., Perez v. Guardian Roofing, Case No. 3:15-cv-05623-RJB, 2016 WL 898545, at *2 (W.D. Wash. Mar. 9, 2016) (dismissing declaratory relief counterclaim because "[a] decision on [the] Complaint's merits would render the Counterclaims for declaratory judgment moot," and because "[t]here is complete identity" of legal and factual issues between the pleadings) (internal quotations and citations omitted).
Because a "complete identity of factual and legal issues" does not exist between Counterclaim I and Plaintiffs' competing claim in the FAC, the Court will not dismiss Counterclaim I. See Stickrath, 2008 WL 2050990, at *4 (recognizing that a district court "should dismiss or strike a redundant counterclaim only when it is clear that there is a complete identity of factual and legal issues between the complaint and the counterclaim"); Nat'l Grange of the Order of Patrons of Husbandry v. Cal. State Grange, Case No. CV 2:14-676 WBS DAD, 2014 WL 3837434, at *6-7 (E.D. Cal. July 30, 2014) (declining to dismiss a counterclaim because "the safer course for the court to follow is to deny a request to dismiss a counterclaim for declaratory relief unless there is no doubt that it will be rendered moot by the adjudication of the main action") (internal quotations and citation omitted).
2. Unjust enrichment (Counterclaim II)
Citing conflicting caselaw, the parties next dispute whether Defendants can assert unjust enrichment as an independent cause of action under California law. (ECF Nos. 247 at 5-6, 256 at 7-8, 258 at 4.) Plaintiffs seek dismissal of Counterclaim II because it is not a "standalone" cause of action in California. (ECF No. 247 at 5.) In other words, unjust enrichment is not a separate theory of liability in California; it is instead synonymous with the remedy of restitution. (Id. at 3-4.) See also Walker v. USAA Cas. Ins. Co., 474 F. Supp. 2d 1168, 1174 (E.D. Cal. 2007) (recognizing that "[t]here is no cause of action in California for unjust enrichment," and that "[u]njust enrichment is synonymous with the remedy of restitution") (internal quotations and citations omitted). In response, Defendants support Counterclaim II with authority recognizing unjust enrichment either as (1) its own cause of action or (2) as "a quasi-contract claim seeking restitution." (ECF No. 256 at 7-8.) See also, e.g., Rutherford Holdings, LLC v. Plaza Del Rey, 223 Cal. App. 4th 221, 231, 166 Cal.Rptr.3d 864 (Cal. App. Ct. 2014).
The Court recognizes that "California case law appears unsettled" as to whether unjust enrichment is an independent cause of action. ESG Cap. Partners, LP v. Stratos, 828 F.3d 1023, 1038 (9th Cir. 2016); also compare, e.g., Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal. App. 4th 1105, 1132, 167 Cal.Rptr.3d 832 (Cal. App. Ct. 2014) (allowing plaintiffs to assert unjust enrichment as a cause of action) with, e.g., Melchior v. New Line Prods., Inc., 106 Cal. App. 4th 779, 794, 131 Cal.Rptr.2d 347 (Cal. App. Ct. 2003) (recognizing "there is no cause of action in California for unjust enrichment," and that unjust enrichment is "synonymous with restitution") (internal quotations and citations omitted).
Aware of this "unsettled" caselaw, the Ninth Circuit recently addressed whether a plaintiff can assert unjust enrichment as a cause of action under California law. See ESG Cap. Partners, LP v. Stratos, 828 F.3d 1023, 1038-39 (9th Cir. 2016). In Stratos, the Ninth Circuit recognized unjust enrichment claims under California law as quasi-contract claims seeking restitution. 828 F.3d at 1038. Under Stratos, a district court may "construe[ ] the common law to allow an unjust enrichment cause of action through quasi-contract." Id. (internal citation omitted); see also Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 762 (9th Cir. 2015) ("When a plaintiff alleges unjust enrichment, a court may 'construe the cause of action as a quasi-contract claim seeking restitution.' ") (quoting Rutherford Holdings, 223 Cal. App. 4th at 231, 166 Cal.Rptr.3d 864)).
In light of Defendants' reliance on Stratos, the Court allows Defendants to assert their unjust enrichment counterclaim but construes it as a quasi-contract claim seeking restitution. To allege unjust enrichment as a standalone cause of action, a party must show that the defendant received and unjustly retained a benefit at the plaintiff's expense. Lectrodryer v. SeoulBank, 77 Cal. App. 4th 723, 726, 91 Cal.Rptr.2d 881 (Cal. App. Ct. 2000) (internal citation omitted). And when construed as a quasi-contract claim seeking restitution, see Astiana, 783 F.3d at 762, Defendants must establish "that the express contract is void or was rescinded." Rutherford Holdings, 223 Cal. App. 4th at 231, 166 Cal.Rptr.3d 864 (internal quotation and citation omitted).
Applying Defendants' allegations to the elements of quasi-contract, the Court finds that Defendants have sufficiently pleaded Counterclaim II. Under the disputed Agreements, Plaintiffs represented Defendants in four legal matters from 1993 to 2017. (ECF No. 244 at 46.) In exchange, Defendants have paid Plaintiffs nearly $5,600,000 in contingency fees, funded in part through Plaintiffs' interests in Love's songwriter royalties. (Id. at 48.) Defendants argue that the Agreements are all void because they violate the disclosure and signature requirements for contingency fee agreements under Cal. Bus. & Prof. Code § 6147. (Id. at 48-49.) Upon learning of the Agreements' violation of § 6147 in 2017, Defendants allege having timely exercised their statutory right to void the Agreements. (Id.) Because the Agreements are void, Defendants argue, Plaintiffs may only collect a "reasonable fee" for their services, as mandated under the statute. (Id. at 49.) To the extent the contingency fees paid to Plaintiffs exceed the statutory amount of "reasonable fees," Defendants seek at least $2,000,000 in restitution. (Id. at 48, 50.) Based on these allegations, and construing Counterclaim II as a quasi-contract claim seeking restitution, the Court finds Defendants' allegations sufficient to plead unjust enrichment.
3. California Civil Procedure Code § 340.6's One-Year Statute of Limitations
Plaintiffs argue in the alternative that Defendants' counterclaims are both barred by Cal. Civ. Proc. Code § 340.6, which imposes a one-year statute of limitations and applies to misconduct within the scope of an attorney's "performance of professional services." See Cal. Civ. Proc. Code § 340.6(a) ("An action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission . . ."). Plaintiffs argue that their alleged misconduct falls squarely within the scope of their professional obligations as Defendants' former attorneys, thus triggering § 340.6's one-year limitations period. (ECF Nos. 247 at 7, 258 at 5.) And because Defendants first discovered that the Agreements were voidable around May 2017—five years before filing the Countercomplaint in July 2022—Defendants are four years too late in asserting their counterclaims. (Id.)
Plaintiffs rely in part on Lee v. Hanley, 61 Cal.4th 1225, 191 Cal.Rptr.3d 536, 354 P.3d 334 (2015), to support their position that § 340.6 bars Defendants' counterclaims because they involve violations of attorneys' professional obligations. (ECF Nos. 247 at 6, 258 at 4-5.) Defendants, also relying on Lee, contend that neither counterclaim is barred under § 340.6 because they "do not depend on whether Plaintiffs violated a professional obligation and do not pertain to the purpose of § 340.6—[i.e.,] limiting the time to assert legal malpractice claims." (ECF No. 256 at 10-11.) Instead, Defendants contend that both counterclaims "exclusively depend" on three issues: "(1) the enforceability of the [ ] Agreements; (2) the amount of money paid to Plaintiffs and their former partners; and (3) the value of Plaintiffs' and their partners' legal services in the 1990s." (Id. at 11.)
In Lee, the California Supreme Court declined to construe § 340.6 as broadly as Plaintiffs propose, that is, "to apply to all forms of attorney misconduct . . . that occur during the attorney-client relationship or entail the violation of a professional obligation." Lee, 191 Cal. Rptr.3d 536, 354 P.3d at 342 (holding that § 340.6 did not bar a plaintiff's fee dispute claim because the claim could also be construed as conversion). The California Supreme Court concluded that "section 340.6(a)'s time bar applies to claims whose merits necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services." Id., 191 Cal.Rptr.3d 536, 354 P.3d at 341. In other words, a claim involving an attorney's alleged misconduct does not fall within § 340.6 "merely because it occurs during the period of legal representation or because the representation brought the parties together and thus provided the attorney the opportunity to engage in the misconduct." Id., 191 Cal.Rptr.3d 536, 354 P.3d at 342. "Rather, the question is whether the claim, in order to succeed, necessarily depends on proof that an attorney violated a professional obligation as opposed to some generally applicable non-professional obligation." Id., 191 Cal. Rptr.3d 536, 354 P.3d at 343.
The Lee court defined an attorney's "professional obligation" as "an obligation that an attorney has by virtue of being an attorney, such as fiduciary obligations, the obligation to perform competently, the obligation to perform the services contemplated in a legal services contract into which an attorney has entered, and the obligations embodied in the [California] Rules of Professional Conduct." Lee, 191 Cal.Rptr.3d 536, 354 P.3d at 341-42.
Here, neither counterclaim is subject to § 340.6, even though the alleged misconduct occurred during the parties' then-existing attorney-client relationship. Defendants' counterclaims do not "necessarily depend" on proof that Plaintiffs violated a professional obligation in executing and performing the Agreements. See id., 191 Cal.Rptr.3d 536, 354 P.3d at 341, 343. Rather, as Defendants argue, it is possible to construe the Countercomplaint to allege that Plaintiffs are liable for simply receiving and unjustly retaining Defendants' money—not necessarily because they violated a legal professional obligation. See id., 191 Cal.Rptr.3d 536, 354 P.3d at 344 (finding that plaintiff's fees-related conversion claim against the defendant attorney was "not necessarily barred" under § 340.6 because the "complaint may be construed to allege that [the defendant] is liable for conversion for simply refusing to return an identifiable sum of [the plaintiff]'s money"). Due to this additional "fair reading" of the Countercomplaint, and because the Court declines to so broadly apply § 340.6's statute of limitations, the Court finds that § 340.6 does not apply here. See Foxen v. Carpenter, 6 Cal. App. 5th 284, 292, 211 Cal.Rptr.3d 372 (Cal. App. Ct. 2016) (finding that § 340.6 barred a plaintiff's contract claims based on the defendants' alleged mishandling of settlement funds because, without showing that the defendants breached their fiduciary duties, there was "no other fair reading of the pleading and the attached exhibits"). Accordingly, the counterclaims are not time-barred under § 340.6.
In the alternative that § 340.6 does not apply, Plaintiffs argue that "the next applicable limitation[s] period would be the two-year period provided in [Cal. Civ. Proc. Code] § 339(1)." (ECF No. 258 at 5.) The Court rejects this argument because § 339(1)'s two-year statute of limitations applies to oral contracts (i.e., "a contract, obligation, or liability not founded upon an instrument of writing") or contracts "evidenced by a certificate, or abstract or guaranty of title of real property, or by a policy of title insurance." Cal. Civ. Proc. Code § 339(1). The Agreements at issue are written, not oral, contracts and do not involve real property. (ECF Nos. 51-2 at 8-12 (copy of 1992 Agreement), 14-15 (copy of 1993 Agreement), 121 at 118-121 (copy of signed memorandum memorializing negotiations and execution of 1994 Agreement).)
In sum, because Defendants' allegations allow the Court to draw a reasonable inference that Plaintiffs received and unjustly retained at least $2,000,000 under a void contract at Defendants' expense, the Court will not dismiss Counterclaim II under Rule 12(b)(6). See Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). And the Court also declines to dismiss Counterclaim I because it is not a "mirror image" of Plaintiffs' competing claim in the FAC. Accordingly, the Court denies Plaintiffs' Motion.
IV. CONCLUSION
The Court notes that the parties made several arguments and cited to several cases not discussed above. The Court has reviewed these arguments and cases and determines that they do not warrant discussion as they do not affect the outcome of motions before the Court.
It is therefore ordered that Plaintiffs' motion to dismiss (ECF No. 247) is denied.