Filed 8/25/20 Monster v. Beats Electronics CA2/7

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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

MONSTER, LLC et al.,

Plaintiffs, Cross-defendants

and Appellants,

v.

BEATS ELECTRONICS, LLC 

et al.,

Defendants, Crosscomplainants and Appellants.

 B285994

 (Los Angeles County

 Super. Ct. No. BC595235)

APPEALS from judgments and postjudgment orders of the 

Superior Court of Los Angeles County, William F. Fahey, Judge. 

Judgments and postjudgment orders are affirmed.

The Ehrlich Law Firm, Jeffrey I. Ehrlich; Gorman & Miller 

and Kirk M. Hallam for Monster LLC and Noel Lee, Plaintiffs, 

Cross-defendants and Appellants.
2

Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., 

Theane D. Evangelis, Bradley J. Hamburger and Daniel R. Adler 

for Beats Electronics, LLC, Defendants, Cross-complainants and 

Appellants. 

Perkins Coie, David J. Burman, Bobbie J. Wilson, 

Donna M. Strain and Alisha C. Burgin for HTC America Holding, 

Inc., Defendant and Respondent. 

Munger, Tolles & Olson, Robert L. Dell Angelo, Mark R. 

Yohalem and Allison B. Stein for Paul D. Wachter, Defendant 

and Respondent. 

________________________

Monster LLC and Noel Lee, its chief executive officer, sued

Beats Electronics, LLC, HTC America Holding, Inc. and Paul D. 

Wachter, a member of Beats’s board, alleging Beats, assisted by 

HTC and Wachter, engaged in a fraudulent scheme to deprive 

Monster and Lee of their interest in Beats and revenue from its 

products. Beats cross-complained against Monster, alleging it 

had breached the release and nondisparagement provisions in a 

2009 agreement between the parties. The trial court entered 

judgments and postjudgment orders in favor of Beats, HTC and 

Wachter after they prevailed on summary judgment motions and 

a jury returned a verdict in favor of Beats on its cross-complaint. 

We affirm.

PROCEDURAL OVERVIEW

Monster and Lee1 filed this action in January 2015 against 

Beats, HTC, Wachter and Beats’s founders Andre Young 

1 Lee filed the lawsuit in his individual capacity and as the 

sole trustee of the Noel Lee Living Trust. For simplicity, we refer 
3

(popularly known as Dr. Dre) and Jimmy Iovine. The complaint 

alleged causes of action by Monster for fraud and deceit, aiding 

and abetting fraud and deceit, breach of duty of trust and 

confidence, aiding and abetting breach of duty of trust and 

confidence and unfair competition; and by Lee for fraud and 

deceit, breach of fiduciary duty, aiding and abetting breach of 

fiduciary duty and violations of various provisions of the 

California Corporations Code. The court sustained demurrers by 

Dr. Dre and Iovine without leave to amend, and they were 

dismissed from the case. Those dismissals are not at issue in this 

appeal.

Beats, HTC and Wachter filed separate motions for 

summary judgment, or in the alternative summary adjudication,

in April 2016. In late August 2016, one week before the 

scheduled start of trial, the court granted all three motions. 

Judgment was entered in favor of HTC and Wachter, and 

Monster and Lee filed a timely notice of appeal.

Beats tried its cross-complaint against Monster to a jury in 

December 2017. Judgment was entered in favor of Beats for 

slightly more than $11.5 million, the attorney fees and costs it 

had incurred in defending against Monster’s and Lee’s claims. 

Monster and Lee filed a timely notice of appeal. The trial court 

amended the judgment in favor of Beats to include postjudgment 

interest. Monster and Lee filed another notice of appeal. Finally, 

after granting Beats’s motion for attorney fees incurred to try its 

cross-complaint, the trial court entered a further amended 

judgment awarding Beats an addition $2.6 million. Monster and 

Lee filed a fourth notice of appeal. 

only to “Lee,” whether as a formal matter Lee acted personally or 

in his capacity as trustee. 
4

We ordered all four appeals consolidated. On appeal 

Monster and Lee contend only that the trial court erred in 

granting summary judgment in favor of Beats, HTC and 

Wachter. They make no separate challenge to any of the court’s 

other rulings or orders, including the damage award and attorney 

fees granted Beats on its cross-complaint, other than arguing, if 

we reverse the summary judgment orders, the other orders must 

be reversed as well.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Monster License Agreements

Dr. Dre and Iovine entered into a five-year license 

agreement with Monster, an experienced audio-hardware 

company, in January 2008 for the manufacture and sale of “Beats 

by Dre” headphones. Monster manufactured and distributed the 

headphones; Dr. Dre and Iovine received royalty payments and 

agreed to engage in celebrity marketing activities.

Dr. Dre and Iovine founded Beats in October 2008. On 

August 20, 2009 Beats and Monster entered into an amended 

license and promotion agreement, which superseded the January 

2008 agreement. The 2009 license agreement provided Beats, the 

licensor, owned all right, title and interest in and to “the Marks, 

Domain Names and Headphone Designs,” and Monster owned all 

right, title and interest in and to “the Products, including all 

intellectual property embodied in them.” Beats agreed to have 

Interscope Records (co-founded by Iovine) market and promote 

Beats products and Dr. Dre make promotional appearances. 

The 2009 license agreement provided it would continue in 

effect until terminated. Each party was entitled to terminate the 

agreement for cause (a material breach of contract). Beats was 

also authorized to terminate the agreement “at any time on or 
5

after the earlier of (i) January 7, 2013 [the termination date for 

the original license agreement] or (ii) the closing of a transaction 

that results in a Change of Control.” The parties’ operating 

agreement defined that term to include “the acquisition after the 

date of this Agreement, directly or indirectly, by any Person or 

group . . . of the beneficial ownership of Units of [Beats]

possessing more than 50% of the total combined voting power of 

all outstanding units of [Beats].” 

Beats was required to give at least one-year’s notice of its 

intent to terminate the agreement, except, if based on a change of 

control, notice had to be provided only for “as long as reasonably 

possible.” Upon termination Monster was required to transfer all 

ownership rights in the industrial designs of all Beats products to 

Beats or its assignee and to grant Beats or its assignee a 

perpetual, royalty-free, worldwide nonexclusive license on all 

intellectual property necessary for the continued manufacture 

and sale of all Beats-branded products.

As part of the consideration for the 2009 license agreement, 

Beats granted Monster or its designee a 5 percent ownership 

interest in the company. Monster designated Lee, through his 

living trust, to receive the Beats ownership interest. The 

separate agreement by which Lee acquired that interest (the 

2009 unit grant and repurchase rights agreement) gave Lee the 

right to require Beats to repurchase his shares upon termination 

of the 2009 license agreement (a “put”). If termination occurred 

because of a change of control and Lee exercised his put right, he 

was to be paid “the amount and form of consideration paid to the 

other owners” in the change of control transaction.
6

2. The Beats-HTC Transaction

In mid-2011 Beats agreed with a subsidiary of publicly 

traded HTC Corporation for HTC to purchase a 51 percent

interest in Beats for $300 million. The parties memorialized the 

transaction in an August 11, 2011 agreement; the transaction 

closed on October 19, 2011. As the majority owner of the 

company, HTC appointed four of its executives as directors on 

Beats’s seven-member board.

Once the Beats-HTC transaction closed, HTC, Beats and 

Beats’s other shareholders, including Lee, executed an operating 

agreement that, among other provisions, gave the minority 

owners a put right requiring HTC to purchase, using a specific 

formula, their 49 percent interest in Beats after December 31, 

2013 and gave HTC a right to purchase those minority shares 

any time on or after December 31, 2016.

In discussing the initial Beats-HTC transaction, Monster 

notes that in late December 2010, before Beats began its 

preliminary discussions with HTC, Iovine and Wachter had 

discussions about Beats’s value in an acquisition. Wachter 

advised Iovine that a partial sale without giving up “real control” 

would discount the value by approximately 20 percent. In the 

same period Wachter told Iovine the “change of control provisions 

are very clear. If we sell over 50 percent of the company, we’re 

clear, where we can get rid of Monster.”

3. Termination of the Monster-Beats 2009 License 

Agreement

Following execution of the August 2011 agreement with 

HTC, Beats notified Monster it was invoking the termination 

provision in the 2009 license agreement. The parties agreed to a 

June 30, 2012 termination date. Notwithstanding that effective 
7

date, however, the parties agreed that Monster would retain the 

right to act as Beats’s sales representative and distributor 

through the end of 2012 and also would retain the right to 

royalties and commissions through the end of 2013. The June 30, 

2012 termination agreement included a mutual release of all 

claims existing as of June 30, 2012. 

4. HTC’s Experience with Beats Products and Its Decision 

To Partially Divest Its Ownership of the Company

After the acquisition closed, HTC provided Beats with 

products and manufacturing services, including placing personnel 

in factories manufacturing Beats products to resolve supply chain 

issues. Between October 2011 and April 2012 HTC and Beats 

jointly developed and marketed several products, including 

headphones bundled with HTC phones. 

In the first quarter of 2012, however, HTC’s revenue 

declined, while Beats’s revenue increased. According to HTC, its 

new chief financial officer became concerned the Beats’s minority 

owners’ right to require HTC to purchase their units at a price 

based on Beats’s revenue was an unsustainable contingency. 

After unsuccessfully attempting to negotiate for Beats to 

surrender the put right, including by refusing to lend money to 

Beats that Beats needed and expected to finance its operations, 

on July 20, 2012 HTC and Beats agreed that HTC would sell 

back a 25 percent stake in Beats for $150 million and loan Beats 

$225 million. In return, the other Beats owners would relinquish 

their put rights. Lee, along with other investors, paid for Beats’s

reacquisition of the units by giving a nonrecourse promissory 

note to HTC.

Monster’s discussion of the July 20, 2012 transaction 

includes quotations from an internal email from a senior HTC 
8

employee with talking points that included the statements, “[I]t’s 

not the end of the world. Actually, a good thing for HTC. [¶] 

. . . We never intended to run Beats when we originally 

invested.” In a follow-up internal email, HTC’s chief operating 

officer stated, “I am slightly worried about the statement ‘htc 

never intended to control beats.’ While this is absolutely true, 

beats wanted us to buy 51 percent to effect a change of control 

and thereby remove monster. If any statement even hints that 

the rapid shift in shareholding was part of a grand and well

conceived plan, we will expose both beats and us to litigation 

from monster.” 

5. Lee Sells Beats Units

On September 10, 2012 Lee wrote Beats stating he 

intended to partially exercise his put right under the 2009 unit 

grant and repurchase rights agreement based on termination of 

the 2009 license agreement the prior year. Lee sold back a 

3.75 percent interest, retaining a 1.25 percent ownership stake in 

Beats. The $300 million price paid by HTC for its 51 percent 

interest in Beats was used to determine the price for Lee’s 

3.75 percent, as specified in the 2009 unit grant and repurchase 

rights agreement. The December 2012 unit repurchase 

agreement between Beats and Lee contained broad mutual 

releases of all claims and causes of action, “including, without 

limitation, causes of action for breach of fiduciary duty, negligent

misrepresentation, fraud, fraudulent inducement and state and 

federal securities laws violations.” 

6. Beats Looks for Another Investor

In 2013 Beats began a search for another investor and 

engaged in discussions with Carlyle Group, a private equity firm,

and with Apple. On March 13, 2013 Beats and Apple signed a 
9

“Confidentiality Agreement for Possible Transaction–Mutual.” 

Discussions between the two companies continued throughout 

2013; but Apple’s chief executive officer, Tim Cook, expressed 

interest only in acquiring Beats Music, a separate subscription 

music-streaming service, not Beats Electronics, the audiohardware business. 

Monster and Lee emphasize an internal Apple 

memorandum, dated September 10, 2013, which states Iovine 

offered to sell all of Beats to Apple for $2.5 billion. The 

memorandum also states Iovine indicated a sale price for Beats 

Music only of $2 billion once the service reached 20 million 

subscribers and observed, “This likely ends pretty quickly unless 

we want to think about buying the headphone business.” At 

approximately the same time, at a meeting between a senior 

Apple executive and Iovine, also attended by Wachter, where the 

possible acquisition of Beats Music was discussed, the executive 

told Iovine an acquisition of Beats Electronics was 100 percent off 

the table. 

In the fall of 2013 Beats sold a 31 percent interest in the 

company for $501 million to affiliates of Carlyle, based on a 

valuation of the company of approximately $1.6 billion. At the 

same time as the Carlyle transaction, HTC sold back its 

remaining interest in Beats for $265 million. The repurchase of 

HTC’s stake in the company triggered the obligation to retire 

$150 million in promissory notes given by Beats investors in 

connection with the July 20, 2012 reacquisition of HTC shares.

7. Lee Sells His Remaining Interest in Beats

As the Carlyle and HTC transactions proceeded, Lee 

considered whether to sell his remaining interest in Beats: 

Unlike the situation for Beats’s other owners, because Lee’s 
10

holding at this point was quite small, a proposed dividend by 

Beats would not be sufficient to cover the repayment of Lee’s

promissory note to HTC. 

On September 13, 2013 Lee spoke by telephone with 

Wachter. In their unverified complaint Monster and Lee 

described that conversation in the following terms: “[A]s part of 

the Carlyle acquisition, Wachter called Lee to advise him of his 

obligations as a 1.25% shareholder. Wachter informed Lee that,

pursuant to a promissory note from Lee to HTC as part of the 

‘Change of Control’ deal, Lee would have to immediately pay 

HTC $3 to $5 million to retain his 1.25% in Beats. In truth and 

as Wachter knew, any payment by Lee under the promissory note 

was much closer to $3 million, not $5 million. Wachter—feigning 

altruism—offered Lee an alternative: Lee could cause Beats to 

purchase Lee’s remaining shares for gains of approximately 

$5.5 million. Weighing these two options, Lee asked Wachter 

whether Beats had any liquidity events on the horizon: ‘Paul, if I 

retain my interest in Beats, when do you think I can cash out?’ 

Unflinching, Wachter respond: ‘There will be no liquidity event 

in the next year or two; nothing is on the horizon.’” (Emphasis in 

original.) 

As ultimately revealed by a transcript of Lee’s secret 

recording of this conversation,2 however, when explaining what 

2 Lee’s surreptitious recording and the fact Monster’s general 

counsel was listening to the call were not discovered until after 

the court had overruled Wachter’s demurrer. Thereafter, despite 

properly served discovery demands seeking all records of the 

September 13, 2013 call and a representation the recording 

would be produced by the deadline to file summary judgment 

motions, Monster and Lee did not provide defendants a copy of 

the recording until late May 2016. Then, although Wachter’s 
11

Lee would have to pay to retire the promissory note, in addition 

to what Lee received as a divided from Beats, Wachter said, 

“[Y]ou end up coming out of pocket somewhere between three and 

five million dollars. My guess is it’s going to be more like three to 

three and a half. I don’t think it’ll be as much as five. And then 

you stay in.”3

In addition, in response to Lee’s question, “Do you guys 

have an exit plan or something,” Wachter actually replied, “No. 

We don’t have a plan. I mean, you know obviously, at some point, 

well—you know, Jimmy. At some point we’ll exit, but I mean, I 

don’t think anything—I doubt there will be any other liquidity 

event in the next year or two because we’re doing this big private 

equity deal and so you know, anything is possible. I mean, you 

know, it could be that down the road we pay a dividend, or we do 

another deal and sell the company, but there is nothing on the 

horizon, Noel.” “The only thing—the only thing I’d say could 

happen would be another dividend later in the year—later next 

year or so.” 

After Beats’s president confirmed the following week that 

“there will be no liquidity event in the near future,” Lee sold his 

remaining 1.25 percent interest in Beats for approximately 

statements were purportedly summarized in declarations filed by 

Lee and Monster’s general counsel in opposition to summary 

judgment, trial counsel objected to inclusion of a certified 

transcript of the recording with Wachter’s reply memorandum, 

arguing submitting evidence in support of a reply is improper. 

The trial court was not persuaded, to say the least. 

3 Lee’s lawyer was informed that Lee would have to pay 

about $3 million to retire the note if Beats made an excess 

distribution of $100, which Beats’s counsel told Lee’s lawyer was 

“reasonably likely.” 
12

$12.9 million; after paying the HTC note, he netted

approximately $5.6 million. The 2013 unit repurchase agreement 

that effected this sale by Lee contained a broad set of mutual 

releases in language substantially similar to the releases in the 

December 2012 unit repurchase agreement. The 2013 agreement 

provided it would be governed by Delaware law. 

8. Apple Acquires Beats

In early 2014 Apple changed its view of a possible 

acquisition of Beats and its hardware business. Apple began its

formal due diligence in March 2014 and agreed to buy Beats for 

approximately $3 billion on May 28, 2014.

9. Monster’s and Lee’s Tort Claims

Monster and Lee filed this lawsuit against Beats, HTC, 

Wachter, Young and Iovine on January 6, 2015. The complaint’s 

11 causes of action were predicated on two distinct theories of 

fraud: Monster alleged Beats, assisted by HTC, defrauded it by 

relying on a sham transaction with HTC to improperly trigger 

the change of control provision in the 2009 license agreement. 

Lee alleged Beats and Wachter fraudulently induced him to sell 

his 5 percent interest in Beats back to the company in December 

2012 and September 2013 for less than they knew it was worth.

10. The Summary Judgment Motions

Following extensive discovery, Beats, HTC and Wachter

each moved for summary judgment on April 28, 2016. In its 

motion Beats argued contractual releases barred most of the 

claims alleged by Monster and Lee, and Monster and Lee could 

not challenge the releases as fraudulently induced because they 

had not rescinded the agreements containing the releases as 

required by California law. Beats additionally argued the tort 

claims based on allegations it had falsely represented a change of 
13

control occurred when HTC acquired its 51 percent interest in 

Beats in 2011 failed because the undisputed evidence established 

as a matter of law the transaction was not a sham, as Monster 

contended. With respect to Lee, Beats argued it did not owe him 

any fiduciary duties and the statements upon which he 

purportedly relied when selling back his remaining interest in 

the company were true when made.

HTC’s motion principally argued the undisputed facts 

established its acquisition of a 51 percent interest in Beats in 

2011 was a legitimate business transaction and could not provide 

the basis for a claim it had aided and abetted any fraud or breach 

of fiduciary duty by Beats. HTC also disputed Monster’s and 

Lee’s claims that Beats owed them any fiduciary duties in the 

first place.

Wachter, in addition to pointing to Monster’s and Lee’s 

releases, argued, in part, there was no evidence his statements to 

Lee on September 13, 2013 were false; the comment that no 

liquidity events were on the horizon was a statement about 

future events, which is not actionable; and the evidence 

indisputably established that Lee did not reasonably rely on 

either of the statements in deciding to sell his remaining interest 

in Beats. Wachter also argued Monster and Lee were 

impermissibly attempting to hold him personally liable for 

actions taken in his capacity as a corporate manager of Beats.

11. The Trial Court’s Ruling Granting Summary Judgment

The summary judgment motions were argued and taken 

under submission on August 10, 2016. On August 29, 2016 the

court granted the motions.4

4 California Rules of Court, rule 3.1350(b) requires a party 

moving for summary adjudication to identify in the notice of 
14

In its order the court ruled the 2009 license agreement gave 

Beats the unfettered right to terminate the agreement upon a 

change of control. Monster had no right of approval, and the 

change in control did not have to be objectively reasonable. 

Under Carma Developers (Cal.), Inc. v. Marathon Development

California, Inc. (1992) 2 Cal.4th 342 (Carma Developers), the 

court continued, the covenant of good faith and fair dealing could 

not be read to prohibit Beats from entering into the HTC 

transaction based on the purported subjective intent of Beats’s 

leadership to rid itself of its obligations to Monster. In addition,

Monster and Lee failed to present any triable issue of fact to 

support the claim the 2011 acquisition was part of a sham 

transaction. Accordingly, all claims based on the purported 

misrepresentation a change of control had occurred fail as a 

matter of law.

The court also ruled no fiduciary relationship existed 

between Beats, on the one hand, and Monster or Lee, on the 

other hand, finding, in part, the 2009 license agreement did not 

create a joint venture between Monster and Beats. Accordingly, 

motion and the separate statement of undisputed material facts 

the specific cause of action, affirmative defense, claims for 

damages or issues of duty to which the motion is directed. In its 

August 29, 2016 order the court explained the moving parties had 

failed to comply with this rule in their notice of motion. 

Accordingly, the court ruled, “[E]ach motion will be treated solely 

as a motion for summary judgment.”

In a separate order, also filed August 29, 2016, the court 

sustained in part and overruled in part the moving parties’ 

objections to Monster and Lee’s evidence in opposition to 

summary judgment. Neither of those rulings has been 

challenged on appeal.
15

HTC could not be liable for aiding and abetting a breach of 

fiduciary duty. Finally, the court concluded the releases signed 

by Monster in 2012 and by Lee in 2012 and 2013 barred their 

claims against Beats and Wachter.5

CONTENTIONS

Monster and Lee contend the trial court erred in granting 

summary judgment because they raised triable issues of fact 

whether Beats and Wachter committed fraud, aided by HTC, by 

misrepresenting that the Beats-HTC transaction constituted a 

bona fide change of control within the meaning of the 2009 

license agreement. They contend, therefore, it was error to rule 

the release agreements barred their claims because triable issues 

of fact exist whether those releases were unenforceable as

procured by fraud. Lee also contends triable issues of fact exist 

whether he was fraudulently induced to sell his remaining 

interest in Beats by Beats’s and Wachter’s failure to disclose 

Beats’s ongoing negotiations with Apple.

DISCUSSION

1. Standard of Review

A motion for summary judgment is properly granted when 

“all the papers submitted show that there is no triable issue as to 

any material fact and that the moving party is entitled to a 

judgment as a matter of law.” (Code Civ. Proc., § 437c, subd. (c).)

We review a grant of summary judgment de novo and, viewing 

the evidence in the light most favorable to the nonmoving party 

5 The court also ruled in favor of the moving parties on 

Monster’s eighth cause of action for unfair competition, which 

was based on the alleged unlawful conduct that formed the bases 

for its other causes of action. Monster does not challenge that 

ruling on appeal.
16

(Regents of University of California v. Superior Court (2018) 

4 Cal.5th 607, 618), decide independently whether the facts not 

subject to triable dispute warrant judgment for the moving party 

as a matter of law. (Hampton v. County of San Diego (2015) 

62 Cal.4th 340, 347; Schachter v. Citigroup, Inc. (2009) 47 Cal.4th 

610, 618.)

We may affirm an order granting summary judgment if 

correct on any of the grounds asserted in the trial court, 

regardless of that court’s stated reasons, provided the parties 

have had an opportunity to brief the issue. (Code Civ. Proc., 

§ 437c, subd. (m)(2); see Garrett v. Howmedica Osteonics Corp.

(2013) 214 Cal.App.4th 173, 181; Dominguez v. American Suzuki 

Motor Corp. (2008) 160 Cal.App.4th 53, 57.)

2. Monster and Lee Failed To Show Any Triable Issue of 

Material Fact To Support Their Claim the HTC 

Transaction Did Not Constitute a Bona Fide Change of 

Control Within the Meaning of the 2009 License

Agreement

In their opposition to the motions for summary judgment, 

Monster and Lee presented evidence Beats designed the HTC 

transaction specifically to trigger the change in control provision 

of the 2009 license agreement without ceding actual operating 

authority of its business. By doing so, they contend, Beats 

violated the implied covenant of good faith and fair dealing in the 

2009 license agreement and, as a consequence, misrepresented a 

change of control within the meaning of the agreement had 

occurred, permitting termination of the agreement.6 In addition, 

6 Monster acknowledges it did not plead a cause of action for 

breach of contract or breach of the implied covenant of good faith 
17

pointing to the timing of Beats’s reacquisition of half of HTC’s 

stake in the company in July 2012 (one month after Monster and 

Beats had agreed to the terms for termination of the 2009 license 

agreement, but nine months after the Beats-HTC transaction 

closed) and the fact the cash consideration paid by Beats was 

equal to the per-unit price HTC had paid, Monster and Lee assert 

they presented triable issues of fact as to whether the transaction 

was a sham. The first argument is legally flawed; the second 

insufficiently supported to survive summary judgment. 

a. The implied covenant did not prohibit a transaction 

designed to effect a change in control

Every contract contains an implied covenant of good faith 

and fair dealing that “‘neither party will do anything which will 

injure the right of the other to receive the benefits of the 

agreement.’” (Kransco v. American Empire Surplus Lines Ins. Co.

(2000) 23 Cal.4th 390, 400.) This implied covenant is “read into 

contracts ‘in order to protect the express covenants or promises of 

the contract, not to protect some general public policy interest not 

directly tied to the contract’s purpose.’” (Carma Developers, 

supra, 2 Cal.4th at p. 373; see Wolf v. Walt Disney Pictures & 

Television (2008) 162 Cal.App.4th 1107, 1120 (Wolf) [“the implied 

covenant will only be recognized to further the contract’s 

purpose”].) 

The implied covenant “finds particular application in 

situations where one party is invested with a discretionary power 

affecting the rights of another. Such power must be exercised in 

good faith.” (Carma Developers, supra, 2 Cal.4th at p. 372; 

and fair dealing and explains it relies on that provision only as a 

step in its fraud analysis.
18

accord, Ladd v. Warner Bros. Entertainment, Inc. (2010) 

184 Cal.App.4th 1298, 1306-1307.) Nonetheless, if the express 

purpose of the contract is to grant unfettered discretion, and the 

contract is otherwise supported by adequate consideration, then 

the conduct is, by definition, within the reasonable expectation of 

the parties and “can never violate an implied covenant of good 

faith and fair dealing.” (Carma Developers, at p. 376 [lessor’s 

termination of lease for lessor’s own financial gain was not 

breach of implied covenant of good faith because it was expressly 

permitted by the lease and therefore within parties’ reasonable 

expectations]; see Wolf, supra, 162 Cal.App.4th at pp. 1120-1121; 

see also Third Story Music, Inc. v. Waits (1995) 41 Cal.App.4th 

798, 808 [“courts are not at liberty to imply a covenant directly at 

odds with a contract’s express grant of discretionary power except 

in those relatively rare instances when reading the provision 

literally would, contrary to the parties’ clear intention, result in 

an unenforceable, illusory agreement”].) 

“[B]reach of a specific provision of the contract is not a 

necessary prerequisite to a claim for breach of the implied 

covenant of good faith and fair dealing.” (Schwartz v. State Farm 

Fire & Casualty Co. (2001) 88 Cal.App.4th 1329, 1339; accord, 

Carma Developers, supra, 2 Cal.4th at p. 373 [“breach of a specific 

provision of the contract is not a necessary prerequisite” to an 

action for breach of the implied covenant of good faith; “[w]ere it 

otherwise, the covenant would have no practical meaning, for any 

breach thereof would necessarily involve breach of some other 

term of the contract”].) However, a claim for breach of the 

implied covenant “must show that the conduct of the defendant, 

whether or not it also constitutes a breach of a consensual 

contract term, demonstrates a failure or refusal to discharge 
19

contractual responsibilities, prompted not by an honest mistake, 

bad judgment or negligence but rather by a conscious and 

deliberate act, which unfairly frustrates the agreed common 

purposes and disappoints the reasonable expectations of the 

other party thereby depriving that party of the benefits of the 

agreement.” (Careau & Co. v. Security Pacific Business Credit, 

Inc. (1990) 222 Cal.App.3d 1371, 1395; see Mosely v. Pacific 

Specialty Ins. Co. (2020) 49 Cal.App.5th 417, 436 [same]; Nieto v. 

Blue Shield of California Life & Health Ins. Co. (2010) 

181 Cal.App.4th 60, 86.)

Here, the 2009 license agreement expressly granted Beats 

the right to terminate its relationship with Monster for no reason 

at all after January 7, 2013 (the termination date of the original 

license agreement between Monster and Iovine and Dr. Dre) or at 

an earlier date upon the closing of a transaction that resulted in 

a change in control of Beats, as defined by the parties. The 

agreement did not require, as a condition for exercising either 

termination right, that Beats act for some reason other than a 

desire to withdraw manufacturing and distribution rights from 

Monster to hold for itself or to grant to another party.7

7 Had Monster intended to limit Beats’s right to terminate 

the 2009 license agreement prior to January 7, 2013 to situations 

involving “a change of control necessitated by the ‘buyer’ and not 

by Beats and its founders,” as it now claims, it could have

included that restriction in the agreement. It is not the function 

of the implied covenant of good faith and fair dealing to correct 

lapses of one party’s negotiating team. (See generally Guz v. 

Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-350 [the implied 

covenant of good faith and fair dealing “cannot impose 

substantive duties or limits on the contracting parties beyond 

those incorporated in the specific terms of their agreement”].) 
20

The cases Monster and Lee cite to support their argument 

are readily distinguished. For example, Ladd v. Warner Bros. 

Entertainment, Inc., supra, 184 Cal.App.4th 1298, the primary 

case upon which they rely, was an appeal from a jury verdict in 

favor of profit participants in several movies. At trial the 

president of Warner’s domestic distribution company admitted 

the company had a duty to act in good faith toward its profit 

participants, which included an obligation to “‘fairly and 

accurately allocate license fees to each of the films based on their 

comparative value as part of a package.’” (Id. at p. 1307.) The 

issue on appeal was not the scope of the implied covenant, but 

whether substantial evidence supported the jury’s finding that 

Warner had breached its admitted duty when it allocated the

licensing fees. (Ibid.) 

Similarly, in Locke v. Warner Bros., Inc. (1997) 

57 Cal.App.4th 354 the court held that a triable issue of fact 

existed as to whether Warner had breached a development deal 

with Locke by categorically refusing to work with her. The court 

explained, “[W]hen it is a condition of an obligor’s duty that he or 

she be subjectively satisfied with respect to the obligee’s 

performance, the subjective standard of honest satisfaction is 

applicable.” (Id. at p. 363.)

In marked contrast to the contracts in the cases cited by 

Monster and Lee, both clauses of the termination provision

required only the occurrence of an objective event, not the

exercise of discretion by Beats. Beats simply enforced its rights 

under the parties’ agreement; it was not attempting to get more 

than it had bargained for.8 (See Carma Devoplers, supra, 

8 Although the 2009 license agreement and its implied 

covenant of good faith do not limit Beats’s motivation for entering 
21

2 Cal.4th at p. 362 [distinguishing Kendall v. Ernest Pestana, Inc.

(1985) 40 Cal.3d 488 and other cases with consent provisions, 

explaining, “[o]nly when one party attempts to obtain more from 

the bargain than it reasonably could expect, at the expense of the 

other, does a problem arise”].) In sum, terminating the 2009 

license agreement because it was in Beats’s financial interest to 

do so did not—indeed, could not—frustrate the reasonable 

expectations of the parties and, therefore, did not make false 

Beats’s representation that a lawful change in control had 

occurred. (See Pasadena Live v. City of Pasadena (2004) 

114 Cal.App.4th 1089, 1094 [“‘[t]he implied covenant of good

faith and fair dealing is limited to assuring compliance with 

the express terms of the contract, and cannot be extended to 

create obligations not contemplated by the contract’”].)

b. Monster and Lee failed to present evidence to support

a finding the Beats-HTC transaction was a sham

Emphasizing internal emails from Beats and HTC that 

indicate Beats never intended to relinquish real control of its 

operations, Monster and Lee label Beats’s 2011 sale of a 

51 percent interest in the company to HTC, coupled with Beats’s

subsequent buyback of half of HTC’s holdings, a sham, 

fraudulent in nature and inadequate to trigger the change of 

control provision in the 2009 license agreement. Monster and 

Lee failed to present sufficient evidence to defeat the motions for 

summary judgment directed to this aspect of their claims.

As discussed, the 2009 license agreement specified that 

“Change of Control” for purposes of the termination provision was 

defined in a separate document, titled Operating Agreement of 

into a change of control transaction, the transaction itself must 

be legitimate, an issue we address in the following section. 
22

Beats Electronics, LLC, entered into as of August 20, 2009 by the 

members of Beats, who included Dr. Dre, Iovine (through a trust) 

and Lee (through a trust). Paragraph 3.8 of the operating 

agreement defined that term to include “the acquisition after the 

date of this Agreement, directly or indirectly, by any Person or 

group . . . of the beneficial ownership of Units of the Company 

possessing more than 50% of the total combined voting power of 

all outstanding units of the Company.” That is, the termination 

provision related to a formal change (direct or indirect) in 

ownership and voting power, not operational control of the 

company.9 

As Monster and Lee admit, such a formal change took place 

in 2011. They also acknowledge HTC’s conduct after the 

October 19, 2011 close of the Beats-HTC transaction, without 

considering the July 20, 2012 buyback, evidenced a genuine 

change of control within the meaning of the 2009 license 

agreement—a concession compelled by the evidence: HTC 

actually paid $300 million for its 51 percent share in Beats; it 

appointed four members to the seven-member Beats board; and it 

produced and sold HTC products using Beats technology and 

branding.

9 Interpretation of a written instrument is solely a judicial

function when, as here, it is based on the words of the instrument

alone or there is no conflict in extrinsic evidence. (City of Hope

National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375,

395; see Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426,

439 [“[i]t is solely a judicial function to interpret a written 

contract unless the interpretation turns upon the credibility of 

extrinsic evidence, even when conflicting inferences may be 

drawn from uncontroverted evidence”]; Wolf, supra,

162 Cal.App.4th at p. 1134, fn. 18 [same].)
23

The additional evidence proffered concerning Beats’s 

reacquisition of a portion of HTC’s interest in the company in 

2012 fails to create a triable issue of material fact concerning the 

bona fide nature of the their 2011 transaction. Relying on 

analogies to tax cases discussing the “step transaction doctrine” 

(see, e.g., Shuwa Investment Corp. v. County of Los Angeles

(1991) 1 Cal.App.4th 1635, 1650 [“purportedly separate 

transaction will be amalgamated into a single transaction when 

it appears they were really component parts of a single 

transaction intended from the outset to be taken for the purpose 

of reaching the ultimate result”]) and securities cases involving 

“parking” (see, e.g., Yoshikawa v. SEC (9th Cir. 1999) 192 F.3d 

1209, 1214 [securities “parking” involves a prearrangement to 

sell and then buy back securities to conceal true ownership for a 

bad-faith purpose, accomplished through a sham transaction in 

which nominal title is transferred to the purported buyer while 

the economic incidents of ownership are left with the purported 

seller]), Monster and Lee argue this “curiously timed second 

transaction” could be viewed by a jury as part of a single deal 

that did not effectively transfer to HTC ownership of a majority 

stake in Beats as required to invoke the termination provision in 

the 2009 license agreement.10 

10 In their reply brief, while explaining their argument,

Monster and Lee concede a second transaction distant enough 

from the first is properly viewed, as a matter of law, as discrete. 

“If HTC had given up its controlling stake in Beats just 48-hours 

after acquiring it, there can be little doubt both the purchase and 

the buyback could justifiably be treated as a single transaction. 

Similarly, if the buyback had occurred, say, 2 years after HTC’s 

acquisition, the Court could conclude as a matter of law that 
24

Beats contends it is improper to import these theories from 

tax and securities law, which it describes as public-policy-based

doctrines used to preclude tax-avoidance and securities fraud, 

into an ordinary contract dispute involving allegations of fraud, 

at least where the parties’ agreement does not include a 

requirement that a triggering transaction be “bona fide” or meet 

a “substance,” as well as a “form” test. To do so, Beats argues, 

would impermissibly allow the court to insert new terms into the 

parties’ contract. (Cf. Carma Developers, supra, 2 Cal.4th at 

p. 374.) 

We need not resolve that dispute. On this record Monster 

and Lee’s evidence—the timing of the two transactions and the 

consideration paid in 2012—does not create a triable issue that 

the 2011 Beats-HTC transaction was not a legitimate change in 

ownership that triggered the termination provision in the 

2009 license agreement. As discussed, for months after October 

2011 HTC exercised its ownership rights, appointing a majority 

to the Beats board and developing and marketing products using 

Beats technology and bearing Beats branding. HTC’s divestment 

of a portion of its ownership stake in Beats in July 2012, 

nine months later, as HTC explained, was driven by its concern 

the put rights given to Beats shareholders at the time of the 

2011 transaction had created an unacceptable financial exposure 

and was achieved only after contentious negotiations. Nor was 

the consideration for the July 2012 transaction the same as the 

original transaction: In addition to paying for the shares at the 

initial per-unit price, Beats shareholders surrendered their put 

there were two discrete transactions. Between these poles is a 

grey area that presents a factual question for the jury to resolve.” 
25

rights, which was HTC’s primary goal; and HTC, in turn, agreed 

to loan Beats approximately $225 million.

Monster and Lee proffered no evidence to dispute HTC’s

legitimate business justification for its decision to divest a portion 

of its interest in Beats in the year following the acquisition. 

Similarly, they presented no evidence suggesting HTC intended 

from the outset to sell back a portion of that interest, let alone 

that there was any form of binding commitment to do so when 

HTC entered into the transaction in 2011. On this record, the 

inference Monster and Lee suggest from the timing of the two

transactions is not sufficient to allow a reasonable finder of fact 

to find by a preponderance of the evidence that the July 2012 

divestment was simply a second step in a sham transaction. 

(See Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850

[“[t]here is a triable issue of material fact if, and only if, the 

evidence would allow a reasonable trier of fact to find the 

underlying fact in favor of the party opposing the motion in 

accordance with the applicable standard of proof”]; Catholic

Healthcare West v. California Ins. Guarantee Assn. (2009)

178 Cal.App.4th 15, 23 [“[a] triable issue of fact exists when the 

evidence reasonably would permit the trier of fact, under the 

applicable standard of proof, to find the purportedly contested 

fact in favor of the party opposing the motion”].)

c. Monster Has No Viable Constructive Fraud Claim 

Based on the 2011 Beat-HTC Transaction

Monster contends the trial court improperly granted 

summary adjudication as to its fourth causes of action against 

Beats and Wachter for breach of a duty of trust and confidence 

and its fifth cause of action again Beats, Wachter and HTC for 

aiding and abetting that breach by resolving disputed issues of 
26

fact to find the 2009 license agreement did not create a joint 

venture between it and Beats. Accordingly, it asserts, triable 

issues of fact exist whether Beats owed it fiduciary duties as a 

joint venturer and whether it breached those duties and 

committed constructive fraud in connection with the 2011 HTC 

transaction. 

The only purported breach of fiduciary duty Monster 

identifies is Beats’s failure to disclose its desire to terminate the 

2009 license agreement and its intent to structure the 2011 

transaction with HTC to allow it to do so. That is, even if not a 

sham transaction, Beats failed to disclose it had arranged to sell 

HTC a 51 percent interest in the company, rather than 

something less than 50 percent, while maintaining operational 

control. (See, e.g., Los Angeles Memorial Coliseum Com. v.

Insomniac, Inc. (2015) 233 Cal.App.4th 803, 831 [there is a duty

to disclose material facts when the parties are in a fiduciary

relationship].) However, as discussed, the implied covenant of 

good faith and fair dealing in the 2009 license agreement did not 

limit Beats’s right to terminate the agreement prior to January 7, 

2013 to situations involving a change of control necessitated by 

the buyer, rather than by Beats. Consequently, Beats’s 

motivation for a wholly legitimate transaction to which Monster 

was not a party could not be material to Monster. (See Engalla v. 

Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 977 [“[a] 

misrepresentation is judged to be ‘material’ if ‘a reasonable man 

would attach importance to its existence or nonexistence in 

determining his choice of action in the transaction in question’”]; 

see also Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 

332 [a misrepresentation “may also be material if ‘the maker of 

the representation knows or has reason to know that its recipient 
27

regards or is likely to regard the matter as important in 

determining his choice of action, although a reasonable man 

would not so regard it’”].) Indeed, this lack of materiality, and, 

thus the failure of Monster to identify a viable cause of action for 

breach of fiduciary duty, is confirmed by Monster’s failure to even 

suggest how it was harmed by Beats’s nondisclosure of its 

rationale for the 2011 HTC transaction. (See Alliance Mortgage 

Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239 & fn. 4 [actual 

damages are an essential element of constructive fraud].) 

In sum, because the 2011 Beats-HTC transaction was 

properly invoked to trigger the termination provision in the 

2009 license agreement, Monster’s and Lee’s fraud and breach of 

fiduciary duty claims and Lee’s securities law claims11 to the 

extent based on that transaction fail as a matter of law. In light 

of our ruling on the substance of Monster’s and Lee’s claims 

concerning the Beats-HTC transaction, we need not address the 

parties’ dispute regarding the enforceability of the releases given 

by Monster and Lee as they relate to that transaction. 

11 Lee’s ninth cause of action for violations of Corporations 

Code sections 25400 and 25500 relates solely to the Beats-HTC 

transaction. Section 25400 prohibits transactions that involve no 

change in the beneficial ownership of a security to create a false 

or misleading appearance of active trading in the security—that 

is, market manipulation. (See Diamond Multimedia Systems, 

Inc. v. Superior Court (1999) 19 Cal.4th 1036, 1048.) 

Section 25500 authorizes a private action to recover damages for 

anyone injured by a violation of section 25400. Whatever other 

fundamental flaws this cause of action might have, it fails 

because the Beats-HTC transaction involved a genuine change in 

ownership of the Beats units involved in the October 2011 and 

July 2012 transactions. 
28

3. Lee Failed To Raise a Triable Issue of Material Fact 

Supporting His Claims Against Beats and Wachter

12

As discussed, Lee sold his 5 percent interest in Beats back 

to the company in two transactions: 3.75 percent in December 

2012 for $14.1 million pursuant to his put right, documented in 

the December 20, 2012 unit repurchase agreement; and the 

remaining 1.25 percent in October 2013 for $12.9 million, 

documented in the October 30, 2013 unit repurchase agreement.

a. The December 2012 sale

In the complaint Lee alleged he resold his 3.75 percent 

interest in late 2012 because he was “[f]earful that he did not 

have the required transparency vis-a-vis his investment in 

Beats.” It is undisputed the amount paid for Lee’s units was 

fixed by a formula specified in the 2009 unit grant and 

repurchase rights agreement and based on the $300 million paid 

by HTC for 51 percent of the company in September 2011.13 Lee 

12 Lee asserts his second cause of action for fraud and deceit, 

sixth cause of action for breach of fiduciary duty, and ninth, 10th 

and 11th causes of action for violations of California securities 

laws against Beats and Wachter. Although his seventh cause of

action for aiding and abetting breach of fiduciary duty names “all 

defendants,” which includes HTC, the only breach of fiduciary 

duty identified concerns Lee’s sale of his remaining 1.25 percent

interest in Beats, a transaction that did not involve HTC. 

Accordingly, the trial court properly granted HTC’s motion for 

summary judgment against Lee. 

13 The agreement provided, “[I]f the Put Right is exercised in 

connection with a termination of the Monster Agreement 

pursuant to Section 14.3 as a result of a Change of Control 

transaction, [Lee] shall be paid the amount and form of 
29

did not allege that any false statements or misrepresentations 

had been made to him in connection with that transaction or that 

Beats or Wachter failed to disclose any material information—an 

absence of charging allegations that Wachter noted in his motion 

for summary judgment. 

In his declaration in opposition to the motion for summary 

judgment, however, Lee attempted to expand this aspect of his 

claim, stating that, by the time he decided to exercise his put 

right, Beats had obtained a substantially higher valuation than 

the one used in the HTC transaction. He declared he would not 

have sold any of his units had that subsequent valuation been 

disclosed to him. In his reply memorandum Wachter correctly 

argued that summary judgment may not be defeated based on 

claims not raised by the pleadings.

“To create a triable issue of material fact, the opposition

evidence must be directed to issues raised by the pleadings.”

(Distefano v. Forester (2001) 85 Cal.App.4th 1249, 1264;

see Turner v. Anheuser-Busch, Inc. (1994) 7 Cal.4th 1238, 1252

[an appellate court reviewing a ruling on a motion for summary

judgment “‘identif[ies] the issues framed by the pleadings’”].)

Although a court is “empowered to read the pleadings broadly,”

the pleadings must “give fair notice to the opposing party of the

theories on which relief is generally being sought.” (Howard v.

Omni Hotels Management Corp. (2012) 203 Cal.App.4th 403,

422.) “In assessing whether the issues raised by [the] plaintiff in

opposing summary judgment are encompassed by the controlling

pleading, . . . the pleading must allege the essential facts ‘“‘with

reasonable precision and with particularity sufficient to acquaint

consideration paid to the other owners of the Company in such 

Change of Control transaction.” 
30

a defendant with the nature, source and extent of [the] cause of

action.’”’” (Soria v. Univision Radio Los Angeles, Inc. (2016)

5 Cal.App.5th 570, 585.) “‘“[A] party cannot successfully resist

summary judgment on a theory not pleaded.”’” (Comunidad

en Accion v. Los Angeles City Council (2013) 219 Cal.App.4th

1116, 1125.)

Monster and Lee repeat in the factual summary of their 

opening brief Lee’s criticism of Beats for not revealing the 

subsequent, higher valuation of the company before Lee exercised 

his put rights, and include a conclusory assertion this omission 

provides Lee with viable securities law claims against Beats and 

Wachter under Corporations Code sections 25401 and 25504.1. 

But they do not address in either their opening or reply briefs 

their failure to plead this theory, let alone attempt to justify 

reversal of summary judgment based on a fraud claim first 

presented in their opposition papers. (See Johnson v. The 

Raytheon Co., Inc. (2019) 33 Cal.App.5th 617, 636 [“‘[t]o create a 

triable issue of material fact, the opposition evidence must 

be directed to issues raised by the pleadings’”].)

b. Lee’s sale of the remaining 1.25 percent

As discussed, without revealing the covert recording of his 

September 13, 2013 telephone conversation with Wachter, Lee 

alleged in the complaint that the sale of his remaining 

1.25 percent interest in Beats had been fraudulently induced by 

Wachter’s unequivocal, affirmative misrepresentation during the 

call that “[t]here will be no liquidity event in the next year or two; 

nothing is on the horizon.” The same inaccurate quotation from 

the conversation was presented to the trial court in Lee’s 

declaration in opposition to the motion for summary judgment 
31

and summarized in Lee’s response to the moving parties’ 

separate statements of undisputed facts. 

The secret recording of the September 13 conversation, 

ultimately disclosed to Beats and Wachter and provided to the 

trial court before argument on the summary judgment motions, 

confirmed Wachter had not made the emphatic statement 

described, but rather opined, “At some point we’ll exit, but I 

mean, I don’t think anything—I doubt there will be any other 

liquidity event in the next year or two because we’re doing this 

big private equity deal and so you know, anything is possible. I 

mean, you know, it could be that down the road we pay a 

dividend, or we do another deal and sell the company, but there 

is nothing on the horizon.”

Aware of the actual language used by Wachter and faced 

with its disclosure to Beats and the court, Lee shifted the focus of 

his actual and constructive fraud claims from an allegation he 

sold his remaining 1.25 percent in the company based on 

affirmative misrepresentations to an argument that, even if 

nothing definite had yet been negotiated with Apple, there was a 

triable issue of material fact whether Wachter and Beats 

breached their duty to disclose to him the ongoing discussions

with Apple, quoting Cicone v. URS Corp. (1986) 183 Cal.App.3d 

194, 201: “One who is asked for or volunteers information must 

be truthful, and the telling of a half-truth calculated to deceive is 

fraud.” (See Persson v. Smart Inventions, Inc. (2005) 

125 Cal.App.4th 1141, 1164-1165 [“intentional concealment exists 

when a party to a transaction, who is under no duty to speak, 

nevertheless does speak and suppresses facts which materially 

qualify the facts stated”]; Vega v. Jones, Day, Reavis & Pogue

(2004) 121 Cal.App.4th 282, 291 [“[a]ctive concealment or
32

suppression of facts by a nonfiduciary ‘is the equivalent of a false

representation, i.e., actual fraud’”].) Lee declared in opposition to

the motions, “Had I known Apple was in any acquisition

discussions to buy Beats during September and October 2013, I

would not have sold any of my interest in Beats.”

Beats and Wachter might be correct that the discussions

with Apple during fall 2013 were at such a preliminary stage that

no disclosure was necessary. (See, e.g., Ins. Underwriters

Clearinghouse, Inc. v. Natomas Co. (1986) 184 Cal.App.3d 1520,

1528 [“it is unnecessary to disclose, in connection with a 

purchase or sale of securities, the occurrence of preliminary 

merger discussions or negotiations”; such discussions are

“immaterial as a matter of law” because “their disclosure may 

itself be misleading, and might do more harm than good”].) 

However, the evidence underlying the parties’ disputes

concerning the nature and extent of the negotiations at that time

is sufficient to preclude summary judgment on that basis. 

Nonetheless, under Delaware law, which the parties agreed

would govern the validity, interpretation and effect of the

2013 unit repurchase agreement, “sophisticated parties to

negotiated commercial contracts may not reasonably rely on

information that they contractually agreed did not form a part of

the basis for their decision to contract.” (H-M Wexford LLC v.

Encorp, Inc. (Del. Ch. 2003) 832 A.2d 129, 142, fn. 18;

see RAA Mgmt., LLC v. Savage Sports Holdings, Inc. (Del. 2012)

45 A.3d 107, 119 [affirming dismissal of claims because barred by

the nonreliance provisions in the parties’ nondisclosure

agreement; Delaware law and public policy favor “enforcing

contractually binding written disclaims of reliance on

representations outside of a final agreement of sale or merger”];
33

Prairie Capital III, L.P. v. Double E Holding Corp (Del. Ch. 2015)

132 A.3d 35, 50 [“Delaware law enforces clauses that identify the 

specific information on which a party has relied and which 

foreclose reliance on other information”]; see also ABRY

Partners V, L.P. v. F&W Acquisition LLC (Del. Ch. 2006)

891 A.2d 1032, 1059 [comprehensive nonreliance clauses will 

enable parties “to escape responsibility for their own fraudulent 

representations made outside of the agreement’s four corners,”

but will not permit a contracting party to avoid a rescission or 

damages claim “based on a false representation of fact made 

within the contract itself”].)

14

14 Lee’s argument we may disregard the parties’ choice of 

Delaware law to govern the 2013 unit repurchase agreement 

because Delaware law permitting the enforcement of a 

nonreliance clause conflicts with this state’s fundamental public 

policy and California’s interest in the transaction materially 

outweighs Delaware’s is not persuasive. (See Nedlloyd Lines B.V. 

v. Superior Court (1992) 3 Cal.4th 459, 470 [“a valid choice-of-law 

clause, which provides that a specified body of law ‘governs’ the 

‘agreement’ between the parties, encompasses all causes of action 

arising from or related to that agreement, regardless of how they 

are characterized, including tortious breaches of duties 

emanating from the agreement or the legal relationships it 

creates”].)

Beats was incorporated in Delaware. Accordingly, there 

unquestionably was a reasonable basis for selection of Delaware 

law. (See Pitzer College v. Indian Harbor Ins. Co. (2019) 

8 Cal.5th 93, 100-101 [first step in evaluating enforceability of a 

contractual choice-of-law provision is to determine whether the 

chosen state has a substantial relationship to the parties or their 

transaction or whether there is any other reasonable basis for the 

choice].) Indeed, under the internal affairs doctrine, Delaware 

had an overriding interest in Beats’s repurchase of its own 
34

shares. (See Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1106, 

fn. 2 [“[a] conflict of laws principle known as the ‘internal affairs 

doctrine’ posits that only one state—usually the state of 

incorporation—should have the authority to regulate a 

corporation’s internal affairs”]; State Farm Mutual Automobile 

Ins. Co. v. Superior Court (2003) 144 Cal.App.4th 434, 442 

[“‘internal affairs’ include . . . ‘“the purchase and redemption by 

the corporation of outstanding shares of its own stock”’”].) 

In addition, the split in California authority concerning the 

validity of a nonreliance provision (compare Fisher v. 

Pennsylvania Life Co. (1977) 69 Cal.App.3d 506, 511 [enforcing 

nonreliance provision] with Ron Greenspan Volkswagen, Inc. v. 

Ford Motor Land Development Corp. (1995) 32 Cal.App.4th 985, 

990 [declining to enforce a nonreliance provision] precludes a 

finding that applying Delaware law to this issue would 

contravene a fundamental policy of California. (See Pitzer 

College, at p. 101 [if the chosen state’s law is not contrary to a 

fundamental policy of California, “the court shall enforce the 

parties’ choice of law”].) 

Finally, contrary to Lee’s argument, Corporations Code 

section 25701, which voids “[a]ny condition, stipulation or 

provision purporting to bind any person acquiring any security to 

waive compliance with any provision of this law,” does not 

evidence a fundamental state policy barring enforcement of the 

nonreliance provision in this case. By its terms, section 25701 

applies only to waivers by the buyer of securities, not the seller, 

as Lee was here. The case law interpreting section 25701 

confirms its scope is limited to protecting the rights of 

“a California buyer of securities.” (E.g., Intershop 

Communications AG v. Superior Court (2002) 104 Cal.App.4th 

191, 200 [section 25701 “provides that a California buyer of 

securities cannot waive the protections of the California 

securities laws”]; Hall v. Superior Court (1983) 150 Cal.App.3d 

411, 418 [“we believe the right of a buyer of securities in 

California to have California law and its concomitant nuances 
35

In agreeing to sell his remaining 1.25 percent interest in

Beats, Lee agreed, in part, “Except for the representations and

warranties made by the Company in this Section 6, neither the 

Company nor any other person makes any representation or 

warranty with respect to the Company or its subsidiaries or their 

respective business, operations, assets, liabilities, condition 

(financial or otherwise) or prospects, notwithstanding the 

delivery or disclosure to [Lee] or [his] representatives of any 

documentation, forecasts, projections, estimates, budgets or other 

information with respect to any one or more of the foregoing. 

Except for the representations and warranties contained in this 

Section 6, the Company hereby disclaims all liability and 

responsibility for any representation, warranty, projection, 

forecast, statement, or information made, communicated, or 

furnished (orally or in writing) to Seller (including any opinion, 

information, projection, or advice that may have been or may be 

provided to Seller by any manager, officer, employee, agent, 

consultant, or representative of the Company).” Under governing 

Delaware law, Beats and Wachter were entitled to enforce this 

provision, disclaiming Lee’s reliance on any otherwise actionable 

omission regarding the status of Beats’s discussions with Apple 

in the fall of 2013. Summary judgment on Lee’s claims, 

therefore, was properly granted.

apply to any future dispute arising out of the transaction is a 

‘provision’ within the meaning of section 25701 which cannot be 

waived or evaded by stipulation of the parties to a securities 

transaction”]; see also America Online, Inc. v. Superior Court

(2001) 90 Cal.App.4th 1, 14.)
36

DISPOSITION

The judgments and postjudgment orders are affirmed. 

Beats, HTC and Wachter are to recover their costs on appeal.

PERLUSS, P. J.

We concur:

SEGAL, J.

FEUER, J.