Opinion ID: 2519626
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Heading: The Applicability of the Doctrine of Severability to Manager-talent Contracts

Text: We turn to the key question in Blasi's appeal: What is the artist's remedy for a violation of the Act? In particular, when a manager has engaged in unlawful procurement, is the manager always barred from any recovery of outstanding fees from the artist or may the court or Labor Commissioner apply the doctrine of severability (Civ-Code, § 1599) to allow partial recovery of fees owed for legally provided services? Again, we begin with the language of the Act. On this question, it offers no assistance. The Act is silentcompletely silenton the subject of the proper remedy for illegal procurement. On the other hand, the text of Civil Code section 1599 is clear. Adopted in 1872, it codifies the common law doctrine of severability of contracts: Where a contract has several distinct objects, of which one at least is lawful, and one at least is unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest. (Ibid.) By its terms, it applies evenindeed, onlywhen the parties have contracted, in part, for something illegal. Notwithstanding any such illegality, it preserves and enforces any lawful portion of a parties' contract that feasibly may be severed. [9] Under ordinary rules of interpretation, we must read Civil Code section 1599 and the Act so as to, to the extent possible, give effect to both. (See Department of Alcoholic Beverage Control v. Alcoholic Beverage Control Appeals Bd. (2006) 40 Cal.4th 1, 15, fn. 11, 50 Cal.Rptr.3d 585, 145 P.3d 462; People v. Garcia (1999) 21 Cal.4th 1, 6, 87 Cal.Rptr.2d 114, 980 P.2d 829.) The two are not in conflict. The Act defines conduct, and hence contractual arrangements, that are illegal: An unlicensed talent agency may not contract with talent to provide procurement services. (Lab.Code, §§ 1700.4, subd. (a), 1700.5.) The Act provides no remedy for its violation, but neither does it repudiate the generally applicable and long-standing rule of severability. Hence, that rule applies absent other persuasive evidence that the Legislature intended to reject the rule in disputes under the Act. The conclusion that the rule applies is consistent with those of the Labor Commissioner's decisions that recognize severability principles may apply to disputes under the Act. In Almendarez v. Unico Talent Management, Inc. (Cal.Lab.Com., Aug. 26, 1999) TAC No. 55-97, a radio personality sought a determination that his personal manager had acted as an unlicensed talent agency. The Labor Commissioner concluded the manager had engaged in unlawful procurementindeed, that procuring employment was the manager's primary role (id. at pp. 2, 14)but stopped short of voiding all agreements between the parties in their entirety. Citing and applying Civil Code section 1599, the Labor Commissioner concluded that a 1997 agreement between the parties had both a lawful purpose (repayment of personal expenses the manager had fronted for Almendarez) and an unlawful purpose (payment of commissions for unlawful procurement services) and should be partially enforced. (Almendarez, at pp. 18-21.) On numerous other occasions, the Labor Commissioner has severed contracts and allowed managers to retain or seek commissions based on severability principles without expressly citing Civil Code section 1599. [10] Until two years ago, Court of Appeal decisions under the Act had neither accepted nor repudiated the general applicability of the severability doctrine. [11] In 2005, in Yoo v. Robi, supra, 126 Cal. App.4th 1089, 24 Cal.Rptr.3d 740, however, the Court of Appeal considered whether to apply Civil Code section 1599 to allow a personal manager to seek commissions for lawfully provided services. It noted, correctly, that severance is not mandatory and its application in an individual case must be informed by equitable considerations. (Yoo, at p. 1105, 24 Cal.Rptr.3d 740.) Civil Code section 1599 grants courts the power, not the duty, to sever contracts in order to avoid an inequitable windfall or preserve a contractual relationship where doing so would not condone illegality. ( Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 123-124, 99 Cal.Rptr.2d 745, 6 P.3d 669.) The Yoo Court of Appeal concluded the windfall for the artist, Robi, was not so great as to warrant severance. In Chiba v. Greenwald (2007) 156 Cal. App.4th 71, 67 Cal.Rptr.3d 86, the Court of Appeal also considered whether severance was available for an unlicensed manager/agent who in that case alleged she had had a Marvin agreement [12] with her deceased musician client/partner. Acknowledging she had acted without a license, the manager relinquished any claim to commissions, and the Court of Appeal thus was not presented with the question whether severance might apply to any management services that required no license. In light of the facts as' pleaded, the Court of Appeal concluded equity did not require severance of any lawful portions of the Marvin agreement from the unlawful agreement to provide unlicensed talent agency services. (Chiba, at pp. 81-82, 67 Cal.Rptr.3d 86.) Neither Chiba nor Yoo v. Robi, supra, 126 Cal.App.4th 1089, 24 Cal.Rptr.3d 740, stands for the proposition that severance is never available under the Act. In contrast, the Court of Appeal here expressly concluded, as we do, that it is available. More generally, the conclusion that severance is available is consistent with a wide range of cases that have applied the doctrine to partially enforce contracts involving unlicensed services. Thus, for example, in Birbrower, Montalbano, Condon & Frank v. Superior Court (1998) 17 Cal.4th 119, 70 Cal.Rptr.2d 304, 949 P.2d 1 (Birbrower), a law firm licensed in New York, but not California, provided legal services in both states. The trial court and Court of Appeal invalidated the entire attorney fee agreement, but we reversed in part, explaining that under the doctrine of severability the firm might be able to recover the fees it had lawfully earned by providing services in New York, notwithstanding its unlicensed provision of services in California. (Id. at pp. 138-139, 70 Cal.Rptr.2d 304, 949 P.2d 1.) [13] Likewise, in Lindenstadt v. Staff Builders, Inc. (1997) 55 Cal.App.4th 882, 64 Cal.Rptr.2d 484, an individual assisted a company in finding home health care businesses to acquire. The individual may have acted only as a finder with regard to some businesses, but may have crossed the line into providing broker services without a real estate broker license in other instances. The Court of Appeal explained that the provision of unlicensed services did not bar all relief; on remand, the unlicensed individual could still recover for those services that did not require a broker's license. (Id. at p. 894, 64 Cal.Rptr.2d 484; see also Levison v. Boas (1907) 150 Cal. 185, 194, 88 P. 825 [severance doctrine applies to contract with unlicensed pawnbroker]; Broffman v. Newman (1989) 213 Cal.App.3d 252, 261-262, 261 Cal.Rptr. 532 [unlicensed real estate broker may defend entitlement to compensation for services for which no license is required]; Southfield v. Barrett (1970) 13 Cal.App.3d 290, 294, 91 Cal.Rptr. 514 [under equitable principles, unlicensed commission merchant entitled to partial recovery under contract].) Blasi contends that even if severability may generally apply to disputes under the Act, we should announce a rule categorically precluding its use to recover for artist advice and counseling services. She relies on three sources in support of this rule: the legislative history, case law interpreting the Act, and decisions of the Labor Commissioner. None persuades us that the Legislature intended to foreclose the application of severability, as codified in Civil Code sections 1598 and 1599, to manager-talent contracts that involve illegal procurement, either generally or with regard to recovery specifically for personal manager services. For legislative history, Blasi relies on a portion of the Entertainment Commission's 1985 report to the Legislature. Addressing whether criminal sanctions for violations of the Act, temporarily suspended in 1982, should be reinstated, the Entertainment Commission said: The majority of the Commission believes that existing civil remedies, which are available by legal action in the civil courts, to anyone who has been injured by breach of the Act, are sufficient to serve the purposes of deterring violations of the Act and punishing breaches. These remedies include actions for breach of contract, fraud and misrepresentation, breach of fiduciary duty, interference with business opportunity, defamation, infliction of emotional distress, and the like. Perhaps the most effective weapon for assuring compliance with the Act is the power of the Labor Commissioner, at a hearing on a Petition to Determine Controversy, to find that a personal manager or anyone has acted as an unlicensed talent agent and, having so found, declare any contract entered into between the parties void from the inception and order the restitution to the artist, for the period of the statute of limitations, of all fees paid by the artist and the forfeiture of all expenses advanced to the artist. If no fees have been paid, the Labor Commissioner is empowered to declare that no fees are due and owing, regardless of the services which the unlicensed talent agent may have performed on behalf of the artist. [¶] These civil and administrative remedies for violation of the Act continue to be available and should serve adequately to assure compliance with the Act. (Entertainment Com. Rep., supra, at pp. 17-18.) According to Blasi, this passage demonstrates the Entertainment Commission endorsed voiding of contracts in all instances, and the Legislature necessarily embraced this view because it adopted all of the commission's proposals when it amended the Act in 1986. We are not persuaded. The passage acknowledges what all parties recognize that the Labor Commissioner has the power to void contracts, that she is empowered to deny all recovery for services where the Act has been violated, and that these remedies are available. But the power to so rule does not suggest a duty to do so in all instances. The Labor Commissioner is empowered to void contracts in their entirety, but nothing in the Entertainment Commission's description of the available remedies suggests she is obligated to do so, or that the Labor Commissioner's power is untempered by the ability to apply equitable doctrines such as severance to achieve a more measured and appropriate remedy where the facts so warrant. Thus, we need not consider at length Blasi's further contention that these two paragraphs in the Entertainment Commission Report accurately reflect the views of the Legislature as a whole. Even if so, they do not connote an intent that managers in proceedings under the Act be deprived of the opportunity even to raise severability. Second, Blasi relies on those Court of Appeal decisions that have voided manager-talent contracts in their entirety. (E.g., Chiba v. Greenwald, supra, 156 Cal. App.4th 71, 67 Cal.Rptr.3d 86; Yoo v. Robi supra, 126 Cal.App.4th 1089, 24 Cal. Rptr.3d 740; Park v. Deftones, supra, 71 Cal.App.4th 1465, 84 Cal.Rptr.2d 616; Waisbren v. Peppercorn Productions, Inc., supra, 41 Cal.App.4th 246, 48 Cal.Rptr.2d 437.) With the exception of Chiba and Yoo, discussed above, however, the decisions do not touch on when or whether the doctrine of severability should apply under the Act; as such, they offer no persuasive arguments in favor of reading the Act as precluding application of Civil Code section 1599. [14] Finally, Blasi relies on a long line of Labor Commissioner decisions that have denied personal managers any right to recover commissions where they engaged in unlicensed solicitation or procurement. (See, e.g., Cher v. Sammeth (Cal.Lab. Com., July 17, 2000) TAC No. 17-99, pp. 12-13; Sevano v. Artistic Productions, Inc. (Cal.Lab.Com., Mar. 20, 1997) TAC No. 8-93, pp. 23-25.) But the fact this remedy is often, or even almost always, appropriate, does not support the position that it is always proper. The Labor Commissioner decisions cited above (see ante, at pp. 17-18) suggest the Labor Commissioner historically has recognized she has the authority to allow partial recovery in appropriate circumstances. We recognize, however, that in more recent decisions, the Labor Commissioner has expressly adopted the position Blasi advocates: severance is never available to permit partial recovery of commissions for managerial services that required no talent agency license. (Smith v. Harris (Cal. Lab.Com., Aug. 27, 2007) TAC No. 53-05, pp. 16-17; Cham v. Spencer/Cowings Entertainment, LLC (Cal.Lab.Com., July 30, 2007) TAC No. 19-05, pp. 17-18.) The weight accorded agency adjudicatory rulings such as these varies according to the validity of their reasoning and their overall persuasive force. ( Yamaha Corp. of America v. State Bd. of Equalization, supra, 19 Cal.4th at pp. 12-15, 78 Cal. Rptr.2d 1, 960 P.2d 1031.) Here, the Labor Commissioner's views rest in part on a reading of the legislative history as suggesting such a rule, in part on a reading of past Court of Appeal decisions as announcing such a rule, and perhaps in part on a policy judgment that voiding contracts in their entirety is necessary to enforce the Act effectively. With due respect, the Labor Commissioner's assessment of the legislative history and case law is mistaken; as we have explained, neither requires the rule she proposes.' And any view that it would be better policy if the Act stripped the Labor Commissioner (and the superior courts in subsequent trials de novo) of the power to apply equitable doctrines such as severance would be squarely at odds with the Act's text, which contains no such limitation. Neither we nor the Labor Commissioner are authorized to engraft onto the Act such a limitation neither express nor implicit in its terms. We are thus unpersuaded and decline to follow the Labor Commissioner's interpretation. In sum, the Legislature has not seen fit to specify the remedy for violations of the Act. Ordinary rules of interpretation suggest Civil Code section 1599 applies fully to disputes under the Act; nothing in the Act's text, its history, or the decisions interpreting it justifies the opposite conclusion. We conclude the full voiding of the parties' contract is available, but not mandatory; likewise, severance is available, but not mandatory.