Court Opinion

ID: 4558601
Source: CourtListenerOpinion
Date Created: 2020-08-25 18:02:42.866883+00
Date Added: 2024-06-11T10:37:27.445424
License: Public Domain

Filed 8/25/20 Monster v. Beats Electronics CA2/7
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                      DIVISION SEVEN

MONSTER, LLC et al.,                                            B285994

     Plaintiffs, Cross-defendants                               (Los Angeles County
and Appellants,                                                 Super. Ct. No. BC595235)

         v.

BEATS ELECTRONICS, LLC
et al.,
        Defendants, Cross-
complainants and Appellants.

         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.
      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

                                 2
(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.

                                 3
      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

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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.

                                 5
      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

                                 6
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

                                7
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

                                 8
“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 audio-
hardware 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

                                 9
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

                                10
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.”

                                 11
$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

                                12
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

                                13
      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.

                                14
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.

                                15
(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

                                16
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.

                                 17
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

                                18
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”].)

                                19
      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

                                 20
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.

                                21
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].)

                                22
       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

                                 23
       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.”

                                 24
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

                                 25
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

                                 26
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.

                                 27
      3. Lee Failed To Raise a Triable Issue of Material Fact
         Supporting His Claims Against Beats and Wachter12
      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

                                28
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.”

                                 29
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

                                 30
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

                                 31
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”];

                                 32
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

                                33
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

                                  34
      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.)

                                35
                        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.

                               36