Court Opinion

ID: 868054
Source: CourtListenerOpinion
Date Created: 2013-05-16 20:12:23.611603+00
Date Added: 2024-06-11T15:37:43.285502
License: Public Domain

FILED
                            NOT FOR PUBLICATION                             MAY 16 2013

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS

                            FOR THE NINTH CIRCUIT

DIRECT TECHNOLOGIES, LLC, a                      No. 11-56090
California limited liability company,
                                                 D.C. No. 8:10-cv-01336-AG-PJW
              Plaintiff - Appellant,

  v.                                             MEMORANDUM *

ELECTRONIC ARTS, INC.,
a Delaware corporation,

              Defendant - Appellee.

                    Appeal from the United States District Court
                       for the Central District of California
                    Andrew J. Guilford, District Judge, Presiding

                      Argued and Submitted February 5, 2013
                               Pasadena, California

Before: O’SCANNLAIN, TROTT, and CLIFTON, Circuit Judges.

       Direct Technologies, LLC sued Electronic Arts, Inc. for a declaration of its

joint authorship of the PlumbBob USB drive and an accounting of profits owing

from its share of the copyright. DT assigned its copyright interest in the USB

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
drives to Lithomania, Inc. Alleging fraud and breach of contract, DT sued

Lithomania in California state court; the parties settled. The district court decided

that the state court case barred this action and granted EA’s motion to dismiss. We

vacate and remand for further proceedings.

      DT can pursue a copyright claim against EA only if the contract between DT

and Lithomania in which DT assigned its rights to Lithomania is held to be

unenforceable. See Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006). DT argues

that the contract is unenforceable because it lacked consideration and because it

was fraudulently induced.

      DT’s first argument fails. Lithomania contractually promised to purchase the

manufactured USB drives from DT. A commitment to perform is sufficient

consideration as long as the promisee would be justified in understanding that a

commitment has been made. Restatement (Second) of Contracts §§ 2, 75. DT does

not allege that it was not justified in understanding that Lithomania committed

itself to purchasing the USB drives. The contract had valid consideration.

      DT also argues that the contract is unenforceable because it was fraudulently

induced by Lithomania. That argument might have merit. As a third-party

beneficiary, EA would ordinarily be able to enforce the contract. Cal. Civ. Code §

1559. But if the contract was fraudulently induced, such that it was invalid from

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the beginning, there would be no valid contract for EA to enforce. See 13 Williston

on Contracts (4th ed.) § 37:55 (“‘A third party’s beneficiary’s rights depend on the

validity of the contract creating them.’” (citation omitted)); Mercury Casualty Co.

v. Maloney, 113 Cal. App. 4th 799, 802 (Cal. Ct. App. 2003) (“[S]ettled law

hold[s] that a third-party beneficiary cannot assert greater rights under the contract

than those of the actual contracting party.”). Because DT may be able to prove that

the contract is unenforceable, this case is inappropriate for dismissal.

      The district court concluded that even if DT could prove fraudulent

inducement, the previous settlement between DT and Lithomania bars this case.

That does not appear to us to be so. Claim preclusion to bar DT’s claim against EA

based on DT’s release of Lithomania may not apply to bar DT’s claim against EA

based on DT’s release of Lithomania because it has not been established that EA

was in privity with Lithomania. See Tahoe-Sierra Pres. Council, Inc. v. Tahoe

Reg’l Planning Agency, 322 F.3d 1064, 1077 (9th Cir. 2003). Issue preclusion does

not apply because the previous case was not litigated to a conclusion, but instead

was settled. See In re Russell, 76 F.3d 242, 244 (9th Cir. 1996). DT’s decision to

pursue and settle its claims against Lithomania does not effect a release of EA

based on election of remedies because California no longer applies that doctrine.

See Perkins v. Benguet Consol. Mining Co., 132 P.2d 70, 93 (Cal. Ct. App. 1942);

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see also 3 Witkin, Cal. Proc. (5th ed.) § 180, Criticism of Election of Remedies

Doctrine. It has not been established beyond dispute that DT released claims it

might have against EA. DT may pursue its copyright claim against EA.

      EA’s argument that the contract between DT and Lithomania nonetheless

binds DT because DT cannot argue rescission against EA is unavailing. Rescission

is not a cause of action, but a common-law remedy on the contract. See Paularena

v. Superior Court of San Diego Cnty., 42 Cal. Rptr. 366, 370 (Cal. Ct. App. 1965).

California courts no longer “grant” rescission, but merely recognize that the

underlying facts have been established and grant consistent relief. See Cal. Civ.

Code § 1692; Paularena, 42 Cal. Rptr. at 370 (rescission remedy abrogated by

California statutes); see also Shapiro v. Sutherland, 76 Cal. Rptr. 2d 101, 112 (Cal.

Ct. App. 1998) (in an action against the original seller, the intermediate seller

remained a necessary party “because of the nature of [the] particular transaction”

whereby the intermediate seller retained the plaintiff’s money, preventing the

plaintiff from obtaining “complete relief” without it). DT does not seek any further

relief from Lithomania. The district court may decide that the contract is

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unenforceable and that DT is a joint author of the PlumbBob USB drive,1 and

award an accounting of profits without awarding any remedy on the contract.

      VACATED and REMANDED.

      1
         We do not reach the merits of the copyright claim because EA conceded
that it is not ripe.

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