FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
RICHARD PETERSON; MIKE
No. 95-56393
MITCHELL; LYNNE EASTON; NORM
D.C. No. CV-93-04672-WDK-JGx
SUNDHOLM; BARRY CURTIS,
Plaintiffs-Appellees,
v.
HIGHLAND MUSIC, INC.,
Defendant,
and
GUSTO RECORDS, INC.; G.M.L., INC., No.
97-55599
Defendants-Appellants.
D.C. No. CV-96-022420-WDK
OPINION
G.M.L., INC., a Missouri
corporation; HIGHLAND MUSIC, INC.,
Plaintiffs-Appellants,
v.
RICHARD PETERSON; MIKE
MITCHELL; LYNNE EASTON; NORM
SUNDHOLM; BARRY CURTIS; GERALD
DENNON; JERDEN MUSIC, INC., dba
Jerden Industries, Inc., dba Great
Northwest Music Company,
BBDO Worldwide Inc., dba
BBDO Worldwide Network,
Defendants-Appellees.
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RICHARD PETERSON; MIKE
No. 97-55597
MITCHELL; LYNNE EASTON; NORM
D.C. No. CV-93-04672-WDK
SUNDHOLM; BARRY CURTIS,
Plaintiffs-Appellees,
v.
HIGHLAND MUSIC, INC.; GUSTO
RECORDS, INC.; G.M.L., INC.,
Defendants-Appellants,
and
STEPHEN HAWKINS,
Appellant.
Appeals from the United States District Court
for the Central District of California
William D. Keller, District Judge, Presiding
Argued and Submitted
February 3, 1998--Pasadena, California
Filed April 10, 1998
Before: Betty B. Fletcher, Frank J. Magill,* and
Thomas G. Nelson, Circuit Judges.
Opinion by Judge Fletcher
_________________________________________________________________
*Honorable Frank J. Magill, Senior United States Circuit Judge for
the Eighth Circuit, sitting by designation.
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SUMMARY
_________________________________________________________________
3333
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3335
3336
3337
_________________________________________________________________
COUNSEL
Scott A. Edelman, Los Angeles, California;
Jeannette M. Bazis, Minneapolis, Minnesota,
Robert Besser, Pacific Palisades, California,
for the plaintiffs-appellants.
Robert Besser, Pacific Palisades, California,
for the defendants-appellants.
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Scott A. Edelman, Los Angeles, California;
Jeannette M. Bazis, Minneapolis, Minnesota,
for the defendants-appellees.
_________________________________________________________________
OPINION
FLETCHER, Circuit Judge:
This case involves an attempt by the Kingsmen, a musical group, to
secure a rescission of the contract by which they assigned to others
the rights to their popular recording of the hit song, "Louie, Louie."
We review three actions consolidated on appeal. In the first, the
parties litigated the right to rescind. In the second, the defendants
sought a declaratory judgment to limit the effect of the judgment of
rescission.1 In the third, the district court imposed contempt
sanctions upon the defendants for their refusal to comply with the
judgment of rescission. We affirm the district court in all respects.
I.
The facts of this procedurally convoluted case are relatively simple.
The members of the Kingsmen seek to secure their rights to the master
recordings (the "Masters") of their hit song, "Louie, Louie." The
group made the recording over thirty years ago. They then sold the
Masters to one Specter Records (first through their agent, Jerden
Records, but ultimately on their own behalf) in return for nine per
cent of any profits or licensing fees that the recording might
generate. The Kingsmen and Specter entered into their contract in
1968. Specter's interest in the Masters was eventually transferred
to
Gusto Records and GML, who were the named defendants in the rescission
action. The parties do not dispute that the Kingsmen have never
received a single penny of the considerable royalties that "Louie,
Louie" has produced over the past thirty years.
_________________________________________________________________
1 For simplicity's sake, we will refer to the Kingsmen as "plaintiffs"
and Gusto et al. as "defendants" throughout this opinion, although
the
parties technically switched roles in the declaratory action.
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In 1993, the Kingsmen brought suit in federal district court in
California for rescission of the contract, basing their claim entirely
on actions (or inactions) by the defendants that fell within the four-
year statutory limitations period. After a full trial, the district
court ruled in plaintiffs' favor and granted the rescission, restoring
possession of the Masters to the Kingsmen. Defendants refused to
comply with that judgment, however, instead filing a declaratory
action in federal district court in Tennessee. In the Tennessee
action, defendants asked for a declaration that plaintiffs were not
entitled to any of the income that continued to be generated by those
licenses that pre-existed the rescission. In the meantime, defendants
steadfastly refused to comply with the first judgment and to return
possession of the Masters to the Kingsmen.
The district court in Tennessee transferred the declaratory action to
the Central District of California, returning it to the district judge
who had handled the original action. The judge ruled, on summary
judgment, that the rescission enforced in the original action was
effective as of the date when the Kingsmen formally declared their
intention to rescind -- the date of the filing of the complaint --
and
that defendants must pay to the Kingsmen any royalties or profits that
accrued thereafter, whether from licenses entered into after the date
of rescission or from licenses that preexisted that date. The district
court also issued an order in aid of enforcement of its first
judgment, commanding defendants to turn over the Masters to plaintiffs
forthwith. Finally, on plaintiffs' motion, the district court found
defendants in contempt of court for having flagrantly violated the
first judgment by refusing to turn over the Masters in a timely
fashion, and also by continuing to misappropriate profits from the
Masters by holding themselves out as the owners of the Masters and
entering into unauthorized licenses. Defendants appeal all of these
rulings.
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Highland Music and Stephen Hawkins (Highland's president and sole
shareholder) are also parties to this appeal. Highland negotiated and
managed many of the licenses issued by GML and Gusto for "Louie,
Louie" and was a party to the declaratory action. Highland and Hawkins
were both cited for contempt by the district court for aiding and
abetting GML and Gusto in entering into the unauthorized, postjudgment
licenses. They appeal these rulings.
This action fell within the district court's diversity jurisdiction.
See 28 U.S.C. S 1332. The judgment of rescission, the declaratory
judgment, and the contempt order are all appealable final orders. See
28 U.S.C. S 1291.
II. The Rescission Action
A.
Gusto and GML's primary contention on appeal in the rescission action
is that the district court in California exceeded its authority under
the Due Process Clause of the Federal Constitution in exercising
personal jurisdiction over the defendants.2 We review a district
court's exercise of personal jurisdiction de novo. See Sinatra v.
National Enquirer, 854 F.2d 1191, 1194 (9th Cir. 1988).
Defendants' claim comes to us in a rather odd posture. Defendants
filed a motion to dismiss for lack of personal jurisdiction at the
outset of the proceedings below. The district court denied that
motion, finding that plaintiffs had made out a prima facie case that
an exercise of jurisdiction was proper. Defendants then failed to
contest the issue of personal jurisdiction any further in the proceedings
before
the district court.
_________________________________________________________________
2 California's "long-arm" statute extends as far as federal due
process limitations allow. See Cal. Civ. Proc. CodeS 410.10; Sinatra
v. National Enquirer, 854 F.2d 1191, 1194 (9th Cir. 1988). Thus, we
need not conduct a separate inquiry to determine whether the exercise
of jurisdiction exceeded any statutory limitations.
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They did not raise the issue in their responsive pleadings, nor in any
motion for summary judgment, nor at trial. Nonetheless, defendants
argue on appeal that the judgment below must be vacated because the
present state of the record is insufficient to support a finding, by
a
preponderance of the evidence, that defendants were subject to the
personal jurisdiction of the courts of California. This claim raises
three issues: (1) Did defendants completely waive their right to
appeal the district court's exercise of personal jurisdiction; (2)
If
not, against what evidentiary standard should that exercise of
personal jurisdiction be judged on appeal, given the present posture
of this case; and (3) Measured against the applicable standard, was
the district court's conclusion that it could exercise jurisdiction
over defendants correct?
1.
[1] The federal rules of civil procedure provide that "A defense of
lack of jurisdiction over the person . . . is waived . . . (B) if it
is neither made by motion under this rule nor included in a responsive
pleading . . . ." Fed. R. Civ. P. 12(h) (1). The negative converse
of
this rule would thus suggest that it is not waived if raised by
motion. Other circuits have reached this conclusion, holding that a
defendant's motion to dismiss for lack of personal jurisdiction,
without more, is sufficient to avoid the waiver provision embodied
in
Rule 12. See Brownlow v. Aman, 740 F.2d 1476, 1483 n.1 (10th Cir.
1984); Adden v. Middlebrooks, 688 F.2d 1147, 1156-57 (7th Cir. 1982).
However, Rule 12 does not say that there are no other means of waiving
a defense of lack of jurisdiction over the person. Plaintiffs argue
that, even though defendants contested the exercise of jurisdiction
at
the outset of the trial, their failure to raise the issue again at
any
point in this vigorously litigated proceeding should be construed as
an acquiescence to suit in California and hence a waiver of any right
to contest the court's in personam jurisdiction on appeal.
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[2] Plaintiffs' argument has some force. Rule 12(h)(1) specifies the
minimum steps that a party must take in order to preserve a defense.
It does not follow, however, that a party's failure to satisfy those
minimum steps constitutes the only circumstance under which the party
will be deemed to have waived a defense. Most defenses, including the
defense of lack of personal jurisdiction, may be waived as a result
of
the course of conduct pursued by a party during litigation. See
Continental Bank, N.A. v. Meyer, 10 F.3d 1293, 1296-97 (7th Cir. 1993)
(affirming district court's finding that defendants' conduct during
litigation constituted waiver of personal jurisdiction); Yeldell v.
Tutt, 913 F.2d 533, 538-39 (8th Cir. 1990) (finding waiver where
defendant raised personal jurisdiction defense in manner that was
technically timely, but late in trial proceedings). For example, if
a
defendant were to engage in "sandbagging" by raising the issue of
personal jurisdiction on a motion to dismiss, deliberately refraining
from pursuing it any further when his motion is denied in the hopes
of
receiving a favorable disposition on the merits, and then raising the
issue again on appeal only if he were unhappy with the district
court's ultimate decision, then we would not hesitate to find that
the
defendant had waived any right to pursue the defense. See Yeldell,
913
F.2d at 539. In the present case, however, plaintiffs have not argued,
or even suggested, that defendants engaged in such deliberate,
strategic behavior, nor did the district court make any such finding.
Nonetheless, plaintiffs ask us to hold that defendants' inaction on
the issue of personal jurisdiction after the denial of their motion
to
dismiss, without more, constitutes a waiver of the issue for purposes
of appeal in this case.
The rule that plaintiffs urge upon us could have the consequence that
filing a motion under Rule 12 not only would not necessarily suffice
to preserve an objection to personal jurisdiction on appeal, but that
it would never suffice in a case that proceeds to a decision on the
merits. We hesitate to adopt such an unyielding rule, which might
derogate from the base-line standard that Rule 12 itself establishes.
In most cases
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where courts of appeals have found a defendant to have waived its
right to pursue a defense of personal jurisdiction on appeal, even
though the defendant raised the issue in a motion or responsive
pleading, other factors have been present that militated in favor of
such a finding. See, e.g., Rice v. Nova Biomedical Corp., 38 F.3d 909,
915 (7th Cir. 1994) ("fiduciary shield" defense to personal
jurisdiction found to be waived where defendant failed to make
evidentiary arguments of any sort and declined to renew issue when
invited to do so by court); Continental Bank, N.A. v. Meyer, 10 F.3d
1293, 1296-97 (7th Cir. 1993) (affirming district court's explicit
finding that defendants' conduct during litigation amounted to waiver
of personal jurisdiction defense); Yeldell v. Tutt, 913 F.2d 533, 539
(8th Cir. 1990) (finding waiver where defendants failed to raise
personal jurisdiction defense in motion, raised issue for first time
in answer, and then failed to pursue issue any further).
We decline to adopt such a rule. Rather, we simply join our sister
circuits, see Brownlow v. Aram, 740 F.2d 1476, 1483 n.1 (10th Cir.
1984); Adden v. Middlebrooks, 688 F.2d 1147, 1156-57 (7th Cir. 1982),
in finding that the minimum requirements of Rule 12 are satisfied when
a defendant raises the issue of personal jurisdiction in a timely
motion to dismiss. In the absense of other factors militating in favor
of a finding of waiver, this suffices to preserve the issue of
personal jurisdiction for appeal. Since there are no such additional
factors in this case, we find that defendants did not waive their
right to appeal the issue.
2.
We must now determine what evidentiary standard the district court's
exercise of personal jurisdiction should be measured against, given
the posture in which the claim reaches us on appeal. As will be
apparent, our conclusion that defendants have not completely waived
the defense of personal jurisdiction does not mean that no adverse
consequences flow from
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their failure to contest the issue following the denial of their
motion to dismiss.
Defendants correctly point out that plaintiffs, in opposing the motion
to dismiss, were only required to make, and only made, a prima facie
showing that personal jurisdiction was proper. Defendants also point
out, correctly, that plaintiffs would have borne the heavier burden
of
prevailing on the jurisdictional issue by a preponderance of the
evidence if the issue had been contested at trial. See Rano v. Sipa
Press, 987 F.2d 580, 587 n.3 (9th Cir. 1993); Sinatra v. National
Enquirer, 854 F.2d 1191, 1194 (9th Cir. 1988). From these two solid
premises, however, defendants reach an erroneous conclusion. They
claim that, despite their failure at trial to put plaintiffs to the
test of meeting a preponderance standard on the jurisdictional issue,
defendants can prevail on appeal if the existing record does not
support a finding, by a preponderance of the evidence, that
jurisdiction is proper. That is, defendants claim that the burden
rested with the plaintiffs to pursue the jurisdictional issue
proactively during trial in order to develop a record that could
satisfy a preponderance standard, despite defendants' failure to
contest the issue further after losing their motion. This is incorrect.
[3] The rule that a party must raise a defense at trial or waive the
right to pursue it on appeal is based on the proposition that parties
should develop a full record on all contested issues and afford the
district court an opportunity to rule on those issues before they may
enjoy the benefit of appellate review. See Hormel v. Helvering, 312
U.S. 552, 557-59 (1941); Romain v. Shear, 799 F.2d 1416, 1419 (9th
Cir. 1986) (declining to reach new issue where "facts relevant to
[question at issue] are not fully developed"). In this case, none of
the parties developed a record on the issue of personal jurisdiction
beyond the few submissions each made in litigating the defendants'
motion to dismiss. From the plaintiffs' perspective, there must have
seemed little reason to do so: Plaintiffs prevailed on the personal
jurisdiction question on pretrial motion, and defendants did not
3345
contest the issue any further. Defendants cannot now capitalize upon
the plaintiffs' early victory. Rather, defendants may seek appellate
review only of the issue that they actually contested below: whether
or not plaintiffs made out a prima facie case for personal
jurisdiction, and whether the district court was correct in granting
the motion to dismiss. This rule has been implicit in cases, in this
circuit and others, where a defendant has appealed an adverse decision
on personal jurisdiction after contesting the issue only in the
context of a motion to dismiss. See, e.g., Rano v. Sipa Press, 987
F.2d 580, 587 n.3 (9th Cir. 1993); Brownlow v. Aman, 740 F.2d 1476,
1483 (10th Cir. 1984). We now adopt that rule explicitly. Having
failed to contest the issue further after losing their motion to
dismiss, defendants may appeal only the district court's holding that
plaintiffs made out a prima facie case sufficient to support an
exercise of personal jurisdiction.
3.
[4] Having thus narrowed the issue before us, we now affirm the
district court's exercise of personal jurisdiction over the
defendants. In order to support an exercise of specific personal
jurisdiction, plaintiffs must demonstrate that defendants had
purposeful contacts with California, that the present cause of action
arose out of those contacts, and that exercising jurisdiction over
defendants would not be unreasonable. See Roth v. Garcia Marquez, 942
F.2d 617, 620 (9th Cir. 1991); Sinatra v. Nat'l Enquirer, 854 F.2d
1191, 1195 (9th Cir. 1988). In support of their position before the
district court, plaintiffs offered a series of licensing agreements
that defendants entered into during the 1980s and early -90s with
Warner Special Products ("Warner") that granted Warner permission to
use the "Louie, Louie" Masters, and documents suggesting that
defendants made similar agreements with Rhino Records. The licensing
agreements and some accompanying letters describe Warner as being "of
. . . Burbank, CA," and the Rhino documents describe Rhino's location
3346
as "Santa Monica, CA." These documents give rise to a strong inference
that defendants engaged in negotiations with California companies that
resulted in the granting of licenses for the use of "Louie, Louie,"
that they probably wrote letters and made telephone calls to the
California offices of these companies in conducting their
negotiations, that they quite possibly traveled to California as a
part of these negotiations, and that the licenses may actually have
been granted (i.e. the contracts formed) in California.
[5] If these purposeful contacts did occur, then they would suffice
to
support an exercise of specific personal jurisdiction. Contract
negotiations are classic examples of the sort of contact that can give
rise to in personam jurisdiction, see Burger King Corp. v. Rudzewicz,
471 U.S. 462, 473 (1985); McGee v. International Life Ins., 355 U.S.
220, 222-23
(1957); Corporate Invest. Bus. Brokers v. Melcher, 824
F.2d 786, 789 (9th Cir. 1987), and the Kingsmen's cause of action
"arises out of" those contacts, as it is the failure of the defendants
to provide royalties on these and other licensing agreements that
serves as the basis for plaintiffs' suit. There is nothing exceptional
on the face of this case that would suggest that exercising
jurisdiction over defendants in a forum where they took actions that
allegedly constituted a breach of the contract at issue in the case
would unduly burden either the parties or the interests of any forum.
See Roth, 942 F.2d at 623. Thus, the district court was correct in
concluding that the licensing agreements suffice to make out a prima
facie case supporting the exercise of personal jurisdiction over
defendants for purposes of this suit.
Had defendants pursued their defense further after losing their motion
to dismiss, perhaps they could have rebutted, by a preponderance of
the evidence, the inferences to which the licenses give rise. Having
failed to pursue the issue below, however, defendants may not now
enjoy the benefits of this higher evidentiary standard on appeal. We
therefore affirm the district court's exercise of in personal
jurisdiction over defendants.
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B.
[6] Defendants also contend that the district court erred in holding
that the statute of limitations does not bar a remedy of rescission
in
this case. In California, the statute of limitatons for an action
seeking rescission of a contract is four years. See Cal. Code Civ.
Proc. S 337. Specifically, the statute provides that an aggrieved
party must commence such an action within four years "from the date
upon which the facts that entitled the aggrieved party to rescind
occurred." Id. Both parties agree that the period of limitations has
long since run with respect to the first occasions on which defendants
breached their agreement. Both parties also agree that defendants have
breached their agreement repeatedly over the course of the past thirty
years, and did so, repeatedly, within four years of the time that
plaintiffs commenced this action. Defendants' claim is that, even in
the face of multiple and continuing breaches of the agreement, the
California statute should be read to bar any action that is not
commenced within four years of the first occasion on which an
aggrieved party could have requested rescission. Defendants cite no
authority for this proposition, and we reject it.
[7] In analyzing requests for rescission where there have been
multiple breaches under an installment contract, Califoria courts have
held that each breach starts the clock afresh for statute of
limitations purposes. In Conway v. Bughouse, Inc., 105 Cal. App. 3d
194 (1980), for example, a California appeals court looked to the
manner in which money would be paid under a pension contract in
determining how a party's failure to make any given payment should
affect the tolling of the statute of limitations.
The total amount of money
to be paid to [the pensioner] is not a
fixed sum which is to be
paid out over a period of time. To the
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contrary, the total amount
owed is unascertainable until the
date of [the pensioner's]
death because each payment is separate
and contingent upon [the
survival of the pensioner and his
adherence to the terms of
the contract]. As each payment is
separable from the others
and is not a part of a total payment,
the agreement should logically
be considered an installment
contract for purposes of
determination of the application of the
statute of limitations.
Id. at 199-200. The same holds true in the present case: There is no
fixed amount to be paid out over time under the Kingsmen's contract,
but rather a continuing obligation to pay a portion of the profits
and
royalties on "Louie, Louie" as the recording gets used over time.
[8] The district court in this case made it clear that, in determining
whether rescission was warranted and appropriate, it was relying upon
breaches that had occurred within the limitations period. To find for
defendant under these circumstances would be to hold that California
law forever bars a party from seeking a remedy of rescission after
it
has once passed up the opportunity to do so, regardless of the nature
of any future breaches of the other party's obligations. We have
found no authority that would support such a reading of California
law. We therefore affirm the district court's conclusion that the
statute of limitations does not bar rescission of the contract in this
case.
C.
Defendants have raised a host of arguments on appeal concerning
prejudice they claim they will suffer as a result of the rescission,
alleged threats to the rights of third parties, and actions allegedly
taken by the Kingsmen's former agent that, defendants claim, raise
an
equitable bar to rescission. They failed to raise any of these
arguments before the district court.
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We apply a "general rule" against entertaining arguments on appeal
that were not presented or developed before the district court. Bolker
v. Commissioner of Internal Revenue, 760 F.2d 1039, 1042 (9th Cir.
1985). There are three exceptions to this rule: (1) "in the
`exceptional' case in which review is necessary to prevent a
miscarriage of justice or to preserve the integrity of the judicial
process," (2) "when a new issue arises while appeal is pending because
of a change in the law," or (3) "when the issue presented is purely
one of law and either does not depend on the factual record developed
below, or the pertinent record has been fully developed." Id.
(citations omitted). None of these exceptions apply to the instant
case. Defendants' newly minted arguments are all inherently factual
in
nature; none depends upon a change in the law applicable to this
dispute; and none must be heard in order to prevent a miscarriage of
justice. We therefore find that defendants have waived these
arguments, and we will not consider them.
III. The Declaratory Action
The district court issued a declaration that the judgment of
rescission entitles plaintiffs to all post-rescission licensing income
from the Masters, even post-rescission income from licenses originally
granted before the date of rescission. Defendants claim that the
district court's ruling violates the principle of res judicata. At
first blush, this claim seems somewhat unusual, as it was defendants
who initiated this declaratory action, asking for a declaration, on
the merits, that plaintiffs were not entitled to the licensing income.
Ordinarily, it is the party resisting a claim for relief, rather than
the party initiating the claim, who asserts that his opponent is
barred from recovering because the disputed matter is res judicata.
Res judicata is a waivable defense. See Fed. R. Civ. Proc. 8(c). Thus,
as an initial matter, we must decide whether defendants have waived
any res judicata objections.
[9] In a declaratory action, of course, the definitions of "claimant"
and "respondent" are effectively reversed. Frequently, the point of
a
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declaratory action is to assert a defense anticipatorily, and a
defense of res judicata may serve as the basis for a declaratory
action as well as any other affirmative defense. If defendants had
styled this action as a request for a declaration that any claim of
right the Kingsmen might assert to the disputed licensing income is
barred by the doctrine of res judicata and cannot be heard on the
merits by any court, then they would not face any problem of waiver.
But that is not what defendants did. Defendants requested a
declaration affirmatively asserting that they had a right to the
disputed licensing income and that plaintiffs had no right to that
income. They raised their res judicata argument only in response to
plaintiffs' motion for summary judgment. Thus, rather than saying,
"we
wish the court to declare that the judgment of rescission bars it from
making any ruling on the licensing income because the matter is res
judicata," defendants said, "we wish the court to declare that the
licensing income belongs to us, and, incidentally, you have no choice
but to grant us such a declaration, because res judicata bars
plaintiffs from opposing the merits of our position." This they cannot
do. By requesting a declaration, on the merits, that they are entitled
to the very licensing income that is in dispute, defendants have
waived the right to assert any defense of res judicata that they might
have had.
[10] Moreover, even if defendants had not waived the right to assert
the defense, their res judicata argument would fail on the merits.
California employs a doctrine of "primary rights" in administering
the
doctrine of res judicata. See Slater v. Blackwood, 15 Cal.3d 791, 795
(1975); Eichman v. Fotomat Corp., 759 F.2d 1434, 1438 (9th Cir. 1985).
"Under California law, [a] claim arises from the harm suffered, as
opposed to the particular theory of the litigant. Even when multiple
legal theories for recovery exist, one injury gives rise to only one
claim for relief." Eichman, 759 F.2d at 1438. In their attempt to fit
their claim within the California res judicata doctrine, defendants
characterize the disputed licensing income as "consequential damages"
that plaintiffs "could have sought" in the original action for
3351
rescission, arguing that the two actions involved the same "primary
rights." This is incorrect. The first suit involved the Kingsmen's
primary contractual rights, which defendants violated by not paying
them royalties; the second suit involved the Kingsmen's (newly-
acquired) primary ownership rights, which defendants violated by
continuing to appropriate (and hence, by misappropriating) the
licensing income from the Masters. The disputed licensing income does
not constitute "consequential damages;" it is a part of the property
rights enjoyed by the owner of the Masters, an incident of the
ownership rights that plaintiffs were awarded in the first action.
The
doctrine of res judicata is no bar to the declaratory judgment entered
by the district court.3
[11] On the merits, the district court found that the rescission of
the Kingsmen's contract was effective as of the date of the filing
of
the Kingsmen's complaint. We agree. Under California law, "a party
to
a contract [can ] rescind it and . . . such rescission [can] be
accomplished by the rescinding party by giving notice of the
rescission and offering to restore everything of value which [the
rescinding party has] received." Runyan v. Pacific Air Indus., 2
Cal.3d 304, 311 (1970); see also id. at 311-13. When a party gives
notice of rescission, it has effected the rescission, and any
subsequent judicial proceedings are for the purpose of confirming and
enforcing that rescission. See id. at 311-12. Thus, when the Kingsmen
filed suit in 1993, they rescinded the contract and became owners of
the Masters. The lawsuit that followed confirmed that their rescission
was a proper one and resulted in an order enforcing that rescission.
The district court correctly ruled that, as the owners of the Masters,
_________________________________________________________________
3 Defendants also claim that a material issue of fact exists as
to whether plaintiffs, in the action for rescission, waived the
right to recover the "consequential damages" of the disputed
licensing income. The district court correctly found that no
issue of material fact exists on this question. Furthermore,
as
our holding makes clear, the licensing income is not "damages"
and so could not have been comprised in any "waiver of a right
to seek damages" in any event.
3352
the Kingsmen are entitled to all income derived from the exploitation
of the recordings following September 29, 1993, the date of the notice
of rescission.
IV. The Contempt Proceedings
A.
Defendants object to the contempt citation issued by the district
court. First, they claim that the district court erred in finding that
contempt was warranted at all. We review the district court's order
for abuse of discretion. See In re Dual-Deck Video Cassette Recorder
Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993). Beyond finding
contempt, the district court may impose a sanction for the contempt
only if it finds that the party requesting the sanction has proven
contempt by clear and convincing evidence. See id.; Vertex Distrib.
v.
Falcon Foam Plastics, 689 F.2d 885, 889 (9th Cir. 1982).
We address first the contempt citation. An appellate court should not
reverse a finding of contempt "unless [it has] a definite and firm
conviction that the district court committed a clear error of judgment
after weighing the relevant factors." In re Dual-Deck, 10 F.3d at 695.
The district court found that two aspects of defendants' conduct
warranted the contempt citation. First, it found that GML and Gusto
had not returned the Masters to the Kingsmen within thirty days of
the
date of judgment, as the judgment requires, nor had they taken any
reasonable steps whatsoever to comply with that requirement. Second,
the court found that GML, Gusto, Highland and Hawkins had continued
to
pursue, negotiate and enter into licenses for the use of the Masters,
despite the clear import of the judgment that they no longer owned
the
rights to the Masters and should cease such activities. It also found
that they had refused to provide an accounting of these activities
to
the Kingsmen when asked. Indeed, the court found that the defendants
had made no good faith efforts to comply with the demands of the
3353
judgment at all, but rather had deliberately and contemptuously
flouted the court's authority.
[12] The district court did not abuse its discretion in arriving at
these conclusions. Far from it. Defendants do not even attempt to
dispute that they failed to return the Masters for more than a year
following the judgment, nor that they entered into various third-party
licenses after the district court ordered the rescission. Rather, they
offer various excuses as to why their repeated refusals to comply with
the judgment were not their fault and should be excused. But "there
is
no good faith exception to the requirement of obedience to a court
order," In re Dual-Deck, 10 F.3d at 695, nor, indeed, is there
evidence in this case of good faith on the part of defendants in any
event. The district court offered convincing reasons, supported by
the
record, for finding all of the defendants' excuses entirely
unconvincing. Defendants' excuse for not returning the Masters
promptly, for example, was a professed concern for not shipping the
fragile tapes in a manner that would expose them to rough handling
or
extreme temperatures that might jeopardize their safety. However, when
the district court finally ordered the defendants to deliver the
Masters forthwith, defendants simply put them in a cardboard box and
shipped them via standard UPS, despite the plaintiffs willingness to
make any reasonable accommodations to ensure the Masters' safety
during shipping and storage. Defendants' other explanations for their
actions are similarly unconvincing.
[13] Nor did the district court abuse its discretion in applying its
contempt citation to Highland and Hawkins. Highland and Hawkins were
not parties to the underlying action. However, Federal Rules of Civil
Procedure 70 and 71 provide for the enforcement of judgments against
non-parties in limited circumstances. "Rule 71 was intended to assure
that process be made available to enforce court orders in favor of
and
against persons who are properly affected by them, even if they are
not parties to the action." Westlake North Property
3354
Owners Ass'n v. Thousand Oaks, 915 F.2d 1301, 1304 (9th Cir. 1990).
"[T]o be held liable in contempt, it is necessary that a non-party
respondent must either abet the defendant [in violating the court's
order] or be legally identified with him," NLRB v. Sequoia District
Council of Carpenters, 568 F.2d 628, 633 (9th Cir. 1977) (quotation
omitted), and that the non-party have notice of the order, see id.
See
also Stotler & Co. v. Able, 870 F.2d 1158, 1164 (7th Cir. 1989);
Quinter v. Volkswagen of America, 676 F.2d 969, 972-73 (3d Cir. 1982).
Highland and Hawkins certainly had notice of the contents of the
judgment for rescission, a fact they do not deny, and evidence
concerning their licensing activities amply supports a finding that
they flagrantly and deliberately aided and abetted GML and Gusto in
violating the express terms of the judgment, granting licenses when
they had previously stipulated that GML would transfer no rights to
Highland pending the outcome of the dispute and continuing to do so
following the judgment, when, as Highland knew, GML and Gusto no
longer owned the rights to the Masters. This evidence is sufficient
to
support a finding of contempt against Highland and Hawkins, even
though they were not parties to the underlying action.
B.
Defendants next argue that the district court employed improper
procedures in imposing its contempt sanctions. The district court
initiated the contempt proceedings by issuing an order to show cause
why defendants should not be sanctioned. It then elicited affidavits
and extensive briefing on the issue from all parties. It did not,
however, hold a full-blown evidentiary hearing at which the parties
could present live testimony (a step that neither of the parties
requested); rather, the district court issued its contempt sanctions
at the close of the hearing at which the parties argued the order to
show cause. Defendants claim that the failure to hold a full-blown
hearing is a denial of due process that invalidates the sanctions the
district court imposed against them.
3355
[14] Defendants are correct that a district court ordinarily should
not impose contempt sanctions solely on the basis of affidavits. See
Hoffman et al. v. Beer Drivers & Salesmen's, 536 F.2d 1268, 1276-77
(9th Cir. 1976). However, where, as here, the affidavits offered in
support of a finding of contempt are uncontroverted, we have held that
a district court's decision not to hold a full-blown evidentiary
hearing does not violate due process. "A trial court may in a contempt
proceeding narrow the issues by requiring that affidavits on file be
controverted by counter-affidavits and may thereafter treat as true
the facts set forth in uncontroverted affidavits. That is what the
trial court did here." Hoffman, 536 F.2d at 1277. Indeed, in Thomas,
Head and Greisen Employees Trust v. Buster, 95 F.3d 1449 (9th Cir.
1996), we rejected arguments very similar to the ones defendants raise.
[Appellants] argue that the
[district] court merged into one
action [ -- an order-to-show-cause
hearing -- ] what should have
been a five-step process:
(1) deciding whether to grant
plaintiffs' motion to show
cause; (2) issuing the show cause
order; (3) providing a hearing;
(4) making a finding of contempt
on the basis of affidavits
and other evidence; and (5)
determining and imposing
sanctions.
Id. at 1458. As we explained, the procedural steps that the appellants
in Thomas, Head requested, and that defendants demand here, were not
requirements whose elimination would violate due process.
We find that [appellants]
had ample notice and an opportunity to
respond to the possibility
that the court would find them in
contempt. The district court
expressly requested briefing in
response to . . . [appellees'
motion, and appellants] presented
no admissible evidence to
support their claim that they could
not comply with the injunction.
Although the district court did
not set an evidentiary hearing
on the contempt issue, the record
3356
reflects that [appellants
did not ask] for such a hearing . . .
Given these facts and the
overwhelming evidence supporting [a
finding of contempt,] we
think it is clear that the district
court's actions did not
constitute a denial of due process.
Id. Defendants have not described any new evidence that they could
present at a hearing, nor any existing evidence that they would
challenge, if such a hearing were to be ordered. The district court's
decision not to hold a full-blown evidentiary hearing before imposing
sanctions did not deny due process of law to the defendants.
C.
Finally, Hawkins argues that he never received adequate notice that
he
was being placed in personal jeopardy in the contempt proceedings
against Highland, GML and Gusto. Rather, he argues that the first
mention that anyone made of Hawkins being personally bound by the
contempt proceedings was when the district court issued its proposed
findings of fact and law in support of a finding of contempt and
requested comments and objections from the parties. Hawkins argues
that it would deprive him of due process of law to hold him in
contempt or to sanction him personally without having afforded him
notice that not only his company, but he personally, was being placed
in jeopardy.
[15] Whatever merits Hawkins' claim might have, he failed to raise
this objection in the district court. It is not disputed that Hawkins
was present throughout the proceedings and participated actively in
Highland's defense. When the district court named Hawkins in the
proposed findings of fact and conclusions of law made as the
foundation of its contempt order, Hawkins could and should have
objected to the district court's failure to give him notice that he
would be personally bound by the proceedings. He failed to do so, even
3357
though Highland and the other defendants submitted objections to the
proposed findings that repeatedly argued, on the merits, that "Mr.
Hawkins, as an individual," should not be held in contempt. Neither
Hawkins nor, indeed, the defendants offered any excuse for failing
to
raise the argument of lack of notice to Hawkins.
[16] Infirmities to the notice afforded a defendant in a civil action
are waivable. See Fed. R. Civ. Proc. 12(h)(1) ("A defense of . . .
insufficiency of process . . . is waived . . . if it is neither made
by motion under this rule nor included in a responsive pleading.")
In
the unusual situation presented here, we find the most sensible
application of Rule 12 to require that Hawkins have raised any
objection of lack of notice in the extensive objections to the
proposed findings of fact and conclusions of law that defendants filed
before judgment was entered, which was, functionally, a "responsive
pleading" to the district court's expressed intention to bind Hawkins
personally to the contempt proceeding. While defendants raised a wide
variety of arguments on their own and purportedly on Hawkins' behalf
in their objections, they made no mention of Hawkins' claims of lack
of notice that he would be personally bound by the contempt
proceedings. We therefore find that Hawkins has waived any objections
on that score.
CONCLUSION
The district court's rulings in these consolidated actions are well-
reasoned and supported by ample evidence in the record. We affirm in
all respects.
3358
the end