Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC389895 William F. Fahey, Judge.
Pick & Boydston and Brian D. Boydston for Plaintiff and Appellant.
Mitchell, Silverberg & Knupp, Gregory O. Olaniran, Karin G. Pagnanelli, Marc E. Mayer and Lucy Holmes Plovnick for Defendant and Respondent.
EPSTEIN, P. J.
This is an appeal from a judgment of dismissal following an order sustaining a demurrer without leave to amend. We conclude that the trial court erred in ruling that the complaint was barred by all applicable statutes of limitations. We also conclude that the Librarian of Congress is not an indispensable party to this action and decline respondent’s invitation to affirm the judgment on this alternative ground. Accordingly, we reverse.
FACTUAL AND PROCEDURAL SUMMARY
The United States Copyright Office, under the supervision of the Librarian of Congress, controls the distribution of royalties for the retransmission of broadcast programming by cable and satellite. (See 17 U.S.C. §§ 111, subd. (d) & 119, subd. (b).) Appellant Independent Producers Group (IPG) and respondent Motion Picture Association of America (MPAA) represent the interests of owners of media content as to such royalties.
Appellants are Worldwide Subsidy Group, LLC, a Texas limited liability company, doing business as Independent Producers Group (IPG), and Worldwide Subsidy Group, LLC, a California limited liability company, formerly named Artist Collections Group, LLC. Both sides refer to the two appellants in the singular and collectively as IPG. We will follow that convention.
As alleged in the operative pleading, on March 31, 2004, while the case was in mediation, IPG and MPAA entered into a purported two-part agreement, settling their dispute over the distribution of 1997 cable royalties. The agreement was negotiated with MPAA by Ms. Marian Oshita, a member of IPG, and attorney Jeffrey Bogert, whom she had retained to represent IPG. While the agreement was being negotiated, IPG’s other member, Ms. Lisa Galaz, through her attorney, advised MPAA and the mediator that neither Ms. Oshita nor Mr. Bogert had authority to bind IPG without Ms. Galaz’s authorization. Specifically, the letter advised that Ms. Oshita had only a 25 percent membership interest in IPG; any additional interest she may have had was an economic rather than membership or voting interest, a fact later confirmed in a jury trial. (Galaz v. Oshita (Super. Ct. L.A. County, 2005, No. BC297015).) Ms. Galaz was not informed of the terms of the settlement agreement until December 4, 2004, when it was produced pursuant to a subpoena in the lawsuit to determine her membership interest in IPG.
Settlement agreement part I provided for payment to IPG of a specific sum of 1997 cable royalties and additional sums of 1997 satellite royalties and 1998-1999 cable and satellite royalties. In settlement agreement part II, IPG agreed to be represented by MPAA in proceedings for distribution of the 1997-1999 cable and satellite royalties, and the parties agreed to dismiss their appeals to the United States Court of Appeals for the District of Columbia Circuit. Because the appeals were from a ruling of the Librarian of Congress, the Librarian signed this part of the agreement.
Each part of the agreement included a choice of law provision to the effect that it would be governed by the law of the District of Columbia.
In 2008, MPAA raised the settlement agreement as a bar to IPG’s claims to 1998-1999 cable royalties. On April 29, 2008, IPG sued MPAA, seeking a declaration that the settlement agreement was void ab initio and seeking its rescission for uncertainty, lack of consideration, and failure of consideration. A first amended complaint was filed on June 26, 2008. MPAA demurred to the first amended complaint, claiming that the case was untimely under the District of Columbia three-year statute of limitations and that IPG had failed to join the Librarian of Congress.
MPAA removed the case to the United States District Court for the Central District of California, which on August 13, 2008, granted MPAA’s motion to transfer the case to the United States District Court for the District of Columbia and denied as moot the motion to dismiss the case. On September 29, 2009, the United States District Court for the District of Columbia granted IPG’s motion to remand the case to state court and denied without prejudice MPAA’s motion to dismiss it.
Included in the record is another amended complaint, stamped filed on December15, 2009 and stamped received on December 20, 2009. The parties have not addressed the legal significance of this amended complaint, which does not differ substantially from the operative first amended complaint. Under Code of Civil Procedure section 472, a pleading may be amended as a matter of course only once.
On March 11, 2010, the trial court sustained the demurrer without leave to amend, ruling that the statute of limitations had run and that the issue of joinder was moot. Specifically, the court concluded that the complaint filed in April 2008 was barred by the statute of limitations because IPG knew or had reason to know of the settlement agreement in April 2004 and no later than December 2004. The court was not persuaded by IPG’s argument that the agreement was void or that the cause of action continued to accrue. While it accepted MPAA’s argument that the District of Columbia’s three-year statute of limitations applied under the choice of law provision, the court was under the erroneous impression that the applicable California statute of limitations also was three years.
The court denied reconsideration on May 5, 2010, but after taking the matter under submission, it clarified that “the applicable statutes of limitations (regardless of the forum selected) commenced running no later than March 31, 2004, the date the settlement agreement was entered into, ” a date more than four years before the commencement of this litigation.
The case was dismissed, and IPG filed this timely appeal.
DISCUSSION
I
We review de novo the trial court’s sustaining of a demurrer. (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 122.) “When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The judgment will be affirmed if we uphold any of the grounds of a general demurrer. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)
‘““We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.” [Citation.]”’ (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) We consider exhibits attached to the complaint and incorporated by reference. (See Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) “[T]o the extent the factual allegations conflict with the content of the exhibits to the complaint, we rely on and accept as true the contents of the exhibits.” (Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505.)
II
A
In Hambrecht & Quist Venture Partners v. American Medical Internat., Inc. (Hambrecht) (1995) 38 Cal.App.4th 1532, the court affirmed the sustaining of a demurrer to a breach of contract action on the ground that it was barred by Delaware’s three-year statute of limitations, made applicable by a choice of law provision in the contract. Relying on Hambrecht, MPAA contends that the choice of law provision in the settlement agreement makes the three-year District of Columbia statute of limitations applicable to this action because a state’s statute of limitations is part of its law. (See id. at p. 1540.) The holding of Hambrecht is not at issue in this case. Rather, the issue is whether the choice of law provision should be enforced despite IPG’s allegations that the settlement agreement was signed by a person who had no authority to bind IPG, and MPAA was on notice of this fact.
See D.C. Code, § 12-301, subd. (7) [three-year statute of limitations for actions on contract]; Doolin v. Environmental Power Ltd. (D.C. 1976) 360 A.2d 493, 496-497 [action for rescission governed by the applicable legal statute of limitation].
MPAA represents that the United States District Court for the District of Columbia has already ruled in favor of the enforceability of the choice of law provision. But MPAA does not argue that the court’s ruling has preclusive effect; nor was that court asked to decide whether the contract containing the choice of law provision was void or voidable.
Choice of law provisions are generally enforceable unless they lack a reasonable basis or offend public policy. (See Rest.2d Conf. of Law, § 187, subd. (2); see also Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 464-465, citing the Restatement.) An exception also exists for choice of law provisions, where, under the forum state’s own law, one party’s consent was obtained by “improper means, such as by misrepresentation, duress, or undue influence, or by mistake.” (Rest.2d Conf. of Law, § 187, com. b.)
The complaint does not allege that the settlement agreement resulted from misrepresentation, duress, undue influence, or mistake. Rather, it alleges that IPG’s minority member and the attorney she hired to represent IPG lacked authority to bind IPG, of which MPAA had notice. The letters that Ms. Galaz’s attorney sent to MPAA and the mediator are attached as exhibits to the complaint. They cite provisions of the Texas Limited Liability Company Act, which confirm that Worldwide Subsidy Group, LLC, the Texas limited liability company doing business as IPG, could not be bound by a member lacking authority when the third-party was placed on notice.
Article 2.21 of former Texas Limited Liability Company Act, in effect when the purported settlement agreement was entered into, provided in relevant part that a member may bind the company unless the member lacks authority and the person dealing with the member has knowledge of the member’s lack of authority. Article 2.23 provided that an act of a majority of the members entitled to vote was an act of the members. (Tex. Rev. Civ. Stat. Ann. art. 1528n, expired by its own terms on Jan. 1, 2010.)
The letters do not cite California law, under which IPG’s California limited liability counterpart was formed, but California law does not differ substantially from Texas law in this regard. Specifically, a majority vote of all members of an LLC is required for all matters except to amend the articles of organization. (See Corp. Code, § 17103, subd. (a)(2) & (3).) Additionally, “every member is an agent of the limited liability company for the purpose of its business or affairs, and the act of any member... binds the limited liability company, unless the member so acting has, in fact, no authority to act for the limited liability company in the particular matter, and the person with whom the member is dealing has actual knowledge of the fact that the member has no such authority.” (Corp. Code, §17157, subd. (a).)
Generally, under California agency law, “[a]n agent has such authority as the principal, actually or ostensibly, confers upon him.” (Civ. Code, § 2315.) Ostensible authority is the authority of the agent that the principal causes or allows a third person to believe that the agent possesses. (Civ. Code, § 2317.) An agent has no ostensible authority as to persons with actual or constructive notice of a restriction a principal has placed on an agent’s authority. (Civ. Code, § 2318.)
Although IPG alleges that the settlement agreement is “void ab initio” for lack of authority, under general contract principles and agency law it is more accurately characterized as voidable. A void contract creates no rights and may not be ratified. (South Bay Radiology Medical Associates v. Asher (1990) 220 Cal.App.3d 1074, 1080.) On the other hand, a voidable contract may be ratified. (Fergus v. Songer (2007) 150 Cal.App.4th 552, 571.) For instance, a contract voidable for lack of consent may be ratified by a principal who accepts a benefit under the contract with notice. (See Civ. Code §§ 1588; 2310). But the principal also has the option of seeking to avoid the unauthorized contract. (See Boteler v. Conway (1936) 13 Cal.App.2d 79, 83.) Thus, a voidable contract is not void unless the wronged party elects to treat it as void in a judicial action. (White Dragon Productions, Inc. v. Performance Guarantees, Inc. (1987) 196 Cal.App.3d 163, 172 [summary judgment was improper where a party opposed it on the ground that agreement was void].)
MPAA may not enforce the contractual choice of law provision on demurrer because IPG has elected to treat the agreement as void, and the allegations in the complaint are sufficient to render it void for lack of authority. The complaint alleges that MPAA was placed on notice of Ms. Oshita and attorney Bogert’s lack of authority to bind IPG. For purposes of the demurrer, we must accept these allegations as true. (Zelig v. County of Los Angeles, supra, 27 Cal.4th at p. 1126.) IPG’s election applies to the entire agreement, including the choice of law provision. (Cf. Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 29 [“If a contract includes an arbitration agreement, and grounds exist to revoke the entire contract, such grounds would also vitiate the arbitration agreement.”].)
We decide only issues addressed by the parties.
MPAA argues that the agreement was authorized by IPG because attorney Bogert made that representation in a letter attached to the agreement. This argument is problematic for two separate reasons. First, neither the agreement nor the letter was appended to the complaint, and neither is an actual or proper subject of a request for judicial notice. Second, the attorney’s letter is not a representation by IPG and cannot confer ostensible authority, especially since MPAA already was on notice that Ms. Galaz disputed attorney Bogert’s authority to represent IPG. MPAA did not base its demurrer on the ground that IPG ratified the settlement agreement by accepting its benefits with notice. Nor can this factual question be resolved on the allegations of the complaint or the documents of which the trial court took judicial notice.
Taken as true, the allegations in the complaint establish that the settlement agreement may be voided for lack of authority of the person who signed it on behalf of IPG. Whether IPG can prove its allegations is a different question, on which we express no opinion. But on demurrer, “we do not concern ourselves with the plaintiff’s ability to prove its factual allegations.” (Friends of Glendora v. City of Glendora (2010) 182 Cal.App.4th 573, 576.) We conclude only that it would be premature at this stage to enforce the choice of law provision that may fall along with the agreement.
MPAA’s argument that District of Columbia law governs the dispute even without the choice of law provision was not raised in the demurrer, and in any event would be an improper basis for sustaining the demurrer because the decision whether District of Columbia law or the law of a state controls in the absence of a choice of law provision requires a factual analysis beyond the allegations in the complaint. (See ABF Capital Corp. v. Berglass (2005) 130 Cal.App.4th 825, 838, citing Rest.2d Conf. of Laws § 188, subd. (1) [contract validity is determined by reference to law of state with most significant relationship to the contract] & subd. (2) [listing five factors “to be evaluated according to their relative importance with respect to the particular issue”: the place of contracting, the place of negotiation, the place of performance, the location of the subject matter, and the place of incorporation and place of business of the parties].) Although we cannot determine on appeal which state law would govern the dispute absent a choice of law provision, we note that the California trial court denied MPAA’s motion to dismiss on forum nonconveniens grounds, ruling that the extensive evidence it reviewed for that motion indicated that the key witnesses were located in California.
B
After denying the motion for reconsideration, the trial court clarified its ruling on the issue of accrual. It stated that the lawsuit was barred by all relevant statutes of limitation, which started running on March 31, 2004, when the agreement was signed. The only statute of limitations brought to the trial court’s attention, besides that of the District of Columbia, was California’s four-year catch-all statute of limitations in Code of Civil Procedure section 343. Actions to void a contract are subject to this four-year statute of limitation. (Marin Healthcare Dist. v. Sutter Health (2002) 103 Cal.App.4th 861, 878.)
The trial court’s conclusion that IPG was on notice regarding the settlement agreement on the day it was signed contradicts the allegation in the complaint that Ms. Galaz was not informed of the terms of the agreement until December 4, 2004. We must treat this allegation as true for purposes of the demurrer. (Zelig v. County of Los Angeles, supra, 27 Cal.4th at p. 1126.) Neither Ms. Oshita’s nor Mr. Bogert’s knowledge of the execution of the agreement may be imputed to IPG under the circumstances because a principal is not bound by the knowledge an agent acquired while acting without authority. (Trane Co. v. Gilbert (1968) 267 Cal.App.2d 720, 727.)
Whether IPG was placed on inquiry notice regarding the terms of the settlement agreement on the day when it was signed raises factual issues, such as whether Ms. Galaz was notified that the agreement would be signed on that date, or whether her failure to inquire was reasonable in light of her attorney’s letters to MPAA and the mediator, requiring them to keep Ms. Galaz informed of the negotiations. Resolution of such factual issues is not appropriate on demurrer. (See Catsouras v. Department of California Highway Patrol (2010) 181 Cal.App.4th 856, 889-890.) We conclude that the trial court erred in ruling on demurrer that the cause of action accrued on March 31, 2004.
That said, we find no merit to IPG’s continuing accrual claim. The doctrine of continuing accrual applies to periodic breaches of severable contracts, not to “a single breach or other wrong which has continuing impact.” (Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co. (2004) 116 Cal.App.4th 1375, 1389.) While cable and satellite royalties may come due periodically, IPG does not allege a periodic breach of contract. Rather, it seeks to invalidate an agreement that has a continuing effect on its ability to participate in negotiation of royalties as they come due.
We reverse the judgment of dismissal because it is not apparent from either the face of the complaint or any document subject to judicial notice what the applicable statute of limitations in this case is and whether it bars the complaint.
III
MPAA argues in the alternative that the judgment of dismissal must be affirmed on another ground, which the trial court did not reach since it regarded it as moot: that the complaint fails for failure to join the Librarian of Congress as an indispensable party to this action. (See Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at p. 967.)
Under Code of Civil Procedure section 389, subdivision (a), a person is a “necessary” party to a proceeding if “(1) in his absence complete relief cannot be accorded among those already parties or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.”
MPAA cites District of Columbia law but concedes that California law is essentially the same. We therefore apply California law.
When a “necessary” party cannot be joined, the court determines whether “in equity and good conscience the action should proceed among the parties before it, or should be dismissed without prejudice, the absent person being thus regarded as indispensable. The factors to be considered by the court include: (1) to what extent a judgment rendered in the person’s absence might be prejudicial to him or those already parties; (2) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; (3) whether a judgment rendered in the person’s absence will be adequate; (4) whether the plaintiff or cross-complainant will have an adequate remedy if the action is dismissed for nonjoinder.” (Code Civ. Proc., § 389, subd. (b).)
“A court has the power to proceed with a case even if indispensable parties are not joined. Courts must be careful to avoid converting a discretionary power or rule of fairness into an arbitrary and burdensome requirement that may thwart rather than further justice.” (County of Imperial v. Superior Court (2007) 152 Cal.App.4th 13, 26.) Thus, while courts assume that all parties to a contract are necessary parties to a lawsuit on that contract, they have avoided finding absent parties indispensable when a joined party has the same interest in the lawsuit. (See City of San Diego v. San Diego City Employees’ Retirement System (2010) 186 Cal.App.4th 69, 84; County of Imperial v. Superior Court, at pp. 27-28; Deltakeeper v. Oakdale Irrigation Dist. (2001) 94 Cal.App.4th 1092, 1102, 1105; People ex rel. Lungren v. Community Redevelopment Agency (1997) 56 Cal.App.4th 868, 877-879.)
Here, the Librarian was a party to the second part of the settlement agreement. IPG amended its complaint to drop its claims regarding the 1997 royalties, which were the subject of the Librarian’s decision. But it acknowledges that, depending on the outcome of this case, it may call on the Librarian to reopen proceedings regarding the distribution of 1997 and 1998 satellite royalties. While the Librarian’s execution of a part of the settlement agreement and IPG’s request for relief as to royalties already distributed may render the Librarian a necessary party, that officer is not an indispensable party for at least two reasons.
First, MPAA assumes the Librarian cannot be joined because the settlement agreement in this case is a government contract within the purview of the Tucker Act, which does not waive sovereign immunity over claims for equitable relief. (See 28 U.S.C., § 1491, subd. (a)(1); Transohio Sav. Bank v. Director, [Office of Thrift Supervision] (D.C. Cir. 1992) 967 F.2d 598, 608 [Tucker Act construed to waive sovereign immunity only for claims seeking damages].) MPAA glosses over the requirement that a government contract must implicate a unique federal interest that would bring the matter under “federal common law.” (See Boyle v. United Technologies Corp. (1988) 487 U.S. 500, 504.) In its remand order on September 29, 2009, the United States District Court for the District of Columbia rejected MPAA’s argument that this case should be decided under federal common law. Important to the court’s determination were the Librarian’s consent to the choice of law provision in the agreement and the Librarian’s apparent lack of interest in this case.
Second, MPAA’s interest in protecting the status quo as to the distribution of the 1997 and 1998 satellite royalties is closely aligned with that of the Librarian, so that any failure of joinder does not limit the court’s discretion to proceed with this case under Code of Civil Procedure section 389, subdivision (b). (See County of Imperial v. Superior Court, supra, 152 Cal.App.4th at pp. 27-28.)
We therefore decline to affirm the judgment on the ground that the Librarian is an indispensable party.
DISPOSITION
The judgment is reversed and the cause remanded for further proceedings. Appellant to have its costs on appeal.
We concur: WILLHITE, J., SUZUKAWA, J.