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NOT FOR PUBLICATION MAY 16 2013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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