California Court of Appeal Makes The “Safe Harbor” A Little Bit Safer

On February 24, 2022, in Broadcast Music, Inc. v. Currency Corp., (B304809, Feb. 24, 2022), the Court of Appeal, Second Appellate District, Division Two (Los Angeles), certified for publication a unanimous decision applying the law of the case doctrine and defining when a sanctions motion may be brought pursuant to Code of Civil Procedure section 128.7.

This appeal arose from a copyright and licensing dispute that had an extensive litigation history, including prior appeals. The plaintiff, who licensed the public performance rights of copyrighted musical compositions, filed an interpleader action regarding how it should distribute a composer’s royalties. A lengthy battle ensued between Structured Asset Sales, Inc. (Structured) and Currency Corporation (Currency) over the royalties and rights related to two sets of musical compositions. The trial court ultimately awarded the interpleaded royalties to Currency.

Several years later, in a second interpleader action, the same plaintiff sought a legal determination as to who should receive additional royalties generated from the same songs from the same composer. Again, Structured and Currency fought over the royalties and ownership of the musical compositions. The trial court granted Currency’s motion for summary judgment based on the collateral estoppel effect of the judgment from the first interpleader action, and awarded Currency the second sum of royalties. Structured appealed the judgment. Currency then moved for attorney’s fees and costs under California Civil Code section 1717 (permitting a prevailing party to be awarded attorney’s fees when a contract provides for such recovery) or, in the alternative, under California Code of Civil Procedure former section 128.5 (permitting recovery of reasonable expenses, including attorney’s fees, incurred by a party as a result of bad-faith actions or frivolous lawsuits). The trial court granted Currency’s motion under former section 128.5. Structured appealed this judgment as well.

The Second District Court of Appeal, in an unpublished opinion (“Broadcast Music III”), affirmed the judgment as to royalties, but reversed the sanctions awarded. The court reasoned that the sanctions motion “violated section 128.7, subdivision (c)(1) by failing to comply with the 21-day safe harbor provision, and by combining a sanctions motion with a motion for attorney fees under Civil Code section 1717.” The court also denied Currency’s appeal to recover attorney’s fees for prior appeals pursuant to California Civil Code section 1717, explaining that “an award of such fees on appeal is only warranted when they were previously granted at the trial level.”

Currency then filed a motion pursuant to California Civil Code section 1717 to recover attorney’s fees incurred in its most recent appeal. On November 20, 2019, Structured served, but did not file, a section 128.7 motion for sanctions, arguing the motion for attorney’s fees was frivolous, as it was foreclosed by law of the case as established in the previous, unpublished opinion. Structured identified the hearing date as December 11, 2019—the 21st day after service of the unfiled motion. The trial court denied the motion on the ground that Structured failed to give Currency the benefit of a full 21-day safe harbor period. The trial court also denied Currency’s motion for attorney’s fees based on the rule of the case doctrine. The trial court “was bound by the appellate court’s holding in Broadcast Music III,” and Currency waived its right to pursue attorney’s fees when it failed to previously do so.

The parties appealed, leading to the instant decision. The Court of Appeal affirmed the trial court’s ruling denying recovery of attorney’s fees, reasoning that the outcome is appropriate under rule of the case doctrine. The appellate court cited to the rationale in People v. Cooper (2007) 149 Cal.App.4th 500, 524 (Cooper), which provided that “‘law of the case doctrine holds that when an appellate opinion states a principle or rule of law necessary to the decision, that principle or rule becomes the law of the case and must be adhered to through its subsequent progress in the lower court and upon subsequent appeal.’” The Court further cited Cooper, extending that “‘[t]he doctrine does not apply unless the point of law involved was necessary to the prior decision, the matter was presented to the court and determined by it, and application of the doctrine will not result in an unjust decision.’”

In Broadcast Music III, the Court of Appeal necessarily determined that, “in the context of this case an award of attorney fees incurred in the trial court had to precede an award of attorney fees incurred on appeal.” Significantly, this determination was made after Currency “made a one sentence request that we award attorney fees incurred on appeal even though there had been no prior finding that an applicable contract provided for attorney fees and that Currency was the prevailing party on that contract.” In Broadcast Music III, the appellate court held that Currency “waived any further claims to attorney fees when it sat on its rights by not insisting on a ruling on its original motion and by not appealing the trial court’s de facto denial of that motion.” The court insisted there would be no waiver if Currency “had obtained a ruling from the trial court or appealed the trial court’s failure to rule on its motion for attorney fees [….]” As such, the rule of case doctrine applied and Currency effectively waived its claim for attorney’s fees.

The court next considered Structured’s appeal as to the trial court’s order denying its section 128.7 sanctions motion. The appellate court affirmed the trial court’s ruling, deciding that a sanctions motion cannot be filed until the 22nd day after the service of the motion, i.e., after the 21-day safe harbor period expires. California Code of Civil Procedure, section 128.7, subdivision (c)(1)—establishing a 21-day safe-harbor period for a party to withdraw an objectionable document—should be read alongside Code of Civil Procedure, section 12, which states that the “time in which any act provided by law is to be done is computed by excluding the first day, and including the last, unless the last day is a holiday.” Thus, the date in which the sanctions motion is to be served is excluded from calculation. Here, this calculation effectively barred Structured’s sanctions motion where it was filed only 20 days after the service of the motion. Given this calculation, the merits of the objectionable motion was resolved by the court prior to the expiration of the safe harbor provision.

Practitioners can glean several lessons from this decision. First, and generally, relief should always be sought from the trial court before approaching the appellate court. Second, the law of the case doctrine, which applies only when an appellate court, not trial court, states a principle or rule of law necessary to the decision, has far reaching impacts that can affect future rights to recover. Third, litigants should move for sanctions under section 128.7 in a separately-filed motion, apart from any other request for fees pursuant to other authority. And finally, parties should be careful in calculating the safe harbor period to ensure that service is effectuated a full 21-days before moving for sanctions under section 128.7.

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