Fun with One-Way Intervention

June 24, 2015 – Last month, the United States District Court for the Central District of California certified a class in a royalties dispute brought on behalf of owners of pre-1972 recordings played by Sirius XM Radio. Because the court had already found Sirius liable for unpaid royalties, the class certification ruling represents a total win for Flo & Eddie and the other artists and copyright owners.

In an earlier post, I described the substantive aspects of the court’s ruling and gave an overview of the requirements for certifying the class. In this installment, I look more closely at one of the unusual procedural aspects of the case and discuss how defendants may avoid the misfortune that befell Sirius. If you’re not a serious civil procedure nerd, I recommend you skip to “The Bottom Line” below. If, on the other hand, you ARE a civil procedure nerd, let’s talk one-way intervention!

Flo & Eddie, Inc., a corporation controlled by the founding members of ‘60s pop group The Turtles, owns the rights to The Turtles’ master recordings – but has never licensed any radio station to play those recordings. This did not deter Sirius from broadcasting – or, in copyright parlance, from “publicly performing” –The Turtles’ songs, or any other pre-1972 recordings, without paying royalties. Flo & Eddie filed a class action lawsuit against Sirius to recover royalties for unlicensed uses of recordings by Sirius on behalf of themselves and all other owners of pre-1972 sound recordings. (See Part One of the Flo & Eddie blog for an explanation of why the 1972 cutoff date is significant.)

In an unusual move, the court found Sirius liable, at least as to Flo & Eddie, before ruling on whether the case could proceed as a class action. In September of last year, the court granted summary judgment in favor of Flo & Eddie, rejecting Sirius’s argument that “the bundle of rights that attaches to copyright ownership of a pre-1972 sound recording does not include the exclusive right to publicly perform the recording.” The court held that, under California law, “copyright ownership of a pre-1972 sound recording includes the exclusive right to publicly perform the recording; therefore if anyone wishes to publicly perform such a recording, they must first seek authorization from the recording’s owner.”

The parties had filed a Joint Case Management Statement in which Flo & Eddie proposed a schedule in which class certification would occur before any summary judgment motions were to be filed. Sirius disagreed with this sequence, instead requesting that the court allow it to first file a summary judgment motion as to liability to Flo & Eddie only. Overestimating the strength of its case on liability, Sirius explained that “the Court and the parties may not need to reach damages or class certification issues at all if Sirius XM is correct on the issue of liability.”

Sirius obviously assumed that it would be the party moving for summary judgment. But – surprise! – Flo & Eddie beat Sirius to the punch. Initially, Sirius went along with Flo & Eddie’s approach, reinforcing the court’s belief that it “simply desired a liability judgment, without particular regard as to the vehicle for that ruling.” That is, Sirius didn’t really object to Flo & Eddie filing an early summary judgment motion; it only inserted a footnote in its motion complaining that Flo & Eddie’s motion improperly referred to class claims and that “the timing of the motion disregard[ed] the one-way intervention doctrine.” And, oddly, Sirius did not bring its own cross-motion for summary judgment, instead choosing to make its arguments only through its opposition brief.

The court concluded that the liability issues should be resolved first, with little concern for which party filed for summary judgment first (or whether one or both party moved for judgment). The court granted summary judgment in favor of Flo & Eddie, finding that Sirius owed the band royalties for having used its recordings without authorization.

Flo & Eddie next moved to certify a class consisting of “owners of sound recordings fixed prior to February 15, 1972 … which have been reproduced, performed, distributed, or otherwise exploited by Defendant Sirius XM in California without a license or authorization to do so during the period from August 21, 2009 to the present.” Sirius opposed the motion for class certification, arguing (among other things) that the one-way intervention rule prohibited Flo & Eddie from certifying a class after obtaining a ruling on liability.

As the court explained, one-way intervention is “the intervention of a plaintiff in a class action after an adjudication favoring the class has taken place. Such intervention is termed ‘one-way’ because the plaintiff would not otherwise be bound by an adjudication in favor of the defendant occurring at that point in the litigation.” That is, if a defendant wins a motion for summary judgment, it has defeated the claims only of the named plaintiff; other would-be class members remain free to take another shot at the defendant on identical claims. By contrast, where a plaintiff wins on summary judgment and then moves to certify a class, the “absent class members can opt-in to a risk-free predetermined judgment.”

It is “uncontroversial” in the Ninth Circuit for defendants to move for summary judgment before class certification “because, in doing so, defendants affirmatively accept that the resulting judgment will only bind the parties at bar and will leave the defendants vulnerable to additional lawsuits.” The Ninth Circuit Court of Appeals has yet to rule on whether it is permissible to certify a class after a plaintiff has already obtained a judgment on the merits – so the district court had to craft its own rule.

District Judge Phillip S. Gutierrez “conclude[d] that the correct approach to plaintiff-side post-judgment certification is to analyze whether [the] defendant consented to plaintiff’s motion, thus waiving the protections of the one-way intervention rule. … [I]f defendant consented to the timing of plaintiff’s motion, defendant accepted the risk of being bound to future class members if the court ruled in favor of plaintiff and cannot subsequently, upon an unfavorable ruling, invoke the one-way intervention rule to preclude certification.”

Here, the court easily determined that Sirius consented to the order of proceedings. In addition to the conduct described above, Sirius’s counsel wrote a letter to the plaintiff confirming that Sirius had proposed “deferral of class certification briefing until after a determination on any motions for summary judgment on issues of liability.” Further, Sirius’s attorneys didn’t even mention the one-way intervention doctrine at the hearing on Flo & Eddie’s summary judgment motion. The mere reference to the doctrine in a footnote in its brief was not sufficient to overcome Sirius’s other actions, which waived the protection of the one-way intervention rule.

“Sirius XM’s mentioning the doctrine in a footnote in its opposition brief to summary judgment does not override the other statements and conduct indicative of consenting to Flo & Eddie’s motion, particularly Sirius XM’s failure to mention the doctrine at the hearing on the motion and its statement that it decided to use the motion to make its own arguments. … Because Sirius XM requested early summary judgment briefing, failed to raise a firm pre-judgment objection to Flo & Eddie’s motion, and actually decided to adopt Flo & Eddie’s motion as its own early liability decision vehicle, the Court concludes that Sirius XM consented to Flo & Eddie’s bringing a motion for summary judgment prior to certifying a class. ”

The Bottom Line

Sirius made the unusual – and frankly rather inexplicable – decision to allow a ruling on the merits of Flo & Eddie’s claims before a motion for class certification was decided. This approach essentially made Sirius a sitting duck for all potential class members; even if the court decided not to certify a class, all owners of pre-1972 recordings that Sirius had broadcast could file slam-dunk lawsuits. A word of advice to defendants: Make darn sure you can win on the merits before waiving the protection of the one-way intervention rule.