In Gilkyson, et al. v. Disney Enterprises, Inc., et al., doctrine of continuous accrual gets a boost in the licensing contract setting

The doctrine of continuous accrual serves to prevent the inequitable circumstance where one act of malfeasance is used to create immunity in perpetuity for even very recent bad acts.  In Gilkyson, et al. v. Disney Enterprises, Inc., et al., the Court of Appeal (Second Appellate District, Division Seven) found that the doctrine of continuous accrual should apply to a royalty contract for song reproduction rights.

Terry Gilkyson, a successful songwriter in the 1950’s and 1960’s.  He wrote a number of songs for the animated film The Jungle Book, one of which was used in the movie.  Gilkyson signed single-song contracts with Disney’s predecessor-in-interest, Walt Disney Productions, that obligated it to pay Gilkyson specified royalties for sales of sheet music and for licensing or other disposition of the mechanical reproduction rights. Disney paid Gilkyson over the years and, after his death in 1999, his heirs royalties for sheet music and for audio reproductions of Gilkyson’s songs (vinyl records, compact discs (CDs) and digital downloads).  However, Disney did not pay, and has never paid, Gilkyson or his heirs royalties for the use of his songs in any audiovisual medium, including digital video disc recordings (DVDs).  The heirs of Gilkyson sued Disney Enterprises, Inc. and other entities, alleging Disney had breached its contractual obligation to pay royalties in connection with the licensing or other disposition of the mechanical reproduction rights to Gilkyson’s songs. The trial court dismissed the lawsuit after sustaining Disney’s demurrer to the first amended complaint without leave to amend, ruling the Gilkyson heirs’ causes of action were barred by the applicable statutes of limitations.

The Court of Appeal first explained the continuous accrual doctrine as an exception to statutes of limitation:

Under the continuous accrual doctrine each breach of a recurring obligation is independently actionable.  (Aryeh, supra, 55 Cal.4th at p. 1199 [“‘[w]hen an obligation or liability arises on a recurring basis, a cause of action accrues each time a wrongful act occurs, triggering a new limitations period’”]; see ibid. [“[b]ecause each new breach of such an obligation provides all the elements of a claim—wrongdoing, harm, and causation [citations]—each may be treated as an independently actionable wrong with its own time limit for recovery”]; Howard Jarvis, supra, 25 Cal.4th at p. 809 [same]; Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co. (2004) 116 Cal.App.4th 1375, 1388 (Armstrong) [continuous accrual applies to contract where performance is severed into intervals, such as installment contracts, leases with periodic rental payments and periodic pension payments]; Wells Fargo Bank v. Bank of America (1995) 32 Cal.App.4th 424, 439, fn. 7 [“a new breach occurs each month the bank persists in its refusal to pay [monthly] rent at the gold clause rate”].)  The effect of the doctrine is that “a suit for relief may be partially time-barred as to older events but timely as to those [acts of wrongdoing occurring] within the applicable limitations period.”  (Aryeh, at p. 1192; accord, Howard Jarvis, at p. 809.)[1]   In this way, the doctrine represents an equitable “response to the inequities that would arise if the expiration of the limitations period following a first breach of duty or instance of misconduct were treated as sufficient to bar suit for any subsequent breach of misconduct; [absent the doctrine,] parties engaged in long-standing misfeasance would thereby obtain immunity in perpetuity from suit even for recent and ongoing misfeasance.  In addition, where misfeasance is ongoing, a defendant’s claim to repose, the principal justification underlying the limitations defense, is vitiated.”  (Aryeh, at p. 1198.)

Slip op., at 6-7.  The Court then concluded that the continuous accrual doctrine applied to the contractual obligation to pay periodic royalties under a licensing arrangement:

Here, as in Aryeh, Disney’s obligation to pay royalties based on its licensing or other disposition of the mechanical reproduction rights to Gilkyson’s songs was unquestionably a continuing one.  As alleged in the first amended complaint (consistent with the original complaint), the parties agreed in paragraph 6 of the single-song agreements that Gilkyson “will receive as a royalty ‘[an] amount of money equal to Fifty Percent (50%) of the net amount received by our music publisher on account of licensing or other disposition of mechanical reproduction rights in and to material so written by you.’”  The first amended complaint also alleged Disney had issued quarterly royalty statements to Gilkyson and, after his death, to his heirs.  The continuing nature of the obligation to pay periodic royalties renders each breach of that obligation separately actionable.  (Aryeh, supra, 55 Cal.4th at p. 1201; see Armstrong, supra, 116 Cal.App.4th at p. 1392 [contract to provide periodic oil and gas royalties was severable, with each failure of the continuing obligation to pay a proper royalty separately actionable and subject to its own limitation period].)  The result is that, while portions of the Gilkyson heirs’ contract claim are undoubtedly time-barred, the action is timely as to those breaches occurring within the four-year limitations period preceding the filing of the original lawsuit.

Slip op., at 8-9.  The Court noted that it was not resolving the substantive issue, raised by Disney, of whether use of songs in DVDs and other audiovisual media was governed by the same portion of the agreement that governed mechanical reproduction.