No Free Pass for Misconduct While Away for the Summer in Federal Court.

Moofly Prods., LLC v. Favila, No. B294825 (D2d1 Mar. 4, 2020)

Two issues here: 1. Can a superior court issue terminating sanctions based on conduct that occurred while a case, since remanded, had been removed to federal court? 2. When is there a right to jury trial on a claim for fraudulent conveyance?

The terminating sanctions issue arose from discovery misconduct—including violating court orders—that occurred after the case had been removed based on a putative copyright infringement claim but before it was remanded. The magistrate judge recommended terminating sanctions. The district court, however, dismissed the copyright claim and declined jurisdiction under 28 U.S.C. § 1367(c)(3) to send the remainder of the case back to state court. Although the district judge found the recommendation for terminating sanctions to be well-founded, it left the ultimate decision to the superior court on remand.

Defendant renewed the terminating sanctions motion on remand. The superior court dismissed the claims, and the Court of Appeal affirms. The conduct at issue rose to the level of terminating sanctions. Plaintiff wholesale refused to participate in discovery and ignored court orders to the contrary. Given the lack of authority otherwise, that Plaintiff’s misconduct occurred while the case was removed to federal court did not matter.

The dismissal of Plaintiffs claims left standing Defendants’ cross-claims for fraudulent transfer of some IP between two related entities controlled by Plaintiff and his wife. Those claims got tried to the court, which found for Defendants. Plaintiff now claims that deprived it of its right to jury trial. 

Generally, claims for fraudulent conveyance or equitable trust are equitable and carry no right to jury trial. There is an exception, however, for claims to recover a determinate sum of money. Because that kind of claim most closely resembles remedies available at law in 18th Century England—replevin, trover, money had and received—the U.S. Supreme Court has determined that the right to jury trial would attach to such claims. See Granfinanciera, S.A. v.Nordberg, 492 U.S. 33 (1989). 

The Seventh Amendment hasn’t been incorporated against the states. But California courts would generally reach the same result under state law—the key distinction being that California law looks to the law of England in 1850 instead of 1789. In any event, the res in this case isn’t a sum certain of money, it’s intangible IP. Recovery of that kind of property has always required and still requires a resort to equity. So there’s no right jury trial.

Affirmed.