Royce Mathew v. the Walt Disney Co., 690 F. App'x 509

Mathew learned on June 1, 2009, that Disney allegedly procured a mutual release (the “Release”) by fraud; he did not notify Disney of intent to rescind until he filed suit on May 28, 2013 (≈4 years later).
Mathew sought rescission of the Release; Disney asserted laches/substantial prejudice as a defense and brought a counterclaim for $3,500.
The Second Amended Complaint alleged Disney continuously exploited the Pirates of the Caribbean franchise since May 28, 2010, releasing additional films and investing in merchandising, distribution, licensing, and other exploitation.
The district court granted Disney’s motion to dismiss under Rule 12(b)(6) based on Mathew’s delayed notice and entered a consent judgment for Disney on its counterclaim.
The Ninth Circuit panel affirmed the dismissal and the consent judgment; the majority held Mathew’s delay was substantially prejudicial to Disney and therefore barred rescission.
Judge Clifton dissented, arguing substantial prejudice is a factual inquiry inappropriate for dismissal at the 12(b)(6) stage and that Disney had not shown it would have acted differently had it been notified earlier.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Mathew’s delayed notice of rescission was a bar (substantial prejudice) under Cal. Civ. Code § 1693	Mathew argued he could rescind the Release despite the delay	Disney argued the nearly four-year delay caused substantial economic prejudice because Disney invested in and expanded the Pirates franchise relying on the Release	Affirmed: delay was substantially prejudicial and rescission barred
Whether the district court properly entered a consent judgment on Disney’s counterclaim	Mathew implicitly consented to the judgment but later disputed its effect	Disney relied on the parties’ agreement to entry of judgment	Affirmed: consent judgment stands because record shows plaintiff consented

Citicorp Real Estate, Inc. v. Smith, 155 F.3d 1097 (9th Cir. 1998) (timeliness of rescission notice governed by discovery of facts entitling rescission)
Petrella v. Metro-Goldwyn-Mayer, Inc., 695 F.3d 946 (9th Cir. 2012) (delay/laches may show prejudice where defendant invested based on presumed rights; factual inquiry typically at summary judgment)
Danjaq LLC v. Sony Corp., 263 F.3d 942 (9th Cir. 2001) (economic prejudice where defendant made extensive investments during plaintiff’s delay)
Conti v. Bd. of Civil Service Commissioners, 1 Cal.3d 351 (Cal. 1969) (no laches where delay produced no material change in the status quo)
United States v. Bechtel Corp., 648 F.2d 660 (9th Cir. 1981) (consent judgments entered by agreement are ordinarily affirmed)
Internet Specialties West, Inc. v. Milon-DiGiorgio Enterprises, Inc., 559 F.3d 985 (9th Cir. 2009) (mere expenditures on an allegedly infringed work are insufficient alone to establish prejudice)