There were no major cases over the weekend, so today’s Highlights is a series of smaller, fact-intensive cases designed to remind us of the variety of issues that arise in connection with arbitrations and their judicial follow-ups.

The application of an arbitration clause to extracontractual claims

5^th of July, LLC v. Thomas, 2020 U.S. Dist. LEXIS 187063 (M.D. Tenn.) (Oct. 8, 2020), in addition to addressing the arbitration of extracontractual claims under a narrow arbitration provision, gives an interesting insight into the music industry. Plaintiffs are music management companies who represented TMT, whom the court characterizes as a “rising country music star.”  Since she is a minor – from the opinion, it appears that she is somewhere between thirteen and sixteen years old – the case apparently refers to her only by initials. And, yes, I wasted all kinds of time unsuccessfully trying to figure out who she is.  Plaintiffs claim that, through their efforts, they “fostered TMT from an unknown child performer in Flint, Michigan, to the stage of the Grand Ole Opry and other venues” and landed her “a major record contract and publishing deal at the age of thirteen.”  They claim that they expended $3,000,000 in unreimbursed funds and “devoted thousands of hours” to the singer and her family “setting [them] up for a prosperous future. . . .”  The plaintiff’s complaint alleges that, among other things, they got TMT on national television, including the Macy’s Day Parade; had her featured on the Disney Channel; produced her music and helped her write content; and paid for guitar lessons, vocal lessons, acting lessons, hair styling, travel expenses, and all the expenses of a musician on the road. The relationship broke down for some reason not specified in the opinion.

The arbitration clause, which is contained in two separate personal management agreements, provided for the arbitration of “any dispute hereunder. . . .” Apparently attempting to avoid the arbitration clause and/or some other provision of the representation agreement, Plaintiffs couched their claims in unjust enrichment and quantum meruit, rather than as a breach of contract. Arguing that such extracontractual claims did not fall under the agreement’s requirement to arbitrate “disputes hereunder,” they opposed Defendants’ motion to compel arbitration. Judge Crenshaw first distinguishes between broad arbitration clauses which cover disputes “related to” an agreement and the narrower inclusion of claims “arising under” the agreement, deeming the subject clause to be a narrow one.  He, then, holds that the determination of arbitrability, even under a narrow clause, looks to the factual nature of the claims, not the characterization of the cause of action derived therefrom. The court opines that the long list of services provided by Plaintiffs “are the very things that one might expect under agreements that required Plaintiffs to (1) ‘advise, counsel and direct artist [sic]. . . in connection with all matters related to Artist’s professional career in all branches of the entertainment industry’ and (2) ‘use commercially reasonable efforts to attend to all matters to which a personal manager of recording artists and entertainer’s [sic] traditionally attends.’” Since the scope of those duties cannot be resolved without reference to the parties’ agreement, the court holds the arbitration clause applies and stays the pending litigation.

An interesting issue not addressed fully in the opinion, which refers only to documents by number, is the nature of the record before the court.  From what did Judge Crenshaw reach a factual determination as to “things that one might expect under [such] agreements. . . .?”  Were there witnesses? Were there battling affidavits?  Was there a stipulation?

Competence-Competence under the CPR rules

Previously discussed cases hold that an arbitration clause’s incorporation of the AAA’s and ICC’s arbitration rules gives the arbitrator the power to decide his or her own jurisdiction. Shirley v. FMC Technologies, Inc. 2020 U.S. Dist. LEXIS 187894 (W.D. Tex.) (Oct. 9, 2020) adds CPR to that list of ADR providers whose rules delegate the gateway issue to the arbitrator.  Therefore, Magistrate Judge Hightower refuses to second guess the arbitrator’s decision that he, rather than an independent accountant, had the authority to determine whether, based on the characterization of accounting entries, Defendant properly held back certain advances to Plaintiff.  The court’s lengthy invocation of Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013) gives a pretty strong hint that, if she were deciding the issue ab initio, Magistrate Judge Hightower would come out differently.

Waiver and judicial snark

Hospitality Builders Inc. v. Spokane South Medical, LLC, 2020 U.S. Dist. LEXIS 187211 (D.S.D.) (Oct. 8, 2020) holds that the exercise of rights necessary to avoid the running of a statute of limitations – in this case the filing of and foreclosure upon a mechanics lien – does not constitute a waiver of the right to demand arbitration.  What makes this fairly routine case worth reading is the shot Judge Kornmann takes at the arbitration process generally.

On a personal note, during the thirty years I practiced law and tried cases, I was not a fan of arbitration.  The practice has now grown beyond reasonable bounds, with nursing home residents not allowed to use our jury system in cases of alleged abuse or malpractice. Arbitration agreements are now being inserted into virtually all contractual matters, however trivial.  Congress should act to prevent what I consider to be abuses and overreaching by closing the courthouse door.  My sentiments, however, do not allow me to fail to follow the law as written and interpreted.”

Per the last sentence of the quote, the court compels arbitration.

Dismissal or summary judgment

The issue regularly arises as to whether the court should resolve a motion to compel arbitration under the standards of Fed. R. Civ. P. 12(b)(6) (a motion to dismiss) or Rule 56 (a motion for summary judgment). While the distinction may appear to be angels on the head of a pin, it matters because the two rules differ on whether the court may consider material outside the four corners of the complaint, such as affidavits and documents, and whether a full factual hearing may be required. Judge Chesler, in Facta Health, Inc. v. Pharmadent, LLC, 2020 U.S. Dist. LEXIS 186892 (D.N.J.) (Oct. 8, 2020) draws the distinction cleanly, at least within the Third Circuit.  Rule 12(b)(6) applies where “arbitrability is apparent on the face of the complaint and/or documents relied upon in the complaint,” while the motion should be decided under Rule 56 where the complaint does not “establish with clarity that the parties agreed to arbitrate” or where the motion’s opponent, generally the plaintiff, has not come forward with more than a “naked assertion” that it need not arbitrate.

Compelling arbitration of a class action

Rushing v. Williams-Sonoma, Inc., 2020 U.S. Dist. LEXIS 188095 (N.D. Cal.) (Oct. 8, 2020) arises in the context of the common claim that one party has waived arbitration by engaging in related litigation. The twist in the case is that the action was brought on behalf of a purported class and the class had not yet been certified, despite five years of litigation. Relying, in the absence of Ninth Circuit precedent, on what might be dictum in an Eleventh Circuit decision,  Gutierrez v. Wells Fargo Bank, N.A., 889 F.3d 1230 (11^th Cir. 2008), Judge Orrick opines that a defendant may not move to compel arbitration against unnamed class members before class certification.

Arbitrators v. appraisers

The October 5^th “Highlights” discussed a case which limited the power of an appraiser to the determination of the amount of a loss, barring his or her resolution of any coverage issues.  A similar constraint was adopted in McDonald’s Corp. v. Vanderbilt Atlantic Holdings, LLC, 2020 U.S. Dist. LEXIS 187299 (E.D.N.Y) (Sept. 30, 2020). The parties’ lease contained a provision which provided that, in connection with lease renewals, appraisers would determine the fair market value of the leased premises.  Issues arose as to whether the parties were cooperating in the appraisal process and whether the two appointed appraisers should appoint a third. Plaintiff sought declaratory relief to resolve the issue; defendant claimed that the appraisal process was, in reality, an arbitration and that the appraisers should make those decisions as part of the scope of their arbitration.  The court, Irizarry, J., disagrees, holding that the lease provision did not grant the appraisers authority beyond determining value.  In reaching that holding, he considers the appraisers’ required work product a “letter opinion[s] of value,” as opposed to “opinions about the parties’ compliance with the terms of the lease. . . .” He also deems appraisers, by training, inappropriate for such a determination. “[T]he arbitrators are real estate appraisers. They are not equipped to address claims concerning a party’s good faith or the role of the third appraiser, which is a matter of contract interpretation. . . If the parties intended to submit disputes about a party’s good faith or the role of the third appraiser to arbitration, they would not have selected real estate appraisers as their arbitrators.”

My Steelers are still undefeated, although they made it uncomfortably close on Sunday.  I hope your weekend was equally good.  See you Friday.

Dave Reif
Reif ADR
Dreif@reifadr.com
Reifadr.com