J. Chase Bryan

ADVANCED ARBITRATION ISSUES

Case Study: Grigson, et al. vs. Creative Artists Agency, L.L.C.

How Did We Get Grigson?

America Needed This Movie

• Owner (Grigson) /Producers (River City and Ultra Muchos) Contracted with TriStar to Distribute Massacre

• After Stars Rise to Fame, Everyone Set to Make Money: TriStar, Owners and Producers

• Everyone Happy But the Stars and CAA• TriStar had planned to distribute Chainsaw movie

posters trading on name and likeness of McConaughey and printed posters reflecting this plan.

• Creative Artists, acting for McConaughey, pressured Columbia Tristar to retreat from its plan for the posters claiming that McConaughey’s fame should not be exploited in connection with the Chainsaw movie.

The Lawsuit: Massacre Gutted By Greedy Agents and Stars

• Creative Artists and McConaughey pressured TriStar to not make a major release of the movie.

• America Deprived of Wide Release of Massacre

• Owners/Producers Damaged

Producers:(River City

Films;Ultra Muchos)

Distributor:(Columbia

TriStar)

Creative Artist

McConaughey

Trustee for Owner:Grigson

1997

Grigson sued Producers and TriStar for Breach of the Distribution Agreement

Grigson dismissed his claim due to efforts of the Producers and TriStar to enforce arbitration provision

Grigson, Ultra Muchos and River City sued Creative Artists and McConaughey in Texas State Court for Interfering with Distribution of the Film.

Removed to Federal Court, Motion to Compel Arbitration was filed.

• CAA and McConaughey Are Not Parties to the Distribution Contract with the Arbitration Provision

• Claims Do Not Arise Out of Distribution Contract

• Owners/Producers Claim Tortious Interference with Distribution Contract, Not Breach

• TriStar is Not a Defendant

Argument that Claims Are Not Arbitrable

• Equitable Estoppel Cannot Create a Contractual Right CAA/ McConaughey Didn’t Pay For

• Even if Equitable Estoppel Applies, Claims are Not Intertwined with Distribution Contract

Argument that Claims Are Not Arbitrable

• Arbitration is favored in the law• Owners sought compensation through the

distribution agreement• Interference alleged was intertwined with

the distribution agreement• Therefore, claims are arbitrable

Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 528 (5th Cir. 2000)

Grigson – Fifth Circuit Ruling:

• The Court relied on equitable estoppel• Relied on “intertwined claims” test from

Eleventh Circuit in MS Dealer Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999)

• Trial Court did not abuse discretion in holding that Plaintiffs’ claims were intertwined with the distribution agreement

• Each case turns on its own facts• Linchpin is fairness

Grigson

• Section 3 of the FAA: Action is “referable to arbitration under an agreement in writing.” 9 U.S.C. §3.

• Confusion: EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002) (“[i]t goes without saying that a contract cannot bind a nonparty”)

Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009)

• “traditional principles of state law allow a contract to be enforced by or against nonparties to the contract through assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel,”

• Non-Signatory May Invoke the FAA: “if the relevant state contract law allows him to enforce the agreement.”

Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009)

"Six theories for binding a nonsignatory to an arbitration agreement have been recognized: (a)incorporation by reference; (b)assumption; (c)agency; (d)veil-piercing/alter ego; (e)estoppel; and (f)third-party beneficiary.“Sapic v. Gov't of Turkmenistan, 345 F.3d 347, 360-61 (5th Cir. 2003)

State Law Theories

• Arbitration agreement in a primary contract will control contracts incorporated by reference.

• A contract that states “not to be construed to create a contractual relationship of any kind” between parties other than signatories could not be used to require a non-signatory to arbitrate.

Incorporation By Reference

When a non-signatory assumes the obligation of participation in arbitration then a non-signatory is bound.

Assumption

Courts will apply equitable estoppel to allow a non-signatory to enforce an arbitration provision against a signatory if the non-signatory is an agent of a signatory

Agency

Veil-Piercing/Alter Ego

“When the charges against a parent company and its subsidiary are based on the same facts and are inherently inseparable, a court may refer claims against the parent to arbitration even though the parent is not formally a party to the arbitration agreement.”

J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 320-321 (4th Cir. 1988).

Veil-Piercing/Alter Ego

Veil-Piercing/Alter Ego

Signatory ego must control its non-signatory alter ego in such a way as to “perpetrate a fraud or something akin to fraud” in order to bind a non-signatory to an arbitration agreement.

Interocean Shipping Co. v. National Shipping & Trading Corp., 523 F.2d 527 (2nd Cir. 1975).

Veil-Piercing/Alter Ego

Estoppel

“a signatory to that agreement cannot . . . on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration's applicability because the defendant is a non-signatory”

Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 528 (5th Cir. 2000)

Estoppel

Third Party Beneficiary

“[W]hether seeking to avoid or compel arbitration, a third party beneficiary has been bound by contract terms where its claim arises out of the underlying contract to which it was an intended third party beneficiary.”

E.I. Dupont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 195 (3rd Cir. 2001)

Third Party Beneficiary

“The NASD Code binds its members to arbitrate a wide variety of claims with a broad range of claimants. As we hold below, in some cases a third party with no direct relationship to the member can compel that member to arbitrate.”

John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48 (2nd Cir. 2001)

Third Party Beneficiary

Stuckey v. Community Bank

• Multiple loans to spouses• Husband signed loan documents and signed wife’s name

• Wife signed some but denied• Court did not apply estoppel

Other Non-Signatory Case Examples

Boss Hog Case

• Borrower opens Dollar Store in rural community

• Competes with “Boss Hog” store

• Defaults and bank forecloses • Bank sues for deficiency• Counterclaim against Bank and competitor of Borrower

• Can Bank compel Borrower to arbitrate all claims?

AMERICAN ARBITRATION ASSOCIATION®

O P TIO N A L APPELLATE A R B IT R A T IO N RULES

Rules Effective November 1, 2013 Available online at a d r .o r g

“Notwithstanding any language to the contrary in the contract documents, the parties hereby agree: that the Underlying Award may be appealed pursuant to the AAA’s Optional Appellate Arbitration Rules (“Appellate Rules”); that the Underlying Award rendered by the arbitrator(s) shall, at a minimum, be a reasoned award; and that the Underlying Award shall not be considered final until after the time for filing the notice of appeal pursuant to the Appellate Rules has expired. Appeals must be initiated within thirty (30) days of receipt of an Underlying Award, as defined by Rule A-3 of the Appellate Rules, by filing a Notice of Appeal with any AAA office. Following the appeal process the decision rendered by the appeal tribunal may be entered in any court having jurisdiction thereof"

APPELLATE ARBITRATION RULES

ARBITRATION?

The reality is that it can be slow and expensive like traditional litigation.

DOUGLAS V. REGIONS BANK, 757 F.3d 460 (5th Cir. 2014)

• The arbitration agreement at issue contained a “delegation clause” in the arbitration agreement that required that the issue of arbitrability be decided by an arbitrator.

• The Fifth Circuit ruled that the delegation clause did not apply where the Bank’s contention that her claims fell within the scope of the arbitration agreement was wholly groundless.