Mortiz v. Universal City Studios LLC ( 2020 )


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  • Filed 9/2/20
    CERIFIED FOR PUBLICATION
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    SECOND APPELLATE DISTRICT
    DIVISION ONE
    NEAL MORITZ et al.,                  B299083
    Plaintiffs and Respondents,   (Los Angeles County
    Super. Ct. No. 18SMCV00036)
    v.
    UNIVERSAL CITY STUDIOS
    LLC et al.,
    Defendants and Appellants.
    APPEAL from an order of the Superior Court of Los Angeles
    County, Craig D. Karlan, Judge. Affirmed.
    Quinn Emanuel Urquhart & Sullivan, Bruce E. Van Dalsem,
    Daniel C. Posner and M. Alex Bergjans for Defendants and
    Appellants.
    Kinsella Weitzman Iser Kump & Aldisert, Dale F. Kinsella,
    Suann C. MacIsaac and Zachary T. Elsea for Plaintiffs and
    Respondents.
    Over the course of approximately 16 years, respondents
    Neal Moritz and Neal H. Moritz, Inc. (collectively, Moritz) worked
    for appellants, Universal City Studios LLC and its wholly-owned
    subsidiary, FFSO Productions LLC (collectively, Universal),
    rendering services as a producer for the film The Fast and the
    Furious (Universal Pictures 2001) and several sequels thereto
    (collectively, the Fast & Furious franchise). The lawsuit underlying
    this appeal involves a “spin-off” of the Fast & Furious franchise, a
    project ultimately released as Fast & Furious Presents: Hobbs &
    Shaw (Universal Pictures 2019) (Hobbs & Shaw), on which Moritz
    allegedly worked as a producer pursuant to an oral agreement with
    Universal. Moritz named Universal, as well as appellant Jimmy
    Horowitz, president of Universal City Studios LLC (collectively,
    appellants) as defendants in the suit. Appellants moved to compel
    arbitration of the suit based on arbitration agreements in written
    producer contracts regarding Moritz’s work for Universal on the
    Fast & Furious franchise. The court concluded that these
    arbitration agreements did not apply to the Hobbs & Shaw dispute,
    and denied appellants’ motion.
    Appellants contend the court erred by deciding whether the
    Hobbs & Shaw dispute was arbitrable under the arbitration
    agreements contained in the Fast & Furious contracts, as those
    agreements are valid and binding on all parties and delegate the
    question of arbitrability to an arbitrator. We disagree, and
    therefore affirm.
    FACTUAL AND PROCEDURAL BACKGROUND
    A.    The Parties’ Producer Contracts Regarding
    the Fast & Furious Franchise
    It is undisputed that Moritz and Universal entered into seven
    written producer contracts setting forth the terms under which
    2
    Moritz rendered services as a producer on the films in the Fast &
    Furious franchise, and that all these contracts (collectively, the Fast
    & Furious contracts) remain valid and binding. Specifically, that
    Moritz and Universal entered into separate contracts for
    the first, second, third, fourth, sixth and seventh movies in the
    franchise: The Fast and the Furious (Universal Pictures 2001),
    2 Fast 2 Furious (Universal Pictures 2003), The Fast and the
    Furious: Tokyo Drift (Universal Pictures 2006), Fast & Furious
    (Universal Pictures 2009), Fast & Furious 6 (Universal Pictures
    2013), and Furious 7 (Universal Pictures 2015) (respectively,
    the FF1 contract, FF2 contract, FF3 contract, FF4 contract,
    FF6 contract, and FF7 contract). They entered into no written
    contract regarding the fifth movie in the franchise, Fast Five
    (Universal Pictures 2011). Finally, they entered into a single
    written producer contract to govern the eighth, ninth, and tenth
    movies in the franchise (the FF8-10 contract). The FF8-10 contract
    is less than two pages long and requires that the terms of the FF7
    contract (with limited modifications) apply to any movie
    constituting a “sequel” or “remake” of earlier films in the franchise.
    Of the movies contemplated by the FF8-10 contract, only the eighth
    movie in the franchise, The Fate of the Furious (Universal Pictures
    2017), has been made to date. The parties agree The Fate of the
    Furious (Universal Pictures 2017) constitutes as a sequel for the
    purposes of the FF8-10 contract.
    It is also undisputed that the first six of the Fast & Furious
    contracts contain valid arbitration clauses. Specifically, the FF1,
    FF2, FF3, and FF4 contracts all provide, in pertinent part, that
    “[a]ny controversy, claim, or dispute arising out of or related to
    this [a]greement or the interpretation, performance, or breach
    hereof . . . shall be resolved according to the procedures set
    forth in this paragraph which shall constitute the sole dispute
    3
    resolution mechanism hereunder.” In all four contracts, these
    procedures require arbitration when initial mediation is
    unsuccessful.
    The FF6 and FF7 contracts provide that “[a]ny controversy,
    claim, or dispute arising out of or relating to this [a]greement or
    this agreement to arbitrate, including, without limitation . . . any
    such controversy, claim or dispute against or involving any officer,
    director, agent, employee, [or] affiliate . . . of a party to this
    Agreement . . . shall be fully and finally adjudicated by binding
    arbitration to the fullest extent allowed by law.”
    The FF8-10 contract includes no separate arbitration clause,
    but the contract subjects movies produced as “sequels” or “remakes”
    to the arbitration clause in the FF7 contract.
    The arbitration clauses in the FF1-FF4 contracts delegate
    questions of arbitrability to an arbitrator by providing that “[t]he
    arbitration shall be initiated and conducted according to the
    JAMS/Endispute Comprehensive Arbitration Rules and Procedure”
    (JAMS rules). The JAMS rules, in turn, require that
    “[j]urisdictional and arbitrability disputes, including disputes over
    the existence, validity, interpretation or scope of the agreement
    under which [a]rbitration is sought . . . shall be submitted to and
    ruled on by the [a]rbitrator. The [a]rbitrator has the authority to
    determine jurisdiction and arbitrability issues as a preliminary
    matter.” We will call this a delegation clause.
    The arbitration clauses in the FF6 and FF7 contracts contain
    no similar delegation clause, but provide that “[a]ny controversy,
    claim, or dispute arising out of or relating to this [a]greement or
    this agreement to arbitrate . . . shall be fully and finally adjudicated
    by binding arbitration to the fullest extent allowed by law.” (Italics
    added.)
    4
    B.    The Hobbs & Shaw Project
    During work on the eighth movie in the Fast & Furious
    franchise, Moritz and Universal began discussing a spin-off film
    referred to as Hobbs & Shaw, which would be based on characters
    from prior films in the franchise. The FF8-10 contract did not
    subject Hobbs & Shaw to the modified terms of the FF7 contract, as
    the film was neither a “remake” nor a “sequel.”
    Moritz and Universal exchanged written drafts of a producer
    contract for Hobbs & Shaw, which included a proposed arbitration
    agreement, but the parties never finalized or signed any written
    contract agreement for Moritz’s work on the film.
    Shortly before filming of Hobbs & Shaw was set to begin,
    Universal informed Moritz that “Universal is under no obligation
    to involve . . . Moritz in the production [of Hobbs & Shaw], nor
    to compensate [him] in connection with it,” and instructed Moritz
    not to “render any services in connection with the [p]icture or be
    involved with the production in any capacity” “until such time as an
    agreement is reached.”
    C.    Moritz’s Complaint Regarding Hobbs & Shaw
    Soon after Universal advised Moritz of its view that the
    parties had no binding agreement regarding Hobbs & Shaw,
    1
    Moritz sued Universal, alleging that Moritz and Universal had
    reached a binding oral agreement regarding Moritz’s work on the
    film, which Universal had breached. The operative version of
    Moritz’s complaint is the first amended complaint (FAC), filed June
    28, 2019.
    1
    Moritz later added appellant Jimmy Horowitz as a
    defendant as well.
    5
    In the FAC, Moritz alleges that in connection with the
    Fast & Furious contracts, Moritz and Universal had “fully
    negotiated and agreed upon an oral producer deal before any
    writings were exchanged” (italics omitted), and that “[t]ypically,
    Moritz would begin working on the production of the film prior to
    the oral producer deal being reduced to writing.” Moritz alleges
    that this again occurred with respect to Hobbs & Shaw, but this
    time, Universal failed to honor the terms of the parties’ oral
    agreement.
    The FAC summarizes key financial provisions of the various
    Fast & Furious contracts, and alleges that “[f]or purposes of this
    [c]omplaint, there is one written producer agreement between
    Moritz and Universal that is relevant[,] . . . [t]he FF8-10 [contract].”
    More specifically, Moritz alleges that “before beginning substantial
    work on the [p]icture, the [p]resident of Universal [City Studios
    LLC] . . . orally agreed with Moritz that [Moritz’s] . . . compensation
    for producing Hobbs [&] Shaw would be . . . the first dollar gross
    compensation option in the FF8-10 [a]greement.” (Italics omitted.)
    Similarly, the FAC alleges that the financial terms for the Hobbs &
    Shaw producer contract were “modeled after the first dollar gross
    compensation option in the FF8-10 [a]greement,” and that “[t]he
    parties had never discussed or agreed that the financial terms of
    the Hobbs & Shaw producer deal would be anything other than the
    first dollar gross option that had been contained in [Moritz’s] last
    producer deal, which was the FF8-10 [a]greement.” (Italics
    omitted.)
    The FAC also references the Fast & Furious contracts in
    various other ways. Specifically, Moritz alleges that “[i]t was
    always clearly and fully understood between the parties that
    [Moritz] would receive . . . [Moritz’s] customary credit and full
    financial compensation for producing Hobbs & Shaw,” and that a
    6
    proposal made by Universal after the parties had entered into an
    oral agreement was contrary “to what Moritz had received on all of
    the [Fast & Furious] films since approximately 2012 (and had
    received on many [Fast & Furious] films before that).” (Italics
    omitted.)
    The FAC asserts breach of contract, breach of implied
    contract, and promissory fraud causes of action and seeks both
    damages and enforcement of the alleged oral agreement.
    D.    Appellants’ Motion to Compel Arbitration
    Appellants moved to compel arbitration based on the
    arbitration clauses in the Fast & Furious contracts. Appellants’
    motion first asked the court to compel arbitration of the threshold
    question of arbitrability: that is, whether the parties’ dispute was
    arbitrable under the arbitration clauses in any of the Fast &
    Furious contracts. Appellants argued in the alternative that, if the
    court concluded it had jurisdiction to decide arbitrability, the court
    should compel arbitration of the parties’ dispute in the FAC,
    because it “related to” one or more of the Fast & Furious contracts.
    The court rejected the argument that arbitrability was a
    question to be decided by an arbitrator. In so doing, the court
    considered only one potentially applicable arbitration agreement:
    the agreement reflected in the FF7 contract and made applicable
    to further “sequels” and “remakes” under the FF8-10 contract.
    The court disagreed that the question of arbitrability should be
    decided by the arbitrator, explaining that “ ‘[u]nless the parties
    clearly and unmistakably provide otherwise, the question of
    whether the parties agreed to arbitrate is to be decided by the
    court, not the arbitrator,’ ” and that “the parties [here] did not
    clearly and unmistakably provide otherwise.” The court observed
    that the FF8-10 contract was “hardly a model of clarity,” and
    7
    further noted that even if the arbitration agreement did clearly
    delegate the arbitrability issue to the arbitrator, that agreement
    would not apply to the Hobbs & Shaw dispute in the FAC, because
    “the parties agree . . . [Hobbs & Shaw] is not a [remake or sequel]
    within the meaning of the [FF8-10 contract].” (Italics omitted.)
    The court therefore considered the merits of appellants’
    arguments that the FAC dispute fell within the scope of the parties’
    arbitration agreements in the Fast & Furious contracts, and
    concluded the dispute was not arbitrable. It therefore denied
    appellants’ motion to compel arbitration.
    Appellants timely appealed.
    DISCUSSION
    As the basic facts underlying appellants’ motion to compel
    arbitration are undisputed, this appeal presents a purely legal
    issue, which we review de novo. (See Robertson v. Health Net of
    California, Inc. (2005) 
    132 Cal. App. 4th 1419
    , 1425 [“evaluating an
    order denying a motion to compel arbitration,” “if the court’s denial
    rests solely on a decision of law, then a de novo standard of review
    is employed”].)
    The parties do not dispute that the Federal Arbitration Act
    (FAA) applies to the arbitration agreements at issue. Nor do we see
    any basis for concluding otherwise, as the agreements are contained
    in contracts “involving” interstate commerce (9 U.S.C. § 2; see
    Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 
    513 U.S. 265
    , 276-277) that do not clearly elect some other law to govern
    arbitrability. (See Brennan v. Opus Bank (9th Cir. 2015) 
    796 F.3d 1125
    , 1129.)
    Section 2 of the FAA provides: “A written provision in . . . a
    contract . . . to settle by arbitration a controversy thereafter arising
    out of such contract . . . shall be valid, irrevocable, and enforceable,
    save upon such grounds as exist at law or in equity for the
    8
    revocation of any contract.” (9 U.S.C. § 2; hereafter sometimes “§
    2.”)
    Arbitration “is a matter of consent, not coercion.” (Volt Info.
    Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ.
    (1989) 
    489 U.S. 468
    , 479; see also Atkinson v. Sinclair Refining Co.
    (1962) 
    370 U.S. 238
    , 241 [“a party cannot be required to submit to
    arbitration any dispute which he has not agreed so to submit”].)
    “[A]rbitrators derive their authority to resolve disputes only
    because the parties have agreed in advance to submit such
    grievances to arbitration.” (AT & T Technologies, Inc. v.
    Communications Workers of America (1986) 
    475 U.S. 643
    , 648-649.)
    Arbitration of a claim is appropriate “only where the court is
    satisfied that the parties agreed to arbitrate that dispute.” (Granite
    Rock Co. v. Int’l Broth. of Teamsters (2010) 
    561 U.S. 287
    , 297.)
    An arbitration agreement is tied to the underlying contract
    containing it, and applies “only where a dispute has its real source
    in the contract. The object of an arbitration clause is to implement
    a contract, not to transcend it.” (Litton Fin. Printing Div. v. NLRB
    (1991) 
    501 U.S. 190
    , 205 (Litton).) No authority permits sending a
    matter to arbitration simply because the same parties agreed to
    arbitrate a different matter.
    “[W]hether parties have agreed to ‘submi[t] a particular
    dispute to arbitration’ is typically an ‘ “issue for judicial
    determination.” ’ [Citations.] [W]here the dispute at issue concerns
    contract formation, the dispute is generally for courts to decide.”
    (Granite Rock Co. v. Int’l Broth. of 
    Teamsters, supra
    , 561 U.S. at p.
    296; see also AT & T Technologies, Inc. v. Communications Workers
    of 
    America, supra
    , 475 U.S. at p. 649 [the “question of whether the
    parties agreed to arbitrate is to be decided by the court, not the
    arbitrator”].) “When deciding whether the parties agreed to
    arbitrate a certain matter (including arbitrability), courts generally
    9
    . . . should apply ordinary state-law principles that govern the
    formation of contracts.” (Cullinane v. Uber Techs., Inc. (1st Cir.
    2018) 
    893 F.3d 53
    , 61; see also First Options of Chicago, Inc. v.
    Kaplan (1995) 
    514 U.S. 938
    , 944 [“When deciding whether the
    parties agreed to arbitrate a certain matter . . . courts generally . . .
    should apply ordinary . . . principles that govern the formation of
    contracts”].)
    To form a valid contract there must be a meeting of the
    minds, i.e., mutual assent. (Code Civ. Proc., § 1281; see Civ. Code,
    §§ 1550, 1565.) “ ‘Mutual assent is determined under an objective
    standard applied to the outward manifestations or expressions of
    the parties, i.e., the reasonable meaning of their words and acts.’ ”
    (Chicago Title Ins. Co. v. AMZ Ins. Services, Inc. (2010) 
    188 Cal. App. 4th 401
    , 422.)
    Here, the parties agreed to arbitrate “any controversy, claim,
    or dispute arising out of or relating to” the FF6 and FF7
    agreements. But the Hobbs & Shaw dispute neither arises from nor
    relates to the FF6 or FF7 agreements. Although Moritz referenced
    the agreements in his complaint when explaining the historical
    background of the Hobbs & Shaw, the mere mention of a contract
    does not mean the dispute relates to it in any substantive sense. If
    it did, a party could make any contract relate to a dispute simply by
    mentioning it. There is no reasonable probability that when the
    parties agreed to arbitrate any dispute relating to the FF6 and FF7
    contracts that they meant every dispute in which a party mentions
    the contracts, no matter how tangentially.
    Appellants nevertheless argue that the arbitration
    provisions in the FF6 and FF7 agreements apply here because the
    delegation clauses go on to provide that “[a]ny controversy, claim, or
    dispute arising out of or relating to . . . this agreement to
    arbitrate . . . shall be” arbitrated (italics added), and such a dispute
    10
    now exists because they created it by invoking the delegation
    clause. The argument is without merit.
    “[P]arties may delegate threshold arbitrability questions to
    the arbitrator, so long as the parties’ agreement does so by ‘clear
    and unmistakable’ evidence.” (Henry Schein, Inc. v. Archer & White
    Sales, Inc. (2019) ___U.S.___ [
    139 S. Ct. 524
    , 530, 
    202 L. Ed. 2d 480
    ,
    487] (Schein).) We conclude not only is it not clear and
    unmistakable here that the parties agreed to delegate arbitrability
    questions concerning Hobbs & Shaw to an arbitrator, no reasonable
    person in their position would have understood the F6 and F7
    arbitration provisions to require arbitration of any future claim of
    whatever nature or type, no matter how unrelated to the
    agreements nor how distant in the future the claim arose.
    “For example, if two small business owners execute a sales
    contract including a general arbitration clause, and one assaults the
    other, we would think it elementary that the sales contract did not
    require the victim to arbitrate the tort claim because the tort claim
    is not related to the sales contract. In other words, with respect to
    the alleged wrong, it is simply fortuitous that the parties happened
    to have a contractual relationship.” (Coors Brewing Co. v. Molson
    Breweries (10th Cir. 1995) 
    51 F.3d 1511
    , 1516.) When an
    arbitration provision is “read as standing free from any [underlying]
    agreement,” “absurd results ensue.” (Smith v. Steinkamp (7th Cir.
    2003) 
    318 F.3d 775
    , 777.)
    Appellants’ proffered construction of the delegation clause
    would not only transcend the purpose and terms of the F6 and F7
    agreements, contrary to 
    Litton, supra
    , but would operate to deprive
    both sides of all future rights to either a jury trial or court
    resolution of completely unrelated matters arising potentially
    decades in the future.
    11
    Appellants rely on Schein for the proposition that only an
    arbitrator can determine whether the arbitration clause should be
    enforced, and to what extent. We disagree.
    Prior to Schein, many federal and California state courts
    considered the merits of the parties’ arbitrability arguments to a
    certain extent in determining who should decide the arbitrability
    of a dispute under an arbitration agreement governed by the FAA.
    Namely, if the argument for arbitrability was “wholly groundless,”
    some courts declined to submit the question of arbitrability to the
    arbitrator, even when the parties expressly delegated that question
    to the arbitrator. 
    (Schein, supra
    , 139 S.Ct. at pp. 528-529; Smythe
    v. Uber Technologies, Inc. (2018) 
    24 Cal. App. 5th 327
    , 332.) But
    Schein explicitly “reject[ed] th[is] ‘wholly groundless’ exception” to
    2
    determinations of arbitrability under the FAA. (Schein, at p. 531.)
    2
    Before the United States Supreme Court’s decision in
    Schein, California courts repeatedly held that the California
    Arbitration Act (CAA) is “consistent with federal law on the
    question of who decides disputes over arbitrability,” including with
    respect to the judicially-created “wholly groundless” exception.
    (See Dream Theater, Inc. v. Dream Theater (2004) 
    124 Cal. App. 4th 547
    , 553.) Namely, these cases recognized a “wholly groundless”
    exception to enforcing an agreement that an arbitrator decide the
    issue of arbitrability under both the CAA and the FAA. (See, e.g.,
    ibid.; Smythe v. Uber Technologies, 
    Inc., supra
    , 24 Cal.App.5th at
    p. 332 [noting that under the FAA, “[a] delegation clause will be
    given effect when there is a plausible argument that the arbitration
    agreement requires the merits of the claim to be arbitrated, and
    cases where an assertion of arbitrability is ‘wholly groundless’ are
    exceptional. [Citation.] California law is consistent with federal
    law on this question”].) Because the CAA does not apply here,
    we need not consider whether the CAA will continue to recognize a
    12
    The Court further clarified that a party seeking to compel
    arbitration need show only that “the parties’ [valid arbitration]
    contract delegates the arbitrability question to an arbitrator.” (Id.
    at p. 529.) Once it has done so, “a court may not override the
    contract . . . [and] possesses no power to decide the arbitrability
    issue. That is true even if the court thinks that the argument that
    the arbitration agreement applies to a particular dispute is wholly
    groundless.” (Ibid.)
    But Schein presupposes a dispute arising out of the contract
    or transaction, i.e., some minimal connection between the contract
    and the dispute. That is so because under the FAA, contractual
    arbitration clauses are “valid, irrevocable, and enforceable” if they
    purport to require arbitration of any “controversy thereafter arising
    out of such contract.” (9 U.S.C. § 2.) Schein expressly understood
    that the Act requires enforcement of arbitration clauses with
    respect to disputes “ ‘thereafter arising out of such contract.’ ”
    
    (Schein, supra
    , 139 S.Ct. at p. 529 (quoting 9 U.S.C. § 2).) The FAA
    requires no enforcement of an arbitration provision with respect to
    disputes unrelated to the contract in which the provision appears.
    Appellants’ argument that an arbitration provision creates a
    perpetual obligation to arbitrate any conceivable claim that Moritz
    might ever have against them is plainly inconsistent with the FAA’s
    explicit relatedness requirement.
    judicially-created “wholly groundless” exception, now that the FAA
    no longer does so.
    13
    DISPOSITION
    The order denying the motion to arbitrate is affirmed.
    Respondents are to recover their costs on appeal.
    CERITIFED FOR PUBLICATON
    CHANEY, J.
    We concur:
    ROTHSCHILD, P. J.
    BENDIX, J.
    14