Largan Precision Co., Ltd. v. Fisch Sigler, LLP ( 2022 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
LARGAN PRECISION CO., LTD.,
Movant,
v. Case No. 1:22-mc-00049 (TNM)
FISCH SIGLER LLP,
Respondent.
MEMORANDUM OPINION
Largan Precision Co., Ltd., moves to stay arbitration over a bonus payment to its former
counsel, Fisch Sigler LLP. Largan, a Taiwanese company, hired Fisch Sigler to file a patent
infringement case in the United States. The parties agreed to arbitrate any future disputes over
fees. When Largan won an award in parallel Taiwanese litigation, Fisch Sigler sought a portion
of the award as a contractual bonus payment. Largan refused because Fisch Sigler did not
participate in the Taiwanese litigation. After months of unsuccessful negotiation, Fisch Sigler
tried to force Largan to arbitrate the issue in Washington, D.C. Largan says the agreement to
arbitrate “fees” does not cover a dispute about bonus payments. Fisch Sigler disagrees and also
argues that this Court is not the proper forum to decide the dispute over arbitrability.
Because federal courts determine whether parties have agreed to arbitrate and the scope
of that agreement, this Court is the proper forum. And because the contract carves out bonus
payments from the agreement to arbitrate, the Court will stay the arbitration.
I.
Largan is a Taiwan-headquartered, publicly traded company that manufactures camera
lenses. Mot. to Stay ¶ 1 (Mot.), ECF No. 1; Mem. in Opp’n at 8 (Opp’n), ECF No. 9. 1 Largan’s
customers include the world’s largest technology companies, such as Apple, Google, Microsoft,
and Samsung. Opp’n at 8. Based in the District, Fisch Sigler is a nationally recognized law firm
that specializes in patent litigation. Id. at 7.
In 2013, Largan filed a trade secrets lawsuit in Taiwan against another Taiwanese
company, Ability Opto-Electronics Technology Co., Ltd. (AOET). Mot. ¶ 4. Six years later,
with the Taiwanese lawsuit still ongoing, Largan hired Fisch Sigler to file a patent infringement
lawsuit against AOET in the United States. Id. ¶ 5; Opp’n at 9. The parties memorialized the
terms of the representation in a contract. The contract includes several provisions at issue here.
First, it defines both “fixed fees” and “success bonus.” “Fixed fees” include “all
attorney’s fees . . . and certain expenses incurred by the firm” and excludes certain fees not
disputed here. See Largan Ex. 1 at 4 (Contract), ECF No. 1-2. The “success bonus” for Fisch
Sigler is either 25% of “case profit” if the case concludes before a so-called “claim construction
order” (a type of order specific to patent disputes) or 50% of case profit if the case concludes
after that order. Id. at 4–5.
Second, the contract contains both a mediation and an arbitration provision. If the parties
dispute the amount of the success bonus, the contract directs the parties to “mediate in
California.” Id. at 5. If the parties have a dispute over “fees”—an undefined term—the parties
1
All page numbers refer to the pagination generated by the Court’s CM/ECF electronic filing
system.
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“agree to mandatory arbitration before the Washington, D.C. Bar Attorney/Client Arbitration
Board” (ACAB). Id. at 6.
In early 2021, Largan won a judgment against AOET in the Taiwanese litigation. Mot.
¶ 9; Opp’n at 11. Largan and AOET then negotiated a settlement that resolved both the
Taiwanese and U.S. lawsuits. Mot. ¶ 9. Largan and Fisch Sigler began to discuss the success
bonus, but the parties could not agree on the amount. Id. ¶¶ 10–11; Opp’n at 14. Fisch Sigler
says it asked Largan six times to mediate, and Largan refused each time. Opp’n at 14. Largan
responds that the contract only requires it to mediate after good-faith discussions, and that Fisch
Sigler never engaged in good-faith discussions. Largan Reply to Fisch Sigler’s Opp’n at 18
(Reply), ECF No. 11. As proof, it submits a declaration from in-house counsel at Largan who
says that Fisch Sigler at first asked for a $1.9 million success bonus. Decl. of Wei-Ju Chen Ex. E
¶¶ 3, ECF No. 11-1. But after a new attorney took over Fisch Sigler’s negotiations, it increased
its demand to $5.65 million. Id. ¶ 4. To Largan, a request for triple the previous amount did not
constitute good faith, so it refused to mediate. See id. ¶ 5; Reply at 18.
Fisch Sigler filed a complaint with ACAB seeking to arbitrate the success bonus plus
attorneys’ fees and expenses. Mot. ¶ 10; Opp’n at 14. Largan then filed this motion to stay
arbitration. Fisch Sigler opposed the motion, and Largan replied. The motion is now ripe.
II.
The parties disagree on three issues. First, they dispute whether ACAB or the Court is
the proper forum for this dispute. Second, they disagree about whether Largan provided
informed consent to arbitrate the success bonus as required by ACAB rules. And third, they
disagree about whether the arbitration clause covers the success bonus.
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The Court need only address the first and third arguments. Under District law and
Supreme Court precedent, a court decides whether parties agreed to arbitrate a particular issue. 2
So the Court is the proper forum for this dispute. Because the Court finds that the arbitration
clause does not cover disputes over a success bonus, it need not decide whether Largan provided
its informed consent.
A.
Consider first the parties’ threshold dispute about whether this matter is properly before
the Court. The answer to that question depends on how one frames the issue. Largan says the
dispute is about whether the parties agreed to arbitrate disagreements about the success bonus.
See Mot. ¶¶ 16–21. Framed this way, the dispute is over “the existence or formation of a valid
agreement to arbitrate—i.e., arbitrability.” Id. ¶ 16.
If Largan’s framing is correct, the Court should adjudicate because courts resolve
disagreements about arbitrability. See D.C. Code § 16-4406(b) (“The court shall decide whether
an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.”); First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947 (1995) (holding that because a party did
not “clearly agree to submit the question of arbitrability to arbitration,” the dispute over
arbitrability “was subject to independent review by the courts”). To adjudicate a disagreement
about arbitrability, courts decide whether an agreement to arbitrate exists and the scope of that
agreement. See D.C. Code § 16-4406(b); see also Masurovsky v. Green, 687 A.2d 198, 204
(D.C. 1996) (“[C]ourts, not arbitrators, are to determine whether the parties have agreed to
2
Whether the Court is the proper forum for this dispute is separate from the issue of whether the
Court has subject matter jurisdiction. The Court has subject matter jurisdiction under 28 U.S.C.
§ 1332 because Fisch Sigler has its principal place of business in the District, Largan is a
Taiwanese corporation, and the amount in controversy exceeds $75,000. See Mot. ¶ 3.
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arbitrate a particular matter, unless the parties themselves have agreed to submit the
arbitrability question itself to arbitration.”) (emphasis added).
Fisch Sigler responds that “the [Contract] itself shows that an agreement to arbitrate
exists—indeed, it contains the arbitration provision.” Opp’n at 15. Thus, there can be no
disagreement about the existence of an agreement to arbitrate. Instead, Fisch Sigler contends,
the only thing at issue is whether it “complied with” ACAB’s internal rules. Id. Recall that the
parties dispute whether Fisch Sigler obtained Largan’s informed consent. ACAB Rule 8(b)(iii)
requires a client to “have been adequately informed of the scope and effect of a mandatory
arbitration provision, consistent with D.C. Bar Legal Ethics Committee Opinion 376.” That
rules dispute, according to Fisch Sigler, is not about the existence of an agreement to arbitrate. It
is a dispute about an arbitral body’s rules. And under Supreme Court precedent, the arbitrator
adjudicates these disputes. See Howsam v. Dean Witter Reynods, Inc. 537 U.S. 79, 84 (2002).
Accepting Fisch Sigler’s framing, then, means ACAB is the proper forum.
The Court agrees with Largan. Fisch Sigler assumes that because the contract includes
an arbitration provision, the parties have agreed to arbitrate. But the existence of an arbitration
contract says nothing about its scope. And the scope is what Largan disputes. 3 In other words,
Largan challenges the existence of an agreement to arbitrate the success bonus. That
disagreement goes to the Court unless “clear[]” and “unmistakable[]” evidence suggests the
parties’ arbitration clause covers the disputed issue. See AT&T Techs., Inc. v. Commc’ns
Workers of Am., 475 U.S. 643, 649 (1986) (“[T]he question of arbitrability . . . is undeniably an
issue for judicial determination. Unless the parties clearly and unmistakably provide otherwise,
3
Largan also disputes the validity of the entire arbitration provision because it says it never
gave its informed consent to arbitrate. But that turns on the issue of informed consent, which the
Court need not address to resolve this motion. See supra Section II.
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the question of whether the parties agreed to arbitrate is to be decided by the court, not the
arbitrator.”).
The contract does not “clearly and unmistakably” provide that the parties agreed to
arbitrate disagreements about the success bonus. The arbitration clause applies to “fees,” an
undefined term. See Contract at 6. A separate mediation provision covers disputes about the
success bonus. Id. at 5. The contract does not say whether these provisions are mutually
exclusive. Submitting that question to ACAB would improperly allow it to determine its own
jurisdiction. See Grad v. Wetherholt Galleries, 660 A.2d 903, 908 (D.C. 1995) (“To require any
degree of judicial deference to an arbitrator’s decision regarding arbitrability where a proper
objection to the arbitrator’s authority has been lodged would vitiate the consent basis of statutory
arbitration by permitting an arbitrator to clothe herself with actual authority, based on the
agreement of the one party asserting the claim.”).
Thus, the Court is the proper forum to resolve the dispute.
B.
Consider next whether the parties agreed to arbitrate disputes about the success bonus.
When interpreting a contract, the Court bears in mind several principles. “This jurisdiction
follows the ‘objective’ law of contracts.” DSP Venture Group, Inc. v. Allen, 830 A.2d 850, 852
(D.C. 2003). So “the written language embodying the terms of an agreement will govern the
rights and liabilities of the parties regardless of the intent of the parties at the time they entered
into the contract, unless the written language is not susceptible of a clear and definite
undertaking[.]” Id. (cleaned up). Courts give “the language used its plain meaning,” Tillery v.
Dist. of Colum. Contract Appeals Bd., 912 A.2d 1169, 1176 (D.C. 2006), and “will not torture
words to import ambiguity where” there is none. Bragdon v. Twenty–Five Twelve Assocs. Ltd.
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P’ship, 856 A.2d 1165, 1170 (D.C. 2004) (cleaned up). More, “contracts are not rendered
ambiguous by the mere fact that the parties do not agree upon their proper construction.” Steele
Founds., Inc. v. Clark Constr. Grp., 937 A.2d 148, 153 (D.C. 2007) (cleaned up).
The crux of Fisch Sigler’s argument is that the parties wrote the arbitration provision
broadly. Recall that the contract defines two sets of fees: “fixed fees” and the “success bonus.”
Contract at 3–5. In contrast, the term “fees” is undefined. Fisch Sigler argues that though the
term “fixed fees” is narrow, the parties wanted the arbitration provision to apply to fees
“generally”—including the success bonus. Opp’n at 22–23. As evidence, the contract uses the
term “fixed fees” 23 times. Id. at 23. But it uses the term “fees” sparingly. And where it does
use that term, says Fisch Sigler, the contract uses it to cover “fixed fees” and the “success
bonus.” See id.
The problem with this argument is that several times the contract uses the term “fees” in a
way that precludes it from covering the success bonus. First, the contract uses “fees” and “fixed
fees” interchangeably. On its first page, the contract says that “the fees outlined below shall
increase by 25%” if another defendant is added. Contract at 2 (emphasis added). The contract
then gives a list of fixed fees. Id. at 2–3. A page later, the contract says that for “fixed fees, the
firm will issue an invoice for each such fee at the beginning of the month (e.g., the $87,000 fixed
fee invoice for September 2019 would be issued on September 1, 2019).” Id. at 4 (emphasis
added). True, just because the contract refers to “fixed fees” as “fees” does not mean “fees”
excludes the success bonus. But it is instructive that the contract uses the term “fees” to refer to
“fixed fees” but never refers to the “success bonus” as a “fee.”
Second, page three of the contract says that payment terms “apply to all amounts due
including fees, non-covered expenses, and success bonuses.” Contract at 4 (emphasis added).
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And page five of the contract reads: “Notwithstanding any such termination [of the firm’s
representation], the Client remains liable to pay all fees, disbursements, success bonuses, and
related charges incurred or earned under the agreement.” Id. at 6 (emphasis added). If “fees”
included a “success bonus,” there would be no need to include them both in the same sentence.
Put differently, Fisch Sigler’s approach would render the phrase “success bonuses” in these
instances meaningless. The Court is loath to accept this interpretation because it contradicts the
District’s rules for interpreting contracts. See Dist. of Colum. v. Young, 39 A.3d 36, 40 (D.C.
2012) (“[W]e must strive to give reasonable effect to all [a contract’s] parts and eschew
an interpretation that would render part of it meaningless or incompatible[.]”) (cleaned up); see
also Antonin Scalia & Bryan J. Garner, Reading Law: The Interpretation of Legal Texts 176
(2012) (“Because legal drafters should not include words that have no effect, courts avoid a
reading that renders some words altogether redundant.”).
Third, the contract provides for a separate dispute resolution mechanism for the success
bonus and only the success bonus. The parties agreed to mediate disputes about the success
bonus in California. Contract at 5. This is different from how the parties agreed to resolve
disputes about fees both in form—mediation versus arbitration—and in location—California
versus the District. Fisch Sigler counters that mediation and arbitration are not mutually
exclusive. See Opp’n at 24. The way to harmonize these two dispute resolution mechanisms, it
says, is to understand that the contract “contemplates that the parties will mediate [a dispute over
the success bonus] first and if it’s unsuccessful, initiate arbitration at the ACAB.” Id. But
nowhere does the contract set forth mediation and arbitration as successive dispute resolution
mechanisms.
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Fisch Sigler has one more argument. It says that if the Court finds the contract
ambiguous, it should presume in favor of applying arbitration. Id. at 23; see also Woodroof v.
Cunningham, 147 A.3d 777, 788 (D.C. 2016) (“If [a contractual] clause possesses a certain
amount of ambiguity, a presumption . . . applies to construe any ambiguity in favor of
arbitration.”) (cleaned up).
There are two reasons not to apply the presumption in favor of arbitrability here. For
starters, Fisch Sigler overemphasizes the force of the presumption. The Supreme Court recently
highlighted the presumption’s limited reach when it clarified that the “policy favoring
arbitration . . . is about treating arbitration contracts like all others, not about fostering
arbitration.” Morgan v. Sundance, Inc., 142 S. Ct. 1708, 1713 (2022) (emphasis added). This
“policy” exists not to “favor arbitration over litigation,” id., but to counter “the judiciary’s
longstanding refusal to enforce agreements to arbitrate and to place such agreements upon the
same footing as other contracts,” Granite Rock Co. v. Int’l Broth. of Teamsters, 561 U.S. 287,
302 (2010) (cleaned up). And the Supreme Court has “never held that this policy overrides the
principle that a court may submit to arbitration only those disputes that the parties have agreed to
submit.” Id. (cleaned up). See also Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52,
57 (1995) (stating that the federal “proarbitration policy does not operate without regard to the
wishes of the contracting parties”).
Consistent with these statements, the Supreme Court has laid out a two-pronged approach
to determine whether to apply the presumption:
[Courts] discharge [their] duty [to determine whether parties agreed
to arbitrate an issue] by: (1) applying the presumption of arbitrability
only where a validly formed and enforceable arbitration agreement
is ambiguous about whether it covers the dispute at hand; and (2)
adhering to the presumption and ordering arbitration only where the
presumption is not rebutted.
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Granite Rock Co., 561 U.S. at 301 (emphasis added).
Fisch Sigler fails to satisfy this test. As we have seen, the contract is not ambiguous
about whether the arbitration clause covers a “success bonus”: (1) The contract uses the term
“fees” and “success bonus” in the same sentence; (2) the contract uses the term “fees”
interchangeably with “fixed fees”; and (3) the contract provides a separate dispute resolution
mechanism in a separate forum for the success bonus. Thus, the presumption does not apply. In
any event, if the contract was ambiguous, the ambiguity should be construed against the
contract’s author—Fisch Sigler—not in its favor. See Dyer v. Bilaal, 983 A.2d 349, 355 (D.C.
2009) (“[A]ny ambiguity as to the contract’s meaning will be construed strongly against the
drafter.”); Aziken v. Dist. of Colum., 70 A.3d 213, 223 n.13 (D.C. 2013) (same).
Fisch Sigler contends that if it cannot bring its claim before ACAB, it is without a forum
to seek relief. Opp’n at 21. Not so. As even Largan acknowledges, Fisch Sigler is free to file a
breach of contract claim in California contending that Largan has failed to mediate as required
by the contract. See Reply at 17–19. But what Fisch Sigler may not do is force Largan to
arbitrate a dispute that it did not agree to arbitrate.
III.
For all these reasons, the Court will grant Largan’s motion to stay the arbitration. A
separate order will issue.
2022.06.30
17:08:33 -04'00'
Dated: June 30, 2022 TREVOR N. McFADDEN, U.S.D.J.
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