Mortiz v. Universal City Studios LLC

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