Daniels et al v. Painter et al

RESPONSE IN SUPPORT of NOTICE OF MOTION AND MOTION to Vacate or Correct Arbitration Award 77

C.D. Cal.June 5, 2018

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -1- REPLY IN SUPPORT OF PAINTER PARTIES’ MOTION TO VACATE OR CORRECT ARBITRATION AWARD HARDER LLP CHARLES J. HARDER (State Bar No. 184593) DILAN A. ESPER (State Bar No. 178293) JORDAN SUSMAN (State Bar No. 246116) 132 S. Rodeo Drive, Fourth Floor Beverly Hills, California 90212 Telephone: (424) 203-1600 Facsimile: (424) 203-1601 Email: CHarder@HarderLLP.com DEsper@HarderLLP.com JSusman@HarderLLP.com Attorneys for Defendants SIMON PAINTER, TIMOTHY LAWSON, INTERNATIONAL SPECIAL ATTRACTIONS, LTD., TML ENTERPRISES, PTY, LTD., ASIA LIVE NETWORK, PTE, LTD., and THE WORKS ENTERTAINMENT, INC. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA BRETT DANIELS, an individual; and BRETT DANIELS PRODUCTIONS, INC., a Wisconsin corporation, Plaintiffs, v. SIMON PAINTER, an individual; TIMOTHY LAWSON, an individual; INTERNATIONAL SPECIAL ATTRACTIONS, LTD., a Colorado corporation; TML ENTERPRISES, PTY, LTD., a foreign corporation; ASIA LIVE NETWORK, PTE, LTD., a foreign corporation; and THE WORKS ENTERTAINMENT INC., a Nevada corporation, Defendants. CASE NO. 2:16-CV-3782 RSWL-Ex [Assigned to Hon. Ronald S.W. Lew, Courtroom 21] REPLY MEMORANDUM IN SUPPORT OF MOTION TO VACATE OR CORRECT ARBITRATION AWARD Date: June 19, 2018 Time: 10:00 a.m. Courtroom: 21 Case 2:16-cv-03782-RSWL-E Document 82 Filed 06/05/18 Page 1 of 11 Page ID #:2074 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -2- REPLY IN SUPPORT OF PAINTER PARTIES’ MOTION TO VACATE OR CORRECT ARBITRATION AWARD I. INTRODUCTION Nobody doubts that arbitration awards are reviewed under a deferential standard. However, it is equally undisputed that arbitration awards that manifestly disregard the law should be vacated. The manifest disregard standard is met when the arbitrator was aware of the law, but then did not apply it. This is exactly what happened here. Painter Parties are not alleging that the Arbitrator merely misinterpreted the Talent Agencies Act. Rather, the Talent Agencies Act sets forth a clear legal rule, the Arbitrator was aware of it (and extensively discussed it), and then failed to follow the rule. Similarly, no matter how deferential the review is of an arbitration decision, it is still a fundamental principle of breach of contract litigation that only parties to contracts can be held liable for their breach. Here, there was no basis for holding several non-parties jointly and severally liable for a contract that was agreed to exclusively by other parties. Finally, Daniels’ argument on the present value issue is based on an obviously untrue premise: that despite the Arbitrator’s calculation of future amounts owed without using any discount rate, the Arbitrator must have been intending to award that amount as the discounted rate and would have awarded more and then discounted it had he thought of the issue. The argument is absurd. The award should be vacated so the future damages may be properly discounted. Daniels’ attorney’s fees argument is an outrageous overreach. Daniels’ contention is that merely by exercising their legal right to due process by seeking review in this Court, a right guaranteed under the United States Code, the Painter Parties are “refusing to abide” by the arbitration clause. This argument is completely meritless and, if accepted, would serve to deprive parties to arbitration agreements of their legal right to seek judicial review of awards. Case 2:16-cv-03782-RSWL-E Document 82 Filed 06/05/18 Page 2 of 11 Page ID #:2075 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -3- REPLY IN SUPPORT OF PAINTER PARTIES’ MOTION TO VACATE OR CORRECT ARBITRATION AWARD II. ARGUMENT A. The Award Manifestly Disregarded the Talent Agencies Act. Daniels cites numerous cases discussing that the scope of review of an arbitration award is narrow, a point Painter Parties do not deny. However, even under that narrow standard of review, courts are required to vacate awards that manifestly disregard the law, as is the case here. Daniels argues that the Arbitrator could not have manifestly disregarded the Talent Agencies Act because he discussed it extensively in the Award. That argument misconstrues the standard. Manifest disregard occurs when the Arbitrator is aware of a legal rule, and then ignores it. “It must be clear from the record that the arbitrators recognized the applicable law and then ignored it.” Collins v. D.R. Horton, Inc., 505 F.3d 874, 879 (9th Cir. 2007). Thus, extensive discussion of the Talent Agencies Act in the Award does not immunize the Award for review under the manifest disregard standard as Daniels argues, on the contrary, it confirms the Arbitator’s awareness of the legal standard. Luong v. Circuit City Stores, 368 F.3d 1109, 1112 (9th Cir. 2004), cited by Daniels, is distinguishable. In Luong, the Arbitrator extended a legal doctrine established in the case law to a new set of facts, and the Ninth Circuit held that by extending the doctrine, the Arbitrator could not have been manifestly disregarding it. Here, Daniels acknowledges that an arbitration award can be vacated for manifest disregard of the law, but then strings together quotes from a number of cases in an attempt to mislead the Court into concluding that there is no review whatsoever of arbitration awards. See Opposition at 2-4. It is impossible to imagine a defect in an arbitration award that Daniels would concede to be reviewable. Daniels’ position appears to be that anyone who ever loses an arbitration for any reason may not move to vacate at all-a position he makes clear in his discussion of attorney’s fees-and a Case 2:16-cv-03782-RSWL-E Document 82 Filed 06/05/18 Page 3 of 11 Page ID #:2076 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -4- REPLY IN SUPPORT OF PAINTER PARTIES’ MOTION TO VACATE OR CORRECT ARBITRATION AWARD position that is directly contrary to the statutes and case law permitting motions to vacate and judicial review of arbitration awards (albeit limited review). As set forth in the moving papers, the Talent Agencies Act prohibits a person who is not a licensed talent agent from collecting a fee for procuring employment in the entertainment industry for artists. Daniels does not even attempt to refute Painter Parties’ analysis. The Arbitrator was aware of the law, cited it, and refused to apply it. This constitutes manifest disregard of the law, not mere legal error. Daniels admitted was not licensed; he admittedly procured employment (positions in The Illusionists live entertainment production); for several artists (magicians, who are live performers). All of the elements are met for a Talent Agencies Act violation. The consequence is that the agreement that Daniels claims entitles him to be compensated for his unlawful procurement activities (the “Creator Agreement”) is void ab initio, that is, void since inception. The moving papers set forth the legal authorities that establish and apply the Talent Agencies Act to situations just like this, and void the purported contracts of the unlicensed talent agent.1 B. The Arbitrator’s Determination to Treat Non-Parties as Jointly and Severally Liable Should Be Vacated. While Arbitrators have broad powers under California and federal law, their powers derive from the agreement to arbitrate. The District Court has the power to review and vacate an arbitration award that purports to binds non-parties. In Comedy Club, Inc. v. Improv West Associates, 553 F.3d 1277, 1287 (9th Cir. 2007), the Ninth Circuit held that where an Arbitrator purported to issue an injunction that extended to non-parties to the arbitration agreement, that portion of the Award was subject to review in the federal courts and would be vacated. “But generally arbitration clauses 1 In the alternative, as discussed in the moving papers, this matter should be referred to the Labor Commissioner for determination of the Talent Agencies Act violation and the consequence therefor. Case 2:16-cv-03782-RSWL-E Document 82 Filed 06/05/18 Page 4 of 11 Page ID #:2077 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -5- REPLY IN SUPPORT OF PAINTER PARTIES’ MOTION TO VACATE OR CORRECT ARBITRATION AWARD and contracts do not bind non-parties in the absence of such extraordinary relationships.” Id. The examples the Court gave of extraordinary relationships that would bind a non-party to an arbitration award are intended third party beneficiaries, agents and assignees. The basis for this established legal rule is that “[t]he strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement”. Id. Thus, this issue is not subject to a deferential standard of review (let alone the standard of no review of arbitration awards at all, and an award of attorney’s fees against anyone who moves to vacate, urged by Daniels). There was simply no evidence presented in the record establishing that the various entities identified in the award were parties to the “Creator Agreement” with Daniels, or were the type of specified “extraordinary relationships” identified by the Ninth Circuit to permit the extraordinary relief of an arbitrator binding a non-party to obligations in an agreement among different parties. Daniels’ response is to say that the “Creator Agreement’s” language purported to bind any non-party who later was brought into or worked through the production. However, contracting parties have no power to do this, and Daniels does not cite to any legal authority for the proposition that open-ended language that purports to bind unidentified third parties in the future, who were not intended third party beneficiaries, legal successors or assignees, can be bound to an obligation. See Crowley Maritime Corp. v. Boston Old Colony Insurance Co., 158 Cal. App. 4th 1061, 1069-70, 70 Cal. Rptr. 3d 605, 611 (2008) (holding that an arbitrator’s power to bind non-parties to a contract is limited to “(1) where the nonsignatory is a third party beneficiary of the contract containing the arbitration agreement; and (2) where ‘a preexisting relationship existed between the nonsignatory and one of the parties to the arbitration agreement, making it equitable to compel the nonsignatory to also be Case 2:16-cv-03782-RSWL-E Document 82 Filed 06/05/18 Page 5 of 11 Page ID #:2078 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6- REPLY IN SUPPORT OF PAINTER PARTIES’ MOTION TO VACATE OR CORRECT ARBITRATION AWARD bound to arbitrate his or her claim’”).2 Here, the Award does not make any finding that the entities at issue, namely, ISA, TML, Asia Live and The Works are intended third party beneficiaries, legal successors or assignees. On the contrary, they are non-parties and the Award does not provide any basis why any of them should be obligated to pay compensation to Daniels under the “Creator Agreement.” Daniels argues, in addition to arguing that this issue is unreviewable (which position is inconsistent with the case law), that Painter Parties allegedly engaged in discovery violations and non-production of relevant evidence and thus the Award against non-parties was proper as a sanction. This argument is telling. Pressed in the moving papers for any evidence in the record that actually supports a finding that any of these non-parties could be bound to the contract as agents or assignees, Daniels cannot point to a single piece of evidence supporting an award against these non- parties, and therefore attempts to district the Court with an argument that Painter Parties supposedly were issued a sanction for non-production of evidence. First, there is no finding in the Award that any of the non-parties were determined to have done anything improper in discovery. Only two individuals, Painter and Lawson, are cited for allegedly not producing relevant materials. Moreover, Daniels fails to connect any of the alleged non-production of evidence to the joint and several liability issue. Daniels seems to be arguing that because the Arbitrator may have been upset with certain of the Painter Parties for 2 This principle of law was applied specifically to agreements to procure talent in Matthau v. Superior Court, 151 Cal. App. 4th 593, 602-03, 60 Cal. Rptr. 3d 93, 100 (2007). There, the court held that, by law, there can be no successor-in-interest to an agreement between an actor and a talent agent, and thus non-party successors in interest cannot be bound to an arbitration clause contained in such an agreement. Id. at 603, 60 Cal. Rptr. 3d at 100. The court further noted that there were no cases holding that merely being a successor-in-interest to a party to an arbitration clause was sufficient to bring a non-party into an arbitration. Id. Case 2:16-cv-03782-RSWL-E Document 82 Filed 06/05/18 Page 6 of 11 Page ID #:2079 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7- REPLY IN SUPPORT OF PAINTER PARTIES’ MOTION TO VACATE OR CORRECT ARBITRATION AWARD certain alleged discovery issues, it would be proper to impose joint and several liability on multiple non-parties to the “Creator Agreement.” The Award does not support this position, and also, none of the legal authorities cited by Daniels supports this position. In reality, Daniels takes quotes out of context from the Award and disingenuously claims that the Arbitrator was imposing joint and several liability as a sanction, when there is no evidence in the record that this occurred. Moreover, it is a fundamental principle of evidentiary sanctions that they must be tailored to the violation. Keithley v. Homestore.com, Inc., 2008 WL 3833384 at *4 (N.D. Cal. Aug. 12, 2008); Bel Air Mart v. Arnold Cleaners, Inc., 2014 WL 763185 at *4 (E.D. Cal. Feb. 21, 2014). Merely citing failures by certain of the Painter Parties to bring forward certain evidence or call certain witnesses does not insulate the entire Award from review without some showing of a nexus between the evidence that was not produced and the issue of joint and several liability. Because the Award purports to bind non-parties to the Creator Agreement without any factual or legal basis to attach the obligations to them as assignees, intended third party beneficiaries, or agents, the Award must be vacated. C. The Arbitrator’s Award of Future Damages Manifestly Disregards the Law Daniels’ argument in defense of the Arbitrator’s clear disregard of the fundamental principle that future damages must be discounted to present value is based entirely on speculation. First, Daniels argues that the Arbitrator had discretion to fail to discount to present value as a sanction against Painter Parties for exercising their legal right to due process by filing a motion to vacate. In addition to being an outrageous attack on Painter Parties’ right to challenge an award that manifestly disregards the law, this argument speculates that the Arbitrator would have increased the damage award as a Case 2:16-cv-03782-RSWL-E Document 82 Filed 06/05/18 Page 7 of 11 Page ID #:2080 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8- REPLY IN SUPPORT OF PAINTER PARTIES’ MOTION TO VACATE OR CORRECT ARBITRATION AWARD sanction against conduct that had not even occurred yet. Second, Daniels argues that it was Painter Parties’ burden to establish the discount and interest rates. However, Daniels concedes, as he must, that the Arbitrator did apply a ten percent (10%) rate of post-Award interest. Opposition at 8 n. 2. Obviously, if there was sufficient evidence to posit an interest rate for post- Award interest, there was sufficient evidence to discount the future damages to present value. Yet the Arbitrator never did so-in violation of the law. Finally, Daniels argues, nonsensically, that if the future damages were discounted to present value, the Arbitrator would have increased the principal. This ignores that the Award states exactly how the damages were calculated, based on an estimation of the future revenue streams to be paid to Daniels under the Creator Agreement. The Arbitrator simply disregarded his obligation to adjust those damages to account for the time value of money. Accordingly, the Award should be vacated or corrected. C. Daniels’ Attorneys Fees Argument Is an Outrageous Overreach. Daniels asks the court to award his attorney’s fees for Painter Parties’ act of filing the instant Motion to Vacate or Correct the Arbitration Award, notwithstanding the fact that the parties never agreed to any fees-shifting contractual provision in the “Creator Agreement,” nor does the Award provide for fees-shifting. Cal. Code Civ. Proc. § 1021. This should resolve the matter. California follows the “American rule” that parties bear their own fees in actions to enforce contracts unless the agreement (or a statute) provides otherwise. To escape this bedrock principle of contract law, Daniels constructs an argument whereby the Painter Parties, in exercising their due process right to move to vacate the Award, supposedly are “refusing to abide” by the Award. This argument is both meritless and dangerous. It is meritless for the reasons stated immediately above and also because the Case 2:16-cv-03782-RSWL-E Document 82 Filed 06/05/18 Page 8 of 11 Page ID #:2081 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -9- REPLY IN SUPPORT OF PAINTER PARTIES’ MOTION TO VACATE OR CORRECT ARBITRATION AWARD Award has not yet been confirmed by the Court and there is not a shred of evidence that Painter Parties have ever indicated a refusal to comply with the terms of the Award if this Court confirms it. It is dangerous because, notwithstanding the limitations that apply to the District Court’s review of arbitration awards, the United States Congress has provided for a procedure whereby a party may move to vacate an arbitration award. 9 U.S.C. § 12. Congress could have provided for fee shifting in such proceedings, as it has done in other types of federal court actions, e.g., 42 U.S.C. § 1988, but Congress did not do so. Were Daniels’ argument accepted, all parties who exercise their due process right to the limited federal court review of an arbitration award afforded by Congress would be labeled as “disobeying” the award and would be punished for exercising their right to court review. This is no more “disobedience” of an arbitration award by seeking court review than a party who appeals a court judgment to a court of appeal. It is not disobedience, but rather the exercise of a statutory right. The cases, not surprisingly, offer no support to Daniels. In International Union of Petroleum & Industrial Workers v. Western Industrial Maintenance, Inc., 707 F.2d 425, 427 (9th Cir. 1983), a shop disobeyed a labor arbitrator’s determination that a layoff was improper. The Court noted that it was especially important that labor arbitrators’ awards be obeyed because of the policies behind the Labor-Management Relations Act. Id. at 428. Thus, the Court upheld an award of attorney’s fees in the District Court under a standard of “bad faith, vexatious[], wanton[], or for oppressive reasons”. Id. at 428. The Court denied attorney’s fees on appeal. Id. at 430. International Union of Petroleum & Industrial Workers is both distinguishable and inapplicable. The special context of labor arbitrations distinguishes it, and the fact that there is no evidence here that Painter Parties acted in bad faith, vexatiously, wantonly, or for oppressive reasons makes the case inapplicable. Nor is there any Case 2:16-cv-03782-RSWL-E Document 82 Filed 06/05/18 Page 9 of 11 Page ID #:2082 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -10- REPLY IN SUPPORT OF PAINTER PARTIES’ MOTION TO VACATE OR CORRECT ARBITRATION AWARD evidence that Painter Parties have disobeyed or intend to disobey the Award. Writers Guild of America, West, Inc. v. Capitol Films Development, LLC, 2009 WL 10702738 at *1 (C.D. Cal. Jul. 16, 2009), involved a party which neither paid the Award nor moved to vacate it, but simply failed to appear, thereby forcing the claimant to needlessly expend attorney’s fees obtaining an order confirming the award. In that circumstance, this Court awarded attorney’s fees. That is obviously completely different than where parties assert legal grounds and seek to vacate the award. Writers Guild of America, West, Inc. v. Ion Closers, 2008 WL 11417837 at *1 (C.D. Cal. Dec. 8, 2018) is distinguishable on the same grounds. Screen Actors Guild, Inc. v. Farm Fed Productions, LLC, 2009 WL 10674391 (C.D. Cal. Nov. 5, 2009), a case cited by Daniels, makes very clear that the act of “disobeying” an arbitration award does not occur when a party seeks to vacate the award in court, but rather when a party simply ignores the award and forces the prevailing party to needlessly expend fees on a confirmation proceeding: Cases that have distinguished Int'l Union usually involve employers that have participated in the litigation at the district court level. See, e.g., Shank/Balfour Beatty v. Int'l Union of Operating Engineers, No. EDCV-03-00086-VAP (SGLx), 2003 U.S. Dist. LEXIS 16355, at *13-14 (C.D. Cal. June 5, 2003) (recognizing that employer stipulated to the record and filed the Complaint in district court to vacate the arbitration award); Gulfport Convalescent Ctr. v. United Food & Commercial Workers Union, No. 93-1404-CIV-T-24-C, 1994 U.S. Dist LEXIS 20663, at *11 (M.D. Fla. July 22, 1994) (distinguishing employer's conduct from Int'l Union because it “utilized legitimate avenues of recourse available to it” rather than failing to act at all). Here, the Arbitrator issued her Award on August 22, 2005. SAG claims that Farm Fed has failed to set forth any legal arguments for failing to comply with the Awards. Moreover, SAG conferred with Farm Fed on July 29, 2009 about this motion and Farm Case 2:16-cv-03782-RSWL-E Document 82 Filed 06/05/18 Page 10 of 11 Page ID #:2083 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -11- REPLY IN SUPPORT OF PAINTER PARTIES’ MOTION TO VACATE OR CORRECT ARBITRATION AWARD Fed has still failed to submit any papers in opposition. Screen Actors Guild, Inc. v. Farm Fed Productions, LLC, 2009 WL 10674391 at *3. Daniels’ argument as to the conduct that constitutes alleged “noncompliance” with the Award is without substance. First, obviously, Painter Parties have participated in this proceeding and have made a substantive request to vacate the award. Second, Daniels argues that Painter Parties made false “ad hominem” attacks on Daniels’ character and professionalism. What Daniels is actually referring to is truthful, unrebutted evidence in the record of the arbitration that explains the nature of this dispute and why Painter Parties severed their relationship with Daniels. This evidence included recordings of Daniels engaging in outrageous conduct, and police records of complaints against and arrests of Daniels. Moreover, of course, none of the cases cited by Daniels holds that placing the arbitral record before the Court on a motion to vacate constitutes a refusal to comply with the award or sanctionable conduct. III. CONCLUSION For the foregoing reasons and those stated in the moving papers, the Award should be vacated or corrected. Dated: June 5, 2018 HARDER LLP By: /s/ Charles J. Harder CHARLES J. HARDER Attorneys for Defendants SIMON PAINTER, TIMOTHY LAWSON, INTERNATIONAL SPECIAL ATTRACTIONS, LTD., TML ENTERPRISES, PTY, LTD., ASIA LIVE NETWORK, PTE, LTD., THE WORKS ENTERTAINMENT, INC. Case 2:16-cv-03782-RSWL-E Document 82 Filed 06/05/18 Page 11 of 11 Page ID #:2084