declaration of michael j mccue in support of respondent winery exchanCal. Super. - 1st Dist.March 6, 20201 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 MCCUE DECL. ISO RESP. WINERY EXCHANGE’S MPA ISO ITS (1) OPP. TO PETITION TO CONFIRM ARBITRATION AWARD and (2) PETITION TO VACATE ARBITRATION AWARD - CASE NO. CPF-19-516943 20 3 Re dw oo d Sh or es P ar kw ay , S ui te 6 70 Re dw oo d Ci ty , C A 94 06 5 BN 38820492v1 Peter G. Bertrand (Bar No. 87883) Harry W.R. Chamberlain II (Bar No. 95780) Zachary B. Young (Bar No. 288553) BUCHALTER 55 Second Street, Suite 1700 San Francisco, CA Tel: 415-227-0900 Email: PBertrand@Buchalter.com Email: HChamberlain@buchalter.com Email: ZYoung@Buchalter.com Michael J. McCue (Bar No. 296425) Jeffrey L. Sklar (Bar No. 257218) LEWIS ROCA ROTHGERBER CHRISTIE LLP 203 Redwood Shores Parkway, Suite 670 Redwood City, CA 94065 Tel: 702-949-8200 E-mail: MMcCue@LRRC.com E-mail: JSklar@LRRC.com Attorneys for Respondent and Counter-claimant, Winery Exchange, Inc. SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO JRV, LLC and BILL LEIGON, Petitioners, vs. WINERY EXCHANGE, INC., Respondent. Case No. CPF-19-516943 DECLARATION OF MICHAEL J. MCCUE IN SUPPORT OF RESPONDENT WINERY EXCHANGE’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS (1) OPPOSITION TO PETITION TO CONFIRM ARBITRATION AWARD AND (2) PETITION TO VACATE ARBITRATION AWARD Date: January 7, 2020 Time: 9:30 a.m. Dept.: 302 PUBLIC - REDACTS MATERIALS FROM CONDITIONALLY SEALED RECORD ELECTRONICALLY F I L E D Superior Court of California, County of San Francisco 12/13/2019 Clerk of the Court BY: DAVID YUEN Deputy Clerk 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 MCCUE DECL. ISO RESP. WINERY EXCHANGE’S MPA ISO ITS (1) OPP. TO PETITION TO CONFIRM ARBITRATION AWARD and (2) PETITION TO VACATE ARBITRATION AWARD - CASE NO. CPF-19-516943 20 3 Re dw oo d Sh or es P ar kw ay , S ui te 6 70 Re dw oo d Ci ty , C A 94 06 5 BN 38820492v1 I, Michael J. McCue, declare under penalty of perjury as follows: 1. I am a partner at Lewis Roca Rothgerber Christie LLP (“Lewis Roca”) and have been lead counsel for Winery Exchange, Inc. (“WX”) in this matter since October 2018. I have personal knowledge of the matters set forth herein, and if called as a witness, could and would testify competently thereto. 2. A true and accurate copy of the Final Award issued by Arbitrator Clairborne of JAMS on or about November 12, 2019, is attached as Exhibit. 3. A true and accurate copy of excerpts of JRV’s Pre-Hearing Brief (without exhibits) is attached as Exhibit 2. 4. A true and accurate copy of excerpts to JRV’s Closing Brief (without exhibits) is attached as Exhibit 3. 5. A true and accurate copy of the Asset Purchase Agreement (“APA”) between WX and JRV, LLC is attached as Exhibit 4. 6. A true and accurate copy of the Consulting Agreement with Mr. Leigon is attached as Exhibit 5. 7. In July 2018, JRV and Mr. Leigon filed a Demand for Arbitration with JAMS in San Francisco and asserted several claims, including claims for breach of the APA. WX asserted several counterclaims against JRV and Mr. Leigon. JRV and Mr. Leigon were represented by Pillsbury, WX’s former counsel. WX was initially represented by Winston & Strawn LLP and then replaced by Lewis Roca Rothgerber Christie in October 2018. 8. On July 25, 2018, Arbitrator Claiborne was selected as a neutral arbitrator to preside over the arbitration. On July 26, 2018, Arbitrator Claiborne issued a disclosure checklist. A true and accurate copy of the disclosure is attached as Exhibit 6. 9. Arbitrator Claiborne did not disclose that she was an owner of JAMS nor was I, or anyone I know on my litigation team, aware of this fact. As disclosed in an amicus curiae filing in the Monster Energy case, Arbitrator Claiborne was tasked with advising JAMS on whether to make the disclosures regarding ownership in another arbitration in 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 MCCUE DECL. ISO RESP. WINERY EXCHANGE’S MPA ISO ITS (1) OPP. TO PETITION TO CONFIRM ARBITRATION AWARD and (2) PETITION TO VACATE ARBITRATION AWARD - CASE NO. CPF-19-516943 20 3 Re dw oo d Sh or es P ar kw ay , S ui te 6 70 Re dw oo d Ci ty , C A 94 06 5 BN 38820492v1 2017. A true and accurate copy of the Amicus Curiae submission in the Monster Energy case is attached as Exhibit 7. 10. On or about August 30, 2019, WX moved to disqualify Pillsbury from representing JRV and Mr. Leigon based on its past representation of WX. Arbitrator Claiborne denied WX’s motion and denied WX’s request for an in camera review of Pillsbury’s billing records to determine if Pillsbury had misused WX’s confidential information. 11. The arbitration hearing was scheduled for five days beginning in June 2019 but took eleven days spanning June, August and September 2019. The reason the arbitration took more than double the time allotted was that Pillsbury repeatedly took excessive time examining witnesses, forcing several extensions and rescheduling of witnesses. WX objected repeatedly, but Arbitrator Claiborne nevertheless allowed Pillsbury to dominate the hearing time to WX’s disadvantage and refused to enforce the agreement between counsel regarding the allotment of time for witnesses. Indeed, WX did not have the opportunity to present its key witnesses until August 2019 - two months after the Arbitrator heard JRV’s primary witnesses. In fact, before WX presented its key witnesses, Arbitrator Claiborne stated that she had already started drafting the award. Arbitrator Claiborne also displayed apathy during the hearing, frequently checking her phone and cutting off questioning from WX’s attorneys. 12. At the conclusion of the arbitration, Pillsbury submitted invoices of more than $2.6M in attorneys’ fees and $330,000 in costs. A true and accurate copy of JRV and Bill Leigon’s Motion for Attorneys’ Fees and Costs is attached as Exhibit 8. 13. On November 4, 2019, WX asked JAMS to disclose whether Arbitrator Claiborne has an ownership interest in JAMS and the number of matters that Pillsbury had handled before JAMS in the past five years. A true and accurate copy of the letter requesting the disclosure, and the proof of restricted service, is attached as Exhibit 9. 14. On November 5, 2019, JAMS provided a supplemental disclosure. A true and accurate copy of the JAMS disclosure letter with its enclosures is attached as Exhibit 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 MCCUE DECL. ISO RESP. WINERY EXCHANGE’S MPA ISO ITS (1) OPP. TO PETITION TO CONFIRM ARBITRATION AWARD and (2) PETITION TO VACATE ARBITRATION AWARD - CASE NO. CPF-19-516943 20 3 Re dw oo d Sh or es P ar kw ay , S ui te 6 70 Re dw oo d Ci ty , C A 94 06 5 BN 38820492v1 10. 15. Upon receipt of this disclosure, on November 6, 2019, WX asked for a further disclosure to enable WX to determine whether to seek disqualification of Arbitrator Claiborne. A true and accurate copy of the letter requesting the additional disclosure, with the proof of restricted access, is attached as Exhibit 11. 16. On November 8, 2019, Pillsbury sent a letter to JAMS (including Arbitrator Claiborne, who had not been copied on WX’s requests to JAMS on this issue) arguing that WX was not entitled to the additional disclosure. A true and accurate copy of the Pillsbury letter disputing the additional disclosure, with the proof of unrestricted access, is attached as Exhibit 12. 17. On November 12, 2019, JAMS responded to WX’s request and, as Pillsbury urged, indicated that it would not provide additional disclosures to WX. A true and accurate copy of the letter from JAMS is attached as Exhibit 13. 18. A true and accurate copy of WX’s Response to Claimants’ Motion and Memorandum in Support of Their Attorneys’ Fees and Costs is attached as Exhibit 14. 19. A true and accurate copy of WX’s Closing Brief is attached as Exhibit 15. 20. A true and accurate copy of arbitration exhibit 194 is attached as Exhibit 16. 21. A true and accurate copy of arbitration exhibit 361 is attached as Exhibit 17. 22. A true and accurate copy of arbitration exhibit 541r is attached as Exhibit 18. 23. A true and accurate copy of WX’s Request for Correction of Computation Error is attached as Exhibit 19. I declare under penalty of perjury that the foregoing is true and correct. Executed on December 13, 2019. Michael J. McCue EXHIBIT 1 1 Jones, Joy From: service@caseanywhere.com Sent: Tuesday, November 12, 2019 3:05 PM To: McCue, Michael Subject: Document - Final Award - Uploaded in JRV, LLC v. Winery Exchange, Inc., Case No. 1100090897 [EXTERNAL] The following document has been uploaded in JRV, LLC v. Winery Exchange, Inc., Case No. 1100090897: Document Uploaded By: JAMS Number of Documents in Transaction: 1 Upload Date: 11/12/19 Time of Upload: 3:03 PM (PST) Document Title: Final Award Page Range: 11 - 30 To access this record, click on the document link. You will be directed to the JAMS Electronic Filing System log in page. After entering your username and password, you will be taken to the requested document. If you have saved your log in information by selecting the "Remember me at this computer" option, you will be automatically logged in and directed to the record. Please allow time for larger documents to open. If your organization is no longer involved in the above-referenced matter, or if there is any other reason your organization's subscription should be terminated, please contact us immediately. It is your organization's responsibility to request removal from the case site and conclusion of your subscription for this matter. Please contact Case Anywhere by phone at (800) 884-3163 or (818) 650-1040 or by email at support@caseanywhere.com if you have any questions. 1 JAMS ARBITRATION CASE No. 1100090897 JRV, LLC and Bill Leigon Claimants and Counter-respondents and Winery Exchange, Inc. Respondent and Counterclaimant FINAL AWARD Blaine I. Green Dustin J. Chase-Woods Pillsbury Winthrop Shaw Pittman LLP Four Embarcadero Center, 22nd floor San Francisco, CA 94111 P: 415.983.1000 blaine.green@pillsburylaw.com dustin.chasewoods@pillsburylaw.com Counsel for Claimant and Counter-Respondent 2 Michael J. McCue Jeffrey Sklar Lewis Roca Rothgerber Christie LLP 4300 Bohannon Drive, Ste. 230 Menlo Park, CA 94025 P: 702.949.8200 mmccue@lrcc.com jsklar@lrrc.com Counsel for Respondent and Counterclaimant The undersigned Arbitrator, having been designated in accordance with Section 11.12 of the parties’ Asset Purchase Agreement dated March 22, 2017, and Section 10.6 of the Consulting Agreement of that same date, and with the Procedural and Scheduling Order of August 31, 2018, and having examined the submissions, proof and allegations presented, and having received and considered the oral testimony of witnesses, hereby renders this Final Award as follows: I. INTRODUCTION AND PROCEDURAL STATEMENT The focus in this case is on claimed breaches of the Asset Purchase Agreement (“APA”) between JRV and Winery Exchange (“WX”) and the Consulting Agreement (“Agreement”) between WX and Mr. Leigon. JRV claims that WX breached by failing to pay amounts due under the APA (Ex.81). In response, WX claims that JRV breached the APA and that it was fraudulently induced to enter the APA in 3 the first place. Further, Mr. Leigon claims he was denied payments due to him under the Consulting Agreement (Ex. 82) while WX claims Leigon failed to live up to his responsibilities under that Agreement. This arbitration proceeding is governed by the JAMS Comprehensive Rules and Procedures, effective July 1, 2014, and the merits are to be decided pursuant to California law and the FAA. JAMS is administering this matter. Before the hearings began, the Arbitrator issued five prehearing orders, the most significant of which were Numbers 2 and 3. In Order Number 2, the Arbitrator declined to disqualify the Pillsbury firm from representing Claimants in this arbitration. In Order Number 3, the Arbitrator declined to make a decision about a breach of the Consulting Agreement until after she heard the evidence on this topic presented at the hearings.1 Hearings in this case were originally scheduled for five days, but it quickly became clear that the time was insufficient to hear from all of the scheduled witnesses. Therefore, hearings were held in the San Francisco office of JAMS on June 20 and 24-28, August 27-30, and September 5, 2019. The following witnesses testified at the hearings in this order: Oren Lewin, Richard J. Eichmann, Bill Leigon, Steve Cairns, Natasha Hayes, John Gilmer, Reid Stinnett, Bryan Moreno, Shawn Schiffer, Peter Byck, Oliver Colvin, Pat Roney, Brian Kelly, and Bill Spear. Both parties offered documentary evidence at the hearings and that evidence was admitted. At the end of the last hearing day, both sides stated that they had no further evidence to offer. The parties submitted simultaneous closing briefs on September 19 and appeared for closing arguments at the JAMS San Francisco office on September 26, 2019. 1 The reasoning for the Prehearing Orders is outlined in the Orders that were served on the parties. 4 The Arbitrator issued the Interim Award on October 4, 2019. Thereafter, both parties submitted motions for certain corrections and clarifications to the Interim Award, such as changes to the amounts of interest included. Counsel also briefed the issue of the award of attorneys’ fees and costs to Claimants, the prevailing party. This Final Award incorporates the contents of the Interim Award and corrects the interest calculations as outlined in the briefing submitted by both sides. It also sets forth the Arbitrator’s determination of the reasonable amounts awarded to the prevailing party for fees and costs. II. FACTS The following is a statement of those facts found by the Arbitrator to be true and necessary to the Award. To the extent that this recitation differs from any party’s position, that is the result of determinations regarding credibility and relevance, considerations of burdens of proof, and the weighing of evidence, both oral and written. Mr. Leigon, the managing member of the LLC, has had a long, forty-five year career in the wine industry and a stellar record of building successful wine brands (Tr. 262-276).2 He testified about his specialized knowledge in the wine business: I have supervised and was responsible for vineyard operations, for production operations, for wine making. I’m not a winemaker, but over wine making and wine quality, but I’m best known, and I believe my best 2 Mr. Leigon has been called a wine marketing “guru” on occasion and has been featured in numerous articles and TV videos related to the wine industry (Tr. 274-276). 5 true expertise is in sales and marketing, and specifically access to the distribution system (Tr. 276). Mr. Leigon began work at the Jameison Ranch Vineyards in 2013. He described his efforts to market there. He testified about the 57,000 square foot JRV winery that “looks like a western mountain lodge with spectacular views over-sweeping views of the San Pablo Bay” and a full kitchen (Tr. 279). He organized and held various marketing events there, including meetings of a wine club where he could sell wine direct to consumers and host distributors and salespeople. Besides producing a great wine, he explained that he worked to create an emotional connection to the brand “through music, art, miniature therapy horses, community outreach, culinary, buying wine, and food all in one package” (Tr. 284- 85). Over time, he worked to create and grow four JRV brands: the “jewel” called Double Lariat that was of such high quality that it received a rating of 94 from world renowned wine expert Robert Parker, along with Reata, Whiplash, and Light Horse. He and his partners purchased the brands in September 2015.3 Mr. Leigon testified that, after the purchase, JRV needed capital in order to grow, build the inventories, and take other actions to be successful (Tr. 291-7). Acting CFO Jim Grant put together material aimed at attracting investment money to pay for the 2016 crush, buy bulk wine over the next 17 months, and bring the company’s ratio of receivables and payables into balance (Ex. 13). When building wine brands, growing inventory “has to build in front of sales, it causes a cash flow crunch” (Leigon, Tr. 296). Therefore, admittedly, the LLC was not profitable 3 Besides Mr. Leigon, the partners included Bernie Orsi, Bill Spear, and Larry Leigon (Tr. 287). 6 at the time. The JRV income statement through May 2016 showed a loss of $1,413,970 which was disclosed to potential investors (Ex. 13). In September 2016, Mr. Leigon met with Mr. Byck, the CEO of WX. Byck was not interested in investing in JRV but stated that he would consider purchasing three of the four JRV brands. Leigon was excited about this possibility and thought that WX would be an ideal partner for expanding growth of the JRV brands (Tr. 304). WX is a well-financed company with a large sales force and strong relationships with many retail chains, so Leigon thought that WX could grow sales much faster than JRV could manage to do on its own. Leigon recalled that he provided financial information to Byck, including depletion information, and also gave Byck permission to review JRV depletion and other financial information on TradePulse, a computer database then owned by WX. JRV Controller Steve Cairns assisted in producing extensive financial information. In November 2016, the parties developed a term sheet (Ex. 22).4 Leigon recalled that it involved $2 million in cash upon closing, purchasing almost $3 million in grapes, and retiring a $4.5 million loan from Rabobank. Also, there were to be royalties paid based on sales volume, a two-year consulting agreement for Mr. Leigon5, and a long term 10% equity interest in the Double Lariat brand (Tr. 309- 10). The parties contemplated that due diligence would continue until the end of December with a close in January 2017.6 WX made a thorough due diligence effort. Byck assigned former WX employee John Gilmer, then VP of Finance, to head WX’s due diligence. He also hired BPM, an outside accounting firm, to make an in-depth investigation and provide written 4 WX witnesses, including Byck, pointed out correctly that the November term sheet was non-binding. 5 A Key Man provision clarified the importance of Mr. Leigon to the success of JRV (Tr. 311). 6 Ex. 327 contains some of the extensive financial information JRV provided to WX, including sales and marketing information about two forms of discounting, depletion allowances and special purchase allowances (Tr. 313-14). 7 reports. Leigon testified that JRV provided all of the information requested by WX and BPM (Tr. 316). JRV’s controller, Steve Cairns, and others from JRV provided detailed financial information to BPM, Gilmer, and others from WX throughout the due diligence process. Although due diligence was supposed to end at the end of December 2016, WX delayed the close of the deal. Then, after almost six months of due diligence, in February 2017, WX attempted to renegotiate the deal. Byck sent a new term sheet to Leigon (Ex. 53). By this time, JRV’s inventory had declined even more and its financial situation was worse, so that its bargaining power was diminished. Therefore, JRV agreed to add the Reata brand to the deal for no extra charge and replace the guaranteed royalties with incentive payments, among other things. WX also reduced the closing payment amount. Concerned about the new terms, JRV’s counsel insisted on adding a term requiring WX to use “commercially reasonable” efforts to promote sales of the JRV brands in section 1.04 (f) of the APA. This provision was very important to JRV because, as Leigon explained, WX would no longer pay royalties nor would there be a $2.5 million payment in five years. Those terms were replaced with incentive targets that needed to be achieved in order to meet the sales thresholds and obtain further payments. JRV wanted to be sure that WX would make its best efforts to increase sales and not prioritize its other brands over the JRV brands (Tr. 355-358). After further negotiations and a lengthy, seven-month due diligence period, the parties finally entered into an APA on March 23, 2017. Even then, WX made no closing payment and, instead, insisted on a side letter dated March 28, 2017 increasing the AR Shortfall by $79,000 to $436,335 so that JRV got less money. Finally, on March 29, WX made the closing payment of $1,305,546 to JRV. JRV 8 argues that the payment was not complete since WX deducted the Holdback amount of $613,360 as well as another $81,094 without explanation. 7 JRV asserts that the largest components of the purchase price are the potential incentive payments of up to $6 million plus the additional incentive payments of 20% of Tasting Room gross margin dollars exceeding $1.4 million annually. The incentive payments are tied to the number of cases of JRV wine sold by WX during any consecutive 12 month period through the fifth anniversary of the closing date. At the time that WX was negotiating with JRV and working toward closing, WX was also working on an acquisition of another brand, Bread & Butter (B&B). JRV presented much persuasive evidence to support its claim that WX focused its efforts on building the B&B brand to the detriment of the JRV brands. Further, JRV argues that WX breached its obligation to use “commercially reasonable” efforts: WX prioritized other brands, B&B and Chronic, over the JRV brands; cut Mr. Leigon out from the marketing and sales efforts; undermined the JRV brands by allowing the wines to go out of stock; and further hurt sales by closing the Tasting Room. JRV also claims that WX breached section 1.04 (b) of the APA by failing to pay JRV the Holdback amount of $613,360, less any indemnity claims, on the first anniversary of the closing date pursuant to section 1.07. Also, JRV claims that WX failed to pay $271,292 of the accounts payable amounts it assumed under section 1.02 of the APA (Ex. 81).8 Then, in March 2018, WX informed Leigon that he was in breach in the Consulting Agreement (Ex. 82) although they had not complained about his performance 7 WX points out that the purchase price was approximately $8.5 million, including the cash payment and approximately $2 million to pay JRV’s obligations under contracts to buy grapes and $4.5 million to satisfy JRV’s loan with Rabobank. WX Opening Brief, page 2. 8 $25,572, the amount of JRV attorneys’ fees payable to the Pillsbury firm, has been deducted from the total. 9 before that time.9 In fact, a number of people at WX had praised his performance. For example, marketing head Mr. Lewin wrote to the sales team two months earlier, on January 2, 2018: “I want to remind everyone that we have a great resource in Bill Leigon to help sell our JRV portfolio. Bill is excellent with buyers and distributors and no one brings more credibility to a meeting than the brand’s founder” (Ex. 206).10 WX then took a number of punitive actions against Leigon. On March 8, 2017, WX stated it would pay only $10,000, or half of the monthly compensation due, for two months. Then WX stopped paying him altogether. WX also cancelled Leigon’s marketing trips and told him not to go to the winery (Exs. 238 and 240). The term of the Consulting Agreement was to be two years and Leigon was given no notice and chance to cure pursuant to section 8.2 of that contract. By cutting Leigon out after only one year, WX undermined the parties’ ability to hit the incentive targets for the JRV brands. And, as Leigon explained, “this was full time for me, and it was the only income I had” (Tr. 363). Because he had signed a Noncompetition Agreement (Ex. 83), Leigon was not free to find other work in the wine industry during that time.11 Though aware that Leigon was in dire straits, WX refused to release him from the non-compete. In response to JRV’s claims, WX asserts that it was induced to overpay for the assets of JRV by $4.8 million (Eichmann, Tr. 193-195). Soon after the closing, WX claims that it discovered JRV’s allegedly undisclosed financial liabilities, low pricing and misrepresented amounts of sales incentives, the poor health of the brand, and the disastrous financial condition of the tasting room. WX makes a 9 JRV’s claim that Leigon was an employee, not a consultant, was not persuasive. 10 Others from WX, including Kyle Cook, Moreno, and Schiffer, praised Leigon. See Ex. 295. 11 Mr. Leigon’s Motion for Relief from Noncompetition Agreement was aggressively opposed by WX. See discussion in Prehearing Order No. 3. 10 counterclaim for fraud, asserting that JRV misrepresented its financial condition to WX before the close. In particular, WX claims that JRV did not disclose its low pricing and the extent of the sales incentives it offered, thereby artificially inflating JRV’s financial condition.12 WX places the blame for this financial situation squarely at the feet of CEO Leigon and his allegedly ineffectual leadership. Further, WX argues that it met the “commercially reasonable” standard of section 1.04 (f) because it actively promoted the JRV brands and did not give priority to B&B and Chronic over JRV. WX hired a brand manager for JRV and made many efforts to market the brands. The testimony of WX’s VP of Marketing, Natasha Hayes, outlined many of those efforts and pointed out alleged deficiencies in Leigon’s role as consultant. The parties disagree over what the APA required concerning the use of the $613,360 Holdback. Although the contract specifies that it is to be used for indemnification, WX asserts that it was justified in using the Holdback to pay undisclosed JRV liabilities (APA section 1.07). Those liabilities include paying for undisclosed depletion allowances as well as covering the gap between accounts payable and accounts receivable. Finally, WX argues that it was justified in ceasing payments to Leigon under the Consulting Agreement since he failed to work an average of 40 hours per week and failed to perform in a professional manner. WX asserts that it is entitled to rescission of the Consulting Agreement and restitution of all amounts paid to Leigon. Also, under the Transitional Services Agreement (TSA), JRV was to 12 At several points in the arbitration, the JRV witnesses pointed to Ex. 61, a summary of the monthly JRV sales for 2016 that included information about all discounts. It was unclear whether anyone at WX reviewed this document (or Ex. 46, a duplicate) that apparently was sent to WX more than once. 11 administer orders and shipments as well as stay current with permits and licenses, which it failed to do. III. Determinations on the Claims A. JRV’s Breach of Contract Claims 1. JRV claims that WX breached the APA and the covenant of good faith and fair dealing by failing to use commercially reasonable and consistent efforts to promote the sales of the four JRV wine brands. Section 1.04(f) of the APA states: Buyer shall use commercially reasonable efforts to promote sales of the [JRV] Brands that are consistent with the efforts used by Buyer to sell wine of other brands owned by the Buyer. When the incentive payments were added to the APA in place of royalties, counsel for JRV added the language of section 1.04(f) to be sure that WX would take the necessary steps toward achieving the sales goals listed in section 1.04. Much of the testimony presented by the witnesses for JRV focused on claims that WX failed to make commercially reasonable efforts by allowing the JRV wines to remain out of stock, cutting Double Lariat from Costco, firing Mr. Leigon from his work in sales and promotion, closing the tasting room, and so forth.13 But the main claim had to do with the fact that WX prioritized Bread & 13 See the expert demonstrative of Brian Kelly. 12 Butter, and to some extent the Chronic brand, over the JRV brands. Wine industry expert Pat Roney described the ways in which WX’s efforts to sell JRV wines were not consistent with efforts made for other brands, especially B&B, and not commercially reasonable.14 The Arbitrator finds that JRV proved that WX breached section 1.04(f) of the APA and the covenant of good faith and fair dealing by failing to provide the JRV brands with the efforts to promote sales consistent with the efforts used to sell other brands, especially Bread & Butter. Damages There are two significant and related issues with the damage claim presented by JRV regarding damages for this breach. First, there is the issue of causation and, second, the issue of speculative damages. JRV has failed to meet its burden of proof on both points and, therefore, is not awarded damages for this breach. JRV did not prove that WX’s breach of section 1.04(f) caused its damages. In order to be awarded damages for WX’s breach, JRV had to prove that it was “reasonably certain” that it would have achieved the incentive thresholds if WX had not breached the terms of section 1.04(f). Asahi Kasei Pharma Corp. v. Actelion Ltd., 222 Cal. App.4th 945 (2013). However, JRV failed to meet its burden of proof to show that WX’s breach of section 1.04(f) caused sales of the JRV brands to fall below the incentive thresholds. The testimony of the damages experts 14 Mr. Roney’s expert report is Ex. 67. 13 on this point was conflicting, with Mr. Eichmann testifying that JRV’s chances of hitting the incentive thresholds were very low while Mr. Kelly simply called the thresholds “achievable” (Tr. 2298). Further, the damages claimed by JRV are speculative. The volume-build projections that Mr. Leigon sent to Mr. Lewin in July 2017 (Ex. 165) are Leigon’s best estimates, a “road map” for getting to 50,000 cases (Leigon Tr.455-56). Mr. Kelly’s damages calculations, based on the Lewin-Leigon analysis, are speculative and rely on unsupported assumptions and hopeful expectations about growth in the future.15 Sargon Enterprises, Inc. v. University of Southern California, 55 Cal. 4th 747 (2012). 2. JRV claims that WX breached the APA by failing to pay the Holdback amount and failing to pay Assumed Accounts Payable. Holdback Section 1.04(b) of the APA allowed WX to keep the Holdback amount of $613,360 for twelve months after the close. However, the Holdback amount was to be used only in order to satisfy indemnity obligations (section 1.07, Ex. 81). Therefore, on March 23, 2018, WX was required to pay the Holdback amount to JRV after deducting any amounts paid for indemnity claims (APA Article VIII). There were no records of paid indemnity claims in the record. 15 The other projections in the Kelly report, based on the B&B growth rate and/or on the actual growth rate for the non-Double Lariat brands for only one year, are equally unpersuasive. 14 Despite many demands, WX did not pay the Holdback claiming that the Holdback amount was fully depleted by paying distributor bill backs received after the Close, not for indemnity claims. The question of which party was responsible for post-closing bill backs was hotly disputed during the hearings. Mr. Leigon wrote that JRV would only pay for bill backs received from distributors up to March 31 after the Close. Further, wine industry expert Pat Roney asserted that, when an APA is silent on the responsibility for bill backs, wine industry custom and practice is that the buyer bears these costs (Roney slide 19). Here, the APA is silent on this issue and therefore, WX is responsible for bill backs received after March 31.16 Damages WX breached the APA by failing to pay JRV the Holdback amount. JRV met its burden of proof regarding entitlement to the Holdback and is awarded the amount of $709,351, the Holdback amount plus interest. Assumed Accounts Payable Pursuant to section 1.02 of the APA, WX agreed to pay the Assumed Liabilities of JRV. The evidence showed that, before the Close, JRV provided updated lists of the JRV accounts payable (Exs. 90, 100, 110). After deducting the disputed Pillsbury fees, the assumed accounts payable amount is $271,292. 16 WX also complains of its inability to collect some of JRV’s receivables, totaling over $197,000. JRV points out that the nature of receivables is that they are sometimes not collectible. 15 Damages WX is responsible for paying the accounts payable and, with interest, the amount awarded is $341,650. 3. JRV claims that WX breached Mr. Leigon’s Consulting Agreement. As set forth above, WX terminated Mr. Leigon’s Consulting Agreement abruptly without giving him notice and an opportunity to cure per section 8.2 of the Agreement (Ex. 82). 17 WX breached this Agreement when it paid only half of the $20,000 monthly payment for February and March 2018 and then stopped paying him altogether for the remainder of the two year term. Damages 18 Mr. Leigon is awarded the amount due under the Consulting Agreement plus interest, or $288,419. Finally, JRV argues that WX’s misconduct amounts to fraud, malice and oppression warranting the award of punitive damages. 17 Ex. 229 is dated March 8, 2018 after payments to Leigon had already been reduced, and the letter deals with JRV’s alleged breaches, not specifically those related to the Consulting Agreement. 18 JRV did not present persuasive evidence for its claim that Mr. Leigon was an employee of WX. The contract specifically states that Leigon is an Independent Consultant. 16 The Arbitrator finds that JRV and Leigon did not meet their burden of proof to show by the high standard of clear and convincing evidence that WX committed “oppression, fraud, or malice” entitling JRV to punitive damages (Civ. Code section 3294). JRV proved the breaches of contract set forth above by a preponderance of the evidence. B. WX’s Counterclaims 1. Fraud Claims WX claims that JRV and Leigon breached the representations and warranties of the APA regarding JRV’s financial condition and made misrepresentations about the JRV brands. Further, WX asserts that JRV fraudulently induced WX into entering into the APA. Financial expert, Mr. Eichmann even testified that WX overpaid for the assets by $4.8 million dollars, a number that appears to be highly inflated and unreliable. WX did not meet its burden of proof on any of these claims. The evidence showed that WX had many months to perform its due diligence and a lot of professional assistance during that time.19 Mr. Leigon, Mr. Cairns and others from JRV provided all of the financial and other information requested. Mr. Gilmer and the accounting firm BPM had free reign for the investigation. Nothing in the evidence proved that Leigon or others from JRV falsified or hid any of the information. 19 In early March before the Close, Mr. Leigon gave WX’s Orin Lewin permission to speak to the distributors for additional information (Ex. 562). 17 2. Breach of Contract Claims JRV has prevailed on all of the breach of contract claims regarding the APA and the Leigon Consulting Agreement. WX’s last counterclaim involves the Transitional Services Agreement. WX claims $10,000 for its employee’s time working on these tasks. As explained by JRV, WX never raised this issue with JRV and never sought any agreement that JRV would bear these costs (Tr. 2064-66). Therefore, this claim is denied. IV. Award of Attorneys’ Fees and Costs to Claimants JRV and Leigon The scope of the attorneys’ fee provisions in all three contracts is very broad and allows for the award of all reasonable attorneys’ fees and costs and expenses of any type.20 Claimants JRV and Leigon are the prevailing parties and are entitled to an award of fees and costs incurred. The Arbitrator has reviewed the submissions from the parties regarding fees and costs, including the supporting declarations and the Pillsbury invoices for those amounts. Careful consideration of the factual and legal arguments has led to the following award to JRV and Leigon pursuant to JAMS Rule 24 and California law: 1. The fees claimed by the Pillsbury firm appear reasonable, both in terms of the number of hours expended and the rates charged. The 20 Ex. 81 (APA) at section 11.11, Ex.82 (Consulting Agreement) at sections 10.06 and 10.10, and Ex. 84 (TSA) at sections 15(b) and 18 and all contain prevailing party fee and costs provisions. 18 firm used billing judgment and reduced certain hours such as those charged for the employment claim, for example. Further, the rates charged are within the prevailing market rates in the San Francisco area. Therefore, the award for fees is $2,632,671 and for costs is $330,959.21 2. In addition, Pillsbury is awarded $67,850 for post-Interim Award work. V. FINAL AWARD 1. JRV is awarded $709,351 for the Holdback and $341,650 for the assumed Accounts Payable, totaling $1,051,001.22 2. Mr. Leigon is awarded $288,419 for breach of the Consulting Agreement. 3. WX is awarded nothing on its claims for fraud and breach of contract. 4. JRV and Leigon are the prevailing parties. 5. All three Agreements contain a prevailing party attorneys’ fee and costs provision.23 Therefore, counsel for Claimants are entitled to a total award of $2,700,521 for fees incurred and $330,959 for costs as set forth above. 21 These fee amounts appear to be adequate to compensate the firm and, therefore, 1.25 multiplier is not awarded. 22 The amounts awarded to JRV listed above include interest as originally calculated by JRV’s damages expert Mr. Kelly, later adjusted based on post-Interim Award briefing by both parties. 23 Ex. 81 at section 11.11, Ex. 82 at sections 10.6 and 10.10, and Ex. 84 at section 15(b). 19 This Final Award is in full and complete settlement and satisfaction of any and all claims submitted in this arbitration. Any other claim not specifically addressed herein is deemed denied. November 7, 2019 Zela G. Claiborne, Arbitrator EXHIBIT 2 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 4820-9350-2873.v4 PRE-HEARING BRIEF OF JRV, LLC AND BILL LEIGON PILLSBURY WINTHROP SHAW PITTMAN LLP BLAINE I. GREEN #193028 DUSTIN J. CHASE-WOODS #318628 Four Embarcadero Center, 22nd Floor Post Office Box 2824 San Francisco, CA 94126-2824 Telephone: (415) 983-1000 Facsimile: (415) 983-1200 Attorneys for Claimants and Counter-respondents, JRV, LLC and Bill Leigon JAMS ARBITRATION SAN FRANCISCO RESOLUTION CENTER JRV, LLC and Bill Leigon, Claimants, vs. WINERY EXCHANGE, INC., Respondent. ____________________________________ WINERY EXCHANGE, INC., Counter-claimant, vs. JRV, LLC and BILL LEIGON, Counter-respondents. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) JAMS Arbitration No. 1100090897 JRV, LLC’S AND BILL LEIGON’S PRE-HEARING ARBITRATION BRIEF ERRATA: Tables of Contents and Authorities previously omitted Arbitrator: Zela G. Claiborne, Esq. Date: June 24, 2019 Time: 9:30 a.m. Location: JAMS Embarcadero Center 2 San Francisco, California 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 - 4820-9350-2873.v4 PRE-HEARING BRIEF OF JRV, LLC AND BILL LEIGON that (1) JRV add another brand to the transaction (Reata, which was JRV’s only other significant brand) at no additional cost, and (2) replace the guaranteed royalties (at least $2.5 million in the five years post-closing, with potential for up to $10 million) with $6+ million in “incentive payments” triggered by achieving sales-volume targets. Given the importance of incentive payments (more than $6 million potentially due to JRV post-closing, versus a closing payment to JRV of approximately $1.3 million3) as part of the purchase price for the JRV brands-and because WX would control promotion and sales of JRV wines after the deal closed-JRV insisted that WX “shall use commercially reasonable efforts to promote sales of the [JRV] Brands that are consistent with the efforts used by Buyer to sell wine of other brands owned by the Buyer.” Asset Purchase Agreement (“APA”), § 1.04(f).4 WX agreed. Has WX used “commercially reasonable” and “consistent” efforts (with WX’s other brands) to sell JRV-branded wine, as required by Section 1.04 of the APA? This is the most important and highest-value ($6+ million) question in the case, and the answer is an emphatic “No.” WX has breached its obligation under the APA to use “commercially reasonable” and “consistent” efforts for sales of the JRV brands in many ways: 1. Cut Out Mr. Leigon. Without cause or explanation, WX abruptly cut Mr. Leigon out from the sales, marketing and promotion of the JRV brands which he created. This was so even though combined sales of the brands had increased approximately 15% during 2017 (the year of the deal, and the only substantial period of time when Mr. Leigon and WX worked together). Preventing the participation of Mr. Leigon-a creator and promoter of successful wine brands for over 40 years-was unreasonable and irreparably harmed the JRV brands. Furthermore, by deciding to stop working with and 3 WX also agreed to pay JRV’s bank debt and certain accounts payable. 4 The APA is Exhibit 2 (JRV-2). EXHIBIT 3 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 4834-1927-5429.v4 CLOSING BRIEF OF JRV, LLC AND BILL LEIGON PILLSBURY WINTHROP SHAW PITTMAN LLP BLAINE I. GREEN #193028 DUSTIN J. CHASE-WOODS #318628 Four Embarcadero Center, 22nd Floor Post Office Box 2824 San Francisco, CA 94126-2824 Telephone: (415) 983-1000 Facsimile: (415) 983-1200 Attorneys for Claimants and Counter-respondents, JRV, LLC and Bill Leigon JAMS ARBITRATION SAN FRANCISCO RESOLUTION CENTER JRV, LLC and Bill Leigon, Claimants, vs. WINERY EXCHANGE, INC., Respondent. ____________________________________ WINERY EXCHANGE, INC., Counter-claimant, vs. JRV, LLC and BILL LEIGON, Counter-respondents. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) JAMS Arbitration No. 1100090897 JRV, LLC’S AND BILL LEIGON’S CLOSING BRIEF Arbitrator: Zela G. Claiborne, Esq. Date: September 26, 2019 Time: 10:00 a.m. Location: JAMS Embarcadero Center 2 San Francisco, California 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 - 41 - 4834-1927-5429.v4 CLOSING BRIEF OF JRV, LLC AND BILL LEIGON REQUEST FOR AWARD Based on the foregoing, JRV and Mr. Leigon request an Award as follows49: A. For breach of the APA, damages to JRV of (i) $690,030 for the Holdback, (ii) $333,104 in accounts payable assumed but not paid by WX, (iii) $5,407,832 in case volume Incentive Payments; and (iv) $1,936,236 in Additional Incentive Payments (Tasting Room). B. For breach of the Consulting Agreement, $280,229 in damages to Mr. Leigon for the full term of that agreement. C. On the claim for wages and employee benefits, $280,229 in wages; plus a waiting time penalty of $20,000 under Labor Code § 203; plus $60,924 for unpaid employment benefits. D. On the fraud claims, punitive damages for JRV in the amount of $5,000,000, or such other amount deemed appropriate by the Arbitrator. E. On the fraud claims, punitive damages for Bill Leigon in the amount of $2,000,000, or such other amount deemed appropriate by the Arbitrator. F. On all claims, attorneys’ fees, costs of arbitration and interest. G. WX should be awarded nothing on its claims. Dated: September 19, 2019. PILLSBURY WINTHROP SHAW PITTMAN LLP BLAINE I. GREEN DUSTIN J. CHASE-WOODS Four Embarcadero Center, 22nd Floor San Francisco, CA 94126-2824 By Blaine I. Green Blaine I. Green Attorneys for Claimants, JRV, LLC and Bill Leigon 49 All damages figures include interest if applicable, as calculated by Brian Kelly. EXHIBIT 4 WINE l BEER l SPIRITS ASSET PURCHASE AGREEMENT BY AND BETWEEN JRV, LLC A California Limited Liability Company (THE "SELLER")' AND WINERY EXCHANC.E, INC. A California Corporation· (THE "BUYER") DATE SIGNED: MARCH 22, 2017 CLOS\NG DATE: MARCH 23, ;2017 CONFIDENTIAL JRV-0000002 / CONFIDENTIAL ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this "Agreement"), dated as of March 22, 2017, . . is entered into between JRV, LLC, a California limited liability company ("Seller"), and Winery Exchange; Inc., a California c·orporation ("Buyer"). RECITALS A. Seller owns and operat~s a winery business which includes production of wine, operation_ of a tasting room, and sales of bottled wine, and ·other tangible and · intangible personal property used in connection with various trad_emarks and assets, in each case used with respect to or relating to the B_rands (the "Business"); · B. After arm's length negotiations between the parties, Seller wishes to sell and assign to Buyer, and Buyer wishes to purchase from Seller, substantially all the assets related to the Business, but to assume o.Q.ly certain specified liabilities, of the Business,_subject to the terms and conditions set forth-herein; and C. Capitalized terms used herein and not otherwise defined shall have the meaning ascribed to them in Article X. Iri consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE Section 1.01 Purchase and Sale of Assets. On the tenns and conditions specified in this Agreement and the exhibits and schedules hereto, at the Closing, Seller shali sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from Seller, free and clear of any and all Encumbrances, all of Seller's right, title and interest in, to and under all of the Purchased Assets. The Purchased Assets shall not include the Excluded Assets. Section 1.02 Assumed Liabilities. Subject to the terms and conditions set faith herein, Buyer shall assume and agree to pay, perform and discharge only the Assumed Liabilities, and no other Liabilities. · AmericasActive:8944769.9 JRV-0000003 CONFIDENTIAL Section 1.03 Excluded Liabilities. Notwithstanding the provisions of Section 1.02 or any other provision in this Agreement to the contrary, Buyer shall not assume and shall not be responsible to pay, perform or discharge any Liabilities of Seller or any .of its Affiliates of any kind or nature whatsoever other than the Assumed Liabilities (the "Excluded Liabilities"). Seller shall. and shall cause each of its Affiliates to, pay and satisfy in due course all Excluded Liabilities. S~ction 1.04 · Purchase Price. The aggregate purchase price for the Purchased As.sets (the "Purcha·se Price"), shall be as.follows: (a) $1,949,012.76 previously paid by Buyer to third parties for wine made from grapes th~t Seller contracted for and $102,182.28 to be paid to Carolyn qordes, Trustee of Jacquelyn Cordes 2006, Trust pursuant to the Settlement Agreement; (b) On the Closing Date, the Buyer shall pay (i) Two Million Dollars ($2,000,000) (the "Closing Payment") which shall include payment for all bulk vrine, case goods, dry goods, work in progress, and other Inventory, and shall assume all Assumed Liabilities less (ii) the Holdback less (iii) the Accounts Receivable Shortfall and less (iv) the amount, if any, by which the ~bobank Loan pay-off amount is greater than Four Million Five Hundred Thousand Dollars ($4,500,000); . ( c) . _On the Closing Date, the Buy~r ~hall pay off in full the Raboba9k Loan, (the "Rabobank Loan"); upon such pa:y-off, Berni Orsi shall be released as a guarantor on the Rabobank Loan; and (d) . Incentive Payments shall be paid based on the m1mber of nine (9) liter cases sold by Buyer at wholesale with respect to the Brands for the period commencing- on the Closing Date through the fifth (5th) anniversary of the Closing Date (the "lnc~ntive Period")~ excluding any such cases given as samples or as free goods or sold at a margin of zero (0) or less (at a loss) (each, a "Case")," as follows: . . . (i) If Thirty Thousand (30,000) Cases of wine bearing the Double Lariat brand are sold in ariy consecutive twelve (12) month period during the Incentive· Period, then a one-:time inceqtive payment of Tw:o Million Dollars ($2,000,000) shali'be paid to Seller; 50% of such incentive payment shall be paid within thirty (30) days thereafter and the remaining 50% shall be paid ·within one (1) year thereafter; . (ii) Without limiting Buyer's obligations to make payments pursuant to Section l.04(d)(i). if Fifty Thousand (50,000) Cases of wine bearing the Double Lariat brand are sold in any consecutive twelve (12) month period during the Incentive Period, then a one-time incentive payment of One Million Dollars ($1,000,000) shall be paid to Seller; 50% of such incentive payment shall be paid within thirty (30) days thereafter and the remaining 50%.shall be paid within one (1) year-thereafter. For the avoidance of doubt, during the Incentive Period, Seller shall in no event be obligated to pay any _ amount in excess of $3,000,000 in the aggregate for incentive payments related to the sale of wine bearing the Double Lariat brand. -2- ArnericasActive:8944769.9 JRV-0000004 CONFIDENTIAL (iii) If One Hundred Fifty Thousand (150,000) Cases of wine bearing one or more of the Brands (excluding Double Lariat) in the aggregate are.sold in any• consecutive twelve (12) month period during the Incentive Period, then a one-time incentive payment ofT:wo Million Dollars ($2,000,000) shall be paid to Seller; 50% of such incentive payment shall be paid within thirty (30) days thereafter and the remaining 50% shall be paid within one (1) year thereafter; (iv) Without limiting Buyer's obligations to make payments pursuant to Section l.04(d)(iii). if Two Hundred Thousand (200,000) Cases of wine-bearirig one or more of the Brands (excluding Double Lariat) in the aggregate are sold in any consecutive twelve (12) month period during the Incentive Perio':l, then a one-time incentive payment of One Million Dollars ($1,000,000) shall be paid to Seller; 50% of -such incentive payment shall b_e paid within.thirty (30) days thereafter and the remaining 50% shall be paid within one (1) year thereafter. For _the avoidance of doubt, during the Incentive Period, Seller shall in no ~vent be obligated to pay any amount in excess of $3,000,000 in the aggregate for incentive payments relat~d to th~ sale ofw!ne bearing· one o~ more of the Brands (excluding Double Lariat); and (e) Additional Incentive I'ayments shall be paid b~sed on the total gross margin dollars earned by Buyer from the sale of wine, merchandise or tasting fees with respect to the.Brands dur_ing the Incentive Period other than ·at wholesale, including at the Tasting Room, through o~ine sales or other direct-to:.c0nsumer ~ales. If such tot~! gross margin dollars earned.by Buyer exceeds One Million Four Hundred_ Thousand Dollars ($1,400,000) in the aggregate, calculated for each twelve (12) month period starting on the Closing Date, Buyer shall pay Seller an amount equal to twenty percent (20%) of the such total gross margin dollars that exceed One Million Four Hundred Thousand Dollars ($1,400,000) during such twelve (12) month period. (f) Buyer shall use commercially reasonable efforts to promote sales of the Brands that are consistent with the efforts used by Buyer to sell wine of other brands • ' • j owned by the Buyer. Buyer.agrees to provide quarterly reports to Seller sinnniarizing sales of the wines on which such royalties are_payable. Buyer agrees to provide such a report ninety (90) d,1..ys after the end of each calendar quarter. (g) _ In the event of a JRV Liquidity Event, "Buyer shall pay Seller an amount equal to ten percent (10%) of the value of the J ~ieson Ranch Brands as of the date of th·e JRV Liquidity Event (the "JRV -yalue"), as mutually agreed between Buyer and Seller or, failing such prompt agreement within 10 Business Days, as computed by a third party vaiuation expert reasonably acceptable to each of the Buyer and Seller, 50% of the fees of which shall be deducted from the calculated JRV Value·priorto such JRV Value being ·transmitted from Buyer to Seller. In addition, at any time after the Closing, Buyer may_seek to have the JRV Value determined and.may pay such finally determined JRV - Value to Seller. (h) In case of a dispute relating to the calculation of the Incentive Payments, the parties agree to submit their objections and responses thereto to an independent -3- An)ericasActive:8944769.9 JRV-0000005 CONFIDENTIAL accounting firm reasonably acceptable to Buyer and Seller (the «Independent Accountants"). The Independent Accountants shall submit a v.rritten statement of their determinati~n within thirty (30) days (or such longer period as the Buyer and Seller may agree), which determination shall become_ binding on the Buyer and Seller. The fees, ~osts and expenses of the Independent Accountants shall be paid by the party whose _ determination of Incentive Payments was further from the amount determin~ by the Independent Accountants. Section 1.05 Allocation of Pu_r~hase ·Price. Seller and Buyer agree_ that the Purchase Price and the Assumed Liabilities. (plus other relevant items) shall be allocated -among the Purchased Assets for all purposes (including Tax and financial accounting) as sh~wn. on the allocation sch~dule set forth on Schedule 1.06 attached hereto (the "Allocation Schedule"). Buyer and Seller shall file all Tax Returns (including amended returns and claims for refund) and information reports in a manner consistent with the Allocation Schedule. Section 1.06 Withholding Tax. Buyer shall be entitled to deduct and withhold from the Purchas_e Price all Taxes that Buyer may be required to deduct and withhold under any provision of Tax Law. All such withheld amounts s~all be treated as paid t~ · Seller here.under. Section 1.07 Holdback. Buy~r shall hold-back Six Hundred Thirteen Thousand Three Hunqred Sixty DollE!Is ($613,360) from the Closing Payment (the "Holdback") to satisfy any of Seller's indemnification.obligations under Article VIII, including any and all of Seller's obligations ~or claims or Encumbrances on the ·Purchased Assets that arose prior to the Closing and any and all claims or Losses related to broker, distributor and employee related costs. Ori the first Business Day after the twelve (12) month anniversary of the Closing Date, ·Buyer shall pay to Sefler, the· amount of the Holdback ·_ less the sum of (i) ariy indemnity claims o( amounts due to Buyer pursuant to Article VIII previousl):' satisfied by setoff against the Holdback, and (ii) any amounts subject to an · unresolved claim for indemnification by Buyer as of su!=:h" date (the balance of which shall be promptly paid to Seller upon resolution of such claims). . . ARTICLE II CLOSING Section 2.01 Closing. Subject to the terms and conditions of this Agreement, the consumm~tion of the transactiofl:8 contemplated by this Agreement (the "Clo~ing") shall take place at 10 am on March 23, 2017, or at such other time, date or place as Seller and Buyer may mutually agree upon in writing. The date on which the Closing is to occur is herein referred to as the "Closing Date".· -4- AmericasActive:8944769.9 JRV-0000006 CONFIDENTIAL Section 2.02 Cl_osing Deliverables. (a}----- At the Closing, Seller shall deliver, or cause to be delivered, to Buyer the following: (i) a bill of sale in form of Exhibit A hereto (the "Bill of Sale") and duly executed by Seller, transferring the tangible personal property included "in the Purchased Assets to Buyer; (ii) an assignment and assumption agreement in the form of Exhibit B . . hereto (the "Assignment and. Assumption Agre~ment") 'and duly executed by Seller, effecting the assignment to and assumption by Buyer of the Purc~ased Assets and the Assumed Liabilities; (iii)_ assignments in th~ form of Exhibit C hereto (the "Intellectual Property Assignments") and duly executed by Selle~, transferring all of Seller's right, title and interest in and to the Intellectual Property Assets to Buyer; (iv) the.Transition Services Agreement in the form of Exhibit D hereto (the "Transition Services Agreement") and duly executed by Sellers; (v) the Consulting Agreement in the form of Exhibit E hereto (the· "Consulting Agreement") duly executed by William Leigon; · (vi) .. tp.e Non-Compete Agreements in the form of Exhibit F hereto (the "Non-Compete Agreements") duly executed by Seiler and William Leigoh; (vii) the Charitable Donation Agreement in the form of Exhibit G hereto (the "Charitable Donation.Agreement") duly executed by Light Horse Foundation; (viii) the Co-Existence Agreement in the form of Exhibit H hereto (the "Co-Existence Agreement") duly executed by Light.Horse Foundation; (ix) the Subordination Agreement in the form of Exhibit I hereto (the "Subordin·ation.Agreement") duly executed by Seller; · (x) the Settlement Agreement duly executed by Seller; (xi) the Seller Closing Certificate; (xii) the certificates of the Secretary or Assistant Secretary of Seller required by Section 7.0l(p); and (xiii) such other customary instruments of transfer, assumption, filings or documents, in _form and substance reasonably satisfactory to Buyer, as may be· required to give effect to this ~greement. (b) At ~e Closing, Buy~r shall deliver to Seller the following: (i) the Closing Payment; (ii) the Assignment and Assumption Agreement duly executed by Buyer; -5- AmericasActive:8944 769. 9 JRV-0000007 CONFIDENTIAL (iii) the Transition Services Agreement d~ly executed by Buyer; (iv) the Consulting Agreement duly executed by Buyer; (v) the Non-Compete Agreements duly executed by Buyer; (vi) the Charitable Donation Agreement duly executed by Buyer; (vii) the Co-Existence Agreement duly executed by Buyer; - (viii) the Subordination.Agreement.duly executed by Buyer and its Affiliates as may be required by Buyer's lender; (ix) the Settlement Agreement duly executed by Buyer; (x) an acknowledgement of termination of the Seller's lease to the Leased Real Property, and any associated or re.lated agreements; (xi) the Buyer Closing Certificate; and (xii) the certificates of the Secretary or Assistant Secretary of Buyer required by Section 7.02(e). ARTICLE III · REPRESENTATIONS AND WARRANTIES OF SELLER . . Except as set forth in the correspondingly numbered Schedules, Seller represents and warrants to Buyer that the statements contained in this Articie III are true and correct . . as ofthe date hereof and as of the Closing Date. Section 3.01 Organization and Qualification_of Seller. Seller is a limited liability company duly organized, validly existing and in good standing under the Laws of the state of C~lifomia ·and has full c9rporate power and au~ority to own, operat~ or lease the assets now owned, operated or leased by-it and to carry on the Business as currently condm::.ted. Schedule 3.01 sets forth eachjurisdictioi:i in which Seller is licensed or qualified to do ·business, and Seller is duly licensed or qualifie<;I. to do business and is in good standing in eachjurisdiction in which the ownership of the Purchased Assets or the operation of the B_usiness as currently conducted makes such li~ensing or qualification necessary. Section 3.02 Authority of Seller. Seller has full organizational power and authority to enter into this Agreement and the other Transaction Documents to which Seller is a party, to CfilrY, out their obligations hereunder and thereunder and to consummate the_transactions contempl_ated hereby and thereby. Tlw execution and. delivery by Seller of this Agreement and any other Transaction Document to which Seller _ is a party, the performance by Seller of its obligations hereunder and thereunder and the consummation by Seller of the transactions contemplated hereby and thereby have been -6- AmericasActive:8944769. 9 JRV-0000008 CONFIDENTIAL duly authorized by all requisite corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller, and (assuming due authorization, execution and delivery by Buyer) constitutes a legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms, subject to the Remedies Exception. When each other Transaction Document to which Seller is or will be a party has been duly executed and d~livered by Seller (assuming due authorization, execution · and delivery by each other party thereto), such Transaction Docwnent will constitute a legal and binding obligation of Seller, enforceable against it in accordance with its terms, subject fo the Remedies Ex·ception. Sec#on.3.03 No Conflicts; Consents. The execution, delivery and performance by Seller of this Agreement and the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a· violation or breach of, or default under, any provision_of the certificate of incorporation, by-laws or other organizational documents of Seller; (b) conflict with or result _in a violation or breach of any provision of any Law or Governmental Order applicable to Seller, the Business, the Purchased_ Assets or the Asswned Liabilities (including ~y Assumed Contrac;:t); (c) require the co~sent, notice or . other action by any Persori under, conflict with, result in a violation or breach of, constitute a default or an event th~t, with or without notice or lapse of time o·r both, would constitute a default under, result in the acc~leration of or create in any party the rlght to accelerate, terminate, modify 9r cancel any Contract or Permit to which Seller is a party or by which Seller or the Business is bound or to which any of the Purchased Assets or the Assumed Liabilities are subject (inc'iuding any Assumed Contract); or (d) result in the creation or imposition of any Encumbranc~ o·n the Purchased Assets_. No consent, approval, Permit,- Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Se~ler in connection with the execution anc;I delivery of this Agre~ment or any of the other Transaction Documents and the consummation of the trans.:1.ctions contemplated hereby and thereby, except for: such consents, approvals, Permits, Governmental Orders, declarations, filings or notices which, in the aggregate, would not have a Material Adverse Effect. . Section 3.04 Financial Statements. (a) .Schedule 3.04(a) sets forth the balance sheet and income.statement ofthe Business as of September 18, 2015 (the <~Financial Statements", and the date thereof, the "Balance Sheet Date") and each balance sheet and income statement of the Business prepared by the Company since the Balance Sheet Date (the <'Interim Financial Statements"). The Financial Statements and Interim Financial Statements fairly and accurately represent the financial position of the Business, including the Purchased Assets and the Assumed Liabilities as of the dates thereof. The amount of accounts receivable ~alculated as of the Closing less the amount of accounts payable calculate~ as -7- AmericasActive:8944769.9 JRV-0000009 CONFIDENTIAL of the Closing is negative three Hundred Fifty-Six Thousand Three Hundred Eight-Nine Dollars and Seventy-Nine Cents (-$356,3~9.79). Section 3.05 Undisclosed Liabilities. Seller has no Liabilities with resp~ct to . the Business, except (a) those which are adequately reflected or reserved against in the Financial Statements and the Interim Financial Statements, (b) those which have been incurred in the ordinary course of busii:iess consistent with past practice since the Balance Sheet Date and which are not, individually_ or in the aggregate, material in amount, and (c) Excluded Liabilities. Section 3.06 Absence of Certain Changes, Events and Conditions. Since the date of the Interim Financial Statements, and other than in the ordinary course of business consistent with past practice, there have not been any changes in the assets, business, financial condition, operations or results of operations of the Business that would have a Material Adverse Effect on the Purchased Assets or Assumed Liabilities (including any Assumed Contract). · · · Section 3.07 Material Contracts. . (a) Section 3.07(a) lists.each of the following Contracts.(x) by which any of the Purchased Assets are bound or affected or (y) to which Seller is a party or by which it is bound in connection with the Purchased Assets (such Contracts, together with all Contracts relating to.Intellectual.Property set forth in Section 3.IO(c) and Section 3. lO(e) being "Material Contracts"): (i) all Contracts involving aggregate consideration in excess of $10,000 and which, in each case, ·cannot be cancelled without penalty or without more than 90 days'. notice; (ii) all Contracts that require Seller to purchase or sell a stated portion ·of the requirements or outputs of the Busin~s~ or that contain "take or pay" provisions; · (iii) · all Contracts that provide for the indemnification of any Person or the assumption of any Tax, en:vironmental or other Liability of any Person·; . (iv) all Contracts.that relate to the acquisition or disposition of any business, a material amount of stock or assets of any other Person or any real property (whether by merger, sale of stock, sale of asset~ or otherwise); (v) all cus~omer, grape or wine. purchase, productiop or manufacturing, broker, distributor, dealer, manufacturer's representative, franchise, agency, sales promotion, market research, marketing consulting and advertising Contracts, _including an grape contracts that' were assigned to buyer in December, 2016 as part of this Agreement; · (vi) except for Contracts relating to trade receivables, all Contracts relating to indebtedness (including, without limitation, guarantees); -8- AmericasActive:89.44 769 .9 JRV-0000010 CONFIDENTIAL (vii) all Contracts with any Governmental Authority; (viii) all Contracts that limit or purport to limit the ability of Seller to _compete in any line of business or with any Person or in any geographic area or during · any period of time; · · (ix) all joint venture, partnership or similar Contracts; (x) all Contracts for the sale of any of the Purchased Assets or for the grant to any Person of any option, right of first refusal or preferential or similar right to purchase-any of the Purchased Assets; (xi) all powers .of attorney with respect to the Business or any Purchased Asset; and (xii) . all other Contracts that are material to the Purchased Assets or the Assumed Liabilities or the operation of the Business and not previously disclosed pursuantto this Section 3.07. (b) Each Material Contract is valid and bind~g on Seller in accordance with its terms ~dis in full force and effect, subject to the Remedies Exception. None of Seller or, to Seller's Knowledge, any other party thereto is in breach.of or default under ( or is alleged to be in breach of or default under), or has provided or received any notice of any intention to terminate, any Material Contract. No event or circumstance has . ' . . . occurred that, with notice or lapse oftii:ne·or both, would constitute an event of default under ariy Material Contract or result in a termination thereof or would cause or pennit the acceleration or other changes of any right or 6 bligation or the loss of any benefit thereunder. c·omplete and correct copies of ~a:ch Material Contract (including all modifications, amendments and suppleme~ts thereto and waivers thereunder) have been made available to Buyer. There are no mat~rial disputes pending or threat~ned under ·any Contract included in the: Purchased Assets or the Assumed Liabilities. Section 3.08 Title to Purchased Assets. Seller h_a_s good and valid title to, or a valid leasehold interest in, all of the Purchased Assets. All such Purchased Assets (including leasehold interests) are free and dear of Encumbrances .. Section 3.09 Condition and Sufficiency of-Assets. The items of tangible personal property included in the Purchased Assets are structurally sound, are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such items of tangible personal property is in need of maintenance or repairs except for ordinary, routine !llaintenance and repairs that are not material in nature or cost. The Purchased Assets are sufficient for the continued conduct of the Business after the Closing in substantially the same manner as conducted prior· to the Closing and constitute all of the rights, property and assets q_ecessary to conduct the Business as currently conducted. None of the Excluded Assets are material t_o the Business. -9- . AmericasActive:8944769.9 JRV-0000011 CONFIDENTIAL Section 3.10 Intellectual Property. (a) Section 3.1 0(a) lists all (i) Intellectual Property Registrations and (ii) Intellectual Property Assets that are not registered but that are material to the operation of the Business o.i; have been used by the Business in the last five (5) years. All required . filings and fees related to the Intellectual Property Registrations have been timely filed with and paid to the relevant Governmental Authorities and authorized registrars, and all Intellectual Property Registrations are otherwise in good standing. (b) ~e;ller owns, exclusively, all right, title and interest in and to the Intellectual Property Assets, free and clear of Encumbrances. Without limiting the generality of the f~regciing, Seller has entered into binding, written agreements with every current and former employee of Seller and with every current and former independent contractor, whereby such employees and independent contracto_rs (i) assign to Seller any ownership interest and right they may have in the.Intellectual Property Assets; and (ii) acknowledge Seller's exclusive ownership of all Intellectual Property Assets. Seller has provided Buyer with true and complete copies of all such agreements. - Seller is in full compliance with all legal requirements applicable to the Intellectual Property Assets ·and Sellees ownership and use thereof. (c) . · Section 3.IO(c) lists all Intellectµal Property Licenses. Seller has provided Buyer with true and complete copies of all such Intellectual Property Licenses. All such Intellectual Property Licenses ar~ valid, ~inding and enforceable between Seller and the other parties thereto, subject to the ~emedies Exception, and Seller and such other parties are in full compliance with the term~ and conditions of such Intellectual Property Licenses. ( d) The Intellectual Property Assets and Intellectual Property Licenses as currently or formerly owned, licensed or used by Seller or proposed to be used ·by Buyer, and the conduct of the Business as currently and formerly conducted by Seller and propo~ed to be conducted by Buyer have not, do not and will not infringe, violate or misappropriate the Intellectual Property of any Person. Seller has not received any communication, and no Action has been instituted, settled o_r, to Seller's Knowledge~ threatened That alleges any such infringement, violation or misappropriation, and none of the Intellectual Property is subject to any outstanding Governmental Order. (e) Section 3.I0(e)"lists all licenses, sublicenses and other agreements P1:ll'sliant to which Seller grants rights or authority to any Perso_n with respect to any Intellectual Property Assets· or Intellectual Property Licens~s. Seller has provided Buyer with true and complete copies of all such agreements. All such agreemehts are valid, · · ·binding and enforceable between Seller and the other parties thereto, s·ubject to the Remedies Exception, and Seller and such other parties are in full compliance with the terms and conditions of such agreements. To Seller's Knowledge, no 'Person has infringed, violated or misappropriated, or is infringing, violating or misappropriating, any Intellectual Property Assets. -10- AmericasActive:8944769.9 JRV-0000012 CONFIDENTIAL Section 3.11 Inventory. A detailed listing of the Inventory as of the Closing Date is shown ·on Schedule 3.11. All Inventory, wheth~r or not reflected in the Financial Statements, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice. All Inventory is merchantable and free from material defects .. All Inventory th~t consists of wine, whether bottled or bulk, is fit for human consumption, has a taste profile consistent with prior years of the same Brand, and will be stable for a reasonable period oftime to allow for sale and consumption by the consumer. All Inventory is owned by S"eller free and clear of all Encumbrances, and no Inventory is held on a_ consignment basis.The quantities ofeach item oflnventory, wherever located, _are not excessive, but are reasonable in the present circumstanc·es of Seller. Buyer shall ·have no obligation to purchase any Inventory that is not in compliance with this Section and any destruction or liquidation of such Inventory shall be conducted fo strict accordance with Buyer's instructions. Section 3~12 · Customers, Suppliers and Distributors. (a) Seller has provided Buyer with a complete list of all the names and addresses of th·e Pets.ens or entities.thafhave been customers, distributors, or supplier~ of Seller with respect to the Brar;i.ds over the past three (3) years. To Seller's Knowledge, no customer, distributor or supplier so listed has bre·ached any agreement with Seller or intends to· terminate, cancel, modify, or change its business relationship with Seller. To Seller's Knowledge. Seller has no obligation to-·refund the purchase price of any wine that was sold to any such customer or distributor with r.espect to the Brands. Quantities of the Brands in distribution channels are not excessive, but are commercially reasonable. (b) Seller has provided Buyer with copies of or,'where.oral, summaries of all agreements with distributors and brokers ( or similar), including all- material terms including but not limited to exclusivity, rig~t of first refusal, franchise-type rights, etc. Section 3_.13 Insurance. Schedule_ 3.13 sets forth a complete list of all insurance policies held by Sellers with respect to the Purchased Assets and Assumed Liabilities, and for each poljcy, the name of the insurer, the.type of risks insured, the deductible and limits of coverage, and the annual premil,UD. therefor, which sue~ policies are in full force and effect. There is no current default with respec~_to the payment of premiums under any such policies. Such policies and binders are valid and binding in accordance with their terms and are-in full force and effect. Sellers have maintained and will maintain such insurapce until the Closing Date. Section 3.14 Legal Proceedings; Governmental Orders. (a) There·are no Actions peridirig or, to Seller's Knowledge, threatened against or by Seller (a) relating to or affecting the Business, the Purchased Assets or the Assumed Liab~lities;. or (b) that challenge or seek to prevent, enjoin or otherwise delay -11- AmericasActive:8944769.9 JRV-0000013 CONFIDENTIAL the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action. (b) . There are no outstanding Governmental Orders and no µnsatisfied judgments, penalties or awards against, relating _to or affecting the Business. Section 3.15 Compliance With Laws; Permits. (a) Seller has complied, and is now complying, with all Laws applicable to the conduct of the Business as currently conducted or the ownership.and use of the Purchased Assets or Assumed Liabilities. (b) . All Permits required for Seller to conduct the Business as currently conducted or for the ownership and use of the Purchased Assets or Assumed Liabilities have been obtained by Seller and are valid and in full force and ·effect. All fees _and charges with respect to such Pennits as of the date hereof have been paid in full. Schedule 3.15 lists all current Permits issued to Seller which are related tc;> the conduct of the Business as currently conducted or the ownership. and use of the Purchased Assets, including the name~ of the Permits and their respective dates of issuance and expiration. No event has occurred that, with or without notice or lapse of time or both, would reasonably be· expected to result in the revocation, suspension, lapse or limitation of any Permit set forth in Schedule 3.15. ( c) In addition to the foregoing, and for the avoidance of doubt: (i) . Seller is in compliance with Federal and State alcoholic ·beverage agency Laws and has obtained all Permits with respect to Federal and Stat~ al~oholic beverage Laws necessary for the operation and use of the Purchased Assets; (ii) . Seller has obtained all Permits required by applicable Law; and (iii) All labels appli~d to the Purchased Assets are autp.orized by and in full compliance with applicable Laws. . Section 3.16 Taxes. (a) All Tax Returns with respect to the Business required to be filed by Seller for any Pre-Closing Tax Period have been, or will be, timely filed. Such Tax R.eturp.s are, or will be, true, complete and correct in all respects. AP Taxes due and owing by.Seller (w~ether or not shown on any Tax Return) have been, or will be, timely paid. (b) No extensions or waivers of statutes of limitations have been given or · requested with respect to any Taxes of Seller. . ( c) All deficiencies asserted, or assessments made, against Seller as a result of any examinations by any taxing authority have been fully paid. · ( d) Seller is not a party to any Action by any taxing authority. There are no pending or.threatened Actions by any taxing authority. -12- AmericasActive:8944769.9 JRV-0000014 CONFIDENTIAL (e) There are no Encumbrances for Taxes µpan any of the Purchased Assets nor, to Seller's Knowledge, is any taxing authority in the process of imposing any . Encumbrances for Taxes on any of the Purchased Assets (other than for current Taxes not yet due and payable). (f) Seller is not, and has not been, a party to, or a promoter of, a "reportable transaction" within the meaning of Section 6707A(c)(l) of the Code and Treasury Regµlations Section 1.6011 4(bt (g) None of the Purchased Assets is property that Seller is required to treat as being owned by any other_person pursuant to the so-called "safe harbor lease" provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, as amended.· Section 3.17 Real Property. · (a) (b) .. (c) Seller owns no real property used in connection with the Business. Schedule 3.17 sets forth all material real property leased by Seller and used in. connection with the Business (collectively, the "Leased Real Property"). Seller has not received any written notice of existing, ·peµding or threatened: (i) · condemnation proceedings affecting the Leased Real Property; or (ii) zoning, building code or other m6ratoriu}11 proceedings, or similar matters which would reasonably be expected to materially and adversely affect the ability to operate the Leased Real Property as currently operated. Neither the whole nor any material portion of any Leased Real Property has been damaged or destroyed by fire or other ~~fy . Section 3.18 Environmental Matters . . (a) To Seller's Knowledge,"the operations of Seller with respect to the Business and the Purchased Assets are in material ?ompliance with all Environmental Laws. Seller has not received from any Person, with respect to the Business or the . . Purchased Assets, any_: (i) written.Environmental Notice or Environmental Claim; or (ii) written request for irifoimation pursuant to Environmental Law, which, in each case, either remains pe·nding or unresolved, or is the source of ongoing obligations or requirements. · (b) ·To Seller's Knowledge, Seller has obtained and is in material complfarice with all-material Environmental Permits (each of which is disclosed in Schedule 3.15) necessary for the.conduct of the Business as currently conducted or the ownership, lease, operation or use of the Purchased Assets. . -13- AmericasActive:8944769.9 JRV-0000015 CONFIDENTIAL (c) None of the Leased Real Property is listed on, or has been proposed for listing on, the National Priorities List (or CERCLIS) under CERCLA, or any similar.state list. (d) To Seller's Knowledge, there has been no Release of Hazardous Materials in·contravention of Environmental Law made by Seller with respect to the Business, the Purchased Asset_s or the Leased Real Property, and Seller has not received any written Enyironmental Notice that the Business or any ' • practice; (h) maintain the Books and Records in accordance with past practice; (i) comply in all material respects with all Laws applicable to the conduct of the Business or the Qwnership and use of the Purchased Assets· or the Assumed Liabilities; and ' ' G) not take or permit any action that would cause any of the changes, eve:nts or conditions described in Section 3.06 to occur. . Section 5.02 Access to Information. From the date hereof until the Closing, Seller shall (a) afford Buyer and its Representatives full and free access to and the right to inspect all of the properties, assets, premises, Books and Recor~s, Contracts_ and other documents and, data related to the Business; (b) furnish Buyer and its Representatives with such financial, operating and other data and information related to the Business as Buyer or any of its Representatives may reasonably request; and (c) instruct the Represeritatives of Seller to cooperate with Buyer in its investigation of the Business. Any itivestigatio_n pursuant to this Section 5.02 shall.be conducted in such manner as not to interfere unreasonably with the conduct of the Business or any other businesses of Seller. No investigation by Buyer or other information received by Buyer shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Seller in this Agreement. Section 5.03 Notice of Certain Events. (a) From the_date hereof until the Closing, Seller shall promptly notify Buyer in writing of: -16- AmericasActive:8944769.9 JRV-0000018 CONFIDENTIAL (i) any fact, circumstance, event or action the existence, occurrence or talcing of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (B) has resul~ed in, or could reasonably be expected to result in, any representation or warranty made by Seller hereunder not being true and correct or (C) has resulted in, or could reasonably be expected to result in, the f~ilure of any of the conditions set forth in Sectio~ 7.01 to be satisfied; (ii) any notice or other communication from any Person alleging that the con~ent of such Person is or may°be required in co~e-cti~n -with the transactions contemplated by this Agreement; . . . (iii) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this .Agreement; and (iv) any Actions commenced or, to Seller's Knowledge, threatened against, relating to or involving _or otherwise affecting the Business, the Purchased Assets or the Assumed Liabilities that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 3.14 or that relates- to the . consummation of the transactions contemplated by this Agreement. (b) -Buyer's receipt of information pursuant to this Section 5.03 ·shall not operate as a waiver or·otherwise affect any representation, warranty or agreement given or made by Seller in this Agreement (including Section 8.02 and Section 9.0l(b )) and shall not be deemed to amend or supplement the Schedules. Section 5.04 Discharge of Debts and Liabilities. Concurrent with the Closing, all Liabilities of Seller for borrowed money and any Liabilities of Seller to the extent relating to the Purchased Assets shall be discharged in full by Seller. Sectio:n 5.05 Confidentialjty. From and after the. Closip.g, Seller shall, and shall cause its Affiliates to, hold, and shall use its reasonable best efforts to cause its or their respective Representatives tq hold, in confid~nce any and all informatton, whether 'Written · _or oral, concerning the Business, the Purchased Assets or the Assumed Liabilities; ·If Seller or any of its Affiliat~s o~ their respective Representatives are compelled to disclose any information by judicial or administrative pro~ess or by other requirements of Law, Seller shall promptly notify Buyer in 'Writing and shall disclose only that p_ortion· of such information which Seller is advised by its couns~l in 'Writing is legally required to be disclosed,provided that Seller shall use reasonable best efforts to. obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information. Section 5.06 Acquisition Proposals. Seller shall promptly (and in any event within one (1) Business Day after receipt thereof by Seller or its Representatives) advise Buyer _orally and in 'Writing of any Acquisition Proposal, any request for information with -17- AmericasActive: 8 944 7 6 9. 9 JRV-0000019 CONFIDENTIAL respect to any Acquisition Proposal, or any inquiry with respect to or which could reasonably be expected to result in an Acquisition Proposal, the material terms and condi~ions of such request, Acquisition Proposal or inquiry, and the identity of the Person making the same. Neither Seller nor its Representatives shall take action to solicit or respond to any Acquisition Proposal while this Agreement is in effect. Section 5.07 Public Announcements. Unless otherwise required by applicable Law (based upon th_e reasonable advice of counsel), Seller shall not make any public announcements in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of Buyer, which consent may be withheld in Buyer's sole discretion. Buyer shall not make any public announcements in respect_ofthe· Purchase Price or the identity of William Leigon without the prior written consent of Seller, which consent may be withheld in Seller's sole discretion. Section 5.08 Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, value a~ded and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the other Transaction Documents (including any real property transfer Tax and any other similar Tax) shall be borne and paid by Seller when due. Seller shall, at its own expense, timely file any Tax Return or other document with respect to such Taxes or fees ( and Buyer· shall cooperate with respect thereto as necessary) .. ARTICLE VI . COVENANTS OF 'l'HE P A_RTIES Section 6.01 . Governmental Approvals· and Consents (a) Each party hereto shall, as promptly as possible, (i) make, or cause to be made, all filings and submissions required under any Law applicable to such party or any of its Affiliates; and (ii) use reasonable best efforts to obtain, or cause to be obtained, all consents, authorizations, orders and ~pprovals from all Governmental.Authorities that may be or become necessary for its execution and d~livery of this.Agreement and the peeformance of its obligations pursuant to this Agreement and the other Transaction D~cuments. Each party shall cooperate fully with the other party and its Affiliates in promptly seeking to obtain all such consents, authorizations, orders and approvals. The parties hereto shall I?,Ot wi_llfully take any action that will have the effect of delaying, impairing or impeding the receipt of any required consents, authorizations, orders and approvals. (b) Seller and Buyer shali use reasonable best efforts to give all notices to, and obtain all consents fr9m, all third parties that ~re descri~ed in Section 3.03. -18- AmericasActive:8944 769 .9 JRV-0000020 CONFIDENTIAL (c) Without limiting the generality of the parties' undertakings pursuant to subsections (a) and (b) above, each of the parties hereto shall use all reasonable best efforts to: · (i) respond to any inquiries by any Governmental Authority regarding antitrust or other matters with respect to the transactio_ns contemplated by this Agreement ·or any other Transaction Document; (ii) . avoid the imposition of any order or the taking of any action that" would restrain, alter or enjoin the transactions contei;nplated by this Agreement or any other Transaction Document; and (iii) in the event any Governmental Order adversely affecting the ability of the parties to consummate the transactions contemplated by this Agreement or any other Transaction Document has been issued, to have such Governmental Order · vacated or lifted. (d) Seller shall make its Permits available to Buyer until such time as Buyer shall have obtained its own Permits. Section 6.02 Books and Records. (a) In orde.r to facilitate the resolution of any-claims made against or incurred by Seller prior to the Closing, or for any other reasonable purpose, for a period of two (2) years after the Closing;Buyer shall: (i) retain the Books and Records (including personnel files) relating to periods prior to the Closing in a manner reasonably consistent with the prior practices of Seller; and (ii) upon reasonable notice, afford the Seller's Representatives reasonable access (including the right _to make, at Seller's expense, photocopies), cluring normal business hours, to such Books and Records. (b) . In order to facilitate the resolution of any claims made by or against or incurred by Buyer after the Closing, or for an~ other reasonable purpose, for a period of . two (2) years following the Closing, Seller shall: (i) retai~ the books and records (including personnel files) of Seller which relate to the Business and its operations for periods prior to the Closing; and (ii) upon reasonable notice, afford the Buyer's Representatives reasoIJ,able access (:including the right to m:;i.ke, at Buyer1s expense, photocopies), during normal pusiness hours, to such books and records. (c) Neither Buyer nor Seller shall be obligated to provide the other party with · access to any books or records (including personnel files) pursuantto this Section 6.02 where such access would violate any Law. -19- ' . ArnericasActive:8944 769. 9 JRV-0000021 CONFIDENTIAL Section 6.03 Closing Conditions From the date hereof until the Closing, each party hereto shall use reasonable best efforts to take such actions as are necessary to expeditiously satisfy the closing conditions set forth in Article VII hereof. Section 6.04 Cooperation and Further Assurances. From and after the Closing, each of the parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and talce such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement and the other Transaction Documents. ·ARTICLE VII CONDITIONS TO CLOSING Section 7.01 Conditions to Obligations of B_uyer. The obligations of Buyer to . consummate the transactions con~emplated by this Agreemerit shall be subject to the fulfillment or Buyer's waiver, at or prio_r to the Closing, of each ofth~ following conditions: · - (a) Buyer and Roo~ Run Deep, LLC shall hav~ executed a sublease agreement for the Leased Re(:1.1 Property, or a portion thereof, satisfactory to Buyer; (b) · Buyer and Laird Family Estate shall have executed an agreement for . alternating proprietorship grape processing and wine storage; in form sa,tisfactory to Buyer; (c) The Partial Settlement Agreement shall have been executed and shall be in fully force and effect; (d) . Seller ~hall have no contracts or other agreements in effect related to the Leased Real Property with either Red Hen Properties, LLC. or Roots Run Deep Winery . or any other p~y~ (e) Buyer shall have completed· its due diligence of Seller's Business, the Purchased Assets and Assumed Liabilities to. its satisfaction; which shall be determined ·by Buyer in its sole discretion; (f) The representations and warranties of Seller set forth in this Agreement shall be true and correct as of the Closing Date; (g) Seller shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the other Transaction D09uments to be p~rform_ed or complied with by it prior to or on the . · Closing Date; (h) All security interests in the Purchased Assets that have been created in favor of any Person to secure the indebtedness of Seller shall have been released, and -20- AmericasActive:8944769.9 JRV-0000022 CONFIDENTIAL evidence of such release shall have been filed with such Governmental Author~ty as is appropriate with respect to such security interest and such evidence shall have been provided to Buyer; (i) All approvals, consents and waivers that are listed on Section 3.03 shall have been received, and executed cc;mnterparts thereof shall have been delivered to Buyer at or prior to the Closing; G) From the date of this Agreement, there shall not have occurred any Material Adverse Effect, nor shall any event or events have occurred that, individually or in the aggregate, with 01: without the lapse of time, could reasonably be expected to result in a Material Adverse Effect; (k) . Seller shall have delivered to Buyer duly executed counterparts to the Transaction Documents ( other than this Agreement) and such other documents and deliveries set forth in Section 2.02(a); · · . (I) Buyer shail have received approvals from Governmental Authorities necessary for the operation and us~ of the Purchased Assets as operated and used by · Seller as (?f the Closing Date, unless waived by Buyer in writing as ~ddre~sed in the Transition Services Agreement; (m) Buyer shall have received all Permits that are necessary for the operation and use of the Purchased Assets and assumption of the AssumedLiabiiities as are necessary as of the Closing Date, unles_s waived by Buyer in writing as addressed in the Transition Services Agreement; · . (n) All Encumbrances relating to the Purchased Assets shall have been released in full, and Seller shaU' have delivered to Buyer writt~n evidence, in form satis(actory to Buye~ in its sole discretion, of the release of such Encumbrances; . . . . (o) Buyer shall have received a certificate, dated the Closing Date and. signed by a duly authorized offic~r of Seller, that each of the conditions set forth in Section 7.0't(d) and Section 7.0l(g) have been satisfied (the "~eller Closing Certificate"); (p) · Buyer shall have received a certificate of the Secretary Qr ari Assistant Secretary (or equivalent officer) of Seller certifying (i) that attached thereto are true and complete copies of all resolutions adopted by ~e board of directors of Seller authorizing the execution~ delivery and perform,ance of this Agreement and the_other Transaction Documents and the consummation ofthe_transactions contemplated hereby and thereby, and that all such resolution~ are in full force and effect and are ali the resolutions ·adopted in connection with the transactions contemplated hereby and thereby· and (ii) the names and signatures of the officers of Selier authorized to sign this Agreement, the Transaction Documents and the other documents to be d~livered hereunder and. thereunder; and (q) Seller shall have delivered to Buyer such other documents or instr1:1111~nts as Buyer reasonably requests and are reasonably necessary. to consummate the transactions contemplated by this Agreement. -21- AmericasActi ve:8944769 .9 M JRV-0000023 CONFIDENTIAL Section 7.02 Conditions to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Seller's waiver, at or prior to the Closing, of each of the following conditions: (a) The representations and. warranties of Buyer set forth in this Agreement shall be true and correct as of the Closing Date; (b) Buyer shall have duly perfonned and complied in all material respects with all agreements, covenants and conq.itions required by this. Agreement and each of the other Transaction Documents to be perfonned or complied with by it prior to or on the Closing Date; (c) Buyer shall have delivered to Seller duly executed counterparts to the Transaction Documents ( other than this Agreement) and such other documents and deliveries. set forth in Section 2.02(b); · ( d) Seller shall have received a certificate, dat~d the Closing Date and signed by a duly authorized officer of Buyer, that each of the conditions set forth in Section 7.02(a) and Section 7.02(b) have been satisfied (the "Buyer Closing Certificate"); . .' (e) _ Seller shall have recejved a certificate of the S~cretary or an Assistant Secretary (or equivalent officer) of Buyer (i) certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Buyer authorizing · ·the execti~ion, delivery and performance of this Agreement and the other Transaction · Documents and the consuinmation of the transactions contemplated hereby and thereby,. and that all such resplutions are in full force and effect and are· all the resolutions adopted in conne(?tion with the transactions contemplated hereby and thereby .and (ii) certifying the names and signatures ofth~ officers of Buyer authorized to sign this Agreement, the Transaction Documents and the other documents to be delivered hereunder and thereunder; and (f) Buyer shall have delivered to Seller such o.ther documents or instruments as Seller reasonabl):' requests and are reasonably necessary to consummate the transactions contemplated by this Agi-e~ment. ARTICLE VIII INDEMNIFICATION Section 8.01 - Sµrvival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the date that is eighteen (I 8) months from the Closing; provided, that the representations and warranties in Section·3.IO shall survive for the five (5) years and the representations and warranties in Section 3.16 shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus 60 days and the representations and -22- AmericasActive:8944769.9 JRV-0000024 CONFIDENTIAL warranties in Sections 3.02, 3.08 and 4:02 shall survive the Closing indefinitely. All covenants and agreements of the parties contained herein shall survive the Closing indefinitely or for the period explicitly specified therein. Section 8.02 Indemnification By Seller. Seller shall defend, indemnify and hold hannless each of Buyer, its Affiliates and their respective Representatives (collectively, the "Buyer Indemnities") from and against all claims,judgrnents, damages, liabilities, settlements,.Losses·, costs and expenses, including attomeys' foes and . disbursements, arising from or relating to: (a) any inaccuracy in or breach of any of the representations or :Narranties of · Seller contained in this Agreement or any document to be deliv~red hereunder; (b) any breach or non-fulfiJlment of any covenant, agreement or obligation to be performed by Seller pursuant to this Agreement or any docu~ent to_ be delivered hereunder; (c) non-compliance with the bulk transfer laws pursuant fo Section 11.01; or (d) any Excluded Asset or Excluded Liability. . Section 8.03 Indemnification by Buyer. Buyer shall defend, indemnify and hold harmless each of SeHer, its·Affiliates and their respective Representatives (collectively, the "Buyer Indemnities") from and against all claims,judgrnents, damages, ·liabilities, settlements, Loss~s, cos~ and expenses, including attorneys' fees and disbursements, arising from or relating to: ( a) any inaccuracy in or breach of any of the representations or warranties of Buyer contained in this Agreement or any document t9 be delivered hereunder; (b) any breach or non-fulfillment _of any covenant, agreement or obligation to be performed by Buyer pursuant'to this Agree~ent or any document.to be delive~ed hereunder; or · · · (c) any Purchased· Asset or Assumed Liability. Section 8.04 Certain Limitations. (a) Seller shall'not be liable to the Buyer Indernnitees for indemnification under Section 8.02(a) until the aggregate amount of all Los_ses in respect of · indemnification under Section 8.02(a) exceeds $25,000 (the "Basket"), in which event Seller shall be required to pay or be liable for all such Losses to the extent such Losses exceed the Basket. The aggregate amount of all Lo~ses _for which Seller shall be liable pursuant to Section 8.02(a) shall not exceed the Purchase Price (the ''Cap"). (b) Buyer shall not be lia~le to the Seller Indemnitees for indemnification under Section 8.03(a) until the aggregate amount of all Losses in respect of -23- AmericasActive:8944769.9 JRV-0000025 CONFIDENTIAL indemnification under Section 8.03(a), exceeds the Basket, in which event Buyer shall·be required to pay or be liable for all such Losses to the extent such Losses exceed the Basket. Th~ aggregate amount of all Losses for which Buyer shall be liable pursuant to - Section 8.03(a) shall not exceed One Million Dollars ($1,000,000), except with respect to Third Party Claims, where the aggregate amount of all Losses for which :Buyer shall not exceed the Cap. (c) The_limitations set forth in this Section 8.04 shall not apply in the event of fraud or willful misconduct. ·Section 8.05 Buyer's Right of Offset. If Buyer has incurred a Loss subject to Seller's indemnification pursuant to Section 8.02 above,"witho~t taking in acc;ount the limitations set forth in Section 8.04(a), Buyer may offset such Loss against the Holdback and the Incentive Payments. Buyer shall give Seller prompt written notice of the exercise of such right of offset,.including the amount thereof and reasons therefor. The parti"es. shall attempt to resolve any dispute with respect to Buye~'s exercise ofits right of offset pri~r to resorting to the remedies provided in Article XI of this Agreement. Buyer's right of offset provided in this Section 8.03 shall be in addition to any other remedy available to Buyer and Buyer shall be entitled to pursue any"and all of its remedies ~imultaneously. · · · · Section 8.06 Indemnity Claims. -(a) Promptly after receipt by a Person entitled to indernruty under Article VIII (an "Indemnified Person") of notice of the assertion of a Third-Party Claim.against it, such Indemnified Person shall give notice to _the Person obligated to indemnify under such Section (an "Indemnifying P_erson") of the assertion of such Third-Party Claim, provided that the failure to notify the Indemnifying Person will not relieve the Indemnifying Person of any liability that it may have to any Indemnified Person~ except to. the extent that the Indemnifying Person demonstrates that the defense of such Third- .Party Claim is prejudiced by the Indemnified Person's failure. to give such notice. · (b) If an Indemnifi~d Person gives notice to the Indemnifying Person pursuant to Section 8.04(a) of the assertion of a Third-Party Chiim, the Indemnifying Person shall be entitled to participate in the defense of such Third-Pru,iy Claim (unless (i) the Indemnifying Person i~ als«? a Person against whom the Third-Party Claim is made and the joint representation with Indemnified Person is inappropriate under applicable codes of ethical conduct, or (ii) the Indemnifying Person fails to provide reasonable assurance to the Indemnified Person of its financial capacity to defend such Third-Party Claim and. provide indemnification with respect to such Third~Party Claim), with counse~ reasonably satisfactory to the Indemnified Person. If the Indemnifying Person participates in the defense of a Third-Party Claim, no compromise or settlement of such Third-Party Claims may be effected by the In9emnifying Person without the Indemnified Person's Consent. If notice is given to an Indemnifying Person of the assertion of any Third-Party Claim -24- AmericasActive:8944769.9 JRV-0000026 CONFIDENTIAL and the Indemnifying Person does not, within ten (10) days after the Indemnified Person's notice is given, give notice to the Indemnified Person ofits election to participate in the defense of such Third-Party Claim, the Indemnifying Person will be bound by any determfoation made in such Third-Party Claim or any compromise or settlement effected by the Indemnified Person. · Section 8.07. Tax Treatment oflndemnification Payments. All indemnification payments made by Seller under this Agreement shall be treated by the parties as an adjustm·ent to the Pur~hase Price for tax purpose~, unless otherwise required by law. Section 8.08 Eff~ct of Investigation. Buyer's right to indemnification or other remedy based on the representations, warranties, covenants and agreements of Seller contained herein will not be affected by any investigation conducted by Buyer, or any knowledge acquired by Buyer·at any time, with respect to the accuracy or inaccuracy of or compliance with, any such represen!ation, warranty, covenant or agreement. Section 8.09 Exclusive Renu~dies. The parties acknowledge and agree that their sole and exclusi.ve remedywith respect to any and all claims (other than claims arising from fraud or willful misconduct on the part of a party hereto in connection with the · transactions contemplated by this Agreement}for any breach of any representation, warranty, covenant, ·agreemenf or obligation set forth herein or otherwise relating to the subject matter ofthis Agreement, shall be pursuant to the i:n,demnification provisions set forth in this Article VIII. In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the ~ubject matter of this Agreement it may have against the other parties hereto and-their Affiliates and each of their respective representatives arising under or based upon any law, except pursuant to the indemnification provisions set forth in this Article VIII:. Nothing in this Section 8.09 shall limit any Person's right to seek and obtain any equitable relief to which any Person shall be entitled or the rights of the Buyer to exercise the .offset rights set forth in Section 8.05. ARTICLE IX TERMINATION Section 9.01 Termination. !his Agreement may be terminated at any time prior to the qosing: (a) by the mutual written consent of Seller and Buyer; (b) by Buyer by written notice to. Seller if: -2'5- AmericasActive:8944769.9 · JRV-0000027 CONFIDENTIAL (i) there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Seller pursuant to this Agreement that would give rise to the failure.of any of the conditions specified in Article VII and such breach, inaccuracy or failure has not been cured_ by Seller within: ten (10) days of Sellees receipt of written notice of such breach from Buyer; or · (ii) any of the conditions set forth in Section 7.01 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by February l 0, 2017, unless such failure shall be due to the failure of Buyer to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing; (c) by Seller by written notice to Buyer if: (i) Seller is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by' Buyer pursuant to this Agreement that would give rise to the failure of any of"the conditions specified in Article VII and such breach, inaccuracy or failure·has not been cured by Buyer within ten days of Buyer1s rec_eipt of writte~ notice of such breach from Seller; or . (ii) · · . ~y of the conditions set forth in Section 7 .Q2 shall not have been, · or if it becomes apparent that any of such conditions ~11 not be, fulfilled by February 10, 2017, unless such failure shall ·be due to the failure of Seller to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing; or · · (d) by Buyer or Seller _in the event that (i) there shall be any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or (ii) any Governmental Authority shall have issued a Governmentai Order . restraining or enjoining the transactions contemplated by this Agreement, and such Governmental Order shall have become final and non-appealable. . · Section 9.02 Effect of Termination. In the event of the termination ofthis Agreement in accordance ·with this Article, this Agreement s}:i:all forthwith become void and there shall be no lfability on the part of any party hereto except: · (a) · as set forth in this Article IX and Section 5.05 and Article XI hereof; and (b) that nothing herein shall relieve any"party hereto from liability for any .. willful breach of any provision hereof. ARTICLEX DEFINITIONS The following terms have the meanings specified ·or referred to in this Article X: -26- AmericasActive:8944769. 9 JRV-0000028 CONFIDENTIAL "Accounts Receivable Shortfall" means the amount by which the amount nf accounts receivable cal~ulated as of the Closing less the amount of the accounts payable calculated a·s of the Closing exceeds negative Three Hundred Fifty-Seven Thousand Two Hundred S~venty-Five Dollars (-$357,275). "Acquisition Proposal" means any inquiry, proposal or offer from any Person ( other than B-~1yer or any of its Affiliates) relating to the di~ect or indirect disposition, whether by sale, merger or otherwise, of all or any portion of the Business or the · Purchased Assets. . "Action" means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity. "Affiliate" of a Person means any other Person that directly or indirectly, through one or more intermediaries, co~trols, is controlled by, or is under common control with, .. such Person. The term "control" (inVery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601' et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 1 iOOl et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 ~t seq. -29- AmericasActive:8944769.9 JRV-0000031 CONFIDENTIAL "Environrµ.ental Notice" means any written directive, notice of violation or infraction, or notice respecting any Environmental Claim relating to actual or alleged non-compliance with any Environmental Law or any term or condition of any Environmental Permit. "Environmental Permit" means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under or issued, granted, given, · authorized by or made pursuant to Environmental Law. "Exciuded Assets" means any cash, personal property, heirlooms of Seller, the BROTHER DURAN brand, any Assets or Inventory related to the BROTHER DURAN brand; the assets identified as "Excluded Assets" on Schedule· 10, and the Excluded Contracts. "Excluded Contracts" means those Contracts· relating to the Purchased Assets or the Business which are not the Assumed Contracts. . . "Excluded Liabilities" has the meaning set forth in·Section 1.~3._ "financial Statements~' has the meaning set forth in Section 3.04 . . "Governmental Authority'' means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non- governmental regulatory authority or quasi ... govemmental authority (to the extent that the rul~s, regulations or orders of such organization or authority have the force of Law), or any arbitrator, ·court or tribunal of competent jurisdiction. _ "Governmental Order" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority. "Hazardous Materials" means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether natura.1:lY occurring or man-made, that is hazardous, acutely haz.ardous, toxic, or words of similar import or regulatory effect under-Environmental Laws; and (b) any petroleum or petroleum-derived products_, radon, radioactive materials.or wastes, asbestos in any form, lead or lead-containing materials,· urea formaldehyde foam insulation and . polychlorinated biphenyls. "Indepe:11dent Accountants" has the meaning set forth in Section 1.04(c). "Insurance Policfos" has t4e meaning set forth in Section "3.13. "Intellectual Property" means all of the following and similar intangible property and related proprietary rights, interests and protections, however arising, -3"0- AmericasActive:8944769. 9 JRV-0000032 CONFIDENTIAL pursuant to the Laws of any jurisdiction throughout the world: (a) trademarks, service marks, trade names, brand names, logos, labels, trade dress and other proprietary indicia of goods and services, whether registered or umegistered, and all registrations and applications for registration of such trademarks, including intent-to-use applications, all issuances, extensions and renewals of such registrations and applications and the goodwill connected with the use of and symbolized by any of the foregoing; (b) internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar or Governmental Authority; (c) all copyrights (whether registered or_umegi~tered), all registrations and applications for registration of such copyrights, and all issuances, extensions and renewals of such registrations and applications; all copyrightable content and works of authorship, including but not limited to label designs and copy, website designs, layout, and copy, sales sheets and other merch_andising materials, and materials of a similar nature; (d) confidential information, formulas, recipes, designs, know-how, research and development, inventions, methods, processes, ~ompositions and other trade secrets, whether or not patentable; ( e) patented and patentable designs and inventions, all design, pl~t and utility patents, letters patent, utility models, pending patent applications and provisional applications and all issuances, divisions, continua~ions, continuations-in-part, reissues, extensions, reexaminations and · reneVy'als of such patents and applications; and (f).all rights to sue and recover and r~tain damages, costs and attorneys' fees for past, present and future infringement and any other rights relating to any of the foregoing. - c'Intellectual Property Assets" means all Intellectual Property that is owned by Seller and used in or appropriate for f?.e conduct' of the Business including, but not limited to, the Intellectual Property s~t forth o_n Schedule l.Ol(a). ·"Intellectual Property Assignments" has th~·.meaning set forth in Section 2.02(a)(iii). "Intellectual Property Licenses" means all licenses, sublicenses and other agreements by or through which other Persons, including Seller's Affiliates, grant Seller exclusive or ncin-exclusive rights or interests in or to any Intellectual Property that is used in or appropriate for the cqnduct offl?.e Business as currently_conducted. "Intellectual Property Registrations" m~ans all Intellectual Property Assets that are subject to any issuance, registration, ·application or other filing by, to or with any . Governmental Authority or authorized private registrar in ~y jurisdiction, including registered trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing. "Interim Financial Statements"·has the meaning set forth in Section 3.04. "Inventory" means all inventory, bulk wine, finished goods, raw materials, work in progress, packaging, supplies, merchandise (iIJ.duding, but not limited to, shirts, hats, -31- AmericasActi ve:8944 7 69. 9 JRV-0000033 CONFIDENTIAL stickers, posters, and skate board decks), tasting room contents and furnishings, parts and other inventories of Seller as set forth on Schedule 1.01 (b). "Jamieson Ranch Brands" means the Double Lariat, Strongbox and Silver Spur brands . .. JRV Liquidity Event" means (i) a sale, transfer, license or other disposition of any kin~ by the Buyer of the Jamieson Ranch Brands, or any of the brands that are part of the Jamieson Ranch Brands, to a Person who is not an Affil_iate or (ii) any transaction or series of related transactions ( other than a bona fide financing) which results in the transfer of a majority of the direct or indirect equity interests in the Buyer. "JRV Value" has the meaning set forth in Section 1.04(g). · "Knowledge of Seller or Seller's Knowledge" or any qther similar knowledge qualification~ means the actual or constructive knowledge of William Leigon, after reasonable good .faith investigation. · . "La:w" m·eans any statute, law, ordinance, regulation; rule, code, order, constitution., treaty, common law,j:udgment, decre;e, other requirement or rule.oflaw of any Governmental Authority. "Liabilities" means liabilities, obligations or commitments of any mitl.fre whatsoever, asserted or unassert"ed, knovm or unknovm, absolute or contingent, accrued or unaccrued, matured or unma~ed or otherwise. "Los~es" means losses, damages, liabilities, deficiencies, Actions, judgments,· interest, awards, penal~ies, firies, costs or expenses of whatever kind, including reasonable attorneys' fees and the cost of enforcing any right to i1:1demnification hereunder and the cost of pursuing any insurance providers. "Material Adverse Effect" means:~Y event, ·occurrence, non-occurrence, fact, condition or ~hange that is, or could reasonably be expected to become, individually or in .· the aggregate, materially adverse to the business, results of operations; condition . (financial or otherwise) of the Pll!chased Assets; the Assumed Liabilities or the ability of ~eller to consummate the transactions contempla~ed hereby on a timely basi~. "Material Contracts" has the meaning set forth i:n Secti?n 3.07(a). "Non-Compe~e Agreement~" has the meaning set forth in Section 2.-02. '"Partial Settlement Agreement" means-that certai_n Partial Settlement Agreement, dated as of March 9, 2017, by and among Madison Vineyard Holdings, LLC, ~uyer and Seller. -32- AmericasActive:89447 69 .9 JRV-0000034 CONFIDENTIAL "Permits" means al_l permits, licenses, franchises, approvals, authorizations, registrations, certificates, label approvals, variances and similar rights obtained, or required to be obtained, from Governmental Authorities. . "Person" means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated_ organization, trust, association or other entity. "Pre-Closing Tax Period" means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such-taxable period ending on and _including the Closing Date. "Purc~ase Price" has the meaning set forth in Section 1.04. "Purchased Assets" means all of Seller's assets relating to Business of Seller, including, without limitation, the Assumed Contracts; the Brands; all Intellectual · · Property Assets; distributor, retail customer and wine club lists; grape contracts; accounts receivable; historical distributor depletion data and retail account data; Inventory, including fi~shed cased goods an.d bulk wine inventori~s; equipment; and labyls, corks, supplies ·and other materials and all other personal property of Seller relating to the Business including such property set forth on Schedule 10, except for the Excluded Assets. "JlemecUes Exception" means (a) applicable bankruptcy, insolvency, reorganization, m0ratorium, and other Laws of general application, heretofore or . hereafter enacted or in effect_. affecti:qg the rights and remedies of creditors generally, and .. (b) the exercise of judicial or a~inistrative discretion in accordance with general equitable .principles, particularly as to the availability of the remedy of specific performance or other injunctive relief. · · . ''Representative" :,;neans, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person. "Incentive Payments" means payments to be made to the Seller pursuant to Section 1.04(d) and Section 1.04(e) . . "Incentive Period" has the meaning set forth in Section 1.04(c). ""Seller" has the meaning set forth in the preamble. "Seller Closing Certificate'' has the meaning set forth in Section 7.0l(o). -33- AmericasActive:8944769.9 JRV-0000035 CONFIDENTIAL "Settlement Agreement" means that certain Settlement Agreement, dated as of March 23, 2017, by and among Buyer, the Seller and Carolyn Cordes in her capacity as Trustee of the Jacquelyn Cordes 2006 Trust. "Subordination Agreement" has the meaning set forth in Section 2.02(a)(ix). "Tasting Room" means the physical location operated by Buyer for marketing and sale of the Brands, among other brands and items, with a current physical location at 1 Kirkland Ranch Rd., American Canyon, CA 94503. "Taxes" means all federal, state, local, foreign ~d other income, gross receipts, sales, use, production, ad.valorem, transfer,-documentary, franchise, registration, profits, license, lease, service, use, environmental, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties . or other taxes, fees, assessments or charges of an:r kind whatsoever, _together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties. . "Tax Return".means any return, declaration,-report, claim for refund, information return cir statement or other document relating to Truces, including any schedule or attachm~nt thereto, and including any amendment thereof. "Term Sheet" means the term sheet executed by the Buyer and the Seller.on . December 12, 2013. "Third Party" means a Person that is not a party to this Agreement and is not an Affiliate of a party to this Agreement. "Third-Party Claim", means any claim against any Indemnified Pers.on by a Third Party. "Transaction .Docume)?.ts" means this Agreement, the Bill of Sale, the Assignment and Assumption Agreement, the Intel~ectual Property Assignments, the Transition Services Agreement, the Consulting Agreement, the Non-Compete Agreement(s), and the other agreements, instruments and documents required to be delivered at the Closing. "Transition Services Agreement" has the meaning set forth in Section 2.02(a)(iv): -34- AmericasActive:8944769. 9 JRV-0000036 CONFIDENTIAL ARTICLE XI MISCELLANEOUS Section 11.01 Bulk Transfer Laws. To the extent the same may apply, Buyer and Seller waive compliance with any applicable bulk transfer laws and· regulations in connection with the transactions contemplated hereby; provided, however, that Seller shall indemnify Buyer for any claims that arise that would have been avoided or negated by compliance with bulk transfer laws. · Section 11.02 Expenses. Except as otherwise expressly provided herein, all costs and expenses, including, without limitation, fees and disbursements of counsel,-financial · advisors and accountants, incurred in connection with this Agreement and the transactions contempl~ted hereby shall be paid by the party incurring such costs and · expenses, whether or not the Closing shall have occurred; provided, however, (i) Seller • shall pay any amount due with respect to transfer taxes, (ii) Buyer shall"pay any sales and use taxes and amounts due with respect to the processing, approval or issuance oflicenses from Federal and California alcoholic beverage agencies, and (iii) Buyer and Seller agree to prorate any monthly or recurring expenses accruing with respect to the Purchased Assets and Assumed Liabilities ... Section 11.03 Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognize~ overnight courier (receipt requested); (c) on the date sent by-facsimile or e-mail of a PDF document (with confirmation of transmission) if sent dudng normal business ·hours of the recipient, ·and on the next B1J.siness Day if sent after.normal bµsiness hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, . postage prepaid. Such communications must be sent to the respective p.arties at the · following addresses (or at such other addre~s for a party as shall be specified in a notice given in accordance with this Section 11.03): If to Seller: JRV,LLC 1 Kirkland Ranch Rd. American Canyon; CA 94503 with a copy to: Attn: James M. Seff and Thomas Klaus Gump -35- AmericasActive:8944769.9 JRV-0000037 CONFIDENTIAL Pillsbury Winthrop Shaw Pittman LLP 4 Embarcadero Center San Francisco, CA 94111-5998 Ifto Buyer: · Winery Exchange, Inc. Attn: LEGAL 500 Redwood Boulevard, Suite 200 Novato, California 94947 with a copy to: Attn:-Warren Loui Winston & Strawn LLP 333 S. Grand Avenue Los Angeles, ~A 90071-1543 .Section 11.04 Interpretation. For purposes of this Agreement, (a) the words "include," "includes" and."including'' shall be deemed to be followed by the words , "without limitation"; (b) the word "or'' is not exclusive; and (c) the words "herein," "hereof," "hereby," "hereto" and "hereunder" refer to this Agreement as a whole'. Unless the context otherwise requires, references herein: (x) to Articles, Sections, the Schedules an_d Exhibit_s mean the Articles and Sections of, and the Schedules and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document-means such agreement, instrument or other document as amended, supplemented and modified from titpe to time to the extent permitted· by the provisions thereof and (z) to a statute ~eans such statute a~ amended from time to time and includes any succ~ssor legislation thereto and any_regulations promulgated thereunder. This Agreement.shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Sched~es and Exhibits referred to herein sh~l be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein. · Section 11.05 Headings~.The headings in this Agreement are for r~ference only and shall not affect the interpretation of this Agreement. -36- AmericasActive:8944769.9 JRV-0000038 CONFIDENTIAL i Section 11.06 Severability. If any term or provision of this Agreement is invalid,· illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision· of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties· hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely a:s possible in a mutually acceptable manner in order that the transactions _contemplated hereby be consummated as originally contemplated to the greatest extent possible.- . Section 11.07 Entire Agreement. This Agreement and the other Transaction Documents constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter, including but not limited to the Term Sheet. In the event of any inco_nsistency between the statements in the body of this.Agreement and those in the other Transaction Doc;:uinents, the Exhibits and Schedules ( other thap_ an exception . expressly set forth as s~ch in the Schedules), the statements in the body of this Agreement will control. Section 11.08 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior.written conse-nt of the other party, which consent shall not be unreasonably withJ:ield or delayed;provided, however, that Buyer ma:y, without the prior written consent ~f Seller, assign all or any portion of its rights under this Agreement to an Affiliate of Buyer. Section 11~09 No Third-p~rty Beneficiaries. E}):cept as provided in Arti~le VIII, this Agree~ent is-for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other P_erson or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason ·of this Agreement. __ Section 11.10 Amendment and Modification; Waiver. This Agreement may only_ be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writi:q.g and signed by the p~rty so waiving. No waiver by any party shall operate or be construed as a w"aiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character~ and whether occurring before or after that waiver. No failure to exercise, or -37- AmericasActi ve:8944 769 .9 JRV-0000039 CONFIDENTIAL delay in exercising, any_right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilbge. Sectfon 11.11 Attorneys' Fees. In the event of any dispute between the parties, whether based on contract, tort or other.cause of action or involv1ng bankruptcy or similar proceedings, in any way related to this Agreement, the non':"prevailing party shall pay to the prevailing party all reasonable attorneys' fees and costs and expenses of any type, without restriction by statute, court rule or otherwise, incurred by the prevailing party in connection with any action or proceeding (including arbitration proceedings, any appeal and the enfo~cement of any judgment or award),-whether or not the dispute is litigated or . pro;5ecuted to final judgment. The "prevailing party" shall be determined based upon an assessment of which party's major arguments or positions taken in tp.e action or proceeding could fairly be said to have prevailed (whether by compromise, settlement, abandonment by the other party of its claim or defense, final decision, after any appeals; or otherwise) over the other party's major arguments _or positions on major disputed issues. · Section 11.12 Governing Law; Sub~ission to Jurisdiction. . - . ' (a) _This Agreement shall be governed by and construed in accordance with . the internal laws of the State of California without giving effect to any choice or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause -µie application of Laws of any jurisdiction other than those of the State of California. (b) Any legal suit, Action or proceeding ~rising orit of or based upon this Agreement, the other Transaction Documents or the transactions contemplated p.ereby or thereby may be instituted solely and exclusively by arbitration located.in the City and Comity of San Francisco, The parties irrevocably and unconditionally waive any o bjectiori to the laying· of venue of any Action or any proceeding by arbitration as set forth in this Section. Section 11.13· Specific Performance. The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in ·accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addi~ic;m to any other remedy to which they are entitled at law or in equity. Section 11.14 Counterparts . .This Agreement may be executed in counterp~, each of which shall be deemed an original, but all of which together shall be deemed to . b_e one and the same agreement. A signed copy of this Agreement delivered by facsimile, -38- AmericasActive:8944769.9 JRV-0000040 CONFIDENTIAL e-mail or other means of electronic transmission shall be deemed to have the same le"gal· effect as delivery of an original signed ~opy of this Agreement. [SIGNATURE PAGE FOLLOWS] -39- AmericasActive:8944769.9 JRV-0000041 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. · . JRV,LLC. By ~A-r...---~ Name: l,JH'!/c-..,_ e Title: C£; 6 CONFIDENTIAL JRV-0000042 Schedule 1.0l(a) Schedule 1.0l(b) Schedule 1.0l(c) Schedule 1.02 Schedule 1.06 Schedule 3.04(a) Schedule 3.07 Schedule 3.IO(a) Schedule 3.l0(e) Schedule 3.11 ~chedule 3.13 Schedule3.15 Schedule 3.17 Schedule 10 Exhibit A ExhibitB Exhibit C ExhibitD ExhibitE ExhibitF Exhibit.G Exhibit H Exhibit I Schedules, Exhibits and Annex Intellectual Property Assets Inventory. Assumed Contracts Assumed Liabilities Allocation Schedule Financial Statements Material Contracts Inbound Licenses Outbound Licenses Inventory Insurance Permits Lease~ Real Property Purchased Assets Bill of Sale Assignment and Assumption .Agreement Intellectual Property Assignments Transition Services Agreem~nt · Consulting Agreement Non-Compete Agreement Charitabie Donation Agreement Co-Existence Agreement . Subordination Agreement AmericasActive:8944 769 .9 CONFIDENTIAL 4812-9274-7333.v2 JRV-0000043 1 / ANDALUSIAN DOUBLELARlATFALABELLA FOUR REINS GRAND GATE CLUB J and Spur Design Schedule 1.0l(a) Intellectual Property Assets Trademarks: ! (includin·g U.S. App. No. 86/706492) / (including U.S. Reg. No. 4878033) I J (including U.S. App. No. 86/475575) · j (including U.S·. Reg. No. 3965469) (including U.S. Reg. No. 4621990) CONFIDENTIAL LIFE OUTSIDE THE LABEL LIGHT HORSE (including U.S. Reg. No. 5142592) Light Horse Design j (including U.S. Reg. No. 4709253) I i REATA / (including U.S. App. No. 86/738415; E.U. Reg. No. 10770551; and China Reg. No. 10934625 in name of Madison Vineyard Holdings, LLC) SPUR WINE CLUB STRONGBOX (including U.S. Reg. No. 48867?°2) VALLEY GATE Vil'IBYARDS (including·u.s. Reg. No. 3913746; and Int. Reg. · 1062889 in name·ofMadison Vineyard Hpldings, LLC) VALLEY GATE VINEYARDS & Design · (including U.S. Reg. No. 3913747) VERSADA WHIPLASH Whiplash Horse Design .WINE GROWLERVILLE JAMIESON RANCH VIN"EY ARDS JRV SWEET JANE SILVER SPUR AURELIUS .. .. reatawines.com cookingattheranch .com (including U.S. Reg. No. 4081375 and E.U. Reg. No. 15250401) (including U ;S. Reg. No. 4 709311) (including U.S. Reg. No. 5082570 and U.S. App. No. 86/192177) O~mmon Law Trademarks . Domain Names: .. ". 4830-5999-1621. v3 AmericasActive:8971691.2 ! JRV-0000044 Domain Names: i jamiesoncanyon.corn jamiesoncanyonranchandvineyards.corn j amiesoncanyonranchwines.com j amiesonranch. com jami~sonranchandvineyards.com j amiesonranch vineyards.com jrvwine.corn jrvwines.com · lighthorsewines.com. valleygatevineyards.com whiplashfunstuff.com whiplash wine.co whiplashwines.com Patent Ap~Iications/Patents: NIA , Copyright Ap.plica tio ri;s~egistrat~ons·: ' ,• . . NIA CONFIDENTIAL 4830-5999-1621.v) AmericasActive:8971691.2 i I ' I JRV-0000045 I ! Schedule 1.0l(b) Inventory All Inventory set forth in the Inventory tabs of the spreadsheet title "Schedule (Assets Inventory)" attached hereto. Jamieson Ranch Vineyards Tasting Room Merchandise Inventory ' [ · Unit Price ! No. Description / ·unit Cost I 2nd Floor 1001 Chocolate Decadence Sauce $9.00 I $18.00 12 1016 Blackberry Honey (12 oz) $6.25 $12.00 1017 Eucalyptus Honey (12 oz) $6.25 $12.00 1018 StarThistle Honey (12 oz) $6.25 $12.00 1019 Wildflower Honey (12 oz) $6.25 $12.00 1039 Wine Skin - Clear $1.44 $3.00 95 1040 Wine Skin -· Orange $1.44 $3.00 1041 Wine Skin - Yell ow . $~ .44 $3.00 1042 Wine Skin -Blue $1.44 $3.00 1043· Win~ Skin - Pink · $1.44 $3.00 1044 Wine Skin - Violet $1.44 $3.00 1045 Wine Skin - Green $1.44 $3.00 1046 Wine Skin - Plum $1.44 $3.00 j 1047 Wine Skin - Emerald $1.44 $3.00 1053 Chocolate Bars $1.35 $3.00 10_54 Chocolate Bar - Dark Chocolate $1.35 $3.00 1079 Cork Pops Legacy Opener. $14.35 $25.00 1080 Cork Pops Pourer (no flap) $14.00 $25.00 1090 Shipping Charges $- $45.00 1091 Corkcicle $11.93 $6.25 1101 Napa Soap - Cabernet $4.50 $9.75 1-102 VinOair Premier Wine Aerator $14.28 $28.00 1122 Bottle Pen Set $3.50 $7.00 1124 JRV Growler-Glass Bottle $5.20 $10.00 6 1125 Chocolate Truffles - 4 Pack $4.95 $9.95 10 CONFIDENTIAL i i 4th Floor I ' I 48 320 1 3 .. 4830-5999-1621.vJ AmericasActive:8971691.2 JRV-0000046 CONFIDENTIAL ,-----,-----~------------,---~-~i-------,-, ----,~---'----; No. f Description . Unit Cost _j Uni~ Price ) 2nd Floor 4th Floor I . 2082 I JRV Drop Stop 3 pk I 2088 JRV Pourst~p 2089 Corkscrew - JR V Black Opener I 2090 JRV Chardonnay Wine Brittle 2091 Wine Glass - J Spur Small 2113 Corkscrew, Rosewood JRV LOGO I 2114 JRV Wine Check 2116 Picinic Blanket - Black .2117 Picinic B"Ianket - Red I 2118 Pourspout - Bear 2119 · Pourspout - Coyote 2120 Pourspout - Elephant 2121 · Pourspout - Horse 2122 Pourspout- J;.,ab Dog· 2123 Pourspout-Owl 2124 Pourspout - Quail 2125 Pourspout "' Stag 2126 Corkpop·Refill Cartridge 2128 Vino2Go JRV Wine Glass 2130 Pour Spout - Bulldog 2131 Pour Spout - Longhorn 2132 Pour Spout - Moose 2133 Ice Bucket 2135 Post Card_-JRV 2136 Corkscrew - Chocolate "2156 Pourspout .:. Lion 2157 - Pourspout - Ram 2160 Waterbottle - -JRV 2161 Fresh Coat T-Shirts (White) 2162 Fr~sh Coat Tanks (Gray) 2163 Fresh Coat T-Shirts (Black) 2164 Fresh Coat T-Shirts Bella (DK Gray) ' $4.50 I $9.00 ! $7.71 I $15.00 I $2.25 I I $10.00 I $5.25 j $9.75 $4.00 I $15.00 $10.72 I $20.00 $36.78 I I $70.00 I $17.39 1 .$36.00 $17.39 $36.00 $13.36 $28.00 $13.36 $28.00 $13.36 ! $28.00 $13.36. $28.00 $13.36 $28.00 $13.36 $28.00 $13.36 $28.00_ $13.36 $28.00 $5.37 $10.50 $4.04 $15.00 $13.36 - $28.00 $13.3_6 $28.00 . $13.36 $28.00 $9.25 $15.00 $0.75 $1.50 $8.00 .$60.00 $13.36 $28.00 $13.36 $28.00 $1.50 $5.00 $7.00 $25.00 $7.00 $25.00 $7.00 $25.00 $7.00 $25.00 I I I i i 13 ' 11 48 52· 1 13 · 1 --- 3 33 ·1 11 15 used. 26 27 13 16 114 4 83 0-5999-1621. v3 AmericasActive:8971691.2 ! ! ! JRV-0000047 i No. Description ! ' I I I I 2168 Fresh Coat T-Shirts Canvas (DK Gray) I I I I i 2181 Pourspout - Giraffe I 2182 JRV Mug -· SHH ... Theirs Wine 2183 J Mini Postcards I 2184 Pourspout - Elk 2185 Wine Charms - JRV Logo 2187 Ceramic Tumbler - JRV 2i88 Terroir Tea Towel - JR V I i 2189 Tea Towel NV Map - JRV. I 2190 Gift Bag, Cotton Tie -JRV I I 2191 Map Tote-JRV 2193 Key Chain - JRV 2195 JR V Umbrella 2196 Wine Tasting Companion Book 2197 JRV Marble Coaster f--· 2198 JRV Marble Magnet 2199 Water 2200. Wine Dogs California 2201 Cheese Vault 2io2 Apron JRV Logo 2203 Cheese Board JRV 2204 Rust Charcoal Horse Scarf 2205 Black Ivory Horse Scarf 2206 Camel Borse Scarf 2207 Navy Horse Scarf 2208 Wine Ivory Horse Scarf 2209 CapaBunga -Brown-JRV l 2210 CapaBunga - Orange - JRV 2211 ~apaBunga : Red - JRV 1039G Wine Skin - Plum 1039H Wine Skin - Emerald 1101A Napa Soap - Tea No Grigio Unit co·st Unit_Price I I $7.00 $25.00 I ! $13.36 $28.00 I $4.08 $19.95 $4.86 $17.50 $13.36 $28.00 I ! $10.44 $,30.00 I $8.8~ $18.00 $7.60 $15.00 $7.60 $15.00 $5.60 $10.00 $15.35 $30.00 $7.50 $12.50 $li.oo $25.00 . $9:2~ $19.70 $4.99 $9.95 . $2.99 $4.99 $0.25 $2.00 . $1KOO $34.95 $15.00 $29.95 $13.00 $24.99 $3.00 $9.95 $6.75 $24.00 $6.75 $24.00 $6.75 $24.00 $6.75 $24.00 $6.75 $24.00 $1.26 $LOO $1.26 $1.00 $1.26 · $1.00 I $1.44 $3.00 $1.44 $3.00 $4.50 $9.75 CONFIDENTIAL 2nd Floor i 4th Floor ' ! ;I I 40 l I I j 27 158 3 4 I I 2 28 12 . used/75 9 4 24 I 45used 6 48 1166 98 980 37 888 · 4830-5999-1621.vJ ArnericasActive:&971691.2 JRV-0000048 CONFIDENTIAL I No. , Description ' Unit Cost \ l!nit Price 1 • 2ncl Floor 4t~ Floor ' ! . ./ i .. ' I 1101 B. j. Napa Soap - Shea R Donnay $4.50 I $9.75 I i • I I I 1 i i 1101 D [ Napa Soap - Soapignon Blanc I ! I I $4.50 $9.75 I ! i I I I ! Jamieson Ranch Vineyards Logo Supplies Inventory 2 I 3 ! I 2 1 1 2 10 4 6: 5 4 2 200 1 3 5· various .1 41 various assorted 90 35 39 10 1 JAMIESON RANCH VINEYARDS ·Logo Inventory tap table extension "J Spur" signs - medium "J Spur" metal signs - small "J Spur" on entrance column "J Spur" sign from entrance column "Jamieson Ranch" signs at entrance Logo umbrellas - (4 for kegs) umbrella stands umbrella stands for lawn use Magnum dummy bottles - decoration Logoed Keg Tap Units 6_L dummy bottles - decoration 750 ml dummy bottles - decoration Poem by-Mike Waterson - plaque Plastic sidewalk A frame signs NVV Auction NVV barrel heads _Misc plaques and award ribbons logo activation tent logo tap handles ( for retailers) Foamcore signs with images -POS matierials '• cardboard shipping supplies Logo Bordeaux wine glasses - dry storage 3rd floor logo b.urgundy wi~e glasses boxes Vino2Go wine cups (30 each) logo spit buckets Original Light Horse Pen and Ink Artwork 4830-5999-!62!.v3 AmericasActi"ve:897169 l.2 JRV-0000049 CONFIDENTIAL . 1 Whiplash Horse Statue Miscellaneous additional items of personal property with a fair market value in the aggregate of less than $250,000. 4830-5999-1621.v3 AmericasActive:89716912 JRV-0000050 CONFIDENTIAL Schedule 1.0l(c) Assumed Contracts Grape Purchase Agreement, dated as·ofFebruary 16, 2016, between Seller and Mahoney Vineyards. Grape Purchase Agreement, dated as of July 31, 2013, between Madison Vineyard Holdings, LLC and SMD Vineyards Inc. Grape Purchase Agreement, dated as of June 1, 2015, between Madison Vineyard Holdings, LLC and Lytton Rancheria of California, as amended by that certain Amendment to Grape · Purchase Agreement, dated as of September 25, 2015. Grape Purchase Agreement, dated as of February 201~, between Madison Vineyard Holdings, LLC and Merlot Holdings LLC, as amended by that certain letter agreement dated as of January· 14,. 2015. Grape Purchase Agreement, dated as of April 15, 2015, between Madison-Vineyard Holdings, . LLC and Pina Vineyard Management, LLC, as amended by that certain Amendment to Grape_ Purchase Agreement, dated as of S~ptember 25, 2015. · Grape Purchase Agreement, dated as of April 4, 2014, between Madison Vineyard Holdings, LLC and Jonquil Vineyards. · · · · · Grape Purchase Agreement, dat.ed as of May 6, 2013, behveen Madis·on Vineyard Holdings, LLC and Oakview Vineyard, as amend~d by that certain Amendment to Grape Purchase · . Agreement, dated as of September 25, 2015. . . . Grape Purchase Agreement, dated as of May 15, 2015, between Madison Vineyard.Holdings, LLC and Cecchini.& Cecchini, Inc.·, as amended by that certain Amendment to Grape Purchase Agreement, dated as of September 25, 2015. Grape.Purchase Agreement, dated as of May 6, 2013; betwe~n Madison Vineyard Holdings, LLC and Rancho Sarco Vineyard, as amended by that certain letter agreement, dated as of February 16,_2016. Grape Purchase Agreement, dated as of December 23, 2015, between Jamieson Ranch Vineyards and Bayview Vineyards. Grape Purchase Agreement, dated ?LS of Decemher 23, 2015, between Jamieson Ranch Vineyards and Bayview Vineyar~s. · Equipment Finance Agreement, dated as·of April 26, 2016, between Seller an,d Celtic Bank Leasing & Equipment Finance Group. 4830-5999-162l.v3 ArnericasActi ve:8971691.2 JRV-0000051 CONFIDENTIAL Revised Sales Memo, dated as of April 4, 2014, between Madison Vineyard Holdings, L~C and REF Vineyards. Distributor Agreement, dated as of June 23, 2014, between Madison Vineyard Holdings, LLC and Rave Associates. VINx2 Software License Agreement, dated as of F~biuary 18, 2014, between Jamieson Ranch Vineyards and VINx2 Winery Software, Inc. Storage Agreement, dated as of September 2011, between Madison Vineyard Holdings, LLC and Groskopf Warehouse & Logisti_cs. 4830-5999-1621. v3 AmericasAqtive:8971691.2 JRV-0000052 Schedule 1.02 Assumed Liabilities CONFIDENTIAL Liabilities under the Assumed Contracts, except for Liabilities relating to the breach of ·the Assumed Contracts by Seller prior to the Closing Date. · ·4830-5999-l 62 l.v3 AmericasActive:8971691.2 . {t, JRV-0000053 To be agreed by Buyer and Seller. Schedule 1.06 · Allocation Schedule CONFIDENTIAL 4830-5999-162I.v3 AmericasActive:8971691.2 JRV-0000054 Schedule 3.01 Business Qualifications The Seller is organized in the State of California. CONFIDENTIAL 4830-5999-162 I .v3 AmericasActive:897 I 691.2 JRV-0000055 CONFIDENTIAL Schedule 3.03 Thh:d-Party Consents Equipment Finance Agreement, dated as of April 26, 2016, between Seller and Celtic Bank Leasing & Equipment Finance Group. VINx2 Software License Agreement, dated as of February 18, 2014, between Jamieson Ranch Vineyards and VINx2 Winery .Software, Inc.. · 4830-5999-162 l. v3 AmericasActive:8971691.2 JRV-0000056 See attached. · Schedule 3.04(a) Financial Statements CONFIDENTIAL 4830-5999-1621.v3 ArnericasActive:8971691.2 JRV-0000057 CONFIDENTIAL Schedule 3.07(a) Material Contracts . . Lease, made as of December 23, 2015, between Red Hen Properties, LLC, and Seller. Non-Disturbance Agreement, dated as·ofFebruary 12, 20.16, among Roots· Run Deep, LLC, a Delaware limited liability company, Seller, and Red Hen Properties, LLC. Termination and Release Agreement, dated as of February 12, 2016, among Seller, Roots Run Deep, LLC, and Red Hen Properties, LLC. Sublease Agreement, dated of February 12, 2016, between Seller_ and Roots Run Deep, LLC. Grape Purchase.Agreement, ·dated as of February 16, 2016, between Seller and Mahoney Vineyard~. · . . . . Grape Purchase Agreement, dated as of July 31, 2013, between Madison Vineyard Holdings, LLC and SJvID Vineyards Inc. ·Grape Purchase Agreement, dated as of June 1, 2015, between Madison Vineyard Holdings, LLC and Lytton Rancheria of California, as amended by that certain Amendment to Grape Purchase Agreement, dated as of September 25, 2015. · ' . Grape Purchase Agr.eement, dated as of February 2012, between Madison Vineyard Holdings, LtC and Merlot Holdings LLC, as amended by thar certain letter agreement dated as of January 14, 2015. Grape Purchase Agreement, d.~ted as of June 24, 2013, between Madison Vineyard H~ldirigs, . LLC and Carolyn Cordes, Trustee of Jacquelyn. Cordes 2006, Trust, as amended by that certain Amendment to Grape Purchase Agreement, dated as of September 25, 2015. Grape Purchase Agreement, dated as of April 15, 2015, between Madison Vineyard Holdings, LLC and Pina Vineyard Management, LLC, as amended by that cert~in Amendment to Grape Purchase Agreement, dated as of September 25, 2015. Grape Pqrchase Agreement, dated as of April 4, 2014, between Madison Vineyard Holdings, LLC and Jonquil Vineyards. · Grape Purchase Agreement, dated as of May 6, 2013, between Madison Vineyard Holdings, LLC and Oakview Vineyard, as amended by that certain Amendment to Grape Purchase • Agreement, dated as of September 25, 2015. Grape Purchase Agreement;dated as of May 15, 2015, between Madison Vineyar~ Holdings, LLC and Cecchini & Cecchini, Inc., as amended by that certain Amendment to Grape Purchase Agreement, dated as o{September 25, 2015. 4830-5999-1621.vJ Am·ericasActive:&971691.2 JRV-0000058 CONFIDENTIAL Grape Purchase Agreement, dated as of May 6, 2013, between Madison Vineyard Holdings, LLC and Rancho Sarco Vine~ard, as amended by that certain letter agreement, dated as of February 16, 2016: Grape Purchase Agreement, dated as of December 23, 2015, between Jamieson Ranch Vineyards ~&~~~~~~ . Grape Purchase Agreement, dated as of December 23, 2015, between Jamieson Ranch Vineyards and Bayview Vineyards. Equipment Finance Agreement, dated as of April 26, 2016, between Seller and Celtic Bank Leasing & Equipment Finance Group. Revised Sales Memo, dated as of April 4, 2014, between Madison Vineyard Holdings, LLC and REF Vineyards. Wine Broker Agreement, dated as of August 1, 2014, between Madison Vineyard Holdings, LLC and HSJSP LLC. Brokerage Agreement, dated as of March 1, 2014, between Madison Vineyard Holdings, LLC and Vic Zelinsky Associates, Inc. . . Brokerage_ Agreement, dated as of fyfay 1, 2013, between Madison Vineyard Holdings, LLC and Select Brands Inc;· · Exclusive Broker Agreement,. dated as ofpecember 1, 2014, between Madison Vineyard Holdings, LLC and Diamond Beverage Group, LLC. Letter Agreement, dated as of August 20, 2015, between Jamieson.Ranch Vineyards and J.B. International Cellars, LLC. Invintiv, Inc . .Broker Agreement, dated as of December 7, 2015, between Jamieson Winery and Invintiv, Inc . . Brokerage Agreement, dated as of March 1, 2014, between.Jamiesop. Ranch a:nd Salute! Distributor Agreement, dated as of June 23, 2014; between Madison Vineyard Holdings, LLC and Rave Associates. Marketing Agreement, dated as ·of January 1, 2016, between Jamieson Ranch Vineyards and First Growth Asia Pte. Ltd. 4830-5999-1621. v3 AmericasActive:8971691.2 JRV-0000059 CONFIDENTIAL Schedule 3.IO(a) Intellectual Property Registrations (i) Intellectual Property Registrations ANDALUSIAN FALABELLA FOURREINS ' GRAND GATE CLUB J and Spur Design LIGHT HORSE Light Horse Design REATA STRONGBOX VALLEY GA TE VINEYARDS VALLEY GA TE VINEY ARDS & Design WHIPLASH - Whiplash-Horse Design WINE GROWLER VILLE reatawines.com cookingattheranch.com jamiesoncanyon.com jamiesoncanyonranchandvineyards.com jamiesoncanyonranchwines.com jamiesomanch.com jamiesomanchandviney~ds.com jamjesomanchvineyards.com ·, Trademarks: - . ! (U.S. App. No. 86/706492) I • (U.S. Reg. No. 4878033) (U.S. App. No. 86/475575) (U.S. Reg. No. 3965469) cu:s. Reg. No. 4621990) (U.S. Reg. No. 5142592) (U.S; Reg. No. 4709253) . (U.S. App. No. 8_6/738415; E.U. Reg. No. 1077955_1; and Chiria ~eg. No: 1-0934625 in nail_le of Madison Vineyard Holdings, LLC) (U.S. Reg. No. 4886772) (U:S. Reg. No. 3913746; and Int. Reg. 1062889 in name of Madison Vin~yard Holdings, LLC) (U.S. Reg. No. 3913747) (U.S. Reg. No, 4081375 and E.U. Reg. No. 15250401) (U.S. Reg. No. 4709311) (U.S. Reg. No. 5082570.and U.S. App. No. 86/192177) Domain Names:· .. 4830-5999-1621. v3 AmericasActivc:897169 I .2 ! JRV-0000060 CONFIDENTIAL D • N omam ames: Jrvwme.corn 'jrvwines.corn 1 lighthorsew1nes.com valleygatevineyards.com i i whiplashfunstuff.c~m wbiplashwine.co -· whi plashwines.corn (ii) Intellectual Property Assets that are not registered but that are material to the ~peration of the Business or have been used by the Business in the last five (5) years. ANDALUSIAN FOUR REINS REATA WINE·GROWLERVILLE DOUBLE LARIAT LIFE OUTSIDE THE LABEL SPUR WINE CLUB VERSADA JAMIESON RANCH VINEY ARDS JRV SWEET JANE SILVER SPUR AURELIUS Trademarks: (U.S. App. No. 86/706492) (U.S. App. No. 86/475575) (U.S. App-. No. 86/738415) (U.S. App. No. 86/192177) Common Law Trademarks 4830-5999-1621.v3 AmericasAclive:89 71691.2 JRV-0000061 CONFIDENTIAL Schedule 3.lO(c) Intellectual Property Licenses Customary "shrink-wrap'' and other licenses of coi:nmercially available intellectual property maintained in the ordinary course of business, the loss of which could not reasonably be expected to result in an Material Adverse Effect. - VINx2 Software License Agreement, dated as of.February 18, 2014, between Jamieson Ranch - Vineyards and VINx2 Winery Software, Inc. · 4830-5999-1621.v3 AmericasActive:8971691.2 JRV-0000062 . None. Schedule 3.IO(e) Intellectual Property Licenses CONFIDENTIAL 4.830-5999-I 621.v3 AmericasActive:8971691.2 JRV-0000063 Schedule 3.13 Insurance Line of Coverage Effective Expiration Date Date Commercial Package 9/18/20i6 9/18/2017 EPLI, Fiduciary, Directors & Officers 9/18/2016 9/18/2017 Please see the attached. Company Zenith Ace Group CONFIDENTIAL Active/ Premium Inactive Active $65,247.00 Active $~,642.00 4830-5999-162 l.v3 AmericasActive:8971691.2 JRV-0000064 CONFIDENTIAL Schedule 3.15 ;?enpits State of California Department of Alcoholic Beverage Control Alcoholic Beverage License. issued to Seller dated as of July 1, 2016. State of California Department of Alcoholic Beverage Control Alcoholic Beverage License issued to Seller dated as of July 1, 2016. Department of the Treasury-Alcohol and Tobacco-Tax and Trade Bureau Basic Permit issued to Seller on April 28, 2016. · · Department of the Treasury-Alcohol and Tobacco Tax and Trade Bureau Basic Permit issued to Seller on June 15, 2016. · · Department of the Treasury-Alcohol and Tobacco Tax and Trade Bureau Basic Permit issued to Seller on June 15, 2016. Re~ta Winery Use Permit Major Modification #Pl0-00188 State Licenses and Permits permitting JRV to sell and ship wine to wholesalers in other states 483D-5999-162l.v3 AmericasActive:8971691.2 JRV-0000065 Schedule 3.17 Leased Real Property . . CONFIDENTIAL Certain real estate subject to that certain Lease, made as ofDecember 23, 2015, between Red Hen Properties, LLC, a California limited liability company, and Seller. 4830-5999-1621. v3 AmericasAc!ive:8971691.2 JRV-0000066 CONFIDENTIAL Schedule 10 Purchased Assets All assets set forth on Schedules 1.0l(a), I.Oi(b), I.Ol(c) and 3.IO(a). All assets set forth in the Assets tab of the spreadsheet title «Schedule (Assets Inventory)" artached hereto. Excluded Assets i. Area and Description I Total Number of Pieces ' Grand Total 3rd Floor -Office Laminate Desks 3rd Floor Office Chair . 3rd Hoor Office Large File Cabinets 3rd Floor Office Small File Cabinets 3rd Floor Tables (2 on 4th Floor) w Book Cas·es. 3rd Floor O~ce Small Refrigerators 3rd Floor Office Printers 3rd Floor Office Monitors 3rd Floor Office Credenza 3rd Floor Office BL Office Furniture (Eathan Allen) 3rd Floor Office 8 ·chairs ( conference_ table) 3rd Floor Office Conference Table Doug's Office) 3rd Floor Office Conference Table (BL Office) 3rd Floor Office Wing Back Chairs (office 9) 3rd Floor Office Wing Back Chairs (BL Office) 3rd Flcior Office Wing Back Chairs (Liz and Diane) 3rd Floor Office_Partition 1 on 3rd floor 2 on 4th floor) 3rd. Floor Office Casual Table 4th Floor Partitions 3rd Floor Reception Sofa & Chair 3rd Floor Reception Tables.and Lamps - · 3rd Floor Reception Monitor 3rd .Floor Reception Office Chair 3rd Floor Copy Room Fax Machi11e I 14 13 ·12 13 1 '6 6 14 1 ·--- 1 . 8 1 1 2 2 4 3 1 2 1 1 1 1 1 ' 4830-5999-162 I .v3 AmericasActi ve:8971691.2 JRV-0000067 ! I Area an_d Description I 3rd Floor Copy Room Printer/ Copy Machine 3rd Floor Copy Room Office Supplies 3rd Floor Copy Room Coffee Maker 3rd Floor Copy Room Tea Kettle· 3rd Floo"r Dry Storage Room Metro Storage 8 ft 3rd Floor Dry Storage Room Metro Storage 5 ft _3rd Floor Dry Storage Room Metro Storage 4ft 3rd Floor Dry Stoi:age Room Coffee Cups V & B 3rd Floor Dry Storage Room Saucers V & B 3rd Floor Dry Storage Room Salad Plates_ V & B 3rd Floor Dry Storage Room Bread Plate V & B 3rd Floor Dry Storage Room Dinner Plates V ~ B 3rd Floor Dry Storage Room Bowls V & B 3rd Floor Dry Storage Small Square Plates 3rd Floor Dry Storage Medium Square Plates. 3rd Floor Dry Storage Large Square Plates - 3rd Floor Dry S~orage Rectangle Plates 3rd Floor Dry Storage Room Coffee Maker 3rd Floor Dry Storage Room Stainless Water Pitc9-ers 3rd Floor Dry Storage Room Rolling Carts 3rd Floor Dry Storage Room Cereal Dispensers 3rd Floor Dry Sto~age Room French Press 3rd Floor D9' Storage Room Carafes 3rd°Floor Dry Storage Room Platters Glass 3rd Floor Dry ~torage Room Platters Plastic 3rd Floor Dry Storage Room Flatware Knives I 3rd Floor Dry Storage Flatware Salad Forks 3rd Floor Dry Storage Flatware Dinner Forks 3rd Floor Dry Storage Flatware Soup Spoon 3rd Floor Dry Storage Flatware Tea Spoon 3rd Floor Dry Storage Flatware Misc 3rd Floor Dry Storage ~oom Chafing Dish 3rd Floor Dry Storage Miscellaneous Dry Goods 3rd Floor Dry Storage Closet Miscellaneous Dry Goods (Food Stuffs) 3rd Floor Kitchen Amana Commercial Microwave 3rd Floor Kitchen Garland 6 ft Stove w/ Oven l i .L ! ! I I I I I i I i I I i I ' I ·1 ' ! I i ! ; I - 1· I I I CONFIDENTIAL Total Number of· Pieces 1 1 1 1 .2 1 2 125 92 96 118 124 125 23 31- 5 ·---- 5 4 7· 3 3- 6 4 6 30 112 103 83 60 .- 60 34 2 1 1 I 1 4830-5999-1621.v3 AmericasActive:89716 91.2 .. JRV-0000068 Area arid Description 3rd Floor Kitchen Garland Griddle w/Oven 3rd Floor Kitchen Bean Double Deep Fryer 3rd Floor Kitchen Globe Meat Slicer 3rd Floor Kitchen Wolf Dual Convection Oven 3rd Floor Kitchen Dual Metro Food Warmer 3rd Floor Kitchen' Cutting Boards 3rd Floor Kitchen Mantiwok Ice Machine 3rd Floor Kitchen True Double Refrigerator 3rd Floor Kitchen Central Freezer · 3rd Floor Kitchen Stand Mixer Kitchen Aid 3rd Floor Kitchen Vitarnix Blender 3rd Floor Kitchen Robo Coupe Food Processor 3rd Floor Kitchen ~elvinator Commercial Refrigerator 3rd Floor Kitchen Cooling.Rack 3rd Floqr Kitchen Floor Mats ~rd Floor Kitchen Castino Salamander ·----·--------- 3rd Floor Kitchen Miscellaneous Prep Equipment 3rd Floor Ballroom Wall Art Horse 3rd Floor Ballroom Wall Art Horse · --- 3rd Floor Ballroom Wall Art Cow 3rd Floor Ballroom Wall Art Horse (2 image) - 3rd Floor Ballroom Portable Bar 3rd Floo_r Ballroom Chairs 3rd Floor Ball Room Chandelier 3rd Floor-Utility Closet_Round White Laminate Table 3rd Floor Utility Closet Banquet Round Table 3rd Floor Utility Closet Banquet Rectangle Table 3rd Floor Utility Closet Utility Table Round 3rd Floor Utility Closet Banquet Chairs. 4th Floor AV System Observation Gallery zinc/metal tables Observation Gallery sideboard table I drawers · .Observation Gallery leather chairs Observation Gallery glass display case Observation Gallery stainless bottle tray Observation Gallery "theater" stanchion I I . I I ' I CONFIDENTIAL Total Number of Pieces 1 I 1 1 1 6 I 1 I 1- 1 I 1 1 4 1 1 1 1 1 1 1 73 3 1 8 7 1 11 1 4 1 24 1 1 1 4830-5999-1621.v3 ArnericasActive:8971691.2 I I I. i I l I ! JRV-0000069 l Area and Description Tasting Room wooden table Tasting Room wooden table Tasting Room wooden table · Tasting Room carpet grey Tasting ·Room carpet Edelman leather I Tasting Room mahogany chairs with pads 1 · Tasting Room antique metal locker Tasting Room flannel "wraps" Tasting Room set wooden bookshelves_ Tasting Room leather chairs (same as Obs Galleiy item) Tasting Room fabric arm chairs Tasting Room tall ieather back chairs (red) - -Tasting Room circular "wine press" tables Tasting Room wo·oden table Tasting Room low steel table Tasting Room "employee" fridge ................ _______ ---···---- Tasting Room glass pour wine fridge · Tasting Room steel door wine fridge . Tasting Room tap wine system --- Tasting Room mirror · Tasting Room- sideboard table/ drawers - Tasting Room sideboard.table/ drawers+ 41" shelving Tasting Room mirror Tasting Room wooden table Tasting Room printer · Tasting Room sound ·system Tasting Room water stations Tasting Room dishwashers Tasting Room glass trays Veranda "couch-style" white chairs Veranda sideboard tables Veranda wicker chairs pads Veranda wicker chairs Veranda square wooden low tables Veranda barrel tables/ fire pit combo Veranda space heaters (glass) l I ' ! ! I I I I I I I CONFIDENTIAL ·Total Number of Pieces 1 1 1 1 1 14 .. I 35 1 8 4 8 3 1 2 1 1 1 1 1 1 1· 1 1 .l 1 2 2 6 4 2 20 20- 13 2 5 .. 4830-5999-1621.v3 AmericasActive:8971691.2 I JRV-0000070 i I Area and Description j r . Veranda portable bar I I Veranda_ "wine press" tables I ! I Veranda tall leather back chairs (red) Veranda wicker couch with pads Veranda stone-glass framed fire pit I Art Walk°"wine" wheel barrow ! Art Walk credenza i Art Walk wicker "nest" chairs with pad Art Walk squar~ wooden tables Art Walk "trash" wine barrels i Lawn Area Cafe Tables I Lawn Area Cafe Table Chairs I I Lawn Area 2 Mahogany Tables with 8 Chairs Lawn Area 8 chairs for 2 Mahogany rabies with Back of Winery Cafe tables 1 Back of Winery Cafe table Chairs L__ --- I Audio Vis·ual screens and DVD Players (1 l,arge 4 small with CD changers) I 1st Floor Reception Area Sofas in Entryway I 1st Floor Reception tall c~airs - brown .•. 1st Floor Reception tall chairs -orange 1st Floor Reception rug - front entrance half dome · ---· . - 1st Floor Reception round wooden coffee tables lst_Floor Reception round iron table (crank press) - black 1st Floor Reception metal 4-door locker antique - black 1st Floor Reception bar (movable) 1st Floor Reception tall office chair 1st Floor Reception wooden 1 drawer credenza (antique wood) 1st Floor Reception floor rug - gray with white diagonal lines 1st Floor Reception round iron table - black 1st Floor Tasting Area sectional sofa - oatmeal color 1st Floor Tasting Area wicker basket - side table 1st Floor tasting Area round iron table - black 1st Floor Tasting Area floor rug - brown with orange specks 1st Floor Tasting Area double sofa - white leather 1st Floor Tasting Area armless chair - white leather 1st Floor Tasting Area sofa pillows - white leather ! ; I I I I I I t I I I - I. I CONFIDENTIAL Total Number of Pieces 1 2 4 1 1 1 1 8 4 2 3 12 2 8 5 8 1 2 2 2 1 2 1 1 1 -1 1 1 -1 1 2 2 1 1 1 2 4830-5999-1621.vJ ArnericasActive:897169 l.2 JRV-0000071 I Area and Description 1st Floor Tasting Area pillow - gray 1st Floor Tasting Area round wooden coffee tables 1st Floor Tasting Area wall round mirror 1st Floor Tasting Area wall rectangle mirror I st Floor Tasting Area antique metal locker 1st Floor Tasting sectional sofa - orange leather .1st Floor Tasting floor rug - reddish orange 1st Floor Tasting keyboard - Dell 1st Floor Tasting receipt printer - Epson 1st Floor Tasting wand scanner - Motorola 1st Floor Tasting cash drawer 1st Floor Office 2 Desks & Credenza 1st Floor Office 2 chairs • 1st Floor Office 2 Portable Bars ,_ __ Facility Drapes (B;i.llroom, Observation, T~, Veranda, Artwalk} Facility Objects D'arte (wall art and objects like wine vessels and decorative nick nacks) ,-•-----·-· Facility Pots an·d Planters (entire facility) Lab Auto-Analyzer, Astoria Pa~ific Chemwell-T Lab Auto-Titrator, Mettler Toledo T~0 w/Rondolino LabCentrifuge, IEC Centra CL2 Various Lab Equipment (List Below) Lab Anto_n-Paar density meter DMA 35 Lab AO Setup .'Lab Back up power/surge protector, APC Lab Back up power/surge protector, APC Lab Balance, Ohaus Lab Beaker, graduated, glass Lab Beaker, graduated, 15lass Lab Beaker, graduated, glass Lab Beaker, graduated, glass Lab Beaker, graduated, glass Lab Beaker, graduate!l, plastic Lab Carbodoseur Lab Cart, wheeled, plastic Lab Cash Still i I CONFIDENTIAL Total Number of Pieces 1 3 1 1 1 1 1 1 1' 1 1 1 2 2 1 1 1 I 1 ·-·----- 1 1 1 1 1 1 1 12 18 3 I 4 50 2 1 2 4830-5999-1621. vJ AmericasActive:8971691,2 -~ JRV-0000072 ' I Area and Description Lab Computer Monitor Lab Cylinder, graduated, glass Lab Cylinder, graduated, glass· Lab Cylinder, graduated, glass Lab Cylinder, graduate·d, glass I Lab Cylinder, graduated, glass . ' Lab Cylinder, graduated, plastic Lab Cylinder; graduated, plastic Lab Cylinder, graduated, plastic. Lab Cylinder, graduated, plastic Lab Cylinder, graduated, plastic Lab _Desktop Computer Lab Dishwasher, Kitchen Aid Quiet Scrub Lab _DO Meter, YSI . Lab Drying-Rack Lab Ebulliomet~r, Dujardin-Salleron, Electric !-----.... - ... -- -- Lab Extinguisher, Class AIB/C La~ Flask, Buchner, glass Lab Flask, Buchner, glass Lab .Flask, Buchner,_ glass Lab Flask, Erlenmeye·r, glass -- ---- Lab Flask, Erlenmeyer, glass Lab Flask,_Erlenmeyer, glass Lab Flask, Erlenmeyer, glass Lab Flask, Erlenmeyer, glass Lab Flask, volumetric, glass. Lab Flask, volumetric, glass · Lab Flask, volumetric, glass Lab Flask, volumetric, glass Lab Flask, volumetric, glass Lab Flask, volumetric, glass w/high temp shield Lab Funnel, Buchner, porcelain Lab Funnel, plastic Lab Hanna Edge, multi-meter w/various probes Lab Labels, for Zebra GK420t, roll. Part# 18929 Lab Labels, for Zebra GK420t, roll. Part# 3-1-TT-PLAT I .. CONFIDENTIAL Total Number of Pieces I 2 ·3 3 3 3 1 3 4 2 1 I I I I 1 1 4 I 1 4 27 5 4 1 ·12 .8 5 4 2 I 1 7 1 8 4.5 4830-5999-1621.vJ ArnericasActive:8971691.2 ! l JRV-0000073 Area ·and Description, i Lab Magnetic Stirrer Lab Magnetic Stirrer w/Heat Lab Micropipette Lab Microscope Lab Parts/drying Board, aluminum Lab Printer Ribbon, for Zebra GK420t Lab Printer, HP LaserJet PlS0Sn Lab Printer, Zebra GK420t Lab Reaction Wells, for C~emwell-T Lab Refractometer, Digital Lab Refrigerator, Summit Lab Sample Bottles · Lab Sample Jars, with plastic lids Lab Spectrophotometer, Spectronic Lab Thief, drop, metal w/chain Lab Thief, glass - Lab Trashcan Lab Turbidity Meter, Hanna Lab Lab Water Bath, VWR · Lab Weigh Boats tower lights . Facility Various tools and equipment (listed below) Facility Painter Facility table saw Facility electric tool kit Facility plumb~ng tool kit Facility drill Facility sawsall Facility grinder Facility socket set 1/4in 3/8in l/2in Facility tap set -Facility ·o ring set Facility drill bits Facility circular saw Facility impact gun l i I I ' j ! i "i I CONFIDENTIAL Total Number of Pieces 1 1 1 1 2 8 1 1 60 1 1 72 84 1 1 2 ---'---------- I . 3 1 3 -- 1 125 2 1 1 1 1 1 2 1 1 2 1 1 2 2 2 4 830-5999-I 621. v3 AmericasActive:8971691.2 JRV-0000074 Area and Description . ' Facility multi scanner l Facility temp gage gun I Facility heat gun Facility test phone Facility handle Allen key set Facility hammers I Facility pipe wrench Facility pry bars Facility hand saw Facility batteries Facility Wi-Fi towers Facility battery charger Facility battery maintainer Facility float charger Facility walkie talkies Facility generator f-----. Facility ladder 4ft Facility ladder 6ft - Facility ladder 8ft Facility ladder 12ft . Facility ladder 22ft Facility shop vac Facility shop jack Event Shed WIFI UNITS (4 units) Event Shed Various See Below (tinhide) .. I . Event Shed STANCHIONS Event Shed GLOBES Event Shed OUTDOOR LANTERN"S Event Shed OUTDOOR LANTERNS Event Shed WHT ICE CHESTS Event Shed.GALVANIZED STEEL BUCKETS . Event Shed ROUND COCKTAIL TABLES ·Event Shed POSTS for cocktail Tables ·Event Shed Cocktail Tables Event Shed POP-UP TENTS Event Shed WEIGHTS I I i ' l ' j I I i CONFIDENTIAL Total Number of Pieces 2 1 1 1 1 3 2 3 1 4 4 1 I 1 6. I -- I I 2 - 1 1 2 1 -- 1 1 2 2 6 1 . 3 2 10 18 4 4 6 4830-5999-1621.v3 AmericasActive:8971691.2 JRV-0000075 Area and Description !. ; i Event Shed SIGNAGE I ! Event Shed Event Signage I ! Event Shed Brown Leather chair t Event Shed Black Desk wood I I Event Shed Fire Starter/Charcoal l I Event Shed Heater Covers I i Event Shed :MISC wood Base Event Shed Table Extension Event Shed Trash bins Event Shed Sphere Outdoor Lanterns Event-Shed Chafing Dishes . Event Shed Sterno Event Shed Portable Gas Stoves Event Shed Desk Chairs Event Shed SANTA OUTFIT I Event Shed WREATHS -· Event Shed ASST. ORNA1v1ENTS Event.Shed !TREES with LIGHTS Event Shed TREE without Lights Trailer 1 Winemaking Computers Desks /k, Chairs & Bookcases (3) Trailer 2 (Facilities) Desks Computers Trailer 3 (Compliance) Desks, Chairs Computers Bookcases Break Room Tables Microwav.e, Toasted Refrigerator , CONFIDENTIAL Total Number of Pieces 4 2 1 1 1 4 1 1 4 2 2 24 2 3 . 1 3 --·- 8 ·- 1 1 1 1 1 1 4830-S999-162l.v3 AmericasActive:8971691 "2 I JRV-0000076 CONFIDENTIAL Base UOM Year JRV 0315 17 SKU : Description UOM AN3MERF7 Andalusian Merlot,Rutherf 12 Case 2013 75.67 AN3ZNCT7 Andalusian Zinfandel, NV 12 Case 2013 89.83 DL3CSAP7 Double Lariat SV Cabernet 12 Case· 2013 32.75 DL3CSNV7 Double Lariat Napa Valley · 12 Cas~ 2013 22.00 DL3CSWB7 Double Lariat Winemakers . 12 Case 2013 1.50 DL4CSNV1 Double Lariat Napa Valley Cabernet Cab .5 12 Case 2014 4S-4.67 Dl4CSNV7 JR\! Napa Valley Double La~iat Cabernet S 12 Case 2014 2,787.58 DL4CSWB7 Do_uble Lariat NV "Winemakers Blend 11 Ca 12 Case 2014 385.92 DL5CSNVK JRV Double Lariat Cabernet Sauvignon KE 1 Keg 2019 5.00 FR3CSAP7 Four Reins Atlas Peak NV Cabetnet Sauvif 12 Case 2013 · 554.25 FR4CSAP7. Four Reins Atlas Peak NV Cabernet Sauvif 12 Case 2014 145.00 J-CS11BR75 JRV Cabernet Sauvignon,NV -12 Case 2011 13.75 J-CS12DL75 JRV Doubl_e Lariat CabSauv 12 Case 2012 1.08 J-CS12DL1 JRV Double lariat CaqSauv -1.SL 6 Case 2012 1.17 J-CS12NV75 JRV Strong Box Cab Sauv 12 Case 2012. 7.67 J-CS12SV75 · JRV Cabernet Sauvignon RD 12 Case 2012 3.17 J-DW13NV37. SYJeet Jane Dessert Wii:ie +2 Case 2013 64.08- J-PS12NV75 JRV Petite Sirah, NV 12 Case 2012. 6.75 JRNSWSZ7 Non-vintage JRV bSparkling Wine 12 · Case NV 26.08 J-VG13NV75 JRV Viognier 12 Case 2013 1.42 J-ZN12.NV75 JRV Zinfandel, Calistoga 12 Case 2012 7.00 L-CH12CA75 Light Horse Chardonnay 12 Case 2012 25.00 L-CH13CA75 Light Horse Chardonnay 12 Case . 2013 5.33 LH3PNCA7 light Horse California Pinot Noir 12 Case· 2013 36.08 LH4CHCA7 · Light Horse California Chardonnay 12 · Case 2014 4.00 LH4CSCA7 Light Horse California Cabernet Sauvignor ·· 12 Case 2014 5.33 LH4CSCAK light Horse California Cabernet Sauvignor i Keg 2014 4.00 LH5CSCA7 Light Horse California Cabernet Sau_vignor 12 Case 2015 · _6.50 l-PN13CA75 Light Horse Pinet Nciir : i2 Case 2013 .. 8.00 R-CHi3SC75 · Reata Egan Vineyard Chard 12 Case . 2013 3.42 RE3PNTC1 Reata TC Pinot Nair 1.SL 6 Case 2013 33.25 RE3PNTCK Re_ata Three County Pinet Noir KEG 1 Keg 2013 5.00 RE4CHCN7 Reata Chardonnay Los Carneros 12 Case 2014 3.58 RE4PNCN7 Reata Los Carneros 11Amaral 11 Pinot Noir 12 Case 2014 38.17 RE4PNRR7 Reata Russian River "El Diablo Vd" Pinot ~ 12 · Case 2014 398.33 RE4PNSL7 Reata Santa Lucia Highlands Pinot Noir 12 Case 2014 125.67 RE5CHSC7 Reata Sonoma Coast Chardonnay 12 Case 2015 242.67 RE5MSCA7 Reata California 11Aurelius" Moscato 12 Case 2015 12._92 RE5PRBC7 Reata Brian Culbertson SC Rose of Pinot ~ 12 Case 2015 7.00 RE5PRSC7 Reata Sonoma Coast Pi not of Rose- 12 Case 2015 0.92 R-PN12NV75 Pinot Noir Reserve NV 12 Case 2012 0.75 R-PN12SC75 Pinot Noir, Sonoma ·coast 12 Case 2012 47.25 JRV-0000077 CONFIDENTIAL R-PN13TC75 Reata Pinot Noir, TC 12 Case 2013 2,410.68 R-PR14SC75 Reata Pinot Rose, SC 12' Case 2014 5.75 SS5SBNVD JRV Napa Valley 11Silver Spur" Sauvignon E 12 Case 2015 2.00 ST3CSAP7 Stagecoach Vineyard CS · 12 Case 2013 101.75 ST4CSAP7 Stage Coach Atlas Peak NV Cabernet Sau\ 12 Case 2014 106.00 VE3PSNV7 Versada Petite Sirah, NV 12 Case 2013 10.33 VE4RWPR7. Versada Paso Robles Red.Wine 12 · Case 2014 132.17 WH4RWCA7 Whiplash Red Wine Blend California 12 · . Case 2014 13.92 WH4ZNLD7 Whiplash Lodi Zinfandel 12 . Case 2014 144.25 WH5RWCA7 .· Whiplash California Red Wine 12 Case 2015 2,326.74 Wl4MACA7 Whiplash Malbec, California 12 Case 2014 10.92 Total JRV Inventory 10,964.02 JRV-0000078 CONFIDENTIAL Batch code Vessel Count 13PNCA0;1.-LH 13PI\ICA01-LH(BG) 154 14CHCN01-CARNEROS 14CHCN01-CARNEROS{BG) 13 14CSCA01-SEMINAR 14CSCA01-SEMINAR{BG) 2 . 14CSNV01-SEMINAR 14CS NVOl-SEM I NAR( BG) 2 14MACA01-SEMINAR 14MACA01-SEMINAR(BG) 2 14RWCA01~SEMINAR 14RWCA01-SEMINAR(BG} 2 14ZNL001-SEMINAR 14ZNL001-SEMINAR(BG) 2 ' 15CSAP01-CORDES '.\.SC~AP.Ol~CORD.ES(BG) ·2 15CSAP02-CORDES . 15CSAP02-CORDES{BG) 17 15CSC.V01-SARCO 15CSCV01-SARCO(BG) 41 15CSNV01-FOS 15CSNV01-FOS(BG} 86 15CSNV01-FOS 15CSNV01P-FOS(BG} 6 lSCSNVOl-JRV 15CSNV01-J RV( BG} 1 15CSNV01-NAPA 51834 1 15CSPV01-JONQUILO 15CSPV01-JONQUILO{BG) 7 15CSPV01-JONQUIL1 15CSPV01-JONQUIL1(BG} 17 . 15CSPV01-JONQUIL2 15CSPV01-JONQUIL2(BG} 14 15CSPV01-JONQUIL3 15CSPV01-JONQUIL3(BG} 19 15CSPV02-JONQUIL1. 15C~PV02-JONQUIL1(BG} . 18 15CSPV02-JONQUIL2 15CSPV02-JONQUJL2(BG) 20. 15CSPV02-JO N QUIL3 15CSPV02-JONQUIL3(BG) 19 15CSPV03-JONQUJL 15CSPV03-JONQUIL(BG) 9 15MACA01-LV 15MACA01-LV(BG) 130 15MACA02-LV 15MACA02-LV(BG) 79 15MA~03-LV 15 MACA03-LV(BG} 76 15PNCN01-3COUNTY 15PNCN01-3COUNTY(BG) 35 15PNCNQ1.a.BRISAS 15PNCN01'..BR1SAS(BG) 7 15PNCN01-BRISAS667 15PNCN01-BRISAS667(BG} · 2 15PNCN01-BRISAS777 15PNCN01-BR1SAS777(BG} 2 15PNCN01-SWAN 15PNCN01-SWAN(BG) 2 15PNRR01-DIABLO 15PNRR01-DIABLO{BG} 22 15PNSB01-3COUNTY 1SPNSB01-3COUNTY(BG) 68 15PNSB01-PE DREGAL 1SPNSB01-PEDREGAL(BG) 15 15SBSH01-LAURENT 1SSBSH01-LAURENT(BG) · 1 16CHCN01-CHAMPLIN 16CHCN01-CHAMPLIN(BG) 24 16CHCN02-CHAM P LIN 16CHCN02-CHAMPLIN(BG) 10 116CSAP01-ANTICA 16CSAP01-ANTICA(BG} 14 16CSAP01-CORDES · 16CSAP01-CORDES(BG) 20 16CSAP01-CO RD ES 16CSAP01P-CORDES(BG) 2 16CSAP02-CO RD ES 16CSAP02-CORDES(BG) 2 16CSCV01-SARCO 16CSCV01-SARCO(BG) 46 16CSCV01-SARCO 16CSCV01P-SARCO(BG) 2 16CSNV01-JONQUIL 16CSNV01-JONQUIL(BG) 114 16CSNV01-JO NQUJLOAK 16CSNV01-JONQUILOAK(BG) 10 16CSNV01-SUNRISE 16CSNV01-SUNR1SE(BG) 79 JRV-0000079 CONFIDENTIAL Batch code Vessel Count 16CSNV01-SUNRISE 1_6CSNV01P-SUNRISE(BG} 4 16CSNV02-JONQUIL 16CSNV02-JONQUIL(BG) 86 1 16CSNV02-JONQUILCF 16CSNV02-JONQUILCF(BG} 2 16CSNV02-JONQUILFL 16CSNV02-JO NQUILFL(BG) 2 16CSOK01-HAWKEYE1 16CSOK01-HAWKEYE1(BG} 45 16CSOK01-HAWKFOS 16CSOK01-HAWKFOS{BG) 109 16CSOK01-HAWKFOS 16CSOK01P-HAWKFOS(BG} 2 l :1,~CSOI<01-WURZ 16_CSOKQ1-WURZ(BG) 62 16CSOV01-HAWKEYE2 16CS OV01-HAWKEYE2 (BG} 56 16CSOV01-HAW KEYE2 16CSOV01P-HAWKEYE2(BG} 2 16CSOV01-0AKVI EW 16CSOV01-0AKVIEW(BG) 84 16CSOV01-0AKVIEWBF 16CSOV01-0AKVJEWBF(BG) 3 ', '16MENV01-FOS · 16MENV01-FOS(BG) 38 16MENV01-FOS FLEXCUBE-SM .. 16MENV02-FOS · 16MENV02-FOS(BG) 38 16MUCC01-CECCHINI 16MUCC01-CECCHINJ(BG) · 4 16MUCC01-CECCHINI 16MUCC01-CECCHINl(BG) 2 .. 16MUCC01-CECCHINI 32324 ·1 16MUCC01-CECCHINl 32326 ·1 16MUCC02-CECCHINl 16MU.CC02-CECCHINl{BG) 2 16PNCN01-BRISAS 16 PNCNOl-BRISAS(BG) 2 16PNCN01-BRISAS 16PNCNO:l.A-BRISAS(BG} 1 ; 16PNCNo"2-BRISAS(BG} 16PNCN02-BRISAS 2 16PNCN03-BRISAS 16PNCN03-BRISAS(BG} 2 16PNCNQ4.:.BRISAS 16PNCN04-BRISAS(BG) 38 16PNCN04-BRISAS 16PNCN04-BRISAS(BG) 18 , 16PNRR01-D1ABLO 16PNRR01-DIABLO{BG) 24 16PNRR02-DJABLO 16PNRR02-DIABLO(BG) 1 16PNRR03-01ABLO 16PNRR03-DIABLO(BG} '1 16PSNV01-BLN D 16PSNV01-BLND(BG) 24 16PSNV01-BLN D 16PSNV01P-BLND(BG} 1- . 16PSYV01-PAGE .. 16PSyY01-PAGE(BG) 27 ·' 16PSYV01-PAGE 16 PSYVOlP-PAGE(BG) 1 16S BSHOl-LAURENT 41908 1 JRVCONC-MP15 CONCOl J RVCONC-WGCOO CONC05 : JRVCONC-WGC16 CONC04 Empty Barrels · 595 Barrels . 2,497 -~ JRV-0000080 CONFIDENTIAL Batch code Vessel ·count 15MACA02-LV 32259 KEG 15MACA02-LV 32262 KEG 15MACA02-LV 35008 KEG 15PNSB01-3COUNTY 32264 KEG 15PNSB01-3COUNTY 32279 KEG 1SPSNV01-JONQUIL 32327 · KEG 15PSNV01-JONQUIL 34948 KEG '15PSNV01-JONQUIL 34996 KEG 16CSAP01~CORDES 32269 KEG 16CSAP01-CO RD ES 37949 KEG 16MUCC01-CECCHIN1 35006 KEG 16MUCC02-CECCHINI 32268 KEG 16MUCC02-CECCHINI 32375 KEG 16MUCC02-CECCHINI 35055 KEG 16S BSH0l-LAU RENT 32267 KEG 16SBSH01-LAURENT 35017 KEG KEGs 16 JRV-0000081 CONFIDENTIAL Location Batch code Vessel Count. Total (gal) Jamieson Ranch VinE;!yards . 13PNCA01-LH 13PNCA01-LH(BG) 154 9,100 Jamieson Ranch Vineyards 14CHCA01-LH 10 TANK 2,712 Jamieson Ranch Vineyards 14CHCA01-LH 8 TANK 1,685 Jamieson Ranch Vineyards 14CHCA01-LH 9 TANK 2,712 Jamieson Ranch Vineyards 14CHCN01-CARNEROS 14CHCN01-CARNEROS(BG) 13 767 Jamieson Ranch Vineyards 14CSCA01-SEMINAR 14CSCA01-SEMJNAR(BG) 2 118 · Jamieson Ranch Vineyards 14CSNV01-SEMINAR 14CSNV01-SEMINAR(BGY 2 · 118 Jamieson Ranch Vineyards 14MACA01-SEfV11NAR 14MACA01-SE MINAR( BG}. 2 118 Jamieson Ranch Vineyards 14RWCA01-SEMINAR 14RWCA0'1-SEM I NAR( BG) 2 118 Jamieson Ranch Vineyards 14ZNL001-SEMINAR 14ZN L001-SEMINAR(BG) 2 118 Jamieson Ranch Vineyards 15CHSC01-REF 24 TANK 2,001 Jamieson Ranch Vineyards . 15CSAP01-CORDES 15CSAP01-CORDES(BG) 2 264 Jamieson Ranch Vineyards · 15 CSAP02-CO ROES 15CSAP02-CORDES(BG) 17 1,003 Jam'iesori Ranch Vineyards 15!;:SCVOl-SARCO 15CSCV01-SARCO(BG) 41 2,419 Jamieson Ranch Vineyards 15CSNV01-FOS 15CSNV01-FOS(BG) 86 · 5,074 Jamieson Ranch Vineyards 15CSNV01-FOS 15CSNV01P-FOS{BG) 6 ·792 Jamieson Ranch Vineyards 15CSNV01-JRV 15CSNV01-JR\f{BG) 1 59 'Jamieson Ranch Vineyards 15CSNV01-NAPA 51834 1 100 Jamieson Ranth Vineyards · · 15CSPV017JONQUILO l5CSPV01-JONQUILO(BG) 7 413 Jamieson Ranch Vineyards 1_5CSPV01-JONQUIL1 15CSPV01-JONQUIL1(BG) 17 1,003 Jamieson Ranch Vineyards 15CSPV01-JONQUIL2 15CSPV01-JONQUIL2{BG) 14 826 Jamiesoh Ranch Vineyards 15CSPV01-JONQUIL3 15CSPV01-JONQUIL3(BG) 19 1,121 'Jamieson Ranch Vineyards 15CSPV02-JONQUIL1 . 15CSPV02-JONQUIL1(BG) 18 -1,062 jamieson Ranch Vineyards 15CSPV02-JONQUIL2 15CSPV02-JONQUIL2(BG) 20 1,180 Jamieson Ranch Vineyards 15CSPV02-JONQU IL3 15CSPV02-J_ONQUll3(BG) ·19 1,121 Jarnieson Ranch Vineyards 15CSPV03-JONQU IL 15CSPV03-JONQUIL{BG) 9 531 Jamieson Ranch Vineyards °!SMACA01-LV . 15MACA01-LV{BG) 130 7,670 · Jamieson Ranch Vineyards 15MACA01.-WL 25 'TANK 5,001 Jamieson Ranch Vineyards 15MACA01-WL 26 TANK 5,001 Jamieson Ranch Vineyards 15MACA02-LV 15MACA02-LV(BG) 79 4,661 Jamieson Ranch Vineyards 15MACA02-LV . 32259 KEG 15 _Jamieson Ranch Vineyards 15MAtA02-LV 32262 KEG 15 Jamieson Ranch Vineyards 15MACA02-LV 35008 .KEG . 15 Jamieson Ranch Vineyards 15MACA03-LV 15MACA03-LV(BG) 76 4,484 Jamieson.Ranch Vineyards 15 P N CN01 :-3CO U NTY 15PNCN01-3COUNTY(BG) 35 2,065 Jamieson.Ranch Vineyards 15PNCN01-BRISAS 15PNCN01-BRISAS(BG) 7 413 Jamieson Ranch Vineyards 15PNCN01-BR1SAS667 15PNCN01-BRISAS667(BG) 2 118 Jamieson Ranch Vineyards 15PNCN01-BRISAS777 15PNCN01-BR1SAS777(BG) 2 118 Jamieson Ranch Vineyards 15PNCN01-SWAN 15PNCN01-SWAN(BG) 2 118 Jamieson Ranch Vineyards 15PNRR01-DIABLO 15PNRR01-DIABLO(BG) 22 · · 1,298 Jamieson Ranch Vineyards 15PNSB01-3COUNTY 15PNSB01-3COUNTY(BG) 98 4,012 Jamieson Ranch Vineyards 15PNSB01-3COUNTY ~2264 KEG 15 Jamieson Ranch Vineyards 15PNSB01-3COUNTY 32279 KEG 15 Jamieson Ranch Vineyards lSPNSBOl-PEDREGAL 15PNSB01-PEDREGAL{BG) 15 885 Jamieson Ranch Vineyards 15PSNV01-JONQUIL 32327 KEG 15 JRV-0000082 CONFIDENTIAL .. Location Batch code Vessel Count Total (gal) Jamieson Ranch Vineyards 15PSNV01-JONQUIL 34~48 KEG 15 Jamieson Ranch Vineyards 15PSNV01-JONQUIL 34996 KEG 15 Jamieson Ranch Vineyards 15SBSH01-LAURENT 15SBSH01-LAURENT(BG}. 1 59 ~amieson Ranch Vineyards 16CSAP01-CORDES 32269 KEG 15 Jamieson Ranch Vineyards 16CSAP01-CORDES 37949 KEG 15 Jamieson Ranch Vineyards 16MENV01-FOS FLEXCUBE-SM 265 Jamieson Ranc;h Vineyards 16MUCC01-CECCHINI 32324 1 55 Jamieson Ranch Vineyards 16M UCCOl-CECCHINI 32326 1 55 Jamieson Ranch Vineyards 16M UCCOl-CECCHINI 35006 KEG 15 Jamieson Ranch Vineyards 16MUC:C02-CECCHINI 32268 KEG 15 Jamieson Ranch Vineyards 16M UCC02-CECCHINI 32375 KEG 15 Jamieson Ranch Vineyards 16MUCC02-CECCHINI 35055 KEG 7 , Jamieson Ranch Vineyards 16PRCN01-ROSE .. 16 TANK 808 Jamieson Ranch Vineyards 16PRRR01-ROSE 350-'1 TANK 367 Jamieson Ranch Vineyards 16PRSB01:ROSE 350-2 TANK 302 Jamieson Ranch Vineyards 16S BSHOl-LAURENT 15 TANK 810 Jamieson Ranch Vineyards 16SBSH01-LAURENT 32267 KEG 15 Jamieson Ranch Vineyards 16SBSH01-LAURENT 35017 KEG 15 Jamieson Ranch Vineyards 16S8S H01.-:LAU RENT 41908 1 59 Jamieson Ranch Vineyards JRVCONC-MP15 CONCOl 43 Jamieson Ranch-Vineyards JRVCONC-WGCOO CONCOS . 52 Jamieson Ranch Vineyards J RVCO NC-WGC16 CONC04 19 ; Jamieson Ranch Vineyards Empty Barrels · 595 - Barrels 2,497 53,874 · KEGs. 16 232 Tanks. 10 21,399 Total Acquired Bulk wine 75,505 ; JRV-0000083 CONFIDENTIAL Part Code Desc Count Unit P"rice Total BOX2752LH 2752 Light Horse carton 4,571 1.03 4~708.13 BOXTRAYRE3CGEN M DRPNTRY13 Reata Traypack 10,790 1.01 10,897..90. BOXTRAYWL 2752 Whiplash Red Traypack 8,900 1.01 8,989.00 CAP30X60BUR 30 x 60 Burgundy Screwcap 4,050 0.11 445.50 CAP30X60GO 30 x 60 Gold Screwcap 2,700 0.12 .324.00 CAP317X60WAKBR 31.7 x 60 Brown Wak Cap 2,400 0.21 511.20 CAP317X60WAKBWHLH 31.7 x 60 Brown Wak Cap JRV Horse 153,600 0.21 32,716.80 . CAP317X60WAKGWHLH. 31.7 x 60 Gold Wak Cap JRV Horse 19Z,OOO 0.21 40,896.00 CAP317X60WAKPG 31.7 x 60 Gold Wak Cap JRV Plain · 32,033 0.21 6,823.03 CAPJR3225X56BRZ 2216 32.25 x 55 Tin Bronze Gold "J" 10,790 0.19 2,055.50 CAP JR324X56BRZ 2216 32A x 55 Tin Bronze Gold "J" 12,335 0.19 2,349.82 CAPLH288X55CHO 28.8 x 55 Poly Choe LH ... 8,650 0.05 432.50 CAPLH288X550RO. 28.8 x 55 Orq Fiorino LH · 116,445 0.03 3,609.80 CAPRE285X55CQP 4290 28.8 x 55 Copper Reata Braid 71,925 0.04 2,877.00 CAPRE288X55COP 4575 28.8 x 55 Copper Rea ta Field 21,450 0.05 1,072.50 CAPRE298X55 BRZ 29.8 x 55 Bronze Fi~ld ],66,933 0.03 .5,174.92 CAPRE315X55 31.5 x 55 Gris Metalico .. 16,200 0.29 4,698.00 ; CAPSS287X55GOL 2178 28.75 x 55 Gold w/ Bronze "J" 3,240 Q.30 972.00 (APWL288X55ROS 28.8 x 55 Rossa Cerrato 7,290 0.04 291.57 COR24X443SRE 24 X 44 Ganau Grac;le 35 76,530 0.08 6,122.36 COR24X44EFJRV. 9 x 1.75 Extra First Natural 13,700 0.28 3,863.40 COR24X44MALH 9 :X 1.75 Micro Agglo LH_ 1,000 0.06 61.80 ·'COR24X44MA.WH. 9 x 1.75 Micro Agglo WH 7,000 0.06 432.60 GLA1835AGCO 1835 AG Burg 1.5L 89 .23.65 2,104.85 GLA2107DLCO 2107 DLG Burg Content 92 5.86 539.12 GLA2216AGCO 2216 AG PU Clar Content 41 7.62 312.42 GLA2216AGDL 2216 AG PU Clar DL 536 · 7.62 4,084.32 GLA2752AGCO 2752 AG PU Clar Content 104 6.45 670.80 GLA2752AGLH. · 2752 AG PU Clar LH 54 6.45 -348.30 GLA2752FLCO 2752 FL Clar Content 56 5.86 328.16 GLA2780AGCO . 2780 AG Fat Neck Burg PS Content 44 10.36 455J~4 GLA2782AGCO 2782 AG Burg Content 149 4.91 731.59 ' GLA2782AGRE 2782 AG Burg RE 3 Cty 14,586 . 5.57 81,244.02 GLA2782DLCO 2782 DLG Burg Content :32 4.91 157.12 GLA2787DLGCO · 2787 DLG PU Burg Content 240 6.75 1,620.00. GLA2787DLGLH · 2787 DLG PU Burg LH · 360 6.75 2,430.00 GLA3278DLGOO 3278 CLG Burg RE CH 126 7.23 910.98 GLA6150AGCO 6150 AG Burg Culbert 22 10.36 227.92 LBLDLNVCSB14 2014 DL CS Back .96,500 0:09 8,685.00 LBLDLNVCSB14LT 20:J,4 DL CS Back 9,700 0.0.9 873.00 LBLDLNVCSF14 2014 DL CS Front 22,750 0.13 2,957.50 LBLLHCACSBLT14 2014 LH CS Acampo Back 2,048 0.16 327.68 LBLLHCSCACSF14 2014 LH CS Front 9,848 0.23 2,265.04 LBLLHCAPNACB13 2013 LH PN Back . 24,600 0.06 1,525.20 LBLLHCAPNF13 2013 LH PN Front 110,500 0.13 13,812.50 ·p{ JRV-0000084 CONFIDENTIAL Part Code Desc Count Unit Price Total LBLLHCAPNSHB13 2013 LH PN Back -119,500 0.06 7,409.00 LBLRETCPN BA13 2013 RE PN 3 Cty Back 164,920 0.12 19,790.40 LBLRETCPNF13 2013 RE PN 3 Cty Front 164,920 0.20 32,984.00 LBLWLCARWBL TlS 2015 WL RW Back 6,660 0.05 333.00 LBLWLCARWF14 2014 WL RW Front 12,400 0.11 1,364.00 LBLWLCARWF15 2015 WL RW Front 6,644 0.09 598.24 JRV-0000085 CONFIDENTIAL Jamieson Ranch Vineyards Tasting Room Merch inventory No. . Descriptio_n Unit Cost. Unit Price 2nd Floor 4th Floor 1001 Chocolate Decadence Sauce $ 9.00 $ 18.00 12 48 1016 Blac;:kberry Honey (12 oz} $ 6.25 $ 12.00 1017 Eucalyptus Honey {12 oz} $ 6.25 $ 12.00 1018 Sta.rThistle Honey {12 oz} · $ 6.25 $ 12.00 1019 Wildflower Honey {12 oz} $ 6.25 $ 12.00· 1039 Wine Skin - Clear $ 1.44 $ 3.00 95 320 1040 Wine Skin - Orange $ 1.44 $ 3.00 1 - . · 1041 Win·e Skin - Yellow $ 1.44 $ 3.00 3 1042 Wine Skin - Blue $ 1.44 $. 3.00 1043 Wine Skin - Pink $ 1.44 $ 3.00 1044 Wine Skin - Violet $ l.44 $ 3.00 1045 Wine Skin -Green $ 1.44 $ 3.00 1046 Wine Skin - Plum $ 1.44 $ 3.00 1047 Wine Skin :.. Emerald $ 1.4_4 $ -3.00 1053. Chocolate Bars $ 1.35 $ 3.00 1054 · Chocolate Bar - Dark Chocolate $ 135 $ 3.00 1079 Cork Pops-legacy Opener $ 14.35 $· 25.00 1080 Cork Pops Pourer {no flap) $ 14.00 $ 25.00 1091 Corkcide $ 11.93 $ 6.25 1101 Napa Soap- Cabernet $. 4.50 $ 9.75 1102 VinOair Premier Wine Aerator $ 14.28 $ 28.00 1122 Bottle Pen Set $ 3.50 $ 7.00 1124 JRV Growler-Glass Bottle $ 5.20 $_ 10.00 6 1125 q,ocolate Truffles - 4 Pack ·$ 4.95 $ 9.95 10 . 2082 JRV DropStop 3pk $ 4.50 .$ -9.00 2088 JRV Pourstop $ 7.71 $ 15.oo· 2089 Corkscrew - JRV Black Opener $ 2.25 $. 10.00·. 13 2090 JRV Chardonnay Wine Brittle $ 5.25 $ 9.75 .11 48 2091 Wine Glass - J Sput Small $ 4.00 $ 15.00 52 2113 Corkscrew, Rosewood JRV LOGO $ 10.72 $ 20.00 2114 JRV Wine Check $· 36.78 $ 70.00 1 13 2116 Picinic Blanket - Black $ 17.39 $ 36.00 2117 Picin~c Blanket - Red $· 17.39 $· 36.00 2118 Pourspout - Bear $ 13.36 $ 28.00 2119 Pourspout - Coyote $ 13.36 $· 28.00 2120 Pourspout - Elephant $ 13.36 $ . 28.00 1 2121 Pourspout- Horse $ 13.36 $ 28.00 2122 Pourspout - lab Dog· $ -13.36 $ 28.00 2123 . Pourspout - Owl $ 13.36 $ 28.00 2124 Pourspout - Quail $ 13.36 $ 28.00 ·' 2125 Pourspout - Stag $ 13.36 $ 28.00 3 JRV-0000086 CONFIDENTIAL Jamieson Ranch Vineyards Tasting Room Merch inventory No. Description Unit.Cost Unit Price 2nd Floor 4th Floor 2126 Corkpop Refill Cartridge $ 5.37 $ 10.50 2128 Vino2Go JRV Wine Glass $ 4.04 $ 15.00 33 2130 Pour Spout - Bulldog $ 13.36 $ 28.00 2131 Pour Spout - Longhorn. $ 13.36 $ 28.00 2132 Pour Spout-Moose $ 13.36 $ 28.00 1 2133 Ice Bucket $ 9.25 $ 15.00 · 11_ 15 used 2135 Post Card - J RV $ 0.75 $ 1.50 2136 Corkscrew - Chocolate $ .8.00 $ 60.00 2156 Pourspout -°Lion $ 13.36 $ 28.00 2157 Pourspout - Ram $ 13.36 $ 28.00 2160 Waterbottle -JRV $ 1.50 $ 5.00 26 2161 Fresh Coat T-Shirts (White) $ 7.00 $ 25.00 27 2162 Fresh Coat Tanks (Gray). $ 7.00 $ 25.00 13 2163 Fresh Coat T-Shirts (Black) $ 7.00 $ 25.00 16 2164 Fresh Coat T-Shirts Bella (DK _Gray) $ 7.00 $ 25.00 114 2168 Fresh Coa_t T-Shirts Canvas (DK Gray) s·. 7.00 $ 25.00" 40 21_81 Pourspout-- Gfra"ffe $ 13.36 $- 28.00 2182 JRV Mug - SHH •.• Theirs Wine $ 4.08 $ . 19.95 ' 2183 Mini Postcards $ 4.86 $ 17.50 27 -158 -2184 Pourspout - Elk $ 13.36 $ 28.00 3 2185 Wine Charms - JRV Logo $ 10.44 $ 30.00 4 2187 Ceramic Tumbler- JRV $ 8.83 $ 18.00 2188 Terroir Tea Towel - JRV $ 7.60 $ 15.00 2189 Tea Towel NV Map-JRV $ · 7.60 $ 15.00 2i90 Gift Bag, ~otton Tie -JRV $ 5.60 $ 10.00 2191 Map Tote -JRV $ 15.35 $ 30.00 2193 Key Chain - JRV $ 7.50 $ 12:50 2195 JRV Umbrella •. $ 12.00 $ 25.00 2 2196 Wine Tasting Companion Book $ 9.25 $ 19.70 2197 JRV Marble Coaster $ 4.99 $ 9.95 28 12 used/75 · 2198 JRV Marble Magnet $ 2.99 $ 4.99 9 2199 Water $ 0.25 $ 2.00 2200 Wine Dogs California $ 18.00 $ 34.95 4 2201 Cheese Vault $ 15.00 $ 29.95 2202 Apron JRV Logo ·s 13.00 $ 24.99 24 2203 Cheese Board JRV $ 3-.00 $ 9.95 45used 2204 Rust Charcoal Horse Scarf $ 6.75 $· 24.00 2205 Black Ivory Horse Scarf $ 6.75 $ 24.00· 6 2206 Camel Horse Scarf $ 6.75 $ 24.00 2207 Navy Horse Scarf $ 6.75 $ 24.00 2208 Wine Ivory Horse Scarf $ 6.75 $ 24.00 JRV-0000087 Jamieson Ranch Vineyards Tasting Room Merch inventory No. Description Unit Cost Unit Price 2nd Floor 22p9 CapaBunga - Brown-JRV $ 1.26 $ 1.00 48 2210 Ca pa Sunga - Orange - JRV $ 1.26 $ 1.00 98 2211 CapaBunga - Red -JRV $ 1.26 $ 1.00 37 1039G Wine Skin - Plum $ 1.44 $ 3.00 1039H Wine Skin - Emerald $ 1.44 $ 3.00 1101A Napa Soap - Tea No Grigio $ 4.50 $ 9.75 1101B Napa Soap~ Shea R Donnay $ 4.50 $ 9.75 .... · 11010 Napa Soap - Soapignon Blanc s· 4.50 $ 9.75 CONFIDENTIAL 4th Floor 1166 980 888 CV LlC)· JRV-0000088 EXHIBIT 5 EXHIBIT 5 REDACTED EXHIBIT 6 MEMORANDUM TO: FROM DATE: RE: All parties (see attached service list): JAMS July 26, 2018 JRV. LLC vs. \Minery Exchanse.Inc. JAMS Ref. #: 1100090897 Panelist: ZelaG. Claiborne Your confidence in selecting JAMS to arbitrate this matter is appreciated. In accordance with the disclosure requirements of C.C.P. $$ 170.1, 1281.6,1281.85, 1281.9,1281.95,and1297.121; JAMS Ethical Guidelines for Arbitrators, and California Rules of Court Ethics Standards for Neutral Arbitrators in Contractual Arbitration the following information is submitted. Based upon the arbitrator's own knowledge as well as a good faith search of records available to the arbitrator and JAMS personnel and, further based on the information supplied concerning the names of the parties and their counsel, we attach a disclosure report and checklist listing any prior or pending cases involving the parties, counsel or counsels' firms. The attached report was prepared by JAMS persormel and reviewed by the arbitrator. Nothing in this report would, in the arbitrator's opinion, prohibit the arbitrator from impartially serving in this case. The nominated or appointed arbitrator has made a reasonable effort to inform him/herself of any matters that could cause a person aware of the facts to reasonably entertain a doubt that as the proposed arbitrator s/he would be able to be impartial. In addition, s/he has disclosed all such matters to the parties to the best of his/her knowledge according to statutory and ethical guidelines. CRC Ethics Standards 7(b). With respect to any service commenced prior to July 1, 2002by the arbitrator as a dispute resolution neutral other than as an arbitrator in another pending orprior case involving aparty or lawyer in the current arbitration or a lawyer who is currently associated in the private practice of law with a lawyer in the arbitration, the arbitrator has sought the information from the dispute resolution provider organizations administering those prior services and has disclosed all required information within the arbitrator's knowledge pertaining to those services/relationships. CRC Ethics Standards 7(bX5XD). Each participant in this arbitration is asked to advise all parties and JAMS of any information that is inconsistent with or not included in the provided disclosure, such as any matters that may affect the arbitrator's ability to be impartial. Please advise the arbitrator's Case Manager Kathleen C. Hanley at 415-774-2617 if you know of any additional information that should be in the disclosure report to all parties. The Case Manager aaîarraÍLge a conference call to discuss any supplemental information or disclosure questions. JAMS and the arbitrator will rely upon the parties' disclosure to us of information which is inconsistent with or not included in the disclosure provided. Please be advised that if item l6 of the Arbitrator Disclosure Checklist is checked "yes," the arbitrator will entertain offers of employment or new professional relationships in any capacity other than as a lawyer, expert witness, or consultant from a party, lawyer in the arbitration, or lawyer or law firm that is currently associated in the private practice of law with a lawyer in the arbitration while that arbitration is pending, including offers to serve as a dispute resolution neutral in another case. In non-consumer arbitrations, this disclosure satisfies the arbitrator's continuing obligation pursuant to Ethics Standards 7(e), and constitutes a waiver of any further requirement to disclose subsequent employment involving the same parties or lawyers or law firms. Any request to disqualify an arbitrator after appointrnent shall be governed by the applicable JAMS Rules. This Disclosure Checklist and related material are the copyrighted property of JAMS. They cannot be copied, reprinted or used in whole or in part in any way without written permission of JAMS. @ JAMS 2003. All rights reserved. DISCLOSURE CHECKLIST FOR ALL ARBITRATIONS Arbitrator Disclosure Checklist pursuant to: o CCP $$ 170.1, 7281.6,1281.85 1281.9,1281.95,1297.121 o JAMS Ethical Guidelines for Arbitrators o California Rules of Court Ethics Standards for Neutral Arbitrators in Contractual Arbitration (hereinafter "CRC Ethics Standards") Case Title: JRV, LLC vs. Winery Exchange, Inc. JAMS Ref. #: 1100090897 Panelist Name: ZelaG. Claiborne Checklist supplements disclosure reports 16A' & 16C L Arbitator or member of arbitrator's Immediate or Extended Family [The term "member of the arbitrator's 'Extended Family"' includes the members of arbitrator's Immediate Family (The term "member of arbitrator's 'Immediate Family"' includes the arbifator's spouse or domestic partner, as defìned in Family Code section 297, and a minor child living in arbitator's household ) and the parents, glandparents, great-grandpatents, children, grandchildren, great-grandchildren, siblings, uncles, aunts, nephews, or nieces ofthe arbitrator or the arbiüator's spouse or domestic partner or the spouse or domestic pafirìer of such person.] is a party, the spouse or domestic parher of a party, an officer, director, or trustee of a party? CRC Ethics Standards 7(dxl). 2. a. Arbiúator, or the spouse, former spouse, domestic pa.rtner, child, sibling, or parent of the arbitrator or the arbitrator's spouse or domestic partrer is: (A) A lawyer in the arbitration? (B) The spouse or domestic partner of a lawyer in the arbitation? (C) Cunently associated in private practice of law with a lawyer in the arbitration? CRC Ethics Standards 7(dX2). 2.b. Has the arbitrator or the arbitrator's spouse or domestic parmer been associated in the private practice of law with a lawyer in the arbitration within the preceding two years? CRC Ethics Standards 7(dX2XB). 3. Arbitator or a member of arbitrator's Immediate Family has or has had a significant personal relationship with any party or lawyer for a party? CRC Ethics Standards 7(dX3). 4. Arbitrator is serving or within preceding 5 years has served: (A) As a neutral arbitrator in another arbitration involving aparty,lawyer for a party, for a party to the current arbitration? @) As a pafiy-appointed arbiÍator in another arbitration for either apry,lawyer for a party, or law firm for a party? (C) As a neuÍal a¡bitrator in another arbitration in which s/he was selected by a person serving as a party-appointed arbifator in the current arbitration? Yes No () (l (L,rr (l (l () () () () ,l () () () () Pr If the cornbined total of the cases disclosed under (A), (B) or (C) is greater than 5, arbiÍator must state the total number of cases in which arbitrator served in each capacity and the number of cases in which the party to the current arbitration or the party represented by the lawyer for a party in the current arbitration was the prevailing party. CRC EthiCs Standards 7(dX,4XC). This Disclosure Checklist and related material are the copyrighted property of JAMS. They cannot be copied, reprinted or used in whole or in part in any way without written permission of JAMS. O JAMS 2014, Allrights reserved. Yes No 5. Arbitrator is serving or has served as a resolution in another is currentlypending or Prior Case involving a parfy or in the current arbitration or a lawyer associated in the private practice of law with a lawyer in the arbitration? (A) An officer, a director, or trustee of a party is or, within the preceding 2 years, was a client of the arbitrator in the arbitrator's private practice of law or a client of a lawyer with whom the arbitrator is or was associated in the private practice of law? (B) In any other proceeding involving the same issues, the arbitrator gave advice to a party or a lawyer in the arbitration conceming any matter involved in the arbitration? (C) The arbiüator served as a lawyer for or as an officer of a public agency which is a party and personally advised or in any way represented the public agency conceming the factual or legal issues in the arbitration. CRC Ethics Standards 7(dì(î. 6.b. The arbitrator or a member of the arbitrator's Immediate Family is or, within the preceding two years, \ryas an employee of or an expert witness or a consultant for a parfy or for a lawyer in ttre arbitration. CRC Ethics Standards 7(dX8). 7. Arbitrator or arbitrator's Immediate Family has or has had any other professional relationship with a party or lawyer for a party? CRC Ethics Standards 7(dX9). 8, ArbiÍator or member of arbitrator's Immediate Family has a Financial lnterest in a party? CRC Ethics Standards 7(dX10). () (A) For purposes of this question "Prior Case" means any case in which the arbitator concluded his/her service as a dispute resolution neutral within 2 years prior to the date of the arbitrator's proposed nomination or appoinnnent. (B) If the arbitrator is serving or has served in such capacity, s/he must disclose: (Ð the names of the parties in each prior or pending case and, where applicable, the name of the attorney in the current arbitration who is involved in the pending case, who was involved in the prior case, or whose current associate is involved in the pending case or was involved in the prior case; (iÐ the dispute resolution neutral capacþ (mediator, referee, etc.) in which the arbitrator is serving or served in the case; and (iiÐ in each such case in which the arbitrator rendered a decision as a temporary judge or referee, the date of the decision, the prevailing paûy, the amount of monetary damages awarded, if any, and the names of the parties' aftorneys. (C) If the total number or cases disclosed under this question is greater than 5, the arbitrator must provide a sunìmary of the cases that states (i) the number of pending cases in which the arbitrator is currently serving in each capacity; (ii) the number of prior cases in which the arbitrator previously served in each capacity; (iii) the number of prior cases in which the arbitrator rendered a decision as a temporary judge or referee; and (rv) the number of such prior cases in which the party to the current arbitration or the party represented by the lawyer for a party in the cr¡rrent arbitration was the prevailing party. CRC Ethics Standards 7(dX5)(c). This information is set forth in the attached Disclosure Reports. 6.a. Arbitrator has or has had an attorney-client relationship with a party or lawyer for a party to the current arbitration, including: () () () () çf () Ql (l ft'.{ () The term "Financial Interest" according to Calif. Code of Civil Procedure $ 170.5 means ownership of more fhana 7%o legal or equitable interest tn aparty, or a legal or equitable interest in a parry of a fair market value in excess of $1,500, or a relationship as director, advisor or other active participant in the affairs of a party except as follows: (1) Ownership in a mutual or coûrmon investment fund that holds securities is not a "fìnancial interest" in those securities unless the judge participates in the management of the fund. Q) An office in an educational, religious, charitable, ftaternal, or civic organization is not a "financial interest" in securities held by the organization. (3) The proprietary interest of a policyholder in a mutual insurance company, or a depositor in a mutual savings association, or a similar proprietary interest, is a "financial interest" in the organization only if the outcome of the proceeding could substantially affect the value ofthe interest. Thís Dísclosure Checklìst and reløted muteríøl are the copyrtghted property of IAMS, They cønnot be copìed, reprínted or used ín whole or ín pørt in any wøy wìthoul wrilten permíssìon of JAMS. @ JAMS 2011. All fights ¡eserved, Yes No 9. Arbitrator or member of arbitrator's Immediate Family has a funncial interest in the subject matter of ttre arbitration? CRC Ethics Standards 7(d)(11). 10. Arbitrator or member of arbitator's Immediate Family has an interest that could be substantially affected by the outcome of the arbitration? CRC Ethics Standards 7(dX12). 11. Arbitrator or member of arbifator's Immediate or Extended Family has personal knowledge of disputed evidentiary facts relevant to the arbitration? A person likely to be a material witness in the proceeding is deemed to have personal knowledge of disputed evidentiary facts. CRC Ethics Standards 7(dX13). 12. Is the arbitrator a member of an organization that practices invidious discrimination on the basis of race, sex, religion, national origin, or sexual orientation? Membership in a religious grganization, official military organization of the United States, or a nonprofit youth organization need not be disclosed unless it would interfere with the arbitrator's proper conduct of the proceeding or would cause a person aware of the fact to reasonably entertain a doubt conceming the arbifator's ability to act impartially. CRC Ethics Standards 7(dX14), 13. Is there any other matter that: (A) Might cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial? (B) Leads the proposed arbitrator to believe there is a substantial doubt as to his or her capacity to be impartial, including, but not limited to, bias or prejudice toward aparty,lawyer, or law fTrm in the arbination? (C) Otherwise leads the arbitrator to believe that his or her disqualification will further the interests ofjustice? CRC Ethics Standards 7(dXl5). 14. Is the arbitrator not able to properly perceive the evidence or properly conduct the proceedings because of a permanent or temporaÌy physical impairment? CRC Ethics Standards 7(eX2). 15. Are there any constraints on the arbiÍator's availabilþ known to the arbitrator that will interfere with his or her ability to commence or complete the arbitration in a timely manner? CRC Ethics Standards 7(e)(_2). 16. Will the arbitrator entertain offers of employment or new professional relationships in any capacþ other than as a lawyer, expert witness, or consultant from a party, lawyer in the arbiÍation, or lawyer or law firm that is currently associated in the private practice of law with a lawyer in the arbiüation while that arbitration is pending, including offers to serve as a dispute resolution neuüal in another case? CRC Ethics Standards 7ftX2). If this is a nonconsumer arbitration, this disclosure constitutes a waiver of any further requirement to disclose offers of subsequent employment involving the same parties or lawyers or law firms. @ If this is a consumer arbitration, the arbitrator wÍll inform the parties of a subsequent offer while this arbitration is pending. (CRC EthÍcs Standards 12(d). () ( () () () () (,r/ ó ú () () () ( () Qrl ú,W 17. Does the arbitrator have any current arangement with a party concerning prospective employment or other compensated service as a dispute resolution neutral or is he or she participating in or, within the last nvo years, has he or she participated in discussions regarding such prospective employment or service with a party? CRC Ethics Standards 7(d)(5). The arbitrator is a full-time dispute resolution neuÍal, working exclusively through JAMS. It is possible that over the past two (2) yeæs, the neutral or JAMS has been contacted by a party or one or more of the attomeys in this case regarding prospective employment on another matter which may or may not have resulted in his or her selection, (x) ( ) Thís Disclosure Checklíst and related møtefial are the copyríghted propeúy of JAMS. They cannot be copíed, reprínted or used ìn whole or ín part ín any way wíthoat written permíssìon of JAMS, @ JAMS 2011, Ail rtghß reserved. Yes No 1 8. Has or will the arbitrator at any time, without the informed written consent of a party, enter(ed) into any professional relationship or accept(ed) employment in another matter in which information that s/he has received in confidence from a party by reason of serving as an arbitrator in a case is material? CRC Ethics Standards l2(e), 19. In a binding arbitration of any claim for more than three thousand dollæs ($3,OOO¡ pursuant to a contract for the construction or improvement of residential properfy consisting of one 1o four units, the arbitrator shall, within 10 days following his or her appointment, provide to each party a written declaration under penaþ of perjury disclosing the following: (A) Whether the arbitrator or his/her employer or arbitration service had or has a personal or professional affiliation with either party? @) Whether the arbitrator or his/trer employer or arbination service has been selected or desþated as an arbitrator by either party in another ffansaction? CCP e 1281.95. 20. Has the arbitrator sought infonnation about relationships or other matters involving his or her Immediate Family, Extended Family living in his or her household, and former spouse? CRC Ethics Standards 9(b). Unless otherwise disclosed below, the arbitrator has made a general inquiry of his or her family members about their potential connection to matters that may be handled by the arbitrator. Those family members have indicated they do not intend to provide the arbitrator with specific information or answer specifïc inquiries. The arbitrator will advise the parties of any connections of which s/he is independently aware by virtue of his/her direct knowledge and will make specific inquiries where so warranted or specifïcally requested by a party. Otherwise, this satisfïes the disclosure requirements of Ethics Standard 9(b) and constitutes a waiver of any further requirement to make specÍfïc inquiry of family members. 2l.DoyouparticipateinsocialnetrvorkingsitessuchasFacebook,Twitter,"'@orul1 If the arbitrator marked this question, "Yes," it is possible that one of the lawyers or member of a law firm involved in ttris matter is in some way connected to the Arbitrator through this professional networking application. However, none of these contacts rises to the level of a prior business relationship that might cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial, unless otherwise noted below. 22.Has the arbiúator been disbaned or had his or her license to practice a profession or occupation revoked by a professional or occupational disciplinary agency or licensing board, whether in California or elsewhere? CRC Ethics Standards 7(e). 23. Has the arbiüator resigned his or her membership in the State Bar or another professional or occupational licensing agency or board, whether in Califomia or elsewhere, while public or private disciplinary chæges were pending? CRC Ethics Standards 7(e). 24, Other than that covered under Question22 above, within the preceding 10 years, has public discipline been imposed on the æbitrator by a professional or occupational disciplinary agency or licensing board, whether in California or elsewhere? CRC Ethics Standards 7(e). () (l (x) ( ) N/A () () () () t)tl () ( ()( () ( Public discipline means any disciplinary action imposed on the æbitrator that the professional occupational disciplinary agency or licensing board identifies in its publicly available records or in response to a request for information about the arbitrator from a member of the public. 25. The following immediate family members of the arbitrator are admitted to the practice of law (provide relationship to arbiüator, name and law fìrm): Thìs Dísclosure Checklìsl and rclated møteríal øre the copyríghted property of JAMS, They cønnot be copìed, reprtnted or used ín whole or ín pørt ín any way wíthout wrítten permíssíon of JAMS. @ JAMS 2011. All ríghls rcserved. The attomeys listed above have declined to provide any information with respect to their cases or clients, as such information is confidential. The arbitrator has no independent knowledge of any such matters to disclose. Ifthe arbitrator has answered "yes" to any ofthe above questions, except questions 16rl7, and 20, s/he will explain below and/or see attached rider: Explanation:Ouestion #: t*-, ::::::::::::::: :_:_______.__:_ .ër$------------ Vr \-U4Jæ/>pÅ^yeÐ Þ,^'e/ Arbitrator: ?vnu uen- \q_q..1 ?ì"r?,oc( ¡cQ9. Declarations of G-.rrh@€['eÐ @-tS CLo 9*+ø9, I . Having been nominated or appointed as an arbitrator, I have made a reasonable effort to inform myself of any matters that could cause a person aware of the facts to reasonably entertain a doubt that as the æbitrator I would be able to be impartial. In addition, I have disclosed all such matters to the parties. CRC Ethics Standards 7(d). 2. With respect to any service commenced prior to July 1, 2002by me as a dispute resolution neutal other than as an arbitrator in another pending or prior case involvingaparty or lawyer in the current arbitration or a lawyer who is currently associated in the private practice of law with a lawyer in the arbitration, I have sought the information from the dispute resolution provider organizations administering those prior services and have disclosed all required information within my knowledge pertaining to those services/relationships. CRC Ethics Standards 9. 3. I practice in association with JAMS. Each JAMS neutral, including me, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutals who practice witli JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 4. My responses to the questions above are true and coffect to the best of my knowledge, and Irealize that my response to question # 19 above is declared under penaþ of perjury. 5. Please note JAMS neutrals regularly engage in speaking engagements, CLEs, discussion $oups and other professional activities, and it is possible that a lawyer or law firm connected with this proceeding either attended, participated or was on a panel with the Arbitrator, 6, Attached are the JAMS Arbitration Administration Policies and Arbitrator Fee Schedule, which, along with the rules applicable to this particular arbitration, address disclosures required by CRC Ethics Standard 16. ( Date: Signanre of Thís Dísclosurc Checklßt and reløted materìøl are the copyríghted properly of JAMS, They cannot be copíed, reprínted or used in whole u in part ín øny way wìthout wrítten permßsíon of JAMS. @ JAMS 2011. Ail rtghts resewed. Important Note Regarding Consumer Arbitration: Based on the parties' written submissions, JAMS has determined that this: / IS NOT a Consumer Arbitration ( /) !$ a Consumer Arbitration ( ) See "Supplemental Arbitrator Disclosure for Consumer Arbitrations." As defined by California Rules of Court Ethics Standards for Neutral Arbitrators, Standard 2(d) and (e): 'oConsumer arbitration" means an arbitration conducted under a pre-dispute arbitration provision contained in a contract that meets the criteria listed in paragraphs (1) through (3) below. "Consumer arbitration" excludes arbitration proceedings conducted under or arising out of public or private sector labor-relations laws, regulations, charter provisions, ordinances, statutes, or agreements.' (1) The contract is with a consumer party, as defined below; (2) The contract was drafted by or on behalf of the non-consumer party; and (3) The consumer parly was required to accept the arbitration provision in the contract. 'oConsumer pafiy" is a party to an arbitration agreement who, in the context of that arbitration agreement, is any of the following: (1) An individual who seeks or acquires, including by lease, any goods or services primarily for personal, family, or household purposes including, but not limited to, financial services, insurance, and other goods and services as defined in section 176I of the Civil Code; (2) An individual who is an enrollee, a subscriber, or insured in a health-care service plan within the meaning of section 1345 of the Health and Safety Code or health-care insurance plan within the meaning of section 106 of the Insurance Code; (3) An individual with a medical malpractice claim that is subject to the arbitration agreement; or (4) An employee or an applicant for employment in a dispute arising out of or relating to the employee's employment or the applicant's prospective employment that is subject to the arbitration agreement. 6/14 Thís Dísclosurc Checklíst ønd related mateñal are the copyríghted properlv of JAMS. The.y cønnot be copíed, reprínted or used ín whole or in pørt ín any way wíthout written permíssíon of JAMS, @ JAMS 2014. Ail rtghts reserved. California General Disclosures & Mediation Disclosures - Report A (MKT016A) JRV, LLC vs. Winery Exchange, lnc. Th¡s report includes General Disclosure of Client Activity. Case counts are provided for Arb¡trations, Court Reference Matters, Mediations and other ADR. As required by the California Ethics Standards, Arbitration, Med-Arb, and Court Reference numbers are provided for the last 5 years; l\/ediatìon numbers are provided for the past 2 years. ThÌs Report also includes the deta¡l required for Mediations pêr Standard 7. (Required additional case detail forArbitratìons, Med-Arbs and Court Reference cases are included in a separate report, JAMS Case Disclosure Report B (MKT016C). ) Panelist: Zela G. Claiborne Reference #: 1 100090897 712512018 Claimant(s) Bill Leigon No Address Listed Relevant Cases heard with Bill Leigon No Cases to Reporl JRV, LLC No Address Listed Relevant Cases heard with JRV, LLC No Cases to Report Counselfor Glaimant Blaîne l. Green Pillsbury Winthrop Shaw Pittman LLP 4 Embarcadero Centér 22ßd Floor Sân Frãncisco. CA 941 1 1-5998 Relevant Cases heard with Blaine l. Green No Cases to Report Relevant Cases heard with Pillsbury Winthrop Shaw Pittman LLP Med iations\Neutral Analvsis\Other . Mediation(s) - Open cases 1 Hawthorne Mill Land Company, L.P, vs. Private Party (JAMS Reference No. 1100087069) Representative Name Representative Firm Partv/Parties Reoresented Kenneth E. Keller, Esq. Douglas C. Straus, Esq. David G. Knitter, Esq. Basil S. Shiber, Esq. Pillsbury Winthrop Shaw, et al. Archer Nonis PLC Knitter & Knitter [/iller Stan Regalia Hawthorne Mill Land Company, L.P. Private Party & Private Party & Cannon Partners Private Party & Private Party HawthoÍne Mill Land Company, L.P. * "Mutter(s) Ass¡gned to Anoth¿r Neufrql" includcs cuse,y u,hcra lhe mdller wut rtot'etl to et dif/Þrenl neutral. 7t2512018 Page 1 of4 Galifornia General Disclosures & Mediation Disclosures - Report A (MKTo16A) JRV, LLC vs. Wnery Exchange, lnc. This report includes General Disclosure of Cl¡ent Act¡vity. Case counts are provided for Arbitrations, Court Reference Matters, Med¡ations and other ADR. As required by the Cal¡fornia Ethics Standards, Arbihation, l\iled-Arb, and Court Reference numbers are provided for the last 5 years; Mediation numbers are provided for the past 2 years. This Report also includes the detail required for Mediations per Standard 7. (Required additional case detail forArbitrations, Med-Arbs and Court Reference cases are Ìncluded in a separate report, JA[/S Case Disclosure Report B (MKr016C). ) Panelist: Zela G. Claiborne Reference #: 1 100090897 7 t25t2018 Dustin J, Chase.Woods Fillsbury Winthrop Shaw Pittman LLP 4 Embarcadero Center San Franeisco, CA 941 1 1-5998 Relevant Cases heard w¡th Dust¡n J, Chase-Woods No Cases to Report Respondent(s) Winery Exchange No Address Listed Relevant Cases heard with W¡nery Exchange No Cases to Report * "Mattcr(s) Assigned l<¡ Another Neutral" includcs cuse.t u'herc lhe mqllet wus ¡towtl to u d¡f/þranl neuftql. 712512018 Page 2 ol 4 California General Disclosures & Mediation Disclosures - Report A (MKTo16A) JRV, LLC vs. Wnery Exchange, lnc. This report includes General D¡sclosure of Client Activity. Case counts are provided for Arbltrations, Court Reference Matters, Mediations and otherADR. As required by the Cal¡fornia Ethics Standards, Arb¡tration, Med-Arb, and Court Reference numbers are provided forthe last 5 years; Mediation numbers are provided for the past 2 years. This Report also includes the detail required for Mediations per Standard 7. (Required additional case detall forArb¡trations, Niled-Arbs and Court Reference cases are included in a separate report, JAI\/S Case D¡sclosure Report B (MKro16C). ) Panelist: Zela G. Cla¡borne Reference #: 1 100090897 712512018 Counsel for Respondent Erin R. Ranahan Winston & Strawn, LLP 333 S. Grand Ave- 38th Floor Los Angeles, CA 90071-1543 Relevant Cases heard w¡th Er¡n R, Ranahan No Cases to Report Lev Tsukerman Winston & Strawn, LLP 333 S. Grand Ave. 38th Floor Los Angeles, CA 90071-1 543 Relevant Cases heard with Lev Tsukerman No Cases to Report Warren R. Loui Winston & $trawn, LLP 333 S. Grand Ave. 39th Floor Los Angeles. CA 90071-1543 Relevant Cases heard with Warren R, Lou¡ No Cases to Report Relevant Cases heard with Winston & Strawn, LLP Arb¡tration . Arbitration(s) . Open cases a "Motter(s) As.tigncd to Anofher Neúrul" includes ca¡es u,htra the nqiter vus nk¡t,ed to u diffcrent nautral. 712512018 Page 3 of 4 California General Disclosures & Mediation Disclosures - Report A (MKT016A) JRV, LLC vs. Wnery Exchange, lnc. This report includes General Disclosure of Cl¡ent Activity. Case counts are prov¡ded for Arbitrat¡ons, Court Reference Matters, Mediations and other ADR. As required by the California Ethics Standards, Arbitration, Med-Arb, and Court Reference numbers are provided for the last 5 years; Mediation numbers are provided for the past 2 years. This Report also includes the detail required for Mediations per Standard 7. (Required additional case detail for Arbitrations, Med-Arbs and Court Reference cases are included in a separate report, JAI/S Case Disclosure Report B (MKT016C). ) Panelist: Zela G. Claiborne Reference #: 1 100090897 7t25t2018 Other Disclosures N/A stccess of JAMS. In addition, because of lhe nahfe und si:e olJAMS, the parties should ussume that one or ntore o.f tha otlrr netltvl.\ v,ho prdct¡ce with in the.[ulu'e. + "Matter(s) Assigned lo Anelher Neilù'al" inclildes cases u'here the mqtter vus noved to u different neutal. 7t25t2018 Page 4 of 4 JAMS Relevant Case Disclosure, Report B (MKT016C) JRV, LLC vs. Wnery Exchange, lnc. This report includes Disclosure of Activ¡ty in Relevant Cases (defined as Arbitration, N/ed-Arb, and Court Reference Cases) from 07125120131o 0712512018. All branches of counsel firms are ¡ncluded. -.Note this report does not include med¡ations , which are reflected in the General Disclosures, Report A. Panelist: Zela G. Cla¡borne Reference #: 1 100090897 7t25t2018 Claimant(s) Bill Leigon No Address Lisled Relevant Cases heard with Bill Leigon No Cases to Report JRV, LLC No Address Listed Relevant Gases heard w¡th JRV, LLC No Cases to Counselfor Claimant Blaine L Green Fillsbury Winthrop Shaw Pittman LLP 4 Embarcadero Center 22nd Floor San Francisco, CA 941'l 1-5998 Relevant Cases heard with Blaine L Green No Cases to Report Relevant Cases heard with Pillsbury W¡nthrop Shaw Pittman LLP No Cases to Dustin J. Chase.Woods Pillsbury W¡nthrop Shaw Fittman LLP 4 Embarcadero Center San Francisco, CA 941 1 1-5998 Relevant Cases heard with Dustin J. Chase-Woods No Cases to in the.future. * "Mallcr(s) Assigned lo Anolhe r Neulral" include,s case,s whare lhe nutler was noyed to a d|fèrcnl neutruL 7t2512018 Page 1 of 4 JAMS Relevant Case Disclosure, Report B (MKTO16C) JRV, LLC vs. Wnery Exchange, lnc. Th¡s report includes Disclosure of Activ¡ty in Relevant Cases (def¡ned as Arb¡tration, Med-Arb, and Court Reference Cases) from 07125120131o 0712512018. All branches of counsel f¡rms are included. .*Note this report does not Ìnclude mediations , which are reflected in the General Disclosures, Report A. Panelist: Zela G. Claiborne Reference #: I 100090897 7t2512018 Respondent(s) Winery Exchange No Address Listed Relevant Cases heard with Winery Exchange No Cases to Report in the.fulil'a. * "Mqtter(s) As,rigned to Another Neutrut" ¡nclude.s ca,¡as wlterc thc nwtter u,a,s tnoved lo u difîerent neultal. 7125t2018 Page 2 of 4 JAMS Relevant Case Disclosure, Report B (MKT0I6C) JRV, LLC vs. Wnery Exchange, lnc. This report includes Disclosure of Activ¡ty in Relevant Cases (defined as Arbitration, Med-Arb, and Court Reference Cases) from 07l2,t2,j3lo 0712512018. All branches of counsel firms are included. ..Note this report does not ¡nclude mediations , which are reflected ¡n the General Disclosures, Report A. Panelist: Zela G. Claiborne Reference #: 1 I 00090897 7125t2018 Gounsel for Respondent Er¡n R. Ranahan W¡nston & Strawn, LLP 333 S. Grand Ave. 38th Floor Los Angeles, CA 90071-1543 Relevant Cases heard with Êrin R. Ranahan No Cases to Lev Tsukerman Winston & Strawn, LLP 333 S. Grand Ave. 38th Floor Los Angeles, CA 90071-1.543 Relevant Cases heard with Lev Tsukerman No Cases to Warren Fl. Loui Winston & Strawn, LLP 333 S. Grand Ave. 39th Floor Los Angeles, CA 90071-1543 Relevant Cases heard with Warren R. Loui No Cases to Relevant Gases heard w¡th W¡nston & Strawn, LLP I0C//Grifolslnternational S.A.,etal.vs.AlereHealthcareSLU,etal.(JAMSReferenceNo, 1100089619) - Arbitration Panelist Role: Neutral Arbitrator Case Result(s): case on-going Representative Name Representative Firm P/D Party/Parties Represented Allan E, Anderson, Esq. Arênt Fox LLP CLAI Gr¡fols lnternat¡onal, SA & Grifols Movaco, SA & lnstituto Gr¡fols S.A. & Grifols S.A. & H€mosense, lnc & Grìfols Portugal, LTDA & Grifols Chile Gr¡fols lnternat¡onal, SA & Grifols Movaco, SA & lnst¡tuto Gr¡fols S.A. & Grifols S.A, & Hemosense, lnc & Grifols Portugal, LTDA & Grifols Ch¡le Aram Ordubegian, Esq. Arent Fox LLP CLAI in the.fiúu'e. * "Mutter(s) Assigncd lo Another Neutral" inclu¿lc,ç cqscs whera tha nqtÍer u,qs noved k¡ a dtlferen! neutrul. 7t25t2018 Page 3 of 4 JAMS Relevant Case Disclosure, Report B (MKToI6C) JRV, LLC vs. Wnery Exchange, lnc. This report includes Disclosure of Activity in Relevant Cases (def¡ned asArbitration, Med-Arb, and Court Reference Cases) from 07125120131o 0712512018. All branches of counsel firms are included. .-Note this report does not include mediations , which are reflected in the General Disclosures, Report A. Panelist: Zela G- Claiborne Reference #: 1 100090897 7125t2018 Jeffrey Robert Makin, Esq. Arent Fox LLP CLAI Grifols lnternational, SA & Gr¡fols Movaco, SA & lnstituto Grifols S.A. & Gr¡fols S.A. & HemoSens€, lnc & Grifols Portugal, LTDA & Gr¡fols Chile Grifols lnternational, SA & Gr¡fols Movaco, SA & lnst¡tuto Gr¡fols S.A. & Grifols S.A. & Hemosense, lnc & Grifols Portugal, LTDA & Grifols Chile Alere Healthcare SLU & Alere San Diego, lnc, & Alere lnternational Limited Alero Healthcare SLU & Alere San Diego, lnc. & Aler€ lnternational L¡m¡ted Alere Healthcare SLU & Alere San Diego, lnc. & Alere lnternational Lim¡ted Alêre Hêallhcare SLU & Alere San Diego, lnc. & Alere lnternational Limited Alere Heâlthcare SLU & Alere San Diego, lnc. & Alere lnternational L¡mited Pr¡vâte Party no party listed no party listed no party listed no parly listêd no party listed no pârty l¡sted Alere Healthcare SLU & Alere San Diego, lnc ,q AIêrê lnlêrnâtiônâl I im¡lê.j Diane B. Roldan, Esq. Arent Fox LLP CLAI Kenneth S. Leonetti, Esq. Madêleine K. Rodriguez, Esq. Kenneth J. Figuêroa, Esq. Stephen V. D'Amore, Esq. Ricardo E. Ugarte, Esq. Marek Krasula, Esq. lvlary Kather¡ne Wagner Camille Ng, Esq. Pedro Arcovqrde Liman Oseni Chelsea Flanagan Patricia Despagnô Joanna C. Wade, Esq. Foley Hoag LLP RESP Foley Hoag LLP RESP Foley Hoag LLP RESP Wnston & Strawn, LLP RESP Wnston & Strawn, LLP RESP ICC lnternationãl Court of Arbitrat¡on ICC lnternãt¡onal Court of Arb¡trat¡on ICC lnternational Court of Arb¡trat¡on lntêrnational Chambsr of Commêrce ICC lnternat¡onal Court of Arb¡tration ICC lnternat¡onal Courl of Arb¡tration lnternational Chamber of Commerce Wnston & Strawn, LLP NP NP NP NP NP NP NP RESP srccess ofJAMS. ln uddi tion, becuuse oî the nqturc und si:e ofJAMS, lhe purtie,s should ussunè lhal one or uore of the othar neutral.s u ho pructice with * "Møtter(s) As$gned lo Anothet Neutral" inclutle,ç cqsas '9here the nulter v'a,s moved lo a dtîerent neutrql. 7125t2018 Page 4 of 4 PROOF OF SERVICE BY EMAIL & U.S. MAIL Re: JRV, LLC vs. V/inery Exchange, Inc. Reference No. 1 1 00090897 I, Kathleen Hanley, not a party to the within action, hereby declare that on July 26,2018,I served the attached Disclosure Reports on the parties in the within action by Email and by depositing true copies thereof enclosed in sealed envelopes with postage thereon fully prepaid, in the United States Mail, at San Francisco, CALIFORNIA, addressed as follows: Blaine I. Green Esq. Dustin J. Chase-V/oods Esq. Pillsbury Winthrop Shaw Pittman LLP 4Bmbarcadero Center 22ndFloor SanFrancisco, CA 94lll-5998 Phone: 415-983-1000 blaine. green@pillsburylaw. com dustin. chasewoods@pillsburylaw. com Parties Represented: Bill Leigon JRV, LLC Warren R. Loui Esq. Erin R. Ranahan Esq. Lev Tsukerman Esq. Winston & Strawn, LLP 333 S. Grand Ave. 39th Floor Los Angeles, CA 90071-1543 Phone: 213-615-1700 wloui@winston.com eranahan@winston.com Itsukerman@winston. com Parties Represented: Winery Exchange I declare under penalty of perjury the foregoing to be true and correct. Executed at San Francisco, CALIFORNIA on July 26, 2018. Hanley EXHIBIT 7 Casn No. 17-55813 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT CITY BEVERAGES, LLC dlblal OLYMPIC EAGLE DISTRIBUTING Appellant, VS. MONSTER ENERGY COMPANY, flIWaHANSEN BEVERAGE COMPANY Appellee. ON APPEAL FROM THE LINITED STATES DISTRICT COIIRT, CENTRAL DISTRICT OF CALIFORNIA D.C. No. 5:17-CY-00295-RGK-KK, Hon. Judge R. Gary Klausner MOTION FOR LEAVE TO FILE AMICAS CURIAE BRIEF OF ERIC KRIPKE AND KRIPKE ENTERPRISES IN SUPPORT OF APPELLANT BIRD, MARELLA, BOXER, WOLPERT, NESSIM, DROOKS, LINCENBERG & RHOW, P.C. Ronald J. Nessim Thomas V. Reichert Fanxi Wang 1875 Century Park East, 23rd Floor Los Angeles, California 90067 -2561 Telephone: (3 l0) 201-2100 Facsimile: (3 I 0) 201-2110 3473t43.1 Attorneys for Amici Curiae Eric Kripke and Kripke Enterprises Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 1 of 142 MOTION FOR LEAVE TO FILE AMICUS CARIAE BRIEF OF ERIC KRIPKE AND KRIPKE ENTERPRISES IN SUPPORT OF APPELLANT Pursuant to Federal Rule of Appellate Procedure 29(a)(3), Amici CuriaeEric Kripke and his loan-out corporation Kripke Enterprises (collectively referred to as o'Kripke") hereby submit this Motion for Leave to File an Amicus Curiae Brief in Support of Appellant City Beverages, LLC dlbla Olympic tragle Distributing ("Olympic Eagle") urging reversal. Pursuant to Circuit Rule 29-3, Kripke first endeavored to obtain the consent of all parties to the filing of this amicus brief. Appellant Olympic Eagle gave its consent, but Kripke was unable to obtain the consent of Appellee Monster Energy Company (ooMonster"), thus necessitating this motion. INTEREST OF AMICUS CURIAE AND REASONS WHY THE MOTION SHOULD BE GRANTED Amicus Curiae Kripke is a writer and producer residing in Los Angeles, California, who was engaged by Warner Bros. Television Production Inc. ("WBTV") in2004 to create the popular television series Supernatural. In September 2017, WBTV filed an arbitration demand against Kripke (the "Supernatural Arbitration") pursuant to an arbitration clause in the Certificate of Authorship signed by the parties, which mandated JAMS as the arbitration provider 23473t43.1 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 2 of 142 Kripke has a special interest in the precedent to be set by the disposition of this appeal, particularly with respect to the issue of whether the arbitration award should be vacated due to JAMS' failure to disclose that the arbitrator below was an owner of JAMS and had a financial interest in JAMS' (both past and future) repeat business with Appellee Monster. In October 2017 , prior to the appointment of an arbitrator in the Supernatural Arbitration, Kripke wrote to JAMS requestingthat JAMS provide additional disclosures regarding the ten potential arbitrators proposed by JAMS, including whether those proposed arbitrators owned any equity interest in JAMS, and had any financial interest in JAMS' repeat business with WBTV and its affiliates. In support of his request, Kripke cited, among other grounds, the well-documented concern of "repeat player bias" by large arbitration providers like JAMS, who have recurring business from large companies like Monster and WBTV. Following extensive briefing by both parties and oral argument, JAMS' National Arbitration Committee ("NAC") summarily denied all of Kripke's requests for disclosures, and refused to provide any disclosures regarding whether the proposed arbitrators had any ownership interest in JAMS or financial interest in JAMS' repeat business from WBTV and its affiliates Kripke's proposed amicus brief will illuminate the issues relating to JAMS' failure to provide disclosures on its neutrals' ownership interests in JAMS as well aJ3473t43.t Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 3 of 142 as other issues for the Court. Specifically, one of the District Court's grounds for denying Appellant Olympic Eagle's motion to vacate the arbitration award was that Olympic Eagle had waived its evident partiality claim, by failing to request additional disclosures or to object before the arbitration award to the potential o'repeat player bias" caused by the arbitrator's ownership interest in JAMS and financial interest in JAMS' repeat business from Appellee Monster. Kripke's experience in requesting similar disclosures from JAMS before the appointment of the arbitrator in the Supernatural Arbitration, and being summarily denied those disclosures by the NAC, bolsters Appellant Olympic Eagle's argument that JAMS has made a corporate decision to refuse to disclose which of its arbitrators have a direct financial stake in revenues from Iarge, repeat clients like Monster (in this case) and WBTV (in the Supematural Arbitration) 43473143.1 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 4 of 142 CONCLUSION For the foregoing reasons, the Court should grant this Motion, and permit Kripke to file his concurrently submitted Amicus Curiae brief DATED: March 2,2018 Respectfully submitted, Ronald J. Nessim Thomas V. Reichert Fanxi Wang Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow, P.C. By J. Ne Attorneys for Curiae Eric Kripke and Kripke Enterprises 53473t43.1 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 5 of 142 C,q.sn No. 17-55813 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT CITY BEVERAGES, LLC dlblalOLYMPIC EAGLE DISTRIBUTING Appellant, MONSTER ENERGY COMPANY, fIWaHANSEN BEVERAGE COMPANY Appellee, Appeal From The United States District Court for the Central District of California D.C. No. 5 : 17-CV-00295-RGK-KK, Hon. R. Gary Klausner AMICUS CURIAE BRIEF OF ERIC KRIPKE AND KRIPKE ENTERPRISES IN SUPPORT OF APPELLANT CITY BEVERAGES, LLC URGING REVERSAL; DECLARATION OF RONALD T. NESSIM WITH EXHIBITS ATTACHED BIRD, MARELLA, BOXER, WM, DROOKS, LINCENBERG & RHOW, P.C. Ronald J. Nessim Thomas V. Reichert Fanxi Wang 1875 Century Park East, 23rd Floor Los Angeles, Califomia 90067-2561 Telephone: (3 10) 201-2100 Attorneys for Amici Curiae Eric Kripke and Kripke Enterprises VS Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 6 of 142 TABLE OT CONTENTS CORPORATE DIS CLOSURE STATEMENT il. Statement of Interest. m. Overview of Proceedings In WBTV v. Kripke IV. Argument Page I. Introduction.......... 5 6 10 13 22 23474765.2 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 7 of 142 TABLE OF AUTHORITIES Page(s) State Statutes Code of Civil Procedure $ 1281.96......... ..................23 Rules Fed. R. App. P.2e(a)()(E)......... .............. 10 Cal. R. Ct. Ethical Standards for Neutral Arbitrators $ 7(dX15)............ ll,14 Regulations Cal. Comm. Rep., Assembly Bill 802 Other Authorities David S. Schwartz, Mandatory Arbitration and Fairness, S4 Nornp Davn L. RBv. 1247, (2009) 27 In Arbitration, a 'Privatization of the Justice System, 'N.Y. Times, Nov. 1,2015 26,29 Jean R. Sternlight, Creeping Mandatory Arbitration: Is It Just?, SraN. L. Rev. 1631, (2005) ............27 Jessica Silver-Greenberg and Michael Corkery,In Arbitration, a 'Privatization of the Justice System, 'N.Y. Times, Nov. 1,2015............. Jessica Silver-Greenberg and Robert Gebelo ff , Arb itration Everywhere, Stacking the Deck of Justice, N.Y. Times, Oct. 31, 25 20t5 15,25 Ronald J. Nessim and Scott Goldman, Mandatory Arbitration Provisions Involving Talent and Studios and Proposed Areas for Improvement,22 UCLA ENr. L. Rnv. 233......... Marc Galanter, Why the "Heves" Come Out Ahead: Speculations on the Limits of Legal Change,9L& Soc'vRBv.95 (1974) J3474765.2 7 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 8 of 142 Matthew David Disco, The Impression of Possible Bias: What A Neutral Arbitrator Must Disclose in Califurnia,45 FlasrNcs L.J. I 13 (1ee3) Alexander J.S. Colvin and Mark D. Gough, Individual Employment Rights in the United States; Actors and Outcomes,68 ILR Review 10le (2015) 28,29 24 25 434'14765.2 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 9 of 142 CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 26.I of the Federal Rules of Appellate Procedure, amici curiae Eric Kripke and Kripke Enterprises make the following disclosures: (1) For non-governmental corporate parties, please list all parent corporations: None. (2) For non-governmental corporate parties, please list all publicly held companies that hold 10o/o or more of the part's stock: None. DATED: March 2,2018 Respectfully submitted, Ronald J. Nessim Thomas V. Reichert Fanxi Wang Bird, Marella, Boxer, Wolpert, Nessim, , Lincenberg & Rhow, P.C. J.NESSlM Attorneys Curiae Eric Kripke and Kripke Enterprises 53474765.2 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 10 of 142 I. Introduction. Amici Eric Kripke and his loan-out corporation, Kripke Enterprises, submit this brief and urge reversal of the district court because this appeal implicates an important - indeed, fundamental - element of the private arbitration system: the need for adequate disclosures to assure the legitimacy of the entire enterprise Private judging moves dispute resolution from the public forum to the private. And, in the case of a for-profit 'oneutral" provider, the case moves from a non-profit governmental agency to a for-profit enterprise. In virtually all instances, such arbitrations arise out of contract, an agreement between the two parties to move their disputes from the public (court) to the private (arbitration) forum. The fundamental assumption underlying this agreement is the legitimacy of the private forum, i.e., that the decision-maker in the latter is not pre-disposed in one direction over the other as compared to the public option. And, of course, if any particular dispute resolution provider (or even an individual decision-maker) turns out, in fact, to be partisan in some w&y, again assuming there is full information, the system should self-correct. But this assumes somethingthat was missing in the case of City Beverages - and, as addressed below, in the case of these amici: full information. In both instances, these parties were denied disclosures to help enable them to make 63474765.2 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 11 of 142 informed decisions about the arbitrators who were being assigned to decide their substantial disputes. In thc case of City Beverages, one of the arguments that has been advanced was that it asked for these disclosures too late; indeed, that was the first basis for Judge Klausner's ruling below. Amici offer this brief because their experience is different: they asked for their disclosures, including whether any of the proposed arbitrators was an owner of JAMS, at the very outset of the arbitration proceeding. Nevertheless, their requests were denied. Absent full information, the system cannot self-correct. And absent full information, concern about the neutrality, and thus legitimacy, of the entire enterprise of private judging is inevitable. This is particularly true in cases, such as both City Beverages' and amici's, where there is a repeat player on the other side of the dispute and it is being heard by a for-profit enterprise like JAMS. Since 1974, there has been ongoing research and analysis observing that results in arbitrations tend to be skewed in favor of repeat players.r And adding a profit motive by the dispute provider only increases the concem; certainly a neutral observer would understand that when both one party and the arbitration provider are repeat institutional players in the system, while the other party is a one-time participant, there can be an appearance of I Marc Galanter, Why the "Haves" Come Out Ahead: Speculations on the Limits of Legal Change,gL & Soc'y Rev. 95 (1974) 73474765.2 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 12 of 142 coziness and, also, a potential for the arbitrator to favor the repeat player in order to obtain more business - or, conversely, not to issue rulings that will send the repeat player looking elsewhere when it dictates the arbitration provider in its future contracts. Taking it as a given that mandatory pre-dispute arbitration is here to stay, the best way to combat the incentive structures that arise when two of the three participants in an arbitration are institutional players, incentive structures that are reinforced when a for-profit provider is mixed in, is through the disclosure to everyone involved of the full information about the relationships and financial incentives that are present. In California, the California Rules of Court include Ethical Standards for Neutral Arbitrators. Among them is Standard 7(dX15), which states: (d) A proposed arbitrator or arbitrator must disclose all matters that could cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial, including, but not limited to, all of the following: (15) Any other matter that: (A) Might cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial; As addressed below, amici respectfully submit that, in a situation where there is a for-profit arbitration provider, coupled with a repeat player who regularly uses that provider, on the one side, and a'oone off'player, on the other side, an objective person reasonably could entertain doubts about the impartiality of the arbitration 83474765.2 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 13 of 142 provider and the arbitrator and that additional facts about prior arbitrations and financial data need to be disclosed to provide assurances that the provider and arbitrator are, indeed, neutral. Indeed, such disclosures help ensure impartiality as no one will pick a provider or an arbitrator that rules for or against the repeat player in an inordinate percentage of cases Nothing here challenges whether arbitration is a good idea vel non, This is not a diatribe against arbitration. But assuming that the legitimacy of arbitration rests on the arbitral forum being as fair as the judicial one, that assumption can only be tested through knowledge, which is to say, through adequate disclosures. Just as we have government in the sunshine, the arbitral disclosures provide the same salutary benefit. As Justice Brandeis famously said, "sunlight is said to be the best of disinfectants." Louis D. Brandeis, Other People's Money and How the Bankers Use It 92 (1914). But it is only through fulsome disclosures that such benefit is achieved; and, conversely, when disclosures are requested and denied, it understandably adds a sense of mistrust to the party who is already an outsider compared to the repeat player and the paid providerlarbitrator. Under California law, disclosures are already extensive in consumer/employment arbitrations. Nothing has ground to a halt as a result. Here, amici merely ask that this Court recognize that a disinterested observer could 9347476s.2 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 14 of 142 reasonably be concerned for partiality in a repeat player/for-profit environment and that additional disclosures are requircd by law. Statement of Interest,2 Eric Kripke is the creator of a television series called 'oSupernatural," which is currently airing its thirteenth season; Supernatural originally aired on the WB Network and, since its second season, has aired on the CW Network. Kripke and his loan-out corporation, Kripke Enterprises (collectively, "Kripke") are curently engaged in the early stages of a JAMS arbitration proceeding against Warner Bros. Television Production Inc. ("WBTV") in connection with a dispute regarding Kripke's profit participation in Supernatural. WBTV is part of Warner Brothers, a large entertainment industry conglomerate that requires JAMS arbitrations in all (or virtually all) of its contracts, as do most other entertainment industry conglomerates. At the outset of the 'osupernatural" arbitration proceeding, Kripke requested that JAMS provide disclosures beyond those thatit ordinarily provides, and rested his request on two separate grounds. First, that the arbitration is a 2 Pursuant to Fed. R. App. P.29(a)()(E), Kripke states that: (a) no party or any party's counsel authored this brief in whole or in part; (b) no party or any party's counsel contributed money that was intended to fund preparing or submitting this brief; and (c) no person - other than Kripke - contributed money that was intended to fund preparing or submitting this brief. II. 3474765.2 10 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 15 of 142 consumer/employment arbitration as defined by California law. Cal. R. Ct. Ethical Standards for Neutral Arbitrators $ 2(d). Second, that, because of the danger of repeat player bias in situations where the neutral conducts large numbers of arbitrations on behalf of one party, while the secondparty is generally a one-time participant, further disclosures are required, because such a situation "rnight cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial." Cal. R. Ct. Ethical Standards for Neutral Arbitrators $ 7(d)(15). One of Kripke's specific disclosure requests was whether any of the proposed arbitrators was an owner of JAMS Despite the fact that Kripke's requests for disclosures were made at the beginning of the arbitration proceeding, JAMS, through its National Arbitration Committee ("NAC"), denied each of Kripke's requests, effectively finding that there was no basis for even a concern over repeat player bias. After an arbitrator was appointed and Kripke renewed his requests to him, they were denied a second time Since Kripke, like City Beverages, is likely a one-time participant in the arbitration system (unlike WBTV or Monster), he has an interest in helping to establish fair and adequate disclosures to ensure that, particularly with for-profit providers like JAMS, proper disclosures are made to help parties become aware of 3474765.2 11 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 16 of 142 and take into account the incentive structures that a repeat player system can engender Kripke modeled his requested reasonable concern for partiality disclosures on Professor Katherine Stone's trial court declaration in the City Beverages v. Monster case. Kripke asked for the requested disclosures prior to the selection of the arbitrator in part based on City Beverages' experience and the trial court's denial of its requests based on the timeliness of its requests. Kripke's recent experience, however, indicates that any lateness in City Beverages' requests did not make a difference. JAMS appears to have made a corporate decision at its highest levels (as the NAC consists of JAMS' general counsel, COO and Director of National Arbitration) that such disclosures will not be made even if they are asked for at the beginning of an arbitration proceeding Presumably, JAMS' litigation decisions in the City Beverages case, including arguing itself that City Beverages waived its right to seek further disclosures by not asking for them prior to the start of its arbitration, were also made at the highest levels of JAMS If City Beverages is successful on its appeal, it will help to establish that there is a reasonable concern of partiality requiring certain further disclosures - such as whether the arbitrator is an owner of a for-profit neutral like JAMS - in arbitrations where one party is a repeat player and the other is not. It will also help 3474765.2 I2 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 17 of 142 establish that repeat player bias is amatter of true concern, as established by academic, legislative and popular expressions of concern, contrary to what JAMS held in the Supematural case. Overview of Proceedings In WBTV v. Kripke3 WBTV commenced the Supernatural arbitration proceeding on September 26,2017 by filing its Demand seeking declaratory relief as to Kripke's profit participation in Supernatural. (Kripke has since filed a counterclaim seeking monetary damages.) On Octob er 4,2017 JAMS sent the parties a list of proposed arbitrators and each proposed arbitrator' s standard CV/resume On Octob er 20,2017 , in part informed by City Beverages' experience and JAMS' argument in that case that City Beverages waived its right for the disclosures it sought by not asking for them until after the arbitration was 3 Kripke provides this extended recitation of the procedural unfolding of his arbitration experience not to reargue it; this is plainly not the place for it. But it is important for the Court to understand that Kripke did everything correctly - asked for disclosures in advance, specifically asked for arbitrator ownership interests in JAMS, etc. - and ended up being denied any additional disclosures, with the justification that he had not established that his case was a consumer/employer arbitration or that repeat player bias was areal concern. Thus, whatever the procedural failing that was used for City Beverages not getting its disclosures, this amicus intended to show that, even when you do it all correctly, you end up in the same place. ilI 3414765.2 13 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 18 of 142 concluded, Kripke requested additional pre-selection disclosures that Kripke contended were required by law. (Exh. A.)4 There were two separate bases for the requested disclosures. First, Kripke contended that his case was a consumer/employment arbitration under California law, since the three criteria set out in the rules were met. California Rules of Court, Ethics Standards for Neutral Arbitrators ("CRCES"), Standard 2(d). Second, Kripke contended that additional disclosures were required based on the o'reasonable concern of partiality" ethical standard for neutral arbitrators. Cal. R. Ct. Ethical Standards for Neutral Arbitrators $ 7(d)(15). As to the second ground, Kripke did not assert actual bias by JAMS or the proposed arbitrators but, rather, that the facts and circumstances of his case were such as to create a reasonable concern of partiality due to the intersection of repeat player concerns and a for-profit provider. As to the basis of Kripke's concern over repe atplayerbias, the letter cited, among other things: (1) the informal survey discussed in a2015 article co-written by undersigned counsel, Mandatory Arbitration Provisions Involving Talent and Studios and Proposed Areas for Improvement, 22 UCLA ENr. L. Rev. 233 (the"20l5 4 All exhibits to the exhibits to this amicus have not been included (unless expressly noted) to reduce the burden on this Court. 34'14765.2 I4 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 19 of 142 UCLA article"), marshalling facts and circumstances indicating arepeat player conoern including Warner Bros. and the other large etrtettainment conglomerates requiring mandatory arbitration in all (or nearly all) oftheir agreements, Warner Bros. and the other large entertainment conglomerates requiring that JAMS be the arbitration provider in their agreements, the entertainment conglomerates' size and power in the Los Angeles economy, and JAMS' refusal to voluntarily disclose information regarding their repeat business from these entertainment conglomerates; (2) the expression of concern over repe at player bias in the legislative history of the California consumer/employment arbitration rules; (3) Professor Katherine Stone's declaration in the City Beverages case discussing academic studies confirming a reasonable bias of concern over repeat player bias, which was attached as Exhibit B to Kripke's October 20 letter; and (4) a series of articles in the New York Times raising concerns about the dangers of repeat player bias in arbitrations. See, e.g., Jessica Silver- Greenberg and Robert Gebeloff, Arbitration Everywhere, Stacking the Deck of Justice, N.Y.Times, Oct. 3I,2015, at A1. Kripke's disclosure requests based on the first and second grounds, including whether the proposed arbitrators had an ownership interest in JAMS, 3474765.2 15 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 20 of 142 were also set forth in the letter. (Exh. A at p. 5-6 (first ground) and p. 7-8 (second ground).) Relying on the Monster case, Kripke indicated that he needed to ask for these disclosures upfront to avoid any argument that they were otherwise waived: We are aware that JAMS has, in at least one prior case, taken the position that if aparty does not take action to oouncover additional information" regarding a potential arbitrator's financial interest in JAMS or to address possible repeat player bias prior to the selection of the arbitrator, that party has waived those objections for purposes of post-arbitration proceedings. fCitation to Monster case and Professor Stone's declaration in it omitted.] Kripke therefore respectfully requests that JAMS provide the requested disclosures at this early stage of the proceeding, in order to prevent similar issues from arising later in the proceeding. Exh. A at 7. WBTV filed a response on October 25. (Exh. B)5 As to Kripke's second reasonable concern of partiality ground for disclosure, WBTV offered no evidence and little argument. Kripke responded to WBTV's October 25letter on October 26. (Exh. C.) On November 2,2017, Sheri Eisner, JAMS general counsel, communicated that she had appointedZelaG. Claiborne as'ohearing officer to take evidence and make recommendations to JAMS' National Arbitration Council ("NAC")" on the t While, as noted in note 3 above, while Kripke does not seek to reargue his case and certainly does not seek to have this Court rule on his case, he wants to be fair to WBTV and JAMS and also put in the record their submissions/rulings on the requested disclosures. 3474765.2 r6 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 21 of 142 disclosure issues raised in Kripke's October 20Ietler. (Exh. D.) Ms. Eisner also stated In response to some of counsel's questions fas set forth in Kripke's 10126 reply], please note the following. The NAC is occasionally called upon to address issues that require decision-making when the arbitrator has not yet been appointed, is not available, or the issue involves the arbitrator and it would be inappropriate to have him or her decide the issue. In addition, JAMS occasionally is called upon to determine various arbitration administrative matters pursuant to the JAMS Rules. JAMS has delegated the authority to make these decisions to the General Counsel's Office and the NAC. (See, Rule l(c).) Members of the NAC [are] mysell JAMS Chief Operating Officer and the Executive Director of JAMS Arbitration Practice. On November 3, 2017, Ms. Claiborne sent the parties her disclosures. The disclosures were confined to the precise parties before her (WBTV and Kripke) and the two law firms that were counsel of record for those parties. None of the other disclosures requested in Kripke's October 20letter were made, including (1) disclosures of Ms. Claiborne's and the NAC Decision Makers' ownership interests in JAMS and (2) for other WBTV affiliates and CBS entities.6 6 Kripke sought disclosures for all Warner Bros. affiliates since all Warner Bros. entities appear to require mandatory JAMS arbitrations in all of their contracts, are repeat players, and because disclosures for WBTV alone would not give a complete picture. See also 2015 UCLA article at 236-37. Kripke asked for disclosures relating to CBS because it has a financial stake in the arbitration, since Kripke is claiming that the CW Network, a 50-50 CBS/Warner Bros. partnership, should have paid higher license fees to WBTV for Supernatural; had it done so, then the CW partners would each have received less income. Thus, if Kripke is successful in his counterclaim, it will have a negative economic impact on CBS. 3474765.2 t7 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 22 of 142 On November 1 6,2077, Kripke sent a letter requesting further disclosures by the NAC as the NAC was not yet in the picture at the time of his Octobcr 20 letter and that it would be the decision maker on the disclosure issues. (Exh. E.) In addition to ownership and other requested disclosures, Kripke asked: Whether any NAC Decision Maker has been involved in discussing, developing strategies for JAMS or otherwise has a personal stake on the repeat player issue and the questions/requests for fuither disclosures raised in my 20t5 UCLA Entertainment Law Review article. (Exh. E at 5.) On November 17,2017, WBTV filed a response to Kripke's October 25 letter. (Exh.F.) Once again, as to Kripke's second reasonable concern of partiality ground for disclosure, WBTV offered no evidence and little argument. Kripke submitted a response to WBTV's November 17 letter on December 5,2017. (Exh. G.)7 Kripke summarized eleven facts and circumstances that create a reasonable concern for partiaLity in his case such that, collectively, they should trigger the further disclosure requirements under Ethical Standard 7(d)(15): 1. WBTV and its affiliates have and have had since at least the early 2000s a policy to require (a) mandatory arbitration (b) with JAMS as the provider in all of its talent contracts. We also believe that policy extends to all (or substantially all) contracts any Warner Bros. entity enters into. These contracts probably total in the thousands each year. i The Genow declaration and the recent Australian court opinion referred to below, are included in the attached exhibit. 3474765.2 18 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 23 of 142 2. While many provisions in the WBTV and its affiliates' contracts are negotiable, the requirements that (a) all disputes will be arbitrated and (b) JAMS will be the provider are not among the negotiable provisions. The choice for Kripke in 2004 was to accept mandatory JAMS arbitration or not work. 3. Wamer Bros. and the other large entertainment conglomerates who require mandatory arbitration in their contracts are "repeatplayers" in JAMS arbitrations and mediations, whereas individuals like Kripke are not. 4. The California Legislature and academic studies, among others, have found that there is a reasonable basis to be boncerned about the oorepeat player" effect in case of arbitrations between large repeat player corporations and individuals. 5. The entertainment conglomerates are major players in the Los Angeles economy and the ten potential JAMS arbitrators in this case, whether they are owners of JAMS or not, have an economic incentive (whether they can totally put it aside consciously or unconsciously is a separate question) to favor the repeat player. 6. JAMS is a "for-profit" entity and the NAC Decision Makers, in particular, as its most senior agents, have an economic incentive (whether they can totally put it aside consciously or unconsciously is a separate question) to continue to be designated as the provider in the Warner Bros.' and other entertainment conglomerates' contracts with talent and others. 7 . While none of our requested disclosures in this case have yet been made, many of the proposed arbitrators and NAC Decision Makers are also likely owners of JAMS which means that they also directly profit from repeat player business even if they are not a participatingneutral in those proceedings (whether they can totally put it aside consciously or unconsciously is a separate question). 8. For those neutrals who are not yet JAMS owners, many presumably hope to become owners and therefore they also have a personal stake (whether they can totally put it aside consciously or unconsciously is a separate question) in maintaining repeat business from Warner Bros. and the other entertainment conglomerates. g. Currently, there is a lack of transparency as to how Warner Bros. and the other large entertainment conglomerates have fared in JAMS 347 47 65.2 t9 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 24 of 142 arbitrations. While other arbitration providers have chosen to make this information public, JAMS has not. 10. In addition to WBTV's unremitting personal attacks on Kripke's counsel for haviirg raised these concerns, WBTV has attempted to further intimidate Kripke and his counsel by threatening to seek its fees and costs simply because Kripke has raised them. This effort to preclude disclosure only raises our concerns about what WBTV is trying to hide. 1 1. Kripke cannot present more particularized evidence on the results of prior WBTV's and its affiliates' JAMS' arbitrations (as well as those involving CBS and CW which also have financial interests in the case) because WBTV and JAMS have refused to date to provide this information. (Exh. G at2-4 (footnote omitted).) These eleven facts and circumstances were supported by, among other things, (1) the declaration from Kripke's transactional lawyer, (2) a recent judicial opinion from Australia in a case involving a WBTV affiliate,8 (3) the legislative history of the consumer/employment arbitration rules expressing a concern over repeat player bias, (4) the informal survey of major studio practices, JAMS' refusal voluntarily to provide information and JAMS for-profit ownership status discussed in the 2015 UCLA article, and (5) Professor Stone's declaration and academic studies supporting a reasonable concern over repeat player bias 8 As to the judicial opinion from Australia, we stated: "[A]s reflected in a recent judicial opinion from Australia . . . Warner Bros. Pictures, an affiliate of WBTV, appears to have confirmed that it (and almost certainly WBTV and all other Warner Bros. entities) now has and has had since at least the early 2000s a practice to require (a) mandatory arbitration (b) with JAMS as the provider in all of their agreements." (Exh. G al17.) 3474765.2 20 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 25 of 142 The requested disclosures for the proposed arbitrators and the NAC were amended to make them less burdensome on JAMS. But thc disclosurcs on ownership interests in JAMS, among others, remained. (E"h. G at26-28.) There was a January 17 ,2018 telephonic hearing where counsel engaged in argument, but no new evidence was offered. (Exh. H.) Less than 24 hours after the hearing, the hearing officer recommended that the NAC deny all of the requested disclosures, and the three NAC members adopted her recommendation in full. (Exh. I.) As to Kripke's reasonable concern of partiality ground for disclosure, the hearing officer's report, adopted by the NAC, simply stated: The theories about alleged repeat player bias are totally unsubstantiated. Counsel for Kripke have shown no reasor-Iable basis for requesting these burdensome disclosures and certainly no requirement for them under California law or the JAMS arbitration rules. While denying all of Kripke's requests for disclosures, the NAC also refused to make disclosures about itself. The NAC Members, however, were likely owners of JAMS, involved in the repeat player controversy and have a stake to preserve the current JAMS' status quo of non-disclosure. The decision by JAMS, through the NAC, the apogee of JAMS, in the Supernatural case, and the litigation decisions made by JAMS in the City Beverages case seem to indicate that JAMS has made a corporate decision not to 3474765.2 2l Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 26 of 142 make disclosures relating to the repeat player issue; only intervention by the courts to support the disclosurcs required by the California legislature can change this situation. IV. Argument The dynamics and incentives present in a situation where one party is a repeat player and the other is not, particularly where the neutral is a for-profit enterprise that is regularly required as the arbitration provider for that repeat player, might cause a person aware of the facts to reasonably entertain a doubt that the arbitrator/provider would be able to be impartial. That is the standard requiring disclosures under the California Rules of Court's Ethical Standards for Neutral Arbitrators. As such, it should trigger disclosures beyond the mere basics that JAMS otherwise provides.e n We focus here on the second reasonable concern for partiality ground set forth in Kripke's request for disclosures because that is the ground implicated in the City Beverages' appeal. We believe, however, that JAMS' refusal to order disclosures on the basis that the arbitration should be deemed a consumer/employment arbitration, was also incorrect and in itself demonstrates the concern for partiality in cases like the Supernatural and City Beverages cases. Not only does the Certificate of Authorship, the only agreement signed by Kripke containing an arbitration provision, expressly state that Kripke is an employee of WBTV, but California law is clear that there can be more than one employer when a statute designed to protect employees is at issue, that "loan outs" are ignored in this context and that the common law "right to control" test determines whether there is an employment relationship. (Exh. G at 8-15) As to the second requirement that the contract was "drafted" by the non-consumer party, there was 3474765.2 22 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 27 of 142 JAMS is a for-profit enterprise; it exists to make money. In the enteftainment industry, most of the arbitration disputes arisc bctween individual talent (such as Kripke), who will likely be involved in a dispute only once, and entertainment conglomerates that are repeat players. As evidenced by the Genow declaration and the Australian decision (both attachments to Ex. G), WBTV dictates that all its disputes be resolved through arbitration, and has selected JAMS as its arbitrator of choice. Taken together, the for-profit nature of JAMS and the ability of the repeat player to dictate where its business will go - and, thus, the ability to steer its business away from providers from which it obtains unwelcome results - "[m]ight cause a person aware of the facts to reasonably entert ain adoubt that the arbitrator would be able to be impartial." CRC Standard 7(dxl5). That was exactly the case for City Beverages and it is exactly the case for Kripke. no dispute that the Certificate was a WBTV form. The issue was whether, by Kripke's counsel making modest comments to the Certificate (other than the mandatory JAMS arbitration provision that Kripke's transactional counsel knew to be non-negotiable), it ceased to be'odrafted" by WBTV. (Exh. G at l5) The NAC added the word "solely" when it found that the second requirement was not met, a word the statute does not use, and essentially found that since the Certificate was not a "click through" agreement, it ceased to be drafted by the non-consumer party when Kripke's counsel made comments to it. (Exh. I) There is no case law supporting this reading of the second requirement. As to the third requirement that the consumer party was required to accept the arbitration provision, the only evidence was Rick Genow's declaration that the mandatory arbitration provision was on a'otake-it-or-leave-it" basis and the Australia opinion. Despite this uncontradicted evidence, the NAC found that "Kripke was not forced to accept the terms." (Exh. I) We submit that the NAC's decision was clear enor that itself supports a concern of partiality. 3474765.2 23 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 28 of 142 Contrary to the NAC's summary dismissal of concerns about repeat player bias as "totally unsubstantiated," the concer"n is real and easily documented. The legislative history of Code of Civil Procedure $ 1281.96, which imposes public reporting requirements for consumer/employment arbitrations, shows that the statute was enacted to address precisely this concern: The use of mandatory arbitration clauses in consumer contracts has increased immeasurably in recent years and has been highly controversial for a variety of reasons, including issues surrounding concerns of "repeat players" whereby an arbitrator is inclined to rule in favor of corporations that return to them to arbitrate future matters In2002, AB 2656 (Corbett, Ch. 1158, Stats.2002) was introduced in response to skepticism about the fairness of such arbitrations and concerns with the "repeat player" problem in arbitrations, whereby a repeat defendant such as a corporate defendant ffi&Y, conspicuously or not, receive preferential of treatment or rulings from arbitrators who rely on being selected by the corporate defendant to earn a living as an arbitrator... June 23,2014, Cal. Comm. Rep., Assembly Bill 802 (Cal. 2014). The repeat player bias issue is also well documented in academic studies. Professor Stone's declaration in the City Beverages case is instructive. In particular, she discusses a recent study by Alexander Colvin of Cornell University and Mark D. Gough of Pennsylvania State Universit y,Individual Employment Rights in the United States; Actors and Outcomes,68 ILR Review 1019 (2015). Their article and underlying study indicates: 3474765.2 24 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 29 of 142 1. Earlier academic research on repeat player effects in arbitration have generally supported the existence of arepeat player effect and that cmployers involved in multiple arbitration cases tend to do better than not repeat players. Id. at 1023. 2. Their study indicates that, on average, each previous interaction between a given employer and an arbitrator decreases the odds of an employee's winning. When all other independent variables are controlled, the probability an employee will win her case when bringing it before a first time employer-arbitrator pairing is 17.9Yo, but if the defending employer had four previous interactions with the arbitrator, the probability decreases to 15.3yo, a l4.9o/o decrease. If there were 25 previous interactions between an employer-arbitrator pairing, the probability declines to 4.5o , a75o/o decrease relative to first time pairings. Id. at 1031-1035. 3. Even when they controlled for employer size and experience in arbitration, every additional interaction between an employer and an arbitrator results in reduced employee outcomes as measured by (a) win rates and (b) monetary award amounts. "One possible explanation for this relationship is that some arbitrators may be responding to economic incentives and issuing favorable awards to repeat clients." Id. at 1037. 4. Colvin's and Gough's study used a data base of American Arbitrators Association arbitrations ("AAA"). Id. at 1026-1027. (AAA is a non-profit organizalion and its neutrals only make money on the cases they personally handle. In contra\t, JAMS is a "for-profit" entity and its owner neutrals also make money on cuses they do not personally handle. Because the economic incentives are greater, there is reason to be concerned that the repeat player effect is worse in JAMS arbitrations.) 5. The article concludes as follows: "Justice in mandatory arbitration is not blind if parties are able to gain an advantage from selecting an arbitrator with desirable characteristics and especially if there are gains from doing repeat business with the same arbitrator." Id, at 1040. As also set forth in Kripke's letters, the press has also documented the concern. ,See Jessica Silver-Greenberg and Robert Gebeloff, Arbitration Everywhere, Stacking the Deck of Justice, N.Y. Times, Oct. 31,2015, at A1 347476s.2 25 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 30 of 142 ("[T]he rules of arbitration largely favor companies, which can even steer cases to fricndly arbitrators, intcrvicws and records show."); Jessica Silver-Greenberg and Michael Corkery, In Arbitration, a 'Privatization of the Justice System, 'N.Y. Times, Nov. 1,2075, at Al ("fArbitration R]ules tend to favor businesses, and judges and juries have been replaced by arbitrators who commonly consider the companies their clients, The Times found. . .. 'This is a business and arbitrators have an economic reason to decide in favor.of the repeat players."'). Further, "[I]n interviews with The Times, more than three dozen arbitrators described how they felt beholden to companies. Beneath every decision, the arbitrators said, was the threat of losing business. ffl] Victoria Pynchon, an arbitrator in Los Angeles, said plaintiffs had an inherent disadvantage. 'Why would an arbitrator cater to a person they will never see again?' she said." In Arbitration, a 'Privatization of the Justice System, 'N.Y. Times, Nov. 1,2015 We respectfully submit that JAMS' dismissal of all of the evidence supporting a concern over repeat player bias and its conclusory statement that such a concern is "unsubstantiated," while at the same time it refuses to disclose the prior results of JAMS' arbitrations involving Warner Bros. entities, is in itself further evidence in support of a reasonable concern of partiality. The problems and incentive structures that repeat-player v. single-player arbitrations raise are manifest both at the individual arbitrator level and also at the 263474765.2 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 31 of 142 provider level. There is also a potential appearance of bias at the level of the provider. As noted by Professor Sternlight: Obviously, once [an arbitration] company is named as the provider, financial benefits accrue to that company. . .. Thus, charge the critics, providers have a financial incentive to make sure that the company is pleased with the results in arbitration. If the fdisputant company that effectively chooses the arbitration provider] is displeased with the results secured through a particular provider it may well switch providers. Needless to say, providers and arbitrators vehemently deny the charge that they are biased. Providers urge that they have no direct influence over their arbitrators. Yet, critics maintain that, consciously or unconsciously, arbitrators may slant the result in companies' favor. Jean R. Sternlight, Creeping Mandatory Arbitration: Is It Just?, Stan. L. Rev 163I, 1650-51 (2005). Similarly, Professor Schwartzhas stated: [T]he repeat player studies seem to miss the broader point that arbitration is a service sold by arbitration vendors to putative defendants. That means the "aim to please" comes not only from individual arbitrators, but also from vendors -like AAA-whocompile the panels of potential arbitrators from which the parties choose. David S. Schwartz, Mandatory Arbitration and Fairness, S4 Notre Dame L. Rev. t247, 13 1 1-1 2 (2009). Where the provider is a for-profit organization, such as JAMS, and where some percentage of the arbitrators are themselves owners who are receiving the entities' profits, the incentive structures discussed by Professors Sternlight and Schwartz are magnified. As one commentator noted 25 years ago: As a private corporation, JAMS maintains a financial stake in the outcome of every arbitration hearing; it stands to benefit financially 3474765.2 27 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 32 of 142 from every matter submitted to it.... It has a direct interest in the volume of business done, and thus has a stake in maintaining satisfied institutional clients that constitute a source of repeat volume business. The vitality of the corporation as a whole depends in part upon the continued referral of matters to JAMS for arbitration, as does the welfare of its arbitrator employees. Matthew David Disco, The Impression of Possible Bias: What A Neutrql Arbitrator Must Disclose in Califurnia,45 Hastings L.J. 113,I39 (1993).10 It is worth pausing to emphasize a simple point. The discussion here is simply about the levels of disclosures that must be made; it is not about anything more than that. If sunlight is the best disinfectant, as Justice Brandeis stated, it is as true in arbitration as it is in our courts and other branches of government. After all, contractual arbitration simply moves disputes from the court system to a private system of dispute resolution, but the stakes of the dispute are just as real, and the need to ensure neutral, unbiased decision-making is just as present. The question here is simply what level of disclosures should be made to provide the parties to a dispute the information needed to select an arbitrator who is neither partial nor who a reasonable person may fear is partial. When the r0 At the time of this article, JAMS appears to have been owned by non- arbitrator shareholders, and the concern was that those shareholders would exert pressure on the employee arbitrators to favor repeat players in order to continue to receive business from those repeat players. As indicated in City Beverages' opening brief in this Court, JAMS is now owned by some 109 of its own neutrals. These neutrals now have an additional profit incentive (whether they can overcome it is a separate question) to favor the repeat player. 3474765.2 28 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 33 of 142 dispute involves arepeat player in the arbitration world against a likely one-time player, it is incumbent on the provider and the arbitrator to provide information that will instill confidence in the system. After all, the entire arbitration system rests on the belief that moving a case from the court system to the arbitration system will not actually affect the outcome, but that it will simply allow for a faster and more efficient resolution of the dispute. Id. at 116. The situation in which a single parfy repeatedly uses the same arbitration provider or the same arbitrator - particularly where there is a profit motive expressly present - naturally puts pressure on the fundamental assumption of neutrality and thus raises questions about the legitimacy of arbitration as a fair and neutral alternative to the judicial system. As indicated in the New York Times articles: [I]n interviews with The Times, more than three dozen arbitrators described how they felt beholden to companies. Beneath every decision, the arbitrators said, was the threat of losing business. Victoria Pynchon, an arbitrator in Los Angeles, said plaintiffs had an inherent disadvantage. "Why would an arbilralor cater to a person they will never see again?" she said. In Arbitration, a 'Privatization of the Justice System, 'N.Y. Times, Nov. 1,2015 The best way to address this situation is through thorough disclosures - such disclosures will either disclose otherwise-unknown connections and financial benefits or it will disclose no such thing. In either circumstance, such additional 347476s.2 29 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 34 of 142 disclosures are salutary. In this situation, knowledge is power, and ignorance is not bliss Arguments that further disclosures are wholly unworkable, as WBTV made in the Supernatural case, are also incorrect. In consumer/employment arbitrations, such disclosures are already mandated by statute; extending them outside this context is not only workable, but would result in more extensive disclosures. What is wrong with that where there is a reasonable concem of partiality? This is not only good policy; it is the law. What Kripke sought and what JAMS denied (by denying any reasonable concern over repeat player bias) are disclosures that the Ethical Standards for Neutral Arbitrators already require. While WBTV repeatedly argued that Kripke and his counsel were atoowar" with JAMS, and that Kripke's requested disclosures would effectively shut down JAMS arbitrations involving repeat players, it is wrong. Kripke and his counsel respect the many fine neutrals at JAMS. Providers like JAMS can also succeed in the marketplace if they make greater disclosures; indeed, as public concern about the fairness of arbitration proceedings increases, such disclosures and transparency are necessary to defend its legitimacy as an altemative to the legal process. Such disclosures are also already being successfully made by other providers. As stated in the 2015 UCLA article: Although JAMS declined to respond to our questionnaire, even where it had the requested information, we respectfully submit that it should 3474765.2 30 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 35 of 142 reconsider for two key reasons. First, there is a certain responsibility that comes with being the controlling provider in the talent versus major studio arbitration arena. With this responsibility, JAMS as a provider and its neutrals as individuals should address the repeat provider/player bias concerns by many in the talent community on their merits as opposed to conclusorily dismissing them as sour grapes from the losing side. Second, if JAMS, other providers and neutrals do not address these perceptions on their own, it may get to the point where state or federal legislatures, the courts andlor the marketplace will force JAMS (and other providers) to do so and impose reforms on their own. *t(*< Similarly, rather than litigating in each talent versus studio arbitration whether talent is an "employee" of the studio so as to trigger the consumer arbitration disclosure rules, the providers should simply voluntarily treat them as such. This would reduce and potentially eliminate the time and expense of collateral litigation on whether the proper disclosures were made. It would also reduce the risk of the arbitrator making an incorrect determination on the employee issue and the provider not making the required consumer disclosures as a result, which could result in the judicial vacation of the arbitration award. Our recommendations exist in practice and can be implemented. For example, the International Independent Film & Television Alliance (IFTA) has published summaries and results of all of its arbitration awards since 2007. Providers can also draw upon the experience of Major League Baseball (MLB) and its Basic Agreement which sets the rules for player salary arbitrations. While the MLB arbitrators are all drawn from a single provider, currently the AAA labor panel, the process self-corrects for repeat provideriplayer bias since all of the awards are publicly disclosed and with this information there is a real ability for each side to strike arbitrators who they believe have demonstrated a bias for one side or the other. The MLB system therefore creates a system and an incentive for the provider and individual arbitrators to play it straight. 2015 article UCLA at264-65. 3474765.2 31 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 36 of 142 The danger of repeat player bias is real; certainly the concern over it is JAMS summarily denying this concern does not make it go away or any less real. Accordingly, in a repeat-player/single-player dispute like Kripke's and City Beverages, such a situation "[m]ight cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial;" if so, additional disclosures are both proper and legally required. DATED: March 2,2018 Respectfully submitted, Ronald J. Nessim Thomas V. Reichert Fanxi Wang Bird, Marella, Boxer, Wolpert, Nessim, Lincenberg & Rhow, P.C. B Attorneys for d J. Nessim ci Curiae Eric Kripke and Kripke. Enterprises 3474765.2 32 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 37 of 142 CERTIFICATE OF COMPLIANCE PURSUANT TO FED. R. App.32(AX7XC) AND CIRCUIT RULE 32-1 Pursuant to Fed. R. App. P.29(a)(5),32 (a)(7XC) and Ninth Circuit Rule 32- 1, I certifu that the attached brief is proportionally spaced, has a typeface of 14 points and contains 6,953 words. DATED: March 2,2018 Ronald J. Nessim Bird, Marella, Boxer, Wolpert, Nessim, Lincenberg & Rhow, P.C. B J. Nessim Attorneys mici CuriaeEric Kripke and Kripke Enterprises 34'74765.2 aa JJ Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 38 of 142 CERTIFICATE OF SERVICE I certifu that on March 2,2018, I electronically filed the foregoing Motion for Leave to File Amicus Curiae Brief and Proposed Amicus Curiae Brief on Behalf of Eric Kripke and Kripke Enterprises in Support of Respondent-Appellee Urging Reversal with the Clerk of Court for the United State Court of Appeals for the Ninth Circuit using the appellate CIWECF system. I certiff that all participants in the case are registered CIWECF users and that service will be accomplished by the appellate CIVI/ECF system. Dated: March 2,2018 /s/Ronald J. Nessim 34747 65.2 34 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 39 of 142 DECLARATION OF RONALD J. NESSIM I, Ronald.I. Nessim, declare as follows: 1. I am an active member of the Bar of the State of California and a Principal with Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow, A Professional Corporation, attorneys of record for Amici Curiae Eric Kripke and Kripke Enterprises. I make this declaration in support of the Amicus Curiae Brief of Eric Kripke and Kripke Enterprises in Support of Appellant City Beverages, LLC Urging Reversal. Except for those matters stated on information and belief, I make this declaration based upon personal knowledge and, if called upon to do so, I could and would so testifii. 2. Attached hereto as Exhibit A is a true and correct copy of Kripke's October 20,2017 Ietter. (Except as expressly noted, the exhibits to the exhibits attached to this declaration have not been included.) 3. Attached hereto as Exhibit B is a true and correct copy of WBTV's October 25,2017 letter 4. Attached hereto as Exhibit C is a true and correct copy of Kripke's October 26,2017 letter 5. Attached hereto as Exhibit D is a true and correct copy of the November 2, 2017 letter from Sheri Eisner, General Counsel of JAMS. 3474765.2 35 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 40 of 142 6. Attached hereto as Exhibit E is a true and correct copy of Kripke's November 16, 2017 lettcr. 7. Attached hereto as Exhibit F is a true and correct copy of WBTV's November 17 ,2017 letter. 8. Attached hereto as Exhibit G is a true and correct copy of Kripke's December 5,2077 letter, including the Genow declaration and the Australia court oplnlon. 9. Attached hereto as Exhibit H is a true and correct copy of the reporter's transcript of the January 17 ,2018 hearing before Ms. Claiborne 10. Attached hereto as Exhibit I is a true and correct copy of the JAMS National Arbitration Committee's January 18, 2018 decision adopting Ms Claiborne' s recommendation. I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct, and that I executed this declaration on March 2,2018, at Los Angeles, J 3474765.2 36 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 41 of 142 EXHIBIT A Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 42 of 142 BIRD ÍMARELLA,. BIRD' MARELLA " BOXER. WOLPERT" NESSIM . DROOKS - LINCENBERG . RHOW Ronald l. Nessim rnessim@birdmarella.com 1875 Century Park East, 23rd tloor Los Angeles, California 90067-2561 Telephone (3r0) 201-2100 Facsi m¡ le (31 0) 2o7 -2770 www.BirdMarella.com File 4450.2 October 20,2017 Via E-Mail and U.S. Mail Anne Lieu Senior Case Manager JAMS 555 West 5th Street, 32nd Floor Los Angeles, CA 90013 E-Mai I : alieu@j amsadr. com Re Warner Bros. Television Production Inc. v. Kripke Enterprisesf/s/o Eric Kripke, JAMS Ref. No. 1220057510 Dear Ms. Lieu: We write on behalf of Respondent Kripke Enterprisesf/s/o Eric Kripke, and soon to be counter-claimant Eric Kripke, the individual, (collectively "Kripke"), to request that JAMS provide certain additional disclosures regarding the potential arbitrators listed in your October 4,2017 letter príor to the cuffent October 31,2017 deadline (or any extension of that date if JAMS needs additional time) to submit the "strike list," in which each party currently has the right to strike two names and rank the remaining candidates in order of preference. We also take issue with Claimant Warne¡ Bros. Television Production Inc.'s ("WBTV") assertion in its Demand for Arbitration ("Demand") that this is not a consumer arbitration. We believe that this dispute is properly classified as a consumer arbitration. We believe that the additional disclosures outlined below are both required and necessary. Fírst,they are required because this arbitration is a consumer arbitration pursuant to California Rules of Court, Ethics Standards for Neutral Arbitrators ("CRCES"), Standard2(d), and as such, CRCES 8 mandates certain additional disclosures by the provider within the timeframe set forth in CRCES 7(cX1) (r.e. within l0 days of service of notice of the proposed nomination)' Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 43 of 142 BIRD lmnruLLA,, BIRD"MARÊLLA.BOX€R.WOTPER'I.ilESSIM.DROOXS"TINC€NBTRG"RHOV' Anne Lieu October 20,2017 Page 2 Second, even if we are incorrect that this is a consumer arbitration, the additional disclosures we request are warranted due to the well-documented concern of potential "repeat player bias" when an arbitration involves a large corporation like WBTV against an individual. Those concerns are exacerbated when the large corporation and the conglomerate and industry it is part of requires arbitration in all (or nearly all) of its agreements, and to our knowledge exclusively or nearly exclusively requires that one arbitration provider, JAMS, be the provider. ,See Ronald J. Nessim & Scott Goldman, Mandatory Arbitratíon Provisions Involvíng Talent and Studíos and Proposed Areøs for Improvement,22UCLA ENr. L. ReV. 233,239 (2015)r; see also Commonwealth Coatíngs Corp. v. Cont'l Cas. Co.,393 U.S. 145, l5l-52 (1968) ("[W]here an arbitrator has a substantial interest in a firm which has done more than trivial business with a Party, that fact must be disclosed."); Schmítz v. Zilvetí,2O F.3d 1043,1047 (gthCfu. 1994) ("[s]howing a 'reasonable impression' of partiality is sufficient in a nondisclosure case" because'þarties can choose their arbitrators intelligently only when facts showing potential partiality are disclosed."). The legislative history of the recent amendment to the consumer arbitration rules also indicates that the authors sought to address the "repeat player" concern: In 2002, AB 2656 (Corbett, Ch. 1158, Stats. 2002) was introduced in response to skepticism about the fairness of such arbitrations and concerns with the 'orepeat player" problem in arbitrations, whereby a repeat defendant such as a corporate defendantmay, conspicuously or not, receive preferential treatment or rulings from arbitrators who rely on being selected by the corporate defendant to earn a living as an arbitrator. The proponents of AB 2656 argued that, in contrast to public court proceedings, consumer arbitrations are conducted in secret because of arbitration clauses or rules of the designated provider that were designed to impose secrecy - not because there was something inherent in the nature of arbitration or the function of the arbitrator that requires such secrecy. Accordingly, AB 2656 sought to "address these concerns and reduce any bias that may exist in favor of corporate repeat-players in consumer arbitration" by mandating public reporting of certain information by private arbitration companies conducting t While I am hesitant to cite an article I co-wrote on this subject, which was based in this regard on an informal survey I conducted, if WBTV contests this assertion, we would be happy to test it in an evidentiary hearing. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 44 of 142 BIRD lUnruLLA" BIRD,MARTI.LA"BOXER.WOI"PIRI'NESSIM.DROOKS,LINCENBERG"RHOW Anne Lieu October 20,2017 Page 3 consumer arbitrations. June 23, 2014, Cal. Comm. Rep., Assemb. B. 802 (Cat.20tQ. We also note that the disclosures we request below are not limited to WBTV, but should apply to each of V/BTV's affiliates, including all other Warner Bros. entities, as well as CBS Studios Inc. and its affiliates, and the CW Network, the latter of which is a 50-50 partnership between Warner Bros. Entertainment Inc. and CBS Studios Inc. (,See WBTV's Demand atnz) Attached hereto as Exhibit A is a list of all such affiliates that we can reasonably asCertain from the parent entities'public filings andlor websites, though we ask that JAMS exercise good faith and include any other such entities that it is aware of in its disclosures. CW Network has a direct financial interest in the outcome of the arbitration, as does its co-parent, CBS Studios, because the below-market license fees that Kripke alleges that CW paid for the Series enriched CW Network and its co-parent CBS Studios (and the CBS conglomerate it is part of) at the expense of Kripke and the other profit participants in the Series. (See, e.g.,Demand, Ex. C (Kripke's Audit Report) at 2 (Claim #l).) 'We respectfully request that the additional disclosures outlined below be provided to us (or, alternatively, that JAMS communicate to us its decision that it will not make some or all of the requested disclosures) at least three business days prior to our deadline to submit the strike list, so that we can make an informed decision in, among other things, exercising Kripke's strikes in a timely manner. We alternatively request that if JAMS needs additional time to make the requested disclosures and/or to rule on our requests, that it extend the deadline for the exercise of the strikes and all other deadlines to give us the time we request to meaningfully exercise our arbitrator selection rights. I. This Dispute Is a "Consumer Arbitration" Pursuant to CRCES 2(d) and 2(e). Contrary to WBTV's representation in its Demand, this dispute is a "consumer arbitration" pursuant to CRCES 2(d). "Consumer arbitration" means an arbitration conducted under a predispute arbitration provision contained in a contract that meets the following criteria: (1) The contract is with a ooconsumer party" as defined in CRCES 2(e); (2) The contract was drafted by or on behalf of the nonconsumer party; and Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 45 of 142 BIRD ; MARELLA- EIRD"MARÉtU"EOXTR.WOtPTRT'NESSIM"DROOKS"I-INCTNBER6.RHOW Anne Lieu October 20,2017 Page 4 (3) The consumer party was required to accept the arbitration provision in the contract. The only written contract signed by WBTV and Kripke concerning Supernatural referenced in or attached to the Demand, is the Certificate of Authorship ("Certificate").2 (Demand, Ex. A.) The Certificate, which contains the relevant arbitration provision, meets all three of the above criteria. Fírst, Eric Kripke qualifies as a "consumer party." CRCES 2(e) def,rnes "consumer party" as "a party to an arbitration who, in the context of that arbitration, is . . . an employee . . . in a dispute arising out of or relating to the employee's employment . . . that is subject to the arbitration agreement ." See CRCES 2(e) (emphasis added). The plain language of the Certificate, which was executed by WBTV and Eric Kripke (referred to as ooArtist") in his individual capacity, makes clear that the parties' relationship was one of employment. See, e.g., Cefühcate fl 2 ("Artist hereby acknowledges that . . . the Material was specifically ordered or commissioned by WBTV for possible use in the Series pørs uønt to Artist's employment by WBTV') (emphasis added). In addition to the plain language of the Certificate demonstrating an employment relationship, the nature of the relationship between WBTV and Eric Kripke (and the duties Eric Kripke performed pursuant to the parties' contract)3 was such that it also easily meets the common law test of an employment relationship. Among other things, during the relevant time period, WBTV exercised near-total control over the manner and 2 In its Demand, WBTV also relies on the arbitration provisions in the proposed blind script agreement, which itself includes proposed standard terms and conditions and proposed MAGR dehnitions, but none of these three proposed agreements were signed by the parties as they never completed their negotiation of them. 3 While the proposed blind script agreement was never signed, there is no dispute that the material terms of the contract between WBTV and Kripke concerning Supernatural were agreed to and performed by Kripke. One of the issues for the arbitration will be a determination of the precise terms of the contract as they relate to the issues in dispute and the interpretation of these provisions. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 46 of 142 BIRD ]IT4ANELLA* 8IRO,MÂRTTTÂ' BOXER'WOTPERI, NfSSIM ' DROO(s" LINCENBERG " RHOW Anne Lieu October 20,2017 Page 5 means by which Eric Kripke performed his services on Supernatural, including full time executive producer services for several seasons.a Second, the Certificate was drafted by WBTV, the nonconsumer party, thus meeting the second prong of the'oconsumer arbitration" test. Third, Kripke, as the consumer pafty, was required to accept the arbitration provision proposed by WBTV. Specifically, in addition to the current prevailing industry custom wherein WBTV and other television studios routinely require talent to accept an arbitration provision on a 'otake it or leave it basis," WBTV's November 8,2004 cover letter to Kripke (Exhibit A to the Demand) establishes that Kripke was required to sign the Certificate containing the arbitration provision as a prerequisite to WBTV commencing payment to him: Please note, although we commence payment as a courtesy upon execution of the Certificate of Authorship, continued payment is contingent on the execution of the fblind script agreement.] Thus, the contract at issue also meets the third prong of the "consumer arbitration" test. il. Additional Disclosures Mandated by CRCES I As this dispute is properly classified as a consumer arbitration, CRCES I requires that JAMS provide certain additional disclosures not limited to the selected arbitrator or even the proposed arbitrator candidates, including: (l) Any signif,rcant past, present or currently expected financial or professional relationships between JAMS and any party or lawyer in this arbitration (see CRCES S(bXl)). As discussed above, in addition to WBTV and counsel to the parties, we believe a See S.G. Boretto & Sons v. Dept. of Ind. Relatíons,48 Cal. 3d341, 351 (19S9) (the common law test of an employment relationship is "whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired"); Tieberg v. Unempl. Ins. App. Bd.,2 Cal. 3d 943, 952-53 (1970) (holding that screenwriters for the television show Lassíe were employees because Lassie Television exercised considerable control over the manner and means by which a writer fabricated a teleplay from a story). Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 47 of 142 BIRD IMNruLLA,. Bt RD - MARTLLA " 80XtR . WoLPÉRT , nEssllll , 0R00Ks " l-lllc€N8tRc " RHow Anne Lieu October 20,2017 Page 6 that disclosures should be made as to all Warner Bros. entities, including the CW Network, and all CBS entities; (2) If JAMS has provided or is providing dispute resolution services for any party (again,we believe that disclosures should be made as to all Warner Bros. and CBS entities, including the CW Network) or lawyer in this case, information regarding such prior or pending cases, including the type of disposition of each dispute, the amount of the claim, prevailing party and the amount of monetary damages and any other relief granted, if any (see CRCES 8(bX2)-(3)); and (3) Any financial relationship between JAMS and each potential arbitrator, as well as detailed information regarding JAMS' arbitrator selection process (see CRCES S(bXc)). See also Martin H. Malin, The Arbitration Fairness Act: It Need Not and Shoutd Not be an All or Nothing Proposítíon, 87 INo. L. J. 289,312-313 (20\2). For the sake of efficiency, we do not recite the full requirements of CRCES I here, but respectfully refer JAMS to the full text of that ethical standard. Once again, we request (a) att of the information required to be disclosed by the consumer arbitration rules beþre we make our decisions on the next steps, including arbitrator selection and (b) that this information be given for JAMS as a whole (including all of its neutrals) and in particular for the ten candidates proposed by JAMS. ¡1I. Additional Disclosures Are Warranted Regardless of Whether This Dispute Is Classified As a Consumer Arbitration. Even if JAMS disagrees with us and rules that this dispute should not be classified as a consumer arbitration, the additional disclosures we request are still necessary and proper, due to the well-documented concerns of potential "repeat player bias" by large àrbitration providers who have recurring business from large companies and their affiliates such as WBTV, CW Network and CBS Studios. See, e.g., Silver-Greenberg, Jessica and Gebeloft Robert "Arbitration Everywhere, Stacking the Deck of Justice," N.Y. Times, October 31,2015 at 4.3; and Silver-Greenberg, Jessica and Corkery, Michael "In Arbitration, aPrivatization of The Justice System," N.Y Times, November 1, 20t5. An arbitrator's nondisclosure of facts showing a potential conflict of interest creates "evident pafüality" that warrants vacaturo even when no actual bias is present. Commonwealth Coatings Corp. v. Cont'l Cas. Co., 393 U.S. 145,I49 (1968). "[V/]here an arbitrator has a substantial interest in a firm which has done more than trivial business Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 48 of 142 BIRD iIVtNruLLA,. BÍRO- MARELIA" BOX€R.WOTPER'I. NESSIM'DROOKS ' TI}.IC€NBERG. RHOW Anne Lieu October 20,2017 PageT with a party, that fact must be disclosed." Id. at l5l-52. The Ninth Circuit has applied this standard to vacate awards where the arbitrator's failure to disclose information creates a reasonable impression of partiality. See Schmítz v. Zílveti,20 F.3d 1043, 1047 (9th Cir. 1994) ("[s]howing aoreasonable impression' of partiality is sufficient in a nondisclosure case" because'þarties can choose their arbitrators intelligently only when facts showing potential partiality are disclosed."); see a/so CRCES 7(d) ("4 proposed arbitrator . . . must disclose all matters that could cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial."). Similarly, California law requires that an arbitration award be vacated if an arbitrator fails to "disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware . . . ." Cal. Civ. Proc. Code. g 1236.2(a)(6XA). Under California law, however, the party challenging the arbitration award does not have to show evident partiality. Instead, the party challenging the arbitration award must only establish that the arbitrator failed to make a required disclosure. 1d. We are aware that JAMS has, in at least one prior case, taken the position that if a party does not take action to "uncover additional information" regarding a potential arbitrator's financial interest in JAMS or to address possible repeat player bias prior to the selection of the arbitrator, thatparty has waived those objections for purposes of post- arbitration proceedings. See JAMS Inc.'s Supplemental Memorandum Regarding Motion to Compel Production of Documents, Monster Energlt Co. v. Cíty Beverages LLC,No. 5:17-gv-00295-RGK-KK (C.D. Cal.) (Dkt. No.42); see also Declaration of Professor Katherine V.W. Stone in support of Olympic Eagle's Motion to Compel Production of Documents ("Stone Declaration"), íd. at Dkt. No. 38-2 (a copy is attached hereto as Exhibit B). Kripke therefore respectfully requests that JAMS provide the requested disclosures at this early stage of the proceeding, in order to prevent similar issues from arising later in the proceeding. Thus, regardless of JAMS' decision concerning whether this dispute is a 'oconsumer arbitration," and to the extent not duplicative of the information, if any, provided by JAMS as set forth in CRCES 8, we request that JAMS provide the following additional disclosures regarding each of the ten proposed arbitrators for the past five years: (l) Which, if any, of the proposed arbitrators on the strike-out list have an ownership or other interest in JAMS, and the extent of each potential arbitrator's equity interest; Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 49 of 142 BIRD lUrn¡LLA. BIRD"MÀRETLA"EOXTR,WOTPER'I"NESSIM" OROOXS"TITICTNBERG"RHOW Anne Lieu October 20,2017 Page 8 (2) Whether any Warner Bros. aff,rliated entity, CBS-affiliated entity or O'Melveny & Myers, counsel to WBTV, is a repeat user of JAMS ("Repeat User"), and the number of prior matters any proposed arbitrator has conducted involving any Repeat User; (3) Whether any aspect of the compensation of any equity-owning arbitrators included on the strike-out list is tied to services provided to any Repeat lJser, including sharing in JAMS' profits from its business with that Repeat User; bonuses for client recruitment, management or retention, or furthering the revenue of a particular geographic profit centers; or other compensation-generating mechanisms; and if the ánsweris yes as to any of the above, the amount that the proposed arbitrator has earned from any business JAMS has had from the Repeat User; (4) Copies of the arbitral awards in all cases by any of the ten proposed arbitrators involving any Repeat User or any other talent v. studio dispute in the entertainment industry. (We are open to redactions of names of the parties, etc., if they are not a Repeat User and possibly otherwise to preserve confidentiality. If this is a concern, we can discuss); (5) Any special inducements or benefits, such as fee reductions, access to JAMS' databases, social events with JAMS' arbitrators, special training sessions for arbitration panel members, or other perks, that JAMS has accorded any Repeat User at any time; (6) We were surprised that JAMS proposed ten candidates for a single arbitrator arbitration. We would appreciate further clarity about the exact procedures that JAMS will use to select a neutral arbitrator for this dispute after the parties' submission of their strike-out lists. For example, several proposed arbitrators will remain after each party strikes out names and submits a ranking of the remaining candidates in order of þr.f.r.n.". What weight is accorded to each party's preferences, and what mechanism is used to arrive at the ultimate selection? (In addition, given that JAMS has designated ten potential arbitrators on the strike-out list, we reserve the right to request that our number of rtrik.r increase by one or two after we receive the disclosures requested by this letter or JAMS' denial of our requests in whole or in part') **** As discussed above, we would appreciate a response to our requests at least three business days before Kripke is required to submit his "strike-out list," as we believe that Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 50 of 142 BIRD ; MARELLA,. EIRD"MANTIA"BOXER,'A/OTPERT. NESSIM,OROOKS"TINCÊN8ÊRG"RHOW Anne Lieu October 20,2017 Page 9 without the requested additional disclosures, Kripke will be unable to exercise informed judgment in choosing a neutral arbitrator for this dispute. Finally, we want to stress that by writing this letter, we do not intend to impugn the reputation of JAMS or of any of the proposed arbitrators, several of whom we know and all of whom have distinguished reputations. Rather, as noted in the research cited in Professor Stone's declaration (see Ex. B) and elsewhere, we believe that our concern over repeat player bias is a reasonable one, particularly in the context of a talent versus studio arbitration. JAMS is also aoofor profit" business, the vertically integrated entertainment companies that the studios are part of are an importantpart of the Los Angeles economy and we are all (myself included) susceptible to at least subconsciously giving weight to our own economic interests. Therefore, we believe that failure to provide the requested disclosures would violate the consumer arbitration rules and trigger the court's "reasonab'le impression of partiality" standard. Moreover, JAMS itself has made clear in the Monster case and elsewhere that these questions must be asked upfront in order to avoid waiver issues later in the proceeding. We thank you in advance and please feel free to contact us for cooperation, we look forward to your response, questions J ESSl1n RJN:FW cc: Daniel M. Petrocelli (via email) Matthew Kline (via email) Timothy B. Heafner (via email) Thomas V. Reichert Fanxi Wang 343',710t.r Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 51 of 142 EXHIBIT B Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 52 of 142 File Number: T: +1 310 553 6700 F: +1 310 246 6779 omm.com O’Melveny & Myers LLP 1999 Avenue of the Stars 8ᵗʰ Floor Los Angeles, CA 90067-6035 Matt Kline D: +1 310 246 6840 mkline@omm.com Century City • Los Angeles • Newport Beach • New York • San Francisco • Silicon Valley • Washington, DC Beijing • Brussels • Hong Kong • London • Seoul • Shanghai • Singapore • Tokyo October 25, 2017 VIA E-MAIL Anne Lieu Senior Case Manager JAMS 555 West 5th Street, 32nd Floor Los Angeles, CA 90013 Email: alieu@jamsadr.com Re: WBTV v. Kripke Enterprises (JAMS Ref. No. 1220057510) Dear Ms. Lieu: We write on behalf of claimant Warner Bros. Television Production Inc. (“WBTV”) in response to Respondent Kripke Enterprises’ October 20, 2017 letter requesting that JAMS make certain additional disclosures to Respondent prior to the parties’ October 31 deadline to return their “strike list.” As an initial matter, we were surprised to receive Respondent’s 50-page submission on October 20, given that Respondent recently requested an additional one-week extension of all deadlines previously set for October 24 (on top of the two-week extension Respondent already requested and received) citing alleged “personal obligations” of counsel that prevented Respondent from meeting the agreed-upon deadlines. It appears that Respondent was not unavailable, but rather wanted this additional time to prepare its 50-page letter demanding unnecessary additional disclosures and to seek means to further delay these proceedings, beyond the delay Respondent has already sought and caused. Leaving aside the improper timing of Respondent’s letter, there is no basis for the additional disclosures it requests. Contrary to Respondent’s assertion, and as shown in WBTV’s demand, this is not a “consumer arbitration.” Respondent is not a consumer party, nor was Respondent forced to accept the arbitration provisions at issue. Respondent is a successful television writer and producer, who has been paid millions of dollars pursuant to the agreements at issue in this dispute. Respondent was and always has been represented by top entertainment lawyers and agents during the negotiation of the agreements at issue, and their sophistication and bargaining power are clear from a review of the agreements, which include heavy interlineations illustrating that Respondent was not forced to accept terms. See Exs. A & B to Demand.1 1 As Respondent notes, while the parties never formally executed the long-form blind script agreement, the “material terms of the contract between WBTV and Kripke concerning Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 53 of 142 2 Indeed, Respondent’s counsel concedes in his own cited law review article that talent, such as Respondent, are not typical “consumer parties.” Rather, they are “well represented individuals” and “a far cry from the classic consumer/employee, who is not represented and may not even be aware of the presence of an arbitration provision in the boilerplate of a contract he or she is signing.” R. Nessim & S. Goldman, Mandatory Arbitration Provisions Involving Talent and Studios and Proposed Areas for Improvement, 22 UCLA ENT. L. REV. 233, 234 (2015).2 As this is not a consumer arbitration, JAMS is not obligated to make the disclosures set forth in Rule 8 of the California Rules of Court, Ethics Standards for Neutral Arbitrators ("CRCES"). Nor, as Respondent acknowledges, is JAMS obligated under California law or JAMS Rules to make the numerous additional disclosures that Respondent requests on top of the CRCES disclosures. Further, in no event should JAMS disclose any confidential information of WBTV (including the alleged WBTV “affiliates” named by Respondent) or counsel for WBTV (or any of counsel’s other clients). For instance, Respondent requests copies of any arbitral awards that any of the 10 proposed arbitrators have issued that involve WBTV, WBTV’s alleged “affiliates,” or counsel for WBTV in the past five years. Not only is this inquiry far overreaching, if any such awards were issued in confidential arbitrations, the awards cannot be disclosed pursuant to the confidentiality agreements governing such cases. Respondent also appears to seek information regarding all dispute resolution services, which would include confidential mediations and arbitrations that JAMS has conducted for WBTV, any of WBTV’s alleged “affiliates,” or any O’Melveny attorney in this case at any time. In addition to being unduly burdensome, such a request would clearly require the disclosure of confidential information. WBTV further does not believe it is necessary for JAMS to disclose additional information about the arbitration selection process, beyond what JAMS already provides in its rules regarding the selection of an arbitrator. Nor does WBTV believe it is necessary for JAMS to Supernatural were agreed to,” Oct. 20, 2017 Letter at 4 n.3; the parties have performed under those terms for years now; and such agreements-signed or not-are fully enforceable. E.g., CAL. CIV. CODE § 1584 (“Performance of the conditions of a proposal, or the acceptance of the consideration offered with a proposal, is an acceptance of the proposal.”), § 1589 (a “voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it…”); Vita Planning & Landscape Architecture, Inc. v. HKS Architects, Inc., 240 Cal. App. 4th 763, 773 (2015) (parties entered into agreement although written agreement was unsigned where the parties “conducted themselves as though they had an agreement”); see Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987) (“[I]t is well-established that a party may be bound by an agreement to arbitrate even absent a signature.”). Moreover, as is clear from the last redline of the agreement-which is included in Exhibit B to the Demand and is the agreement the parties performed under for years-the agreed upon material terms include the arbitration provision, which Respondent assented to during the extensive negotiation process. 2 As JAMS has indicated, the Arbitrator will hear and rule on the issue of whether this is a consumer arbitration after he or she is appointed. WBTV has not fully addressed the myriad reasons why this is not a consumer arbitration, and reserves all rights to further brief that issue should Respondent persist in pressing it. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 54 of 142 3 increase the number of strikes per side in this dispute. However, to the extent JAMS provides additional strikes to Respondent, WBTV must receive the same benefit. Ultimately, Respondent’s request is without merit and appears to be a tactic designed both to delay this arbitration, and to enable Respondent’s counsel to gather additional information to cast erroneous aspersions on JAMS and parties like our clients. Cf., e.g., Nessim & Goldman, supra, at 257-58, 263-66 (arguing that JAMS is “too closely aligned with the studios” and that there is “an appearance of bias in the case of a JAMS arbitration of a talent versus major studio dispute”; arguing JAMS should alter its disclosure policies and arbitrator selection procedures). WBTV reserves all rights. Sincerely, /s/ Matt Kline Matt Kline cc: Ronald J. Nessim Thomas V. Reichert Fanxi Wang Daniel M. Petrocelli Timothy B. Heafner Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 55 of 142 EXHIBIT C Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 56 of 142 BIRD IUARELLA,, BIRD. MARELLA. BOXER.W0LPERT. NËSSIM' DR00KS' TINCENBERG' RH0W Ronald f . Nesslm rnessim@birdmarella.com 1875 Century Park East, 23rd tloo¡ Los Angeles, Callfomla 90067-2561 Telephone (310) 201-2100 Facslmile (310) 2ot-277o www.BlrdMarella.com Fite 4553.2 October 26,2017 Via Email and U.S. Mail Anne Lieu Senior Case Manager JAMS 555 West 5th Street, 32nd Floor Los Angeles, CA 90013 Re: Kripke adv. Warner Bros. Television Production,Inc. Dear Ms. Lieu: Kripke responds to WBTV's October 25lette.r as follows: A. Merits. 'WBTV's October 25 response makes conclusory assertions that (l) this is not a consumer arbitration o'as shown in WBTV's demand;" (2) Kripke was not forced to accept \MBTV's proposed arbitration provision; (3) Kripke is a successful writerþroducer who has made millions on the Series; (4) Kripke has been represented by top counsel; and (5) Kripke is not a"typical" consumer party. We respond to each of these contentions below. First, WBTV's Demand does not establish that this is not a consumer arbitration; WBTV merely checked a box asserting that it was not. In fact, as set forth in our October 20Ietter,Kripke meets each of the three requirements under California law for a consumer arbitration. Indeed, the only requirement WBTV disputes is that Kripke was forced to accept the arbitration provision, but WBTV's own cover letter (part of Exhibit A to the Demand) shows that his signing the Certificate containing the arbitration provision was a condition to his getting paid. Our October 20leÎ,te.r also cites to the prevailing industry custom and practice wherein WBTV (and other vertically integrated ielevision studios) require talent to accept arbitration on a "take it or leave it basis." Rick Genow, Kripke's transactional attorney, who negotiated the blind script agreement at issue on Kripke's behalf, can also testiff to that. The fact that Kripke was able to negotiate other terms of the parties' contract also does not mean that the arbitration term Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 57 of 142 BIRD IMARELLA" 8IRD. MARTTTA'BOXER.WOIPERf "IIESSIM'DROOKS.IINCTNBTRG' RHOW Anne Lieu October 26,2017 Page 2 was negotiable.l (If JAMS requires more evidence to rule on this issue or any other issue, Kripke requests an evidentiary hearing.) There are also no exceptions in the consumer rules for highly paid employees andlor employees represented by counsel. The fact that Kripke is not a"typical'o employee is not a basis to conclude the consumer rules do not apply. While'WBTV cites my 2015law review article in this regard, nowhere does my article-or any other authority-state that the consumer rules are inapplicable in a talent versus studio dispute. Furthermore, atthe time the blind script agreement was negotiated in2004, Kripke was early in his career, had limited bargaining clout, and did not know that the Series would be successful or that he would eventually make substantial sums on it. B. Response to wBTV's arguments that do not go to the merits. Unfortunately, WBTV's October 25 response is light on the merits and more based on personal and misleading attacks on Kripke and his counsel. In particular, WBTV states that (1) oowe were surprised to receive Respondent's 50-page submission on October 20;" (2) Kripke was given an additional third week extension to October 31 because of 'oalleged personal obligations of counsel'o and it now appears that counsel oowas not unavailable;" (3) Kripke's October 20 letter is "designed both to delay this arbitration, and [(4)] to enable Respondentos counsel to gather additional information to cast erroneous aspersions on JAMS and parties like our clients." Kripke again has multiple responses. First and most importantly, WBTV accuses Kripke of casting "erroneous aspersions" on JAMS. We respectfully submit that it is irresponsible for WBTV to fan thè flames here. As our Octob er 20letter makes clearo Kripke is caught in a"Catch22" of either raising what he believes are legitimate concerns or waiving them: Finally, we want to stress that by writing this letter, we do not intend to impugn the reputation of JAMS or of any of the proposed arbitrators, several of whom we know and all of whom have distinguished reputations. Rather, as noted in the research cited in Professor Stone's declaration (see Ex. B) and elsewhere, we believe that our concern over repeat player bias is a reasonable oneo particularly in the context of a talent versus studio arbitration. . . . Moreover, JAMS itself has made clear in the Monster case I As to WBTV's footnote 1, it will be an issue for the arbitrator, not here relevant, to determine the precise terms of the parties' agreement. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 58 of 142 BIRD I UNNTLLA" BtR0. MARE[tA. BoXER 'WOI-PERT" ttESSlM.0R00l(5. tlNcÉN8tRG ' RH0W Anne Lieu October 26,2017 Page 3 and elsewhere that these questions must be asked upfront in order to avoid waiver issues later in the proceeding. Second, it is incorrect to argue that Kripke is seeking to improperly delay the proceedings. Kripke sent his October 20 letter 1l days before the current October 31 ãeadline for the strike list precisely to give JAMS an opportunity to provide the requested information or rule that it would not beþre the deadline. While it is unclear if the October 31 deadlines are now stayed (see Section C below), Kripke is still prepared to meet them Third, as to V/BTV's alleged surprise, even if advance notice was needed (and none was), the consumer arbitration issue was expressly highlighted in my October 3 email to WBTV's counsel and to JAMS: "Among other things, we do not agree that this is not an employment arbitration where the consumer rules do not apply; we are looking into the issue and reserve our rights there." Surprise indeed. Fourth, the personal obligations prompting the request of an extension ftom 10124 to l0/31 were those of my partner, Tom Reichert, who is taking the lead on the response to \üBTV's Demand and our own counterclaims and who made the request. He was, in fact, out of the office all of last week. (Fanxi Wang and I took the lead on the Octobet 20 letter and it was sent last week.) Finally, our October 20letter was also only nine pages; it is only 50 pages with attachments. C. JAMS National Arbitration Committee and Stay. In your October 25 email,later withdrawn, you state "This matter is now under submission by the JAMS National Arbitration Committee. All deadlines will be stayed and continued to alaTer date after a ruling has been issued." First, we are unfamiliar with JAMS National Arbitration Committee, including who the neutrals are andtheir disclosures/ties to the parties and counsel, including whether they have had any past involvement with respect to the issues raised in my 2015 law review article. We again raise these issues with all due respect; we are in the same "Catch 22" situation as described in the prior section. Therefore, until we get further information on these issues, we need to reserve our position as to whether we have objections to this group deciding the important issues raised in our October 20 letter. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 59 of 142 BIRD I tvtnnfllA* 8IRÐ. MARETTA. BOX€R.WOI.PERT. NESSIM. DROOKS. I.INCENETRG. RIIOI{ Anne Lieu October 26,2017 Page 4 Second, on a more mundane note, can you clariS if you were just withdrawing the statement in you October 25letter that the matter was submitted (until you received our reply) or whether you were also withdrawing the rest of your statemento including the stay? We are prepared to assert our counterclaims and response to WBTV's Demand by October 31, but seek clarification here. Thank you. Ronald essim RINjle cc: Matt Kline Daniel M. Petrocelli Timothy B. Heafner Thomas V. Reichert Fanxi Wang 3440559.1 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 60 of 142 EXHIBIT D Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 61 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 62 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 63 of 142 EXHIBIT E Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 64 of 142 Ronald J. Nessim rnessim@birdmarella.com 1875 Century Park East, 23rd Floor Los Angeles, California 90067-2561 Telephone (310) 201-2100 Facsimile (310) 201-2110 www.BirdMarella.com File 4553.2 November 16, 2017 Via E-Mail and U.S. Mail Anne Lieu Senior Case Manager JAMS 555 West 5th Street, 32nd Floor Los Angeles, CA 90013 E-Mail: alieu@jamsadr.com Re: Warner Bros. Television Production Inc. v. Kripke Enterprises f/s/o Eric Kripke, JAMS Ref. No. 1220057510 Dear Ms. Lieu: A. Introduction and Procedural History. As we have raised in our prior correspondence, we and Eric Kripke, our client, are concerned about the danger of “repeat player” bias in situations where one party to the arbitration proceedings and its affiliates appear regularly before the same, self-selected arbitration provider where the other party does not. In particular, in a “company town” like Los Angeles, we believe that members of the talent community are justifiably concerned about the danger of arbitration providers and their neutrals being influenced in favor of the entertainment conglomerates that draft the contracts that direct the business to them. While WBTV dismisses our concerns here as a meritless “sideshow” and therefore threatens to seek its attorneys’ fees and costs for our raising them, our concerns are not only supported by common sense and economic realities, but they have been confirmed by recent empirical research. See Colvin, A.J.S., & Geogh, M.D. (2015), “Individual Employment Rights Arbitration in the United States: Actors and Outcomes,” Industrial and Labor Relations Review, 68(5), 1019-1042, a copy of which is attached hereto and which is cited in Professor Stone’s declaration, itself an attachment to our October 20, 2017 letter. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 65 of 142 BIRD lmnruLLA" BIRD.MARTLI"A"BOXER,WOTPERT'IIESSIM"DROOKS'I,INCENBERG'RHOW Anne Lieu November 16,2017 Page2 Furthermore, while we respect JAMS as an organization and its many fine neutrals, we also disagree with it to the extent that it also believes that our concerns about repeat player bias have no basis, can be cured by a neutral's simple promise to be fair or that there should not be greater transparency, particularly whereo as here, there is a real repeat player concern. Indeed, JAMS representatives have suggested that JAMS will not go U.yb"d the disclosures required by law for "competitive reasons." While we i.rpr"ttrily disagree with this position, we believe that in this case the disclosures we ,..i ur., in fact, as set forth in our prior letters, compelled by law both because this is a consumer/employee arbitration and because of the appearance of bias. Therefore, because ofthe dangers that repeat player bias pose, even as an unconscious influence, and given the importance of this arbitration proceeding to the financial well-being of our client, a non-repeat player in JAMS arbitration proceedings, we again raise our iequests for.greater disclosures. While this puts us in the unroftfortable position of sending letters such as this one, we feel we have no alternative to doing so due to the importance of the issue and in order to preserve Mr. Kripke's rights/avoid potential waiver. We first requested in our October 26,2017 letter that JAMS make additional disclosures regarding the members of its National Arbitration Committee ("NAC"). We now also request that the same additional disclosures be provided regarding Ms. Claiborne, the hearing officer appointed by the NAC to take evidence and make recommendations to the NAC rigarding the issues raised in our October 20,2017 letter. (We collectively refer to the non-recused NAC members and Ms. Claiborne as the .'NAC Decision Makers" in this letter.) In response to our October 20letter, WBTV's October 25 opposition and our October 26 reply, JAMS issued a o'Notice" on November 2,2017, which disclosed the identities of the non-recused NAC Decision Makers by the positions they hold, namely as JAMS' General Counsel, Chief Operating Officer and Executive Director of JAMS Arbitration practice. The Notice did not provide any other disclosures other than the fact that Richard Chernick recused himself. As we stated in our October 26letter,we are unfamiliar with the NAC (other than the brief and general references to it in JAMS' arbitration rules) and whether any of its non-recused members have ties/conflicts to (1) the parties/counsel in this matter and (2) the repeat player issues raised, and therefore request, for the same reasons and pursuant to the same authorities as we set forth in our October 20letter, that similar disclosures be Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 66 of 142 BIRD IUAruLLA" EIRO,MARTLtA'BOXER,WOTPERT"NESSIM.DROOKS"I,INCENBERG"RHOW Anne Lieu November 16,2017 Page 3 made regarding the NAC Decision Makers as we requested for the ten proposed arbitrators in our October 20 letter. With respect to Ms. Claiborne, JAMS' November 2,2017 Notice simply stated that she has been appointed as the hearing officer to take evidence and make recommendations io th" NAC. Although JAMS provided certain disclosures regarding Ms. Claiborne on November 3,2017,those disclosures do not include whether Ms. Claiborne has had any ties with Claimant WBTV's affiliated entities under the Warner Brothers' and CBS' umbrellas (see Exhibit A to our October 20letter) and the repeat player issues raised in our earlier letters. Once again,we make these requests with all due respect to JAMS and the NAC Decision Makers, but we are compelled to make them due to the importance of the issues being decided and in order to preserve our clients' rights/avoid potential waiver. AccJrdingly, we ask that lnMs either provide the requested disclosures regarding the NAC pecision Makers as set forth in Section B below, or make a ruling that it will not provide them. B. Requested Disclosures. 1. Consumer/Employee Arbitration Rules' As set forth in our prior submissions, we believe that this dispute is properly classified as a consumer/ernploy ee arbitration. Therefore, we believe that CRCES 8 requires that JAMS provide certain additional disclosures before the NAC conducts a hearing on the factual and legal issues now before it, including: (1) Any significant past, present or currently expected financial or professional relationships between laUS and any party or lawyer in this arbitration (see CRCES g(bxl)). As discussed above, in addition to WBTV and counsel to the parties, we believe tni Oisctosures should be made as to all Warner Bros, entities, including the CW Network, and all CBS entities; (2) If JAMS has provided or is providing dispute resolution services for any party (igain,we believe that disclosures should be made as to all Warner Bros. and CBS entiiies,-including the CW Network) or lawyer in this case, information regarding such prior oi pending iur.r, including the type of disposition of each dispute, the amount of ihe claim, pr.uuiling party and tle amount of monetary damages and any other relief granted, if any (see CRCES 8(bX2)-(3)); and Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 67 of 142 BIRD IMARELLA" BtRD. MAR[I.LA. BOXTR 'WOI-PERT. I.IESSIM " DROOKS ' I"INCENEERG " RHOW Anne Lieu November 16,2017 Page 4 (3) Any financial relationship between JAMS and each NAC Decision Maker, as well as information regarding Ms. Claiborne's selection (see CRCES 8(bXc)). Once again,for the sake of efficiency, we do not recite the full requirements of CRCES g here, but respectfully refer JAMS to the full text of that ethical standard. Once again,we request (a) alt of the information required to be disclosed by the consumer aibitration riles before thehearing on the issues raised in our October 20letter and (b) that this information be given for JAMS as a whole (including all of its neutrals) and in particular for the NAC Decision Makers. 2. Disclosures required independent of the consumer rules. Regardless of JAMS' decision concerning whether this dispute is a'oconsumer arbitratiori," and to the extent not duplicative of the information, if any, provided by JAMS as set forth in CRCES 8, we request that JAMS provide the following additional disclosures regarding each of the NAC Decision Makers for the past five years: (1) Which, if any, of the NAC Decision Makers has an ownership or other interest in JAMS; (2) Whether any Warner Bros. affiliated entity or CBS-affiliated entity is a repeat user of JAMS (..Repeat User"), the number of prior matters any NAC Decision tnluk.r has conductbd involving any Repeat User and the total amounts paid by the Repeat Users to JAMS; (3) Whether any aspect of the compensation of any equity-owning NAC Decision Makers is affectld by services provided to any Repeat lJser, including sharing in JAMS' profits from its business with that Repeat User; bonuses for client recruitment, management or retention, or furthering the revenue of a particular geographic profit centeis; or other compensation-generating mechanisms; and if the answer is yes as to any of the aboveo the amount that the proposed arbitrator has earned from any business JAMS has had from the RePeat User; (4) Copies of the arbitralawards in all cases by any of the NAC Decision Makersinvolving any Repeat User or any other talent v. studio dispute in the entertainment industry. (WBTV has raised a concern about confidentiality and we are_ _ open to redactions of names of the parties, etc., if they are not a Repeat User and possibly otherwise to preserve confidentiality. WBTV, the NAC Decision Makers and we can discuss); Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 68 of 142 BIRD I UARTLLA" BIRD' MARII.I.A" BOXER, $/OtPERT " IIESSIM. DROOKS " I"IIICENBERG' RHOW Anne Lieu November 16,2017 Page 5 (5) Any special inducements or benefits, such as fee reductions, access to JAMS' databases, social events with JAMS' arbitrators, special training sessions for arbitration panel members, or other perks, that JAMS has accorded any Repeat User at any time; (6) Whether any NAC Decision Maker has been involved in discussing, developing strategies for JAMS or otherwise has a personal stake on the repeat player issue and the questions/requests for further disclosures raised in my 2015 UCLA Entertainment Law Review article. C. Conclusion. We believe that the same authorities mandating the additional disclosures set forth in our October 20letter also apply to the NAC Decision Makers, and respectfully request that JAMS provide these additi Thank you. , or rule that it will not provide them. ESSIM RIN:FW Enclosure cc: Daniel M. Petrocelli (Via email) Matthew Kline (Via emait) Timothy B. Heafner (Via Email) Thomas V. Reichert Fanxi Wang 3445187.1 onal Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 69 of 142 EXHIBIT F Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 70 of 142 File Number: 0905900-00393 T: +1 310 553 6700 F: +1 310 246 6779 omm.com O’Melveny & Myers LLP 1999 Avenue of the Stars 8ᵗʰ Floor Los Angeles, CA 90067-6035 Daniel M. Petrocelli D: +1 310 246 6850 dpetrocelli@omm.com Century City • Los Angeles • Newport Beach • New York • San Francisco • Silicon Valley • Washington, DC Beijing • Brussels • Hong Kong • London • Seoul • Shanghai • Singapore • Tokyo November 17, 2017 VIA E-MAIL Zela G. Claiborne, Esq. JAMS Two Embarcadero Center, Suite 1500 San Francisco, CA 94111 Re: WBTV v. Kripke Enterprises (JAMS Ref. No. 1220057510) Dear Ms. Claiborne: We write on behalf of claimant Warner Bros. Television Production Inc. (“WBTV”) and in further response to Respondent’s October 20, 2017 and November 16, 2017 letters. Counsel for Respondent has made no secret of his unsubstantiated belief that JAMS is biased against talent in entertainment disputes. See R. Nessim & S. Goldman, Mandatory Arbitration Provisions Involving Talent and Studios and Proposed Areas for Improvement, 22 UCLA ENT. L. REV. 233, 257-58, 263-66 (2015). Indeed, he has been trying for years to obtain information to further this misguided campaign. For instance, in 2013, he sent a questionnaire to JAMS to obtain information related to “talent v. studio arbitrations,” but JAMS declined to provide the information requested. Id. at 241. It is no coincidence that counsel now seeks much of that same information previously denied him through the guise of Respondent’s request for disclosures. However, based on the undisputed record set forth below, there is no question that in this case Respondent agreed to the arbitration provision at issue here in a contract that was heavily negotiated over a period of two years. Respondent’s new litigation counsel cannot be permitted to thwart the parties’ clear agreement, or to use this arbitration as a means to wage his separate, unrelated war against JAMS. Nor should WBTV be forced to incur the costs or suffer the delay caused by his improper, unrelenting, private vendetta. As previewed in WBTV’s October 25 letter, this is not a “consumer arbitration” and JAMS is not obligated to make any of the unnecessary and unduly burdensome disclosures demanded by Respondent, neither for the neutral deciding this threshold issue, nor for the arbitrators proposed to rule on the merits of the case. Respondent’s November 16 letter not only flouts the briefing schedule to which all agreed, but also bogs down the resolution of counsel’s baseless threshold objections further. Notably, this letter came weeks after Your Honor was appointed to decide this threshold issue and the night before WBTV’s submission was due, which further demonstrates that counsel for Respondent is intent on obstructing resolution of WBTV’s claims by needlessly delaying the process. There needs to be an end to his game, and it is now. CONFIDENTIAL Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 71 of 142 2 I. This Is Not A Consumer Arbitration. Respondent’s contention that this is a “consumer arbitration” is baseless. Under California law, a consumer arbitration is an arbitration with a “consumer party” pursuant to a predispute arbitration provision in a form contract-that is, a contract that was drafted by the non-consumer and where the consumer was forced to accept the arbitration provision therein. See CRCES 2(d). A “consumer party” is defined as “[a]n individual who seeks or acquires…any goods or services primarily for personal, family, or household purposes,” “[a]n individual who is an enrollee, a subscriber, or insured in a health-care service plan,” “[a]n individual with a medical malpractice claim,” or an “employee or an applicant for employment in a dispute arising out of or relating to the employee’s employment or the applicant’s prospective employment.” Id. (emphasis added). This case fits none of those requirements. Respondent is not a “consumer party,” the agreements were not solely drafted by WBTV, and Respondent was not forced to accept the terms therein. First, Respondent is neither an “individual” nor an “employee” of WBTV. Rather, Respondent Kripke Enterprises is a loanout corporation that has been paid millions of dollars under the relevant agreements for helping create and produce the television series Supernatural (the “Series”).1 In the loanout agreement, the parties confirmed that all payments from WBTV would be made to Kripke Enterprises and that Kripke Enterprises had a “valid, binding, exclusive and presently subsisting employment agreement” with Eric Kripke-i.e., that Eric Kripke was an employee of Kripke Enterprises, not WBTV. See id. Second, the agreements were not solely drafted by WBTV, and Respondent was not forced to accept terms, as in a consumer banking contract or the like. Rather, Respondent was represented by experienced counsel and talent agents at all points during the negotiations, and the agreements were the product of extensive negotiations. Indeed, it is undisputed that Respondent was represented by prominent talent attorney Richard Genow throughout the negotiations of the agreements. Mr. Genow is a founding partner of Stone, Meyer, Genow, Smelkinson & Binder, LLP-a law firm that “specializes in the representation of actors, writers, directors and producers in the film and television industries.” See Exs. 3-4. All drafts of the agreement were provided to Mr. Genow, who then heavily negotiated the agreements on Respondent’s behalf. Mr. Genow’s efforts are apparent from a review of the agreements themselves, which include numerous interlineations and illustrate the extensive back and forth between the parties: 1 Pursuant to the loanout agreement between the parties, the parties affirmed that the agreements relating to the Series were between WBTV and Kripke Enterprises, not Eric Kripke the individual. See Ex. 1 (July 11, 2005 loanout agreement). Moreover, Eric Kripke is a successful writer and producer in the entertainment industry, and is also a sophisticated party. He was previously the co-executive producer on the TV Series Tarzan and a writer and producer of the movie Boogeyman, see Ex. 2 (Kripke’s IMDB page), and has made millions of dollars throughout his career in the industry. CONFIDENTIAL Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 72 of 142 3 See, e.g., Exs. A & B to Demand. Indeed, the parties negotiated the agreements for over two years with the parties’ exchanging at least ten drafts during that period. See Exs 5-10; Exs. A & B to Demand. This is clearly not a situation where the agreement was drafted by one party and presented to the other party on a “take it or leave it” basis, as Respondent erroneously suggests. Indeed, Respondent ignores the parties’ negotiations of the Blind Script Agreement and focuses only on the Certificate of Authorship. Respondent contends that the Certificate of Authorship is the only signed agreement between the parties and that, unlike the Blind Script Agreement, it was drafted by WBTV and Kripke was forced to accept the arbitration provision therein. See Oct. 20, 2017 Letter at 4-5. Respondent is incorrect on both counts. As an initial matter, there is no basis to disregard the Blind Script Agreement and the parties’ extensive negotiations of its terms. While the parties never formally executed the Blind Script Agreement, Respondent concedes that the parties agreed to the material terms therein and performed pursuant to the agreement for years. Id. at 4 n.3. Further, it is clear from the last redline of the agreement that Respondent had agreed to the arbitration provisions in the Blind Script Agreement and was thus not forced to accept those terms. See Ex. B to Demand (illustrating that while the parties continued to negotiate certain terms of the Blind Script Agreement, the parties had agreed to the arbitration provisions). However, even if the Certificate of Authorship were the only relevant agreement-and it is not-Respondent’s argument still fails as the parties expressly negotiated the terms of the Certificate of Authorship. The Certificate of Authorship went through multiple drafts over a three-month period before Respondent executed it. Indeed, WBTV sent Mr. Genow an initial CONFIDENTIAL Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 73 of 142 4 draft of the Certificate of Authorship along with the Blind Script Agreement on July 23, 2004. Ex. 5 (July 23, 2004 letter to Genow). On September 17, Mr. Genow sent a draft of the Certificate of Authorship back to WBTV with comments interlineated on Respondent’s behalf. Ex. 6. Tellingly, Respondent did not object to the arbitration provision in the Certificate of Authorship or to the use of JAMS as the arbitration provider. See id. Nor did Respondent insert language that any arbitration would be considered a “consumer arbitration” under California law. WBTV ultimately incorporated and accepted many of Respondent’s changes, rejected others, and sent a draft back to Mr. Genow on September 29, 2004. See Ex. 7. Respondent later executed the Certificate of Authorship on October 27, 2004. See Ex. A. to Demand. Respondent, accordingly, was not forced to accept the terms of the Certificate of Authorship, nor was the Certificate of Authorship drafted solely by WBTV. It went through multiple drafts with input from both parties, and at all times Respondent was represented and advised by highly experienced counsel. As the negotiation history makes clear, this is not an arbitration provision contained on the back of a rental car agreement, in a click-through license agreement on a piece of software, or buried in the middle of a credit card agreement. Rather, this was a multi-million dollar entertainment deal negotiated by sophisticated parties with experience in the entertainment industry, each of whom were represented by counsel throughout the negotiations. CONFIDENTIAL Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 74 of 142 5 II. JAMS Is Not Obligated To Make The Unnecessary And Burdensome Disclosures Demanded By Respondent. Respondent has demanded that, prior to selecting an arbitrator-and, now, a neutral to rule on the disclosure issue-and proceeding with this arbitration, JAMS must make numerous additional disclosures to Respondent. Respondent contends that JAMS is required to make certain additional disclosures because this should be classified as a “consumer arbitration” as well as numerous other disclosures-on top of the consumer arbitration disclosures-because Respondent, citing a law review article written by Respondent’s own counsel, has concerns over alleged “repeat player bias.” Respondent’s requests are meritless. As set forth above, this is not a consumer arbitration. JAMS, accordingly, is not obligated to make any of the disclosures set forth in Rule 8 of the CRCES. However, even if JAMS were obligated to make consumer arbitration disclosures, Respondent misstates the scope of those disclosures and attempts to impose absurd and excessive burdens on JAMS. For instance, CRCES Rule 8 requires only that the “proposed arbitrator who is nominated or appointed as an arbitrator” make disclosures regarding the “relationships between the provider organization and party or lawyer in arbitration” and regarding the “relationship between provider organization and arbitrator.” CRCES Rule 8. Respondent, in contrast, demands disclosures from all of JAMS neutrals (not just the one arbitrator nominated or appointed) and from any entity that is affiliated with WBTV and CBS (not just the parties to the arbitration). See Oct. 20, 2017 Letter at 5-6. Indeed, Respondents are demanding that JAMS make disclosures with respect to over 600 different entities and asking that JAMS disclose whether it has provided any dispute resolution services to any of these over 600 entities at any point in time. Id. Respondent has provided no basis for its demand that JAMS make these overly burdensome disclosures that are far in excess of the consumer arbitration disclosures required under California law and JAMS Rules. Nor is there any basis for Respondent’s demand for additional disclosures on top of the consumer arbitration disclosures. Respondent concedes that none of these disclosures are required under California law or JAMS Rules. And Respondent has provided no reason for JAMS to make them, other than Respondent’s professed, unsubstantiated concerns about alleged “repeat player bias.” In addition to being unnecessary, these requests are also far overreaching. For example, Respondent demands that JAMS not only provide copies of arbitration awards from any cases in which the ten proposed potential arbitrators have issued involving WBTV, CBS, or any of their alleged 600-plus affiliates-which is in itself unduly burdensome-but also from any “talent v. studio dispute” in the entertainment industry ever. Oct. 20, 2017 Letter at 8. It would not only be extremely burdensome for JAMS to determine whether any such awards exist, but, in the event such awards do exist and were issued in confidential arbitrations, JAMS would have to provide notice and seek approval from all parties to such arbitrations prior to disclosure. 2 2 For the avoidance of doubt, WBTV reiterates its objection to JAMS disclosure of any confidential information of WBTV or its alleged “affiliates” or counsel for WBTV or any of counsel’s other clients. CONFIDENTIAL Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 75 of 142 6 Respondent and counsel for Respondent cannot be permitted to continue to disrupt the arbitration process, delay these arbitration proceedings, and use this arbitration as a means for Respondent’s counsel to build a broader case against JAMS, its arbitrators, and its processes. In refusing to return its strike list until JAMS makes the requested disclosures or rules on its request, Respondent has already unilaterally granted itself an indefinite delay of these proceedings. Further, if JAMS entertains Respondent’s request for these unnecessary disclosures now, there is nothing to stop Respondent from then requesting even more disclosures after and continuing to refuse to participate in these proceedings, thereby further frustrating WBTV’s contractual rights and further driving up the costs of this process. JAMS has a process for commencing arbitrations, selecting an arbitrator, and making the necessary disclosures required by law. Respondent agreed to this process. There is no reason for JAMS to depart from its process or engage in this expensive and burdensome sideshow. * * * Ultimately, after a lengthy negotiation process in which Respondent was represented by experienced counsel, Respondent agreed that all disputes arising out or related to his agreement with WBTV would be submitted to final and binding arbitration in JAMS and pursuant to JAMS Rules. Respondent’s efforts to evade its contractual obligations, frustrate WBTV’s contractual rights, and delay the arbitration must be rejected. WBTV reserves all rights, including its right to recoup its fees and costs incurred related to these ancillary issues. Sincerely, /s/ Daniel M. Petrocelli Daniel M. Petrocelli cc: Ronald J. Nessim Thomas V. Reichert Fanxi Wang Matt Kline Timothy B. Heafner Catherine E. Howard OMM_US:75974432 CONFIDENTIAL Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 76 of 142 EXHIBIT G Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 77 of 142 Ronald J. Nessim rnessim@birdmarella.com 1875 Century Park East, 23rd Floor Los Angeles, California 90067-2561 Telephone (310) 201-2100 Facsimile (310) 201-2110 www.BirdMarella.com File 4553.2 Shoshana E. Bannett Terry W. Bird Ashley D. Bowman Joel E. Boxer Paul S. Chan Mark T. Drooks Thomas R. Freeman Benjamin N. Gluck David I. Hurwitz Patricia H. Jun Grace W. Kang Emerson H. Kim Nithin Kumar Gary S. Lincenberg Vincent J. Marella Marc E. Masters A. Howard Matz Jeremy D. Matz Sharon Mayer Andrew McTernan Kimberley M. Miller Andrew V. Moshirnia Paul W. Moskowitz Ronald J. Nessim Ariel A. Neuman Gopi K. Panchapakesan Thomas V. Reichert Ekwan E. Rhow Naeun Rim Gabriela C. Rivera Ray S. Seilie Kate S. Shin Nicole R. Van Dyk Hernan D. Vera Fanxi Wang Dorothy Wolpert Jen C. Won Timothy B. Yoo December 5, 2017 Via E-Mail Zela G. Claiborne, Esq. JAMS Two Embarcadero Center, Suite 1500 San Francisco, CA 94111 Re: Kripke v. Warner Bros. Television Production, Inc. Dear Ms. Claiborne: There are four major themes to WBTV’s November 17 letter, which this letter responds to. First, WBTV proffers new evidence and arguments as to why this is not a consumer arbitration. Second, with respect to our second ground for additional disclosures, namely that there is a potential conflict of interest/reasonable impression of bias, WBTV asserts that the repeat player concern has no basis in fact and is simply a made up concern/personal vendetta by our firm as Kripke’s counsel. Third, WBTV continues to falsely argue that we are attacking the personal integrity of JAMS and its neutrals. Fourth, WBTV continues to personally attack our firm for having the temerity to raise the potential conflict/reasonable impression of bias issue, including threatening to seek its fees and costs associated with our requests for further disclosures. As discussed in this letter, WBTV is wrong on all four themes. I. Introduction It is puzzling and disappointing that we are having such a protracted dispute with unremitting personal attacks by WBTV over something as simple as whether fulsome disclosures to identify possible biases, prior activities and current financial affiliations should be made in a multi-million dollar case between an individual and a large Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 78 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 2 corporation. That WBTV has argued so forcefully against further disclosures, including repeated personal attacks on counsel for having raised the issue and repeatedly raising the spectre that it may seek its fees and costs in an apparent attempt to intimidate Kripke into dropping his request for further disclosures, confirms both the sensitivity of the issue to it and propriety of the requested disclosures. There is a lot at stake in this arbitration for Kripke, and he is up against a large corporation that (as WBTV itself asserts) has hundreds of affiliates that regularly arbitrates their disputes through JAMS. The danger of repeat player bias - just the potential for it, not necessarily its actuality - is real. Certainly an objective observer, looking at a situation where a powerful industry, here Warner Bros. and the other large entertainment conglomerates, overwhelmingly requires mandatory arbitration and usually selects a single arbitration provider to decide all its disputes, would be legitimately concerned. The test is simple - where there are facts and circumstances where a person who knew all the facts could entertain a reasonable doubt as to impartiality, disclosure of such facts is warranted. As our original October 20 letter makes clear, we seek further disclosures on two independent bases. First, further disclosures are warranted pursuant to the consumer arbitration rules because the three requirements of a consumer arbitration are all met. Second, because the following facts and circumstances create a reasonable concern of potential for bias that justify further disclosures: 1. WBTV and its affiliates have and have had since at least the early 2000s a policy to require (a) mandatory arbitration (b) with JAMS as the provider in all of its talent contracts. We also believe that policy extends to all (or substantially all) contracts any Warner Bros. entity enters into. These contracts probably total in the thousands each year. 2. While many provisions in the WBTV and its affiliates’ contracts are negotiable, the requirements that (a) all disputes will be arbitrated and (b) JAMS will be the provider are not among the negotiable provisions. The choice for Kripke in 2004 was to accept mandatory JAMS arbitration or not work. 3. Warner Bros. and the other large entertainment conglomerates who require mandatory arbitration in their contracts are “repeat players” in JAMS arbitrations and mediations, whereas individuals like Kripke are not. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 79 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 3 4. The California Legislature and academic studies, among others, have found that there is a reasonable basis to be concerned about the “repeat player” effect in case of arbitrations between large repeat player corporations and individuals. 5. The entertainment conglomerates are major players in the Los Angeles economy and the ten potential JAMS arbitrators in this case, whether they are owners of JAMS or not, have an economic incentive (whether they can totally put it aside consciously or unconsciously is a separate question)1 to favor the repeat player. 6. JAMS is a “for profit” entity and the NAC Decision Makers, in particular, as its most senior agents, have an economic incentive (whether they can totally put it aside consciously or unconsciously is a separate question) to continue to be designated as the provider in the Warner Bros.’ and other entertainment conglomerates’ contracts with talent and others. 7. While none of our requested disclosures in this case have yet been made, many of the proposed arbitrators and NAC Decision Makers are also likely owners of JAMS which means that they also directly profit from repeat player business even if they are not a participating neutral in those proceedings (whether they can totally put it aside consciously or unconsciously is a separate question) . 8. For those neutrals who are not yet JAMS owners, many presumably hope to become owners and therefore they also have a personal stake (whether they can totally put it aside consciously or unconsciously is a separate question) in maintaining repeat business from Warner Bros. and the other entertainment conglomerates. 9. Currently, there is a lack of transparency as to how Warner Bros. and the other large entertainment conglomerates have fared in JAMS arbitrations. While other arbitration providers have chosen to make this information public,2 JAMS has not. 1 We stress this parenthetical and repeat it to emphasize that we are not impugning the character of any individual person associated with JAMS or JAMS as an entity as WBTV falsely and improperly accuses us of doing. Rather, we are raising a potential conflict/appearance of bias based on the facts we outline, economic realities and human nature. 2 See my 2015 article at 264-265 (discussing the International Independent Film & Television Alliance (IFTA) and Major League Baseball salary arbitrations). Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 80 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 4 10. In addition to WBTV’s unremitting personal attacks on Kripke’s counsel for having raised these concerns, WBTV has attempted to further intimidate Kripke and his counsel by threatening to seek its fees and costs simply because Kripke has raised them. This effort to preclude disclosure only raises our concerns about what WBTV is trying to hide. 11. Kripke cannot present more particularized evidence on the results of prior WBTV’s and its affiliates’ JAMS’ arbitrations (as well as those involving CBS and CW which also have financial interests in the case) because WBTV and JAMS have refused to date to provide this information. (A review of JAMS’ website, https://www.jamsadr.com/consumercases/ reveals only one prior case in the past five years involving a Warner Bros. entity.) The best way for JAMS to address the above facts and circumstances is through the disclosures we seek. As Justice Brandeis famously stated: “Sunlight is said to be the best of disinfectants.” Louis D. Brandeis, Other People’s Money and How the Bankers Use It 92 (1914). While WBTV continues to assert that our requests for further disclosures is a “meritless sideshow” based solely on our “unsubstantiated belief that JAMS is biased against talent in entertainment disputes,” we wish to state again that we have never accused individual JAMS neutrals of actual bias. We have the highest respect for individual JAMS neutrals and the organization. Rather, what we have repeatedly said is that the facts and circumstances of this case, economic realities we are all subject to and human nature create a reasonable impression of partiality requiring the requested disclosures. Finally, by way of introduction, WBTV accuses Kripke and his counsel of unduly delaying these proceedings by requesting additional disclosures. In fact, if these requests have delayed the start of the arbitration proceeding, it has been for good cause. We also submit that the only unwarranted delay was caused by WBTV’s November 17 letter; there was not a single argument in it that could not have been raised in its October 25 letter. In addition, if Kripke did not raise his requests for further disclosure now, WBTV and JAMS would almost certainly argue he waived them if he raised them later. As JAMS itself argued in the Monster case,3 which is referred to in our October 20 letter: 3 Supplemental Memorandum Regarding Motion to Compel Production of Documents, Monster Energy Co. v. City Beverages LLC, No. 5:17-cv-00295-RGK-KK Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 81 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 5 Olympic Eagle has, to date, failed to provide meaningful opposition to JAMS’s position regarding waiver. …. Olympic Eagle took no action to pursue additional information and instead decided to engage in a lengthy and fair arbitration proceeding through final award. Olympic Eagle has failed to justify its inaction or recognize that case law, as well as JAMS Rules, requires parties to take action to prevent wasteful post-award proceedings. As previously noted, “[C]ourts have invoked the waiver principle under circumstances in which a complaining party either knew or should have known the facts indicating partiality of an arbitrator but failed to raise an objection prior to the arbitration decision.” Because no action was taken to uncover additional information related to the financial disclosure or the alleged repeat player bias, JAMS cannot acquiesce to post-award discovery designed undermine a fair proceeding litigated to conclusion pursuant to the parties’ contract. (Internal citations omitted; emphasis added.) (C.D. Cal.) (Dkt. No. 42). The “Monster” case involved a dispute between Monster Energy Company (“Monster”) and City Beverages LLC, dba Olympic Eagle Distributing (“Olympic Eagle”). Monster, a manufacturer of energy drinks terminated Olympic Eagle as a distributer. The case went to arbitration before a JAMS neutral. Monster won the arbitration and Olympic Eagle brought a motion to vacate alleging, among other things, that the award showed manifest disregard for the controlling law and that the JAMS neutral failed to disclose that JAMS was a for profit corporation, that the neutral was an “owner” of JAMS and that Monster was a repeat player of JAMS (with at least over 97 prior matters before JAMS in the previous five years.) Dkt. No. 26-2. The district court agreed with Monster’s and JAMS’ waiver argument and denied the motion. We understand that Ninth Circuit briefs will soon be filed in the case. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 82 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 6 II. Procedural History 1. WBTV’s September 26, 2017 Demand. WBTV commenced this arbitration proceeding on September 26 seeking declaratory relief on the claims raised in Kripke’s audit report. In WBTV’s Demand, it checked a box stating that this was not a consumer/employment arbitration. 2. JAMS Proposes 10 Arbitration Candidates. On October 4, Anne Lieu, the JAMS case manager, sent the parties a list of ten proposed arbitrators and each proposed arbitrators’ standard CV/resume. 3. Kripke’s October 20, 2017 Letter. On October 20, Kripke sent a letter to Ms. Lieu requesting additional pre-selection disclosures by the proposed arbitrators. There were two separate basis for the requested disclosures. First, Kripke contended that this is a consumer arbitration. Second, Kripke contended that regardless of whether this case is a consumer arbitration, additional disclosures are required based on potential conflicts of interest/reasonable impression of partiality of the proposed arbitrations based on repeat player related concerns. As to this ground, Kripke did not assert actual bias by JAMS or the proposed arbitrators (as repeatedly falsely asserted by WBTV); rather, he asserted that the facts and circumstances of this case are such to create the appearance of potential conflict of interest/reasonable impression of partiality requiring further disclosures. We also submit that our October 20 letter was written in a respectful tone both as to WBTV and JAMS. (In contrast, WBTV has continually engaged in personal attacks on our firm as Kripke’s counsel.) 4. WBTV’s October 25, 2017 Response. WBTV filed its response on October 25. WBTV did not argue (a) as to the first requirement of the consumer arbitration test that Kripke was not an employee or, (b) as to Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 83 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 7 the second requirement, that the contract containing the arbitration provision was not drafted by WBTV, the non-consumer party. (As discussed below, WBTV has changed its position and now argues these positions in its November 17 letter.) Rather, WBTV argued that this was not a consumer arbitration since (a) as to the first requirement, not all employees are covered by the consumer arbitration rules and that Kripke was not a “typical” employee/consumer party since he was represented by counsel and later earned substantial sums on Supernatural, the series at issue, and (b) as to the third requirement, he was not forced to accept the arbitration provision. 5. Kripke’s October 26, 2017 Reply. Kripke’s October 26 reply responded to the arguments and other assertions in WBTV’s October 25 letter. It also responded to JAMS’ October 25 email (later withdrawn and resent on November 2), stating that the disclosures issues raised in Kripke’s October 20 letter would be decided by JAMS National Arbitration Committee (“NAC”), by asking several questions about the NAC. 6. JAMS’ Two November 2, 2017 Communications. First, Sheri Eisner, JAMS’ general counsel, communicated that she had appointed you as the hearing officer to take evidence and make recommendations to the NAC on the disclosure issues (as to the ten proposed arbitrators) raised (in our October 20 letter)4. Ms. Eisner also responded to “some,” but not all of, of our October 26 questions concerning the NAC. Second, in a separate November 2 communication, your case manager, Kathleen Hanley, noted the parties’ submissions to date on the disclosure issues and inquired whether the parties would be submitting “further documents” for your review. WBTV responded that it would submit a new letter brief in one to two weeks. 7. Kripke’s November 16, 2017 Letter. On November 16, 2017, Kripke sent a letter to Ms. Lieu (and not Ms. Hanley) because the letter concerned our request for further disclosures by the “NAC Decision Makers,” namely the non-recused members of the NAC and you. As discussed in note 4 4 The parenthesis is added as these points are not clear from Ms. Eisner’s November 2 communication; but it is as we interpreted it. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 84 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 8 above and the text associated with it, it was not clear to us that this request, which was not in our October 20 letter as the NAC referral had not yet been made, had been referred to you and we wanted to timely and clearly set forth our requests for additional disclosures by the NAC Decision Makers. We understand that this letter was subsequently sent to you, is now part of the record before you and that you will also be making decisions on these requested disclosures. (We request these disclosures before the hearing on our requested disclosures set for December 21.) 8. WBTV’s November 17, 2017 letter. The four major themes of WBTV’s November 17 letter are identified in the opening paragraph of this letter. There is not a single argument set forth in WBTV’s November 17 letter, really a sur-reply, that could not have been set forth in its initial October 25 opposition. (This point needs to be made as WBTV continually and falsely accuses Kripke of improperly delaying the proceedings and reserves the right to seek its fees and costs from Kripke for having raised these issues. Indeed, if WBTV had made its November 17 arguments on October 25 when it should have, the hearing on the disclosure issues could have occurred last month.) III. This Case is a Consumer Arbitration While repeat player concerns are the policy reason for the extra disclosures required by the consumer rules, in deciding whether this case should properly be classified as a consumer arbitration, the only relevant question is whether the three requirements for a consumer arbitration established by the California Legislature are present here. (Unlike the second basis for disclosure sought by Kripke discussed in Section IV below, you do not need to rule on WBTV’s argument that our concern over repeat player bias is a made up concern with no basis in fact.) The evidence establishes that all three criteria for a consumer arbitration are present. 1. Kripke is an employee under the consumer arbitration rules. Effectively conceding that Kripke was an employee in its October 25 letter, WBTV argued that he was not a “typical” employee and therefore fell outside of the consumer arbitration rules. (As pointed out in our October 26 letter, there are no Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 85 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 9 exceptions in the consumer rules for employees represented by counsel, employees who make a certain amount of money or other non-typical employees. Whether Kripke was an employee also does not depend on the stage of his career, the level of his success, or the amount of his income. WBTV’s October 25 and November 17 letters also grossly misstate the facts concerning Kripke’s situation in July 2004. While Kripke has certainly benefited in some measure from the post July 2004 success of Supernatural, all of that was speculative when he signed the Certificate in July 2004. In July 2004, Kripke was at the start of his career. His career was so limited at this point in time that he did not even have his own loan-out corporation; only when Supernatural was picked up and ordered to series was it worth the expense to create a loan-out company and enter into the loan-out agreement in July 2005 that WBTV now trumpets. See attached Declaration of Richard Genow (“Genow Decl.”) at ¶¶ 4-5, 8. WBTV spends much of its November 17 letter making the new argument that whatever the facts may have been when the parties entered into the Certificate of Authorship in July 2004, the later loan-out agreement in July 2005 changed the relationship and took it out of an employer/employee relationship. In particular, WBTV argues that Respondent “is neither an individual or an employee of WBTV” since, one year after Kripke (individually) and WBTV agreed on the material terms of the blind script commitment in July 2004 and executed the Certificate of Authorship, Kripke created a loan-out corporation and it became his employer (instead of WBTV) in July 2005. WBTV’s new arguments do not change the fact that Kripke is properly considered an “employee” under the consumer rules. a. The Certificate expressly states Kripke is an employee of WBTV and it is undisputed that he was an employee of WBTV from July 2004-July 2005. WBTV’s right to arbitrate rests on the July 2004 Certificate of Authorship, the only document attached to its Demand that was signed by Kripke as an individual.5 This 5 The proposed blind script agreement and the proposed standard terms and proposed MAG definitions, which were attachments to it, were never executed as the parties never completed their negotiations of them. Both sides agree, however, that there was a meeting of the minds on the material terms of the blind script commitment. WBTV continues to falsely claim that these material terms mirror the proposed blind script agreement and its attachments even though the parties disagreed on many of these terms and these agreements were never executed. While many terms in the proposed Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 86 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 10 agreement unambiguously states that Kripke’s relationship to WBTV is as an employee. “Artist hereby acknowledges that…the Material was specifically ordered or commissioned by WBTV for possible use in the Series pursuant to Artist’s employment by WBTV.” (Emphasis added.) WBTV also does not now contest that Kripke was an employee of WBTV from July 2004 to July 2005. This is the critical time period when the Certificate was entered into, Supernatural was developed, and included the entire first year of the contractual relationship. As stated in the first requirement of the consumer rules, “The contract is with a consumer party, as defined in these standards.” Standard 2(d)(1). There is nothing in the consumer rules suggesting that if the employment arrangement is later changed or terminated, that the consumer rules do not apply. b. The creation of a loan-out a year later does not change the fact that Kripke was an employee of WBTV. Even if Kripke’s loan-out had been the original contracting party in July 2004, which it was not, the result would not be different. (A loan-out company gives the talent an opportunity to run pension, medical and other business expenses through an entity, which offers tax and other advantages to the talent. Genow Decl. at ¶8.) But as recognized in the case law (discussed below), a loan-out company does not change what an individual talent does, his or her real relationship with the production company and the production company’s control over his or her services. Indeed, there is no authority, and WBTV cites to none, that the formation of a loan-out corporation by an individual talent, the loan-out entering into a contract for employment services with the individual and the loan-out then lending those services to a production company with a continuing obligation of the individual (here set forth in the Inducement signed by Kripke individually and attached to the July 2005 loan-out agreement that is Exhibit J to WBTV’s November 17 letter) to render services to the production company negates that individual’s employment status with the production company under the consumer rules. On the contrary, the case law is clear that the “most significant test” of whether there is an employment relationship is whether the principal has the “right to control the means by which the work is accomplished,” and that any other considerations are merely agreements do reflect the parties’ agreement, many do not and it will be up to the selected arbitrator on the merits to determine which terms from the unexecuted agreements were part of the parties’ contract. Genow Decl. at ¶7. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 87 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 11 “secondary elements.”6 Tieberg v. Unemployment Ins. App. Bd., 2 Cal. 3d 943, 950 (1970). This is the test that should be applied under the consumer rules for a consumer arbitration. In Tieberg, the court held that freelance screenwriters who worked for Lassie Television, a television film producer, were employees rather than independent contractors for purposes of unemployment insurance contributions because the evidence established that the producer “exercised considerable control over the manner and means by which a writer fabricated a teleplay from a story.” Id. at 952-53. The court held: The evidence establishes that revisions in the first draft of a teleplay were almost always necessary. When these were to be made, the writer usually went to Lassie's office to discuss the matter with the story editor or a producer on the staff of Lassie. These conferences on occasion lasted as long as a day and in some instances changes would be required on almost every page of a script. These revisions, “directed” by Lassie's personnel, included elimination or alteration of dialogue, as well as changes in the motions of the actors, the setting of the play, the types of animals to be employed, and the removal of scenes which might be objectionable to the commercial sponsor. This evidence is clearly sufficient to show that Lassie exercised considerable control over the manner and means by which a writer fabricated a teleplay from a story. The court held that although certain “secondary” factors weighed in favor of finding an independent contractor relationship, such as that “the writers are engaged in a distinct occupation (subd. (b)), that their work involves skill (subd. (d)), that they do not work on Lassie's premises (subd. (e)), that they are employed only to write a particular 6 The secondary factors include: (a) whether or not the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer- employee. Id. at 949. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 88 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 12 play (subd. (f)), and that they are paid by the job rather than by the hour (subd. (g)),” those factors were of little consequence in light of the principal’s clear right to control the details of the writers’ work: Where, as here, there is ample independent evidence that the employer has the right to control the actual details of the writers' work and that it exercises this right, the fact that, for example, the employee is paid by the job rather than by the hour appears to be of minute consequence. Id. at 953. Like the screenwriters in Tieberg, Kripke easily meets the “right to control” test. While the proposed blind script agreement was not executed, it correctly reflects the control WBTV exercised over Kripke with respect to the writing of the pilot script, which was the blind script commitment in ¶2A, the commencement of writing services in ¶2B and exclusivity in ¶2D. Kripke also performed executive producer services on Supernatural after he wrote the pilot and it was ordered to series, as set forth elsewhere in the proposed blind script agreement. Furthermore, Section 1 of the proposed standard terms and conditions also correctly states as to WBTV’s control: Artist shall render all writing services as reasonably required under the circumstances by Warner Bros. Television Production Inc. (“WBTV”) and the license of the Program, and shall incorporate in all drafts, revisions and any polish thereto, WBTV’s reasonable (given the circumstances) suggestions for changes and such licensee’s suggestions for changes. For development services, all writing shall be delivered as and when reasonably required under the circumstances by WBTV. [WBTV employees designated]…Such persons are located in building 140 on the Warner Bros. Studios lot in Burbank. The above persons, as applicable, are also authorized to request changes, revisions and rewrites to such material, along with Peter Roth, President of WBTV, and the applicable business affairs executive involved in the specific project(s) or their successors. Artist shall not submit any scripts to a broadcaster or other third party, nor shall Artist commence the writing of any story and/or teleplay hereunder, without WBTV’s prior written approval. Artist shall attend all Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 89 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 13 rehearsals, program conferences and other meetings at which Artist’s presence is required by WBTV…Artist agrees to devote and perform such services in a competent, professional diligent manner in accordance with the reasonable (given the circumstances) instructions, control and direction of WBTV. Genow Decl. at ¶9. In sum, WBTV’s own proposed agreements and the facts on the ground establish WBTV’s right to control Kripke whether or not he used a loan-out company for payment purposes. Thus, even if the formation of a loan-out corporation were an enumerated factor in the analysis of whether an employment relationship exists under the consumer rules, which it is not, it would be of little importance compared to the ample evidence that WBTV had overwhelming control over the manner and means by which Kripke performed his services. Case law in the workers’ compensation arena also makes clear that the presence of a loan-out company and its loaning out the talent’s services to a production company does not change the talent’s status as an employee of the production company (assuming that the talent meets the above described common law test). In Angelotti v. Walt Disney Company, 192 Cal. App. 4th 1394 (2011), the court considered whether an individual talent in the entertainment industry, who contracted with the production company through his loan out, was still an employee of the production company. Using the common law control test discussed above, the court stated: An employee may have two employers for purposes of workers’ compensation. “ ‘Where an employer sends an employee to do work for another person, and both have the right to exercise certain powers of control over the employee, that employee may be held to have two employers - his original or “general” employer and a second, the “special” employer.’ ” * * * [The production company] hired [the talent], through his loan-out company, for one week at a time under contracts of one week’s duration. Thus, [the production company] retained the right to terminate the relationship at the end of Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 90 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 14 each week with no obligation to rehire him. We regard this as the practical equivalent of the right to discharge at will, which is another strong indication that [the talent] was an employee of [the production company]. Several other secondary factors also point to the existence of an employment relationship. * * * Finally, the statement in the Inducement expressly acknowledging the existence of an employment relationship with [the production company] shows the parties’ intention to create an employment relationship. Id. at 1405 (internal citations omitted.) * * * In our view, the typical use of a loan -out company in the hiring of talent in the entertainment industry does not mitigate the right of control or the other factors indicating the existence of an employment relationship. Id. at 1403-05 (citation omitted); see also Caso v. Nimrod Productions, Inc. 163 Cal. App. 4th 881, 893-94 (2008) (holding that stunt coordinators were employees of a television production company rather than their loan-out corporations because “there is simply no evidence that the loan-out corporations, in fact, retained any control over [the stunt coordinators] or that they were involved in any other aspect of the production other than serving as a legal vehicle for the receipt of payment”). Like the unemployment insurance payments at issue in Tieberg and the workers’ compensation benefits at issue in Angelotti and Caso, the consumer arbitration rules are designed to protect consumers/employees. With respect to the consumer rules, the risk is possible repeat player bias, and the consumer rules should similarly be liberally construed to protect employees, which in this case, means to support more extensive disclosures than in the normal commercial dispute. The Inducement signed by Kripke (individually), which is part of the new July 2005 agreement WBTV now touts, also clearly indicates that Kripke remains individually liable to WBTV. There is also nothing in the July 2005 agreement that changes Kripke’s duties, WBTV’s clear control over his services and that disavows Kripke’s employment Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 91 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 15 relationship with WBTV (whether general or special) as expressly stated in the Certificate of Authorship. 2. The Certificate was drafted by WBTV. The second requirement of a consumer arbitration is that the “contract was drafted by or on behalf of the non-consumer party.” WBTV argues in its November 17 letter that, while it drafted the Certificate, Kripke made comments on it and tried to negotiate it. Therefore, per WBTV, these documents were not “solely” drafted by it. WBTV misconstrues this requirement. First, the language of this requirement does not include the word “solely.” It also does not state that if the employee seeks to negotiate the contract, it is no longer “drafted” by the non-consumer party. Second, as indicated in Exhibit J to WBTV’s November 17 letter, Kripke’s counsel only made a few comments to the proposed Certificate and a comparison of those comments to the final Certificate (Exhibit A to the Demand) indicate that WBTV agreed to only a few of his most non-substantive comments. Kripke’s comments hardly change the fact that the Certificate was “drafted” by WBTV.7 It is plain that the basic form certificate of authorship was WBTV’s; it cannot be the case that some negotiations around the edges of it mean it is no longer drafted by the non-consumer party. The power imbalance that these provisions attempt to address is as obvious here as in any “ordinary” consumer dispute - a large corporation is negotiating with an individual and the individual’s financial future is at stake. The individual was presented with a series of proposed agreements after the material contract terms were entered into. The fact that Kripke attempted, in some places successfully, to get a better agreement in connection with provisions not related to the requirement of mandatory arbitration does not mean that this requirement is not met. 7 Kripke’s counsel’s more extensive comments to the proposed blind script agreement and its two attachments are not relevant to this requirement as those agreements were never executed. Even if they are relevant, a consumer party commenting on a proposed agreement drafted by the non-consumer party does not make the agreement drafted by the consumer party. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 92 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 16 3. Kripke was required to accept the arbitration provision in the Certificate. As to the third requirement, we stated in our October 20 letter: Third, Kripke, as the consumer party, was required to accept the arbitration provision proposed by WBTV. Specifically, in addition to the current prevailing industry custom wherein WBTV and other television studios routinely require talent to accept an arbitration provision on a “take it or leave it basis,” WBTV’s November 8, 2004 cover letter to Kripke (Exhibit A to the Demand) establishes that Kripke was required to sign the Certificate containing the arbitration provision as a prerequisite to WBTV commencing payment to him: Please note, although we commence payment as a courtesy upon execution of the Certificate of Authorship, continued payment is contingent on the execution of the [blind script agreement.] WBTV argues in its November 17 letter that Kripke was represented by counsel who sought to negotiate the draft agreements, they were not “click-through” form contracts and that this establishes that: “[t]his is clearly not a situation where the agreement was drafted by one party and presented to the other party on a “take it or leave it” basis…” November 17 letter at 3. WBTV is again mistaken. First, the plain language of CRCES 2(d) provides that the “consumer party was required to accept the arbitration provision in the contract,” (emphasis added) not that the consumer party had to have accepted all of the terms of the contract. The third element looks specifically to the arbitration provision, not the entire contract, and asks whether the consumer party was required to accept it. Nowhere in the language of the Ethical Standard or in case law is there any requirement that the consumer party cannot have been represented by counsel, or cannot have negotiated other parts of the agreement. In other words, where-as here-a “consumer party” was involved and the contract was drafted by the nonconsumer party, only the agreement to arbitrate had to be nonnegotiable in order for the dispute to qualify as a “consumer arbitration.” It is irrelevant to the analysis that other contract terms may have been negotiable. As set forth in our October 20 letter and in the attached Genow Declaration, while Kripke’s lawyer, Rick Genow, believed that certain provisions in the Certificate were or Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 93 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 17 might be negotiable, he knew that (a) the mandatory arbitration requirement and (b) the requirement that JAMS would be the provider were both non-negotiable. As indicated in Exhibit A to Genow’s declaration, he, in fact, tried to strike the mandatory arbitration in a prior proposed agreement between Kripke and WBTV in 2002 in connection with the Tarzan series; WBTV rejected the change. Knowing WBTV’s non-negotiable policy requiring mandatory arbitration, there was no reason for him to repeat this futile request in 2004 in connection with the blind script commitment. Genow Decl. at ¶6. The requirement to accept mandatory arbitration, (a) in the prior paragraph, is the provision that the consumer party must be forced to accept under the third requirement of the consumer rules.8 (The recent opinion from Australia discussed in the next paragraph actually confirms Genow’s experience and belief that while the mandatory arbitration provision was non-negotiable, more collateral provisions in it like the discovery provision discussed in note 8 below might be negotiable.) WBTV’s own letter to Kripke also made clear that Kripke would not be paid if he did not sign the Certificate containing the arbitration provision. In addition, as reflected in a recent judicial opinion from Australia, a copy of which is attached as Exhibit B hereto, Warner Bros. Pictures, an affiliate of WBTV, appears to have confirmed that it (and almost certainly WBTV and all other Warner Bros. entities) now has and has had since at least the early 2000s a practice to require (a) mandatory arbitration (b) with JAMS as the provider in all of their agreements. Indeed, per the Australia opinion, only the Warner Bros. Pictures’ general counsel has and had the authority to change this policy and there is no indication in the opinion that the general counsel ever did so. We are informed and believe that WBTV and all other Warner Bros. entities had this policy in 2004 when the Certificate and blind script commitment was entered into and that it continues to today. We attempted to obtain the underlying affidavits from the Australia court, but we were informed that our request could not be processed at this time due to recent water damage to the courtroom in Australia where the documents are located. We then tried to obtain the documents from WBTV, but it refused claiming that they are irrelevant to this dispute. See 11/29 and 12/1 email exchange between counsel that is attached as 8 Mr. Genow made one comment on the proposed arbitration provision in the Certificate not going to this non-negotiable requirement, namely that the California rules of discovery and evidence should apply, as he thought that they might be negotiable. These comments were rejected by WBTV. Genow Decl. at ¶6. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 94 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 18 Exhibit C hereto.9 WBTV is incorrect as the affidavits appear to be highly relevant to the question of whether the mandatory arbitration provision in the Certificate was negotiable, the third requirement of the consumer test. WBTV, in fact, contests this requirement in its November 17 letter when it states that arbitration was not required on a “take it or leave it basis.” We respectfully submit that you should order WBTV to produce all of the affidavits and briefs filed by both sides filed in the Australia proceeding before the December 21 hearing on our requests for disclosures. In sum, all three elements necessary to deem this a consumer arbitration are present here. As a result, the heightened disclosures required for such arbitrations must be made. IV. Further Disclosures are Required apart from the Consumer Arbitration Rules A. Facts and circumstances requiring further disclosures. Even if you rule that the consumer rules do not apply, the facts and circumstances set forth in the Introduction section of this letter, among others, require the greater disclosures we seek in this case. 2. Repeat Player bias is a real concern. WBTV is incorrect when it asserts that there is no basis to be concerned about the repeat player issue and that our requests for further disclosures are a “meritless sideshow” and “personal vendetta” based solely on our “unsubstantiated belief that JAMS is biased against talent in entertainment disputes.” First, and once again, WBTV misstates what we have said. We have never accused individual JAMS neutrals or JAMS itself of actual bias. We have the highest respect for individual JAMS neutrals and the organization. Rather, what we have repeatedly said is that the facts and circumstances discussed above, economic realities and human nature create a reasonable impression of bias that should require the requested disclosures. As we said in our October 20 letter: 9 WBTV’s continued uncalled for personal attacks on Kripke’s counsel in this exchange are further discussed in Section V below. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 95 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 19 Finally, we want to stress that by writing this letter, we do not intend to impugn the reputation of JAMS or of any of the proposed arbitrators, several of whom we know and all of whom have distinguished reputations. Rather, as noted in the research cited in Professor Stone’s declaration (see Ex. B) and elsewhere, we believe that our concern over repeat player bias is a reasonable one, particularly in the context of a talent versus studio arbitration. JAMS is also a “for profit” business, the vertically integrated entertainment companies that the studios are part of are an important part of the Los Angeles economy and we are all (myself included) susceptible to at least subconsciously giving weight to our own economic interests. Therefore, we believe that failure to provide the requested disclosures would violate the consumer arbitration rules and trigger the court’s “reasonable impression of partiality” standard. (Emphasis added) We add emphasis to stress that we are not stating that JAMS or its neutrals are subject to economic pressures and realities that the rest of us are not subject to. We are all human, but JAMS and its neutrals have extra responsibilities when they act as neutrals and hear cases where there is a reasonable concern of potential bias. Second, and contrary to WBTV’s assertion, the “repeat player bias” concern voiced by Kripke is also not a “private vendetta” by counsel, but is recognized by the California Legislature among others. In addition, the fact that Kripke’s counsel has written about the repeat player issue hardly disqualifies him from raising it in a legal proceeding. The legislative history of Code of Civil Procedure § 1281.96, which imposes public reporting requirements for consumer arbitrations, shows that the statute was enacted to address precisely this concern: The use of mandatory arbitration clauses in consumer contracts has increased immeasurably in recent years and has been highly controversial for a variety of reasons, including issues surrounding concerns of "repeat players" whereby an arbitrator is inclined to rule in favor of corporations that return to them to arbitrate future matters. Concerns are particularly heightened as arbitrators do not have to follow the law, decisions cannot be appealed, and proceedings are often conducted without any opportunity for public scrutiny. . . . Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 96 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 20 In 2002, AB 2656 (Corbett, Ch. 1158, Stats. 2002) was introduced in response to skepticism about the fairness of such arbitrations and concerns with the "repeat player" problem in arbitrations, whereby a repeat defendant such as a corporate defendant may, conspicuously or not, receive preferential of treatment or rulings from arbitrators who rely on being selected by the corporate defendant to earn a living as an arbitrator. The proponents of AB 2656 argued that, in contrast to public court proceedings, consumer arbitrations are conducted in secret because of arbitration clauses or rules of the designated provider that were designed to impose secrecy- not because there was something inherent in the nature of arbitration or the function of the arbitrator that requires such secrecy. Accordingly, AB 2656 sought to "address these concerns and reduce any bias that may exist in favor of corporate repeat-players in consumer arbitration" by mandating public reporting of certain information by private arbitration companies conducting consumer arbitrations. June 23, 2014, Cal. Comm. Rep., Assembly Bill 802 (Cal. 2014). Third, the repeat player bias issue is also well documented in academic studies. In addition to the articles and studies cited in my 2015 article, Professor Stone’s declaration (Exhibit B to my October 20 letter) is instructive. In particular, she discusses a recent study by Alexander Colvin of Cornell University and Mark D. Gough of Pennsylvania State University entitled, Individual Employment Rights in the United States; Actors and Outcomes, 68 ILR Review 1019 (2015), a copy of which is attached as Exhibit D hereto, which states: 1. In unionized workplaces, unions exert a countervailing force in the labor arbitrator selection process because of their institutionalized role as a repeat player representing the bargaining unit across multiple arbitration cases. Id. at 1021. (In contrast, individual consumers and employees, like Kripke here, are unlikely to be in more than one employment arbitration and have no countervailing force to counteract the entertainment conglomerate’s power as repeat players and the party controlling which provider is selected.) 2. Colvin and Gough discuss past research on repeat player effects in arbitration. They note that the previous research has generally supported the existence of a repeat player effect when employers (like WBTV and its affiliates) involved in multiple arbitration cases over a period of time tend to do better than not repeat players. In their analysis, they attempted to build on this prior work by using a larger sample of arbitration Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 97 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 21 cases over a longer time period and testing for repeat player bias using a regression model with extensive control variables. Id. at 1023. 3. Colvin’s and Gough’s study indicates that on average, each previous interaction between a given employer and an arbitrator decreases the odds of an employee’s winning by 6.2%. When all other independent variables are controlled, the probability an employee will win her case when bringing it before a first time employer- arbitrator pairing is 17.9%, but if the defending employer had four previous interactions with the arbitrator, the probability decreases to 15.3%, a 14.9% decrease. If there were 25 previous interactions between an employer-arbitrator pairing, the probability declines to 4.5%, a 75% decrease relative to first time pairings. Id. at 1031-1035. 4. There were similar results as to the amount of awards to employees. For each additional case involving the same employer and arbitrator pairing, the expected damages awarded in the case declined by 16.5%. Id. 5. Even when Colvin and Gough controlled for employer size and experience in arbitration, every additional interaction between an employer and an arbitrator who are involved in multiple cases together results in reduced employee outcomes as measured by (a) win rates and (b) monetary award amounts. “One possible explanation for this relationship is that some arbitrators may be responding to economic incentives and issuing favorable awards to repeat clients.” Id. at 1037. (Again, our point is not that an individual JAMS arbitrator cannot rise above their own and JAMS’ economic interests, but that we are all human and human nature is such that some will be influenced by their own economic interests, whether consciously or not.) 6. Colvin’s and Gough’s study used a data base of American Arbitrators Association arbitrations (“AAA”). Id. at 1026-1027. (AAA is a non-profit organization and its neutrals only make money on the cases they personally handle. In contrast, JAMS is a “for profit” entity and its owner neutrals also make money on cases they do not personally handle. As discussed in the facts and circumstance discussion in the Introduction section of this letter, for newer neutrals of JAMS who are not yet owners, many of them presumably aspire to be owners, to share in the profits of repeat player business and for JAMS to retain that business. Therefore, there is reason to believe that the repeat player effect in JAMS arbitrations is worse than it is in AAA arbitrations; the economic incentive is certainly greater.) 7. The Colvin and Gough article concludes as follows: “Justice in mandatory arbitration is not blind if parties are able to gain an advantage from selecting an arbitrator Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 98 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 22 with desirable characteristics and especially if there are gains from doing repeat business with the same arbitrator.” Id. at 1040. 3. Appearance of Bias at the Provider/NAC level. In addition, to the potential appearance of individual arbitrator bias, there is also a potential appearance of bias at the level of JAMS as an entity and by the NAC. As noted by Professor Jean Sternlight: Arbitration critics frequently discuss a phenomenon known as the “repeat provider” problem. . . . Obviously, once [an arbitration] company is named as the provider, financial benefits accrue to that company. . . . Thus, charge the critics, providers have a financial incentive to make sure that the company is pleased with the results in arbitration. If the [disputant company that effectively chooses the arbitration provider] is displeased with the results secured through a particular provider it may well switch providers. Needless to say, providers and arbitrators vehemently deny the charge that they are biased. Providers urge that they have no direct influence over their arbitrators. Yet, critics maintain that, consciously or unconsciously, arbitrators may slant the result in companies’ favor. Jean R. Sternlight, Creeping Mandatory Arbitration: Is It Just?, Stan. L. Rev. 1631, 1650-51 (2005). Similarly, Professor Schwartz wrote: [T]he repeat player studies seem to miss the broader point that arbitration is a service sold by arbitration vendors to putative defendants. That means the “aim to please” comes not only from individual arbitrators, but also from vendors -like AAA-who compile the panels of potential arbitrators from which the parties choose. AAA, for example, not only maintains an accredited list of arbitrators, but in a given case, will send the parties a short list from which the arbitrator in that case will be selected. In other words, arbitration vendors play a significant role in arbitrator selection; individual arbitrators have to be responsive to the vendors who keep them on “the list,” and vendors must be responsive to their customer-defendants. Repeat player analysis, then, should give way to a more holistic customer bias analysis that looks more carefully at such factors as the size of the defendant company, and the process of arbitrator selection-for example, Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 99 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 23 scrutinizing the relationship between an arbitrator’s award-making behavior and the frequency with which that arbitrator is nominated for short lists by the vendor. David S. Schwartz, Mandatory Arbitration and Fairness, 84 Notre Dame L. Rev. 1247, 1311-12 (2009). Here, the NAC Members, who are the final decision makers on the disclosures we seek, appear to be at the highest level of the JAMS organization. Once again, there is at least an appearance that these individuals could be partial. V. WBTV’s Unprofessional Personal Attacks on Kripke’s Counsel and Requests for its Fees and Costs A. WBTV’s unprofessional attacks on Kripke’s counsel. In almost every communication from WBTV since Kripke first asked for additional disclosures in his October 20 letter, WBTV’s counsel has continually and personally attacked Kripke’s counsel. For example, in WBTV’s latest December 1 email, a copy of which is attached as Exhibit C, in addition stating that it would not supply Kripke with the affidavits filed in connection with the recent Australia judicial opinion concerning Warner Bros. mandatory arbitration policies (Exhibit C). WBTV also asserted: Please stop wasting time and money…. * * * It’s plain that you want to make a spectacle of this case and of your personal war with JAMS, going so far as to leak documents to reporters to try to generate publicity for yourself. We will not participate in such improprieties, either by furnishing you documents or by agreeing to further delays in any briefing, so you can lard already overlong submissions with irrelevant attacks on JAMS and our clients. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 100 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 24 * * * We also reserve all rights, including to seek fees and costs for these needless sideshows. If your client’s position had any merit in this case, you would be ready to proceed with it. Instead, we get these endless games. First, our requests for further disclosure are made in good faith and we will not be intimidated by WBTV’s threats. Indeed, if we did not raise these issues now, WBTV (and JAMS) would certainly claim later, as discussed in the Introduction section of this letter, that we waived them. Second, there is no confidentiality provision in the Certificate of Authorship or the blind script commitment. There are not even confidentiality provisions in WBTV’s proposed blind script agreement and its attachments.10 These are also issues of public interest as indicated by the New York Times articles cited in our October 20 letter. While WBTV (and others) might prefer that these issues be litigated confidentially and never see the light of day, it has no contractual right to require that. Third, while WBTV has resorted to continued unprofessional personal attacks, we have not and will not respond in kind. B. WBTV’s requests for its fees and costs. As to WBTV’s requests for fees and costs for our so-called “meritless sideshow,” our responses are several. 10 There is a confidentiality agreement as to the audit report which WBTV chose to include in its Demand without first seeking a protective order. We submit that it waived confidentiality as to the audit report by doing so as JAMS rule 26(a) only imposes a confidentiality requirement on JAMS. Nonetheless, we have agreed not to further share the audit report beyond the one person we previously shared it with pending the negotiation of a protective order properly within the scope of JAMS’ Rule 26(c) and applicable law. In any case, this confidentiality provision is limited to the audit and cannot be used by WBTV to silence our raising of issues of legitimate public interest, namely our concern with the appearance of repeat player bias that are clearly outside of the audit process/report. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 101 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 25 First, as set forth above, our requests for further disclosures are made in good faith and are supported by the facts, circumstances, law, human nature and economic realities. Second, it is WBTV that unduly delayed these proceedings by not including the arguments in its November 17 submission in its original October 25 opposition. Third, WBTV’s requests for fees and costs is inconsistent with the arbitration provision in the Certificate, which only allows fees and costs in certain post award enforcement proceedings. WBTV’s requests are also contrary to the consumer arbitration rules, and we believe JAMS’ own policies, which prohibit the award of fees and costs against an employee. VI. Requests for Further Disclosures and Our Amendment of Some of Them Contrary to WBTV’s contention (November 17 letter at 5), Kripke does not concede that the requested additional disclosures are not required under California law. As set forth in our October 20, 2017 letter, California law imposes a continuing duty to “disclose all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.” CRCES 7(d); Cal. Civ. Proc. Code § 1281.9(a); see also Gray v. Chiu, 212 Cal. App. 4th 1355 (2013) (applying CRCES 8 in a consumer arbitration and vacating arbitration award where arbitrator failed to disclose a party’s counsel’s membership in the administering dispute resolution agency). We believe that each of the additional disclosures we request fall under this broad standard of disclosure. While we believe that each of the requests are justified, as a further sign of our good faith and to reduce the burden on JAMS, we are, however, willing to narrow/amend our non-consumer arbitration rules disclosure requests11 as indicated by the following redline of our original requests: 11 Our consumer rules requests are dictated by statute and cannot/should not be narrowed. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 102 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 26 A. Proposed Arbitrators. The following sets forth our non-consumer arbitration rule requests for the proposed arbitrators as set forth in our October 20 letter and the striking indicates how we are now willing to modify them: (1) Which, if any, of the proposed arbitrators on the strike-out list have an ownership or other interest in JAMS, and the extent of each potential arbitrator’s equity interest; (2) Whether any Warner Bros. affiliated entity, CBS-affiliated entity or O’Melveny & Myers, counsel to WBTV, is a repeat user of JAMS (“Repeat User”), and the number of prior matters any proposed arbitrator has conducted involving any Repeat User; (3) Whether any aspect of the compensation of any equity-owning arbitrators included on the strike-out list is tied related to services provided to any Repeat User, including sharing in JAMS’ profits from its business with that Repeat User; bonuses for client recruitment, management or retention, or furthering the revenue of a particular geographic profit centers; or other compensation generating mechanisms; and if the answer is yes as to any of the above, the amount that the proposed arbitrator has earned from any business JAMS has had from the Repeat User; (4) Copies of the arbitral awards in all cases by any of the ten proposed arbitrators involving any Repeat User or any other talent v. studio dispute in the entertainment industry. (We are open to redactions of names of the parties, etc., if they are not a Repeat User and possibly otherwise to preserve confidentiality. If this is a concern, we can discuss); (5) Any special inducements or benefits, such as fee reductions, access to JAMS’ databases, social events with JAMS’ arbitrators, special training sessions for arbitration panel members, or other perks, that JAMS or the proposed arbitrator has accorded any Repeat User at any time; (6) We were surprised that JAMS proposed ten candidates for a single arbitrator arbitration. We would appreciate further clarity about the exact procedures that JAMS will use to select a neutral arbitrator for this dispute after the parties’ submission of their strike-out lists. For example, several proposed arbitrators will remain after each party strikes out names and submits a ranking of the remaining candidates in order of Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 103 of 142 Zela G. Claiborne, Esq. December 5, 2017 Page 27 preference. What weight is accorded to each party’s preferences, and what mechanism is used to arrive at the ultimate selection? (In addition, given that JAMS has designated ten potential arbitrators on the strike-out list, we now reserve the right to request that our number of strikes increase by one or two after we receive the disclosures requested by this letter or JAMS’ denial of our requests in whole or in part.) The following sets forth our non-consumer arbitration rule requests for the NAC Decision Makers as set forth in our November 16 letter and the striking indicates how we are willing to modify them: (1) Which, if any, of the NAC Decision Makers has an ownership or other interest in JAMS; (2) Whether any Warner Bros. affiliated entity or CBS-affiliated entity is a repeat user of JAMS (“Repeat User”), the number of prior matters any NAC Decision Maker has conducted involving any Repeat User and the total amounts paid by the Repeat Users to JAMS; (3) Whether any aspect of the compensation of any equity-owning NAC Decision Makers is affected by services provided to any Repeat User, including sharing in JAMS’ profits from its business with that Repeat User; bonuses for client recruitment, management or retention, or furthering the revenue of a particular geographic profit centers; or other compensation generating mechanisms; and if the answer is yes as to any of the above, the amount that the NAC Decision Maker proposed arbitrator has earned from any business JAMS has had from the Repeat User; (4) Copies of the arbitral awards in all cases by any of the NAC Decision Makers involving any Repeat User or any other talent v. studio dispute in the entertainment industry. (WBTV has raised a concern about confidentiality and we are open to redactions of names of the parties, etc., if they are not a Repeat User and possibly otherwise to preserve confidentiality. WBTV, the NAC Decision Makers and we can discuss); (5) Any special inducements or benefits, such as fee reductions, access to JAMS’ databases, social events with JAMS’ arbitrators, special training sessions for arbitration panel members, or other perks, that JAMS has accorded any Repeat User at any time; Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 104 of 142 BIRD I MNNTLLA,. BIRD ' MARELLA'SoXER ' WoIPERT.NE5S|i$. DnooKs ' LINCENBIRG ' RHoW RIN:tvr cc: Daniel M. Petrocelli Matt Kline Timothy B. Heafner Catherine E. Howard Thomas V. Reichert Fanxi Wang 34s4490.1 ZelaG. Claiborne, Esq. December 5,2017 Page28 (6) Whether any NAC Decision Maker has been involved in discussing, developing strategies for JAMS or otherwise has a personal stake on the repeat player issue and the questions/requests for further disclosures raised in my 2015 UCLA Entertainment Law Review article. vII. Conclusion Our requests for further disclosures are made in good faith and we believe are justified by the facts/circumstances of this case and the law. We request that you order WBTV to provide each of the affidavits and briefs filed by the parties in connection with the Australia opinion attached as Exhibit B. We request that the disclosures as to the NAC Decision Makers be made sufficiently in advance of the December 2l hearing and that the disclosures as to the ten proposed arbitrators be made before the exercise of the strikes. After you rule on our requests for funher disclosure (and we receive the further disclosures or your ruling that you do not believe that we are entitled to them), we will communicate to you whether we concerning the ten proposed arbi strikes (from the current two) S J. Nessim Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 105 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 106 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 107 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 1/15 Medium Neutral Citation: Hearing dates: Decision date: Jurisdiction: Before: Decision: Catchwords: Legislation Cited: Kennedy Miller Mitchell Films Pty Limited v W arner Bros. Feature Productions Pty Limited [2017] NSWSC 1526 11 October 2017 09 November 2017 Equity - Commercial List Hammerschlag J The application is dismissed. COMMERCIAL ARBITRATION - International Arbitration Act 1974 (Cth) s 7(2) - CONTRACT - construction - application by first defendant for an order that it and the plaintiffs be referred to arbitration in California - whether the plaintiffs and the first defendant are parties to an arbitration agreement under which they have undertaken to submit to arbitration the dispute to be quelled by the proceedings - whether a provision of their Letter Agreement for the production of the motion picture Mad Max-Fury Road includes an arbitration provision as a consequence of the incorporation of standard terms for “A” list directors and producers - whether the arbitration clause in Certificates of Employment executed by the first plaintiff, the first defendant and two directors of the first plaintiff covers the present dispute - whether the law of California is to be applied - application by the second plaintiff for a stay of the proceedings on forum non conveniens grounds - HELD: not established that the plaintiffs and the first defendant agreed to arbitration by the Letter Agreement - HELD: the arbitration clause in the Certificates of Employment does not cover the dispute - questions of stay on other grounds do not arise. International Arbitration Act 1974 (Cth) Supreme Court New South Wales Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 108 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 2/15 Cases Cited: Category: Parties: Representation: File Number(s): Cione v Foresters Equity Services Inc. 58 Cal. App. 4th 625 (1997) Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006)157 FCR 45 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 Fiona Trust & Holding Corporation v Privalov [2008] 1 Lloyd’s Rep 254 Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 Hampton Court v Crooks (1957) 97 CLR 367 IBM Australia Ltd v National Distribution Services Pty Ltd (1999) 22 NSWLR 466 International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 Oceanic Sun Line Shipping Co Inc v Fay (1988) 165 CLR 197 Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 Principal judgment Kennedy Miller Mitchell Films Pty Limited - First Plaintiff Kennedy Miller Mitchell Services Pty Limited - Second Plaintiff Warner Bros. Feature Productions Pty Limited - First Defendant Warner Bros. Entertainment, Inc. - Second Defendant Counsel: R.A. Dick SC with A.M. Hochroth - Plaintiffs A.S. Bell SC with S.J. Free - Defendants Solicitors: Simpsons Solicitors - Plaintiffs Gilbert + Tobin - Defendants 2017/268450 JUDGMENT Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 109 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 3/15 BACKGROUND 1 HIS HONOUR: Mad Max - Fury Road (Mad Max or the Picture) is, I am given to understand, a theatrical motion picture. 2 The first plaintiff and the second plaintiff (together KMM) are New South Wales corporations. Messrs George Miller (Miller) and Doug Mitchell (Mitchell) are directors of KMM. 3 The first defendant, Warner Bros. Feature Productions Pty Ltd (WB), is a New South Wales corporation. It was formed for the purposes of producing motion pictures in Australia. It is a subsidiary of, and is under the control and direction of, the second defendant (Warner Bros.), a United States corporation. 4 In February 2009, KMM submitted to WB a screenplay, including storyboards, for Mad Max. 5 KMM and WB then entered into a written agreement, in the form of a letter (the Letter Agreement), stated to be “As of February 12, 2009”. 6 The introductory paragraph of the Letter Agreement reads: This will confirm the agreement between Warner Bros. Feature Productions Pty Ltd. (“WB”), on the one hand, and Kennedy Miller Mitchell Films Pty Limited ACN 128 081 425 and Kennedy Miller Mitchell Services Pty Limited (individually and collectively, “KMM”), on the other hand, with respect to the theatrical motion picture entitled “FURY ROAD” (the “Picture”), the proposed anime related to the Picture featuring “Praetorian” (the “Anime”) and the services of George Miller (“Miller”) and Doug Mitchell (“Mitchell”) in connection therewith. [1] 7 The Letter Agreement contains comprehensive provisions for Miller to direct, and for Mitchell to produce the Picture for a combined fee to KMM. KMM was to produce and deliver the Picture by 25 October 2013. KMM would be entitled to a percentage of the proceeds of the Picture. If the Picture was not produced within a budget approved by WB, KMM’s participation in the proceeds was to be reduced in accordance with a stated formula until the amount in excess of the approved budget was recouped from the proceeds. 8 Clause 21 of the Letter Agreement provides: Balance of Terms: The balance of terms will be WB and WB standard for “A” list directors and producers, subject to good faith negotiations within WB’s and WB’s customary parameters. [2] 9 The Letter Agreement was amended thrice; “as of” 20 August 2009, 4 January 2012 and 6 June 2012 respectively. The third amendment made provision that if the final net cost of the Picture was US$157 million or less, KMM would be entitled to an additional US$7 million bonus. Provision was made for how the approved budget was to be determined. Certain categories of costs (excluded costs) were to be excluded from the overbudget calculation. 10 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 110 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 4/15 The Letter Agreement provides that if WB intends to seek a co-financier for the Picture (other than two named entities), it will first offer KMM the opportunity to provide that financing on terms comparable to those for similar financing deals of WB. 11 When the Letter Agreement was entered into, each of the first plaintiff and Miller, and the first plaintiff and Mitchell respectively, provided WB with an executed, somewhat lengthy instrument, entitled “Certificate of Employment (Loanout)” (COE). At the foot of each COE, WB provided its acknowledgement and agreement. The COE for Miller records that WB had engaged the first plaintiff (“Employer”) to furnish the services of Miller (“Employee”) in connection with the Picture. The COE for Mitchell records that WB had engaged the first plaintiff (“Employer”) to furnish the services of Mitchell (“Employee”) in connection with the Picture. Each COE records that for good and valuable consideration, Employer and Employee acknowledge that all results and proceeds of services rendered by Employer and Employee and any material created shall be deemed to be works made for hire for WB. They contain provisions granting WB waivers and consents in respect of moral rights in the Picture. They contain representations and warranties that Employer and Employee are free to grant all rights. They contain indemnities against liability, damages, costs and expenses in connection with third party claims or actions arising out of breach of representations, warranties or agreements. 12 Both COEs include the following provision: Any and all controversies, claims or disputes arising out of or related to this agreement or the interpretation, performance or breach thereof, including, but not limited to, alleged violations of state or federal statutory or common law rights or duties, and the determination of the scope or applicability of this agreement to arbitrate (“Dispute”), except as otherwise set forth below, shall be resolved according to the following procedures which shall constitute the sole dispute resolution mechanism hereunder. In the event that the parties are unable to resolve any Dispute informally, then such Dispute shall be submitted to final and binding arbitration. The arbitration shall be initiated and conducted according to either the JAMS Streamlined (for claims under $250,000) or the JAMS Comprehensive (for claims over $250,000) Arbitration Rules and Procedures, except as modified herein, including the Optional Appeal Procedure, at the Los Angeles office of JAMS, or its successor (“JAMS”) in effect at the time the request for arbitration is made (the “Arbitration Rules”). The arbitration shall be conducted in Los Angeles County before a single neutral arbitrator appointed in accordance with the Arbitration Rules. The arbitrator shall follow California law and the Federal Rules of Evidence in adjudicating the Dispute. The parties waive the right to seek punitive damages and the arbitrator shall have no authority to award such damages. 13 JAMS (apparently previously known as Judicial Arbitration and Mediation Services) is an American organisation which provides, amongst others, judicial arbitration facilities. 14 On 4 September 2017, KMM started proceedings in this Court against WB and Warner Bros. 15 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 111 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 5/15 On WB’s calculations Mad Max went over budget. If these calculations are right, KMM does not get a bonus. KMM claims that WB made a series of decisions which caused substantial changes and delays to Mad Max, which led to additional costs and expenses and that WB wrongly took them into account in its overbudget calculation. If those costs are left out of account, KMM says that Mad Max came in under budget. KMM also claims that WB entered into a co-financing arrangement with an organisation called Ratpac for 12.5% of the funding of Mad Max and that WB breached the obligation first to offer such an arrangement to KMM. KMM also brings a claim of misleading and deceptive conduct under s 18 of the Australian Consumer Law asserting that WB and Warner Bros. did not inform them of the fact that they did not intend the additional costs incurred by the changes and delays to Mad Max brought about by them, to be excluded costs for the purposes of the budget calculation. They make a claim against Warner Bros. of knowing and intentional interference with KMM’s contractual rights to be offered co-financing, by causing WB to contract with Ratpac. 16 WB contends that the WB standard terms for “A” list directors and producers incorporated into the Letter Agreement by cl 21 contain an arbitration clause. 17 Section 7(2) of the International Arbitration Act 1974 (Cth) (the Act) provides: (2) Subject to this Part, where: (a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and (b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration; on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter. 18 Section 3(1) of the Act defines arbitration agreement to mean an agreement in writing of the kind referred to in sub-article I of Article II of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration (the Convention). The section provides that agreement in writing has the same meaning as in the Convention. 19 Sub-article I of Article II of the Convention provides that each contracting state shall recognise an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. 20 Sub-article II of Article II of the Convention provides that the term agreement in writing shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. 21 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 112 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 6/15 WB makes application, under s 7(2), for a stay of the proceedings and their referral to arbitration. It relies on the arbitration clause said to be incorporated by cl 21 of the Letter Agreement and separately, on the arbitration clause in each COE. 22 On the footing that the claim against WB must go to arbitration, and the claim against it is so clearly related to that claim, Warner Bros. seeks a permanent stay of the proceedings against it on the grounds that New South Wales is a clearly inappropriate forum. As an alternative, it seeks a temporary stay pending the outcome of arbitration between KMM and WB. 23 KMM argues that, without further agreement between the parties, cl 21 of the Letter Agreement does not have the effect of incorporating any WB standard terms for “A” list directors and producers. It also argues that WB has not proved the existence and identity of such WB standard terms (including any arbitration provision). 24 KMM puts that the dispute is not covered by the arbitration clause in the COEs because it neither arises out of nor is related to the COEs, their interpretation, performance or breach. 25 KMM argues that this Court is not a clearly inappropriate forum for determination of the proceedings against Warner Bros. given that its claims are under a Commonwealth statute and a contract to which Australian corporations are parties, that the contract was to be performed substantially in Australia and the damage they suffered was suffered in this jurisdiction. 26 On 5 September 2017, WB filed with JAMS and served a demand for arbitration. On 14 September 2017, it extended its demand to include Warner Bros. THE LETTER AGREEMENT 27 The first question is whether by the words the parties used in cl 21, they intended immediately to be bound by terms meeting the description WB standard terms for “A” list directors and producers. This is a question of law. 28 The second question is whether WB has proved a set of contractual terms fitting the description WB standard terms for “A” list directors and producers, which include an arbitration clause. This is a question of fact. Intention to be bound 29 WB argues that the words of cl 21 convey an intention that the parties will be immediately bound, but impose on them an obligation to engage in good faith negotiations (should either party want them) with a view to amending the standard terms, but limited to changes which fall within the description of WB’s customary parameters. 30 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 113 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 7/15 It argues the words of cl 21 disclose an intention that the balance of terms will be the standard terms, subject to any agreed variation of those terms within the specified parameters. 31 KMM argues that words such as “subject to negotiations” traditionally connote an intention not to be immediately bound. They also argue that the provision is void for vagueness because no customary parameters for negotiation are self-evident or have been established. 32 In my view, WB’s position is correct. Clause 21 conveys that the standard terms (if they exist) prevail unless they are varied. The balance of terms “will be” the standard terms, subject to negotiation. Whilst the parties are obliged to engage in good faith negotiations, if those negotiations do not result in any amendment, the unamended standard terms apply. The fact that the customary parameters may not exist or have not been established, simply denudes the negotiation obligation of content leaving the standard terms to apply. If there is no negotiation, the application of the standard terms is subject to nothing. WB standard terms for “A” list directors and producers 33 WB read the affidavit of Mr Richard S. Levin. Mr Levin describes his position as Senior Vice-President and General Counsel of Warner Bros. Pictures, a division of WB Studio Enterprises Inc. (which Mr Levin refers to as WB Pictures). That entity is the holding company of WB and Warner Bros. Mr Levin heads a legal department of ten lawyers. They report to him. He has ultimate oversight over all matters relating to agreements considered for production as theatrical motion pictures, including agreements with talent (actors, producers, directors, etc). 34 Mr Levin says that most agreements with talent begin with what is referred to as a "deal memo", an internal WB Pictures memo prepared by a business affairs executive at WB Pictures and which summarises the major deal points (for example the role, compensation, credit) of an agreement reached with the representatives of talent. Deal memos are ordinarily directed to his department, and in most situations, one of the lawyers who reports to him will prepare a "long form" agreement based on the major deal points covered in the deal memo, supplemented by what he describes as his department's form agreements. 35 Mr Levin says that while most agreements with talent end up in the "long form" format, some, like the Letter Agreement, do not, and may end up being documented in a shorter "deal letter." This can be due to factors such as the need to close the deal quickly, established prior practice with the talent, or the fact that the deal has a feature (such as a copyright transfer) that requires a signature in order to be legally effective. 36 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 114 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 8/15 Mr Levin says that deals which are not “papered” in the "long form" format (such as those that are governed by a deal letter) will often incorporate WB Pictures' standard terms used in the "long form" agreements by reference to those standard terms. He says that this is typically accomplished by, amongst others, including a paragraph headed "Balance of Terms". 37 He says that "long form" agreements are prepared by the lawyers in his department using internal form agreements that his office maintains in a form file on a shared drive that the other attorneys in his department can access. Mr Levin’s assistant is responsible for maintaining the internal form agreements on the shared drive, under Mr Levin’s direction, and his assistant is the only person within Mr Levin’s department that has rights to change any document on the shared drive. The internal form agreements are reviewed and updated from time to time and the old versions of the form agreements are maintained in four sub-folders on the same shared drive - "old forms pre-2000," "old forms 2000-2005," "old forms 2006-2010” and "old forms". 38 He exhibits to his affidavit what he describes as the 2009 Director Form Agreement and the 2009 Producer Form Agreement which he says are WB Pictures’ internal form agreements for “A” list directors and internal form agreements for “A” list producers that were in use during the first half of 2009 and which are contained in his department’s “old forms 2006 - 2010” sub-folder on the shared drive. 39 The exhibited Director Form Agreement is entitled Director Loanout Agreement. The Producer Form Agreement is headed [Executive] Producer Loanout Agreement. 40 Mr Levin says that these "long form" agreements contain a combination of "deal terms" - i.e., terms that are specific to the deal to be negotiated with the director or producer as recorded in the deal letter - and "standard terms" which are essentially the same in every deal, subject to approved negotiating parameters. He says that the "deal terms" relate to those provisions that are negotiated by business affairs executives and would typically be addressed in the deal memo, such as "Compensation" and "Credit". He says that the fact that these are "deal terms" is reflected in the form "long form" agreements by the fact that the paragraphs that address them contain a number of blanks to be filled in. He says that the "standard terms" are provisions such as "Rights", "Services Unique", "Contingencies" (including termination) and "Miscellaneous", which vary little from deal to deal. The forms contain brackets in various places. The arbitration provisions in the "A" list director and producer form agreements contain a few provisions in bold print and enclosed in brackets. He says that the bracketed material reflects pre-approved additions or changes that the attorneys who report to him are authorised to make if the other side requests them during negotiations. His Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 115 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 9/15 approval would be required for any substantive change to the Arbitration Provision other than the addition of the pre-approved bracketed language from the form agreement. 41 He says that the standard terms of the 2009 Form Agreements (as at the date of the Letter Agreement) contain provisions requiring arbitration before JAMS applying California law. The arbitration clause appears in the Director Form Agreement as cl 20(c) and the Producer Form Agreement as cl 18(c), under the heading “Miscellaneous” and the sub-heading “Governing Law/Dispute Resolution”: Governing Law/Dispute Resolution: This Agreement shall be governed and construed in accordance with the laws of the State of California applicable to contracts entered into and fully performed therein. Any and all controversies, claims or disputes arising out of or related to this Agreement or the interpretation, performance or breach thereof, including, but not limited to, alleged violations of state or federal statutory or common law rights or duties, and the determination of the scope or applicability of this agreement to arbitrate (“Dispute”), except as otherwise set forth below, shall be resolved according to the following procedures which shall constitute the sole dispute resolution mechanism hereunder. In the event that the parties are unable to resolve any Dispute informally, then such Dispute shall be submitted to final and binding arbitration. The arbitration shall be initiated and conducted according to either the JAMS Streamlined (for claims under $250,000) or the JAMS Comprehensive (for claims over $250,000) Arbitration Rules and Procedures, except as modified herein, including the Optional Appeal Procedure, at the Los Angeles office of JAMS, or its successor (“JAMS”) in effect at the time the request for arbitration is made (the “Arbitration Rules”). [Rule 17(c) of the JAMS Comprehensive Rules and Procedures shall be modified to provide that each Party, as such term is defined in the Arbitration Rules, may take three depositions of an Opposing Party or of individuals under the control of the Opposing Party. Rule 17(c) shall otherwise remain unchanged and in full force and effect.] The arbitration shall be conducted in Los Angeles County before a single neutral arbitrator appointed in accordance with the Arbitration Rules. The arbitrator shall follow California law and the Federal Rules of Evidence in adjudicating the Dispute. The parties waive the right to seek punitive damages and the arbitrator shall have no authority to award such damages. The arbitrator will provide a detailed written statement of decision, which will be part of the arbitration award and admissible in any judicial proceeding to confirm, correct or vacate the award. Unless the parties agree otherwise, the neutral arbitrator and the members of any appeal panel shall be former or retired judges or justices of any California state or federal court with experience in matters involving the entertainment industry. If either party refuses to perform any or all of its obligations under the final arbitration award (following appeal, if applicable) within thirty (30) days of such award being rendered, then the other party may enforce the final award in any court of competent jurisdiction in Los Angeles County. The party seeking enforcement of any arbitration award shall be entitled to an award of all costs, fees and expenses, including [reasonable outside] attorneys’ fees, incurred in enforcing the award, to be paid by the party against whom enforcement is ordered. Notwithstanding the foregoing, either party shall be entitled to seek injunctive relief (unless otherwise precluded by any other provision of this Agreement) in the state and federal courts of Los Angeles County. Any Dispute or portion thereof, or any claim for a particular form of relief (not otherwise precluded by any other provision of this Agreement), that may not be arbitrated pursuant to applicable state or federal law may be heard only in a California court (state or federal) of competent jurisdiction in Los Angeles County. Any process in such proceeding may be served upon Employer and Employee by, among other methods, delivering it or mailing it, by registered or certified Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 116 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 10/15 mail, directed to such address Employer and Employee designated in this Agreement. Any such delivery or mail service shall have the same effect as personal service within the State of California. (I interpolate that it is common cause that the terms of this arbitration provision would cover the controversy to be quelled by the proceedings.) 42 Mr Levin says that arbitration provisions like those reflected in the 2009 Form Agreements have been used in WB Pictures' "A" List director and producer form agreements since the early 2000s, including during all times that he has been General Counsel of WB Pictures. 43 He exhibits previous agreements from 2005 to 2009. He exhibits 16 agreements for 2005, (eight Producer Agreements and eight Director Agreements); 14 agreements for 2006 (six Producer Agreements and eight Director Agreements); five agreements for 2007 (one Producer Agreement and four Director Agreements); 16 agreements for 2008 (seven Producer Agreements and nine Director Agreements) and five agreements for 2009 (one Producer Agreement, two Director Agreements and two Producer/Director Agreements). 44 He concludes by observing that a number of the agreements exhibited are unsigned and some contain redlining. In fact only six of the exhibited agreements are signed. He says that many of the agreements are unsigned because WB Pictures does not employ what is referred to in the motion picture business as a "signed deal policy." In practice, this means that the parties exchange drafts until all material issues are deemed resolved, with the final exchanged unsigned draft (which sometimes contain redlines) being treated as the operative version of the agreement. 45 The notion of WB standard terms for “A” list directors and producers comprises two elements: (1) terms which are standard for WB; (2) for contracts with “A” list directors and producers. 46 Mr Levin does not make explicit what he takes (or assumes) the phrase “standard terms” to connote. He does refer to standard terms as being “essentially” the same in every deal, subject to “approved” negotiating parameters. He does not identify any document, which on its face enables it to be said to be the standard terms for “A” list directors or producers which the parties had in contemplation. Indeed, in most instances, he cited unexecuted documents. 47 I take the term “standard”, in its ordinary grammatical meaning, to mean used in a sufficient preponderance of cases, where WB contracts with “A” list directors and producers, to make its use usual. Its use does not have to be invariable. WB bears the burden of showing (as at the time of the Letter Agreement) that where it contracted with “A” list directors and producers, it had done so with sufficient regularity on the terms which it says are standard, so as to make that course usual. This requires a Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 117 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 11/15 comparison of the universe of instances where WB had contracted with “A” list directors or producers with the instances where it contracted with them on the asserted standard terms. 48 None of the contracts relied upon as instances of contracting on standard terms are contracts to which WB is party. They are contracts to which WB Pictures is a party. There is no evidence of any regularity of contracting on standard terms by WB itself. 49 Faced with this difficulty, WB put that where cl 21 refers to WB, this should be read as, or as including, WB Pictures. This submission is untenable. WB is unambiguously defined in the introductory paragraph of the Letter Agreement as the Australian entity Warner Bros. Feature Productions Pty Ltd and only that entity. There is no claim for rectification or warrant for reading cl 21 as nonsense or self-evidently in error. WB correctly conceded that the evidence did not establish standard terms used by WB itself. 50 This is sufficient to dispose of the contention that the parties bound themselves to arbitration by the Letter Agreement. 51 However, even assuming the reference to WB in cl 21 is to be read as, or to include, a reference to WB Pictures, the evidence does not establish standard terms for “A” list directors and producers in any event. 52 Mr Levin’s evidence refers to standard terms as being essentially the same subject to approved negotiating parameters, but does not establish the ambit of those parameters. He says that his subordinates have authority to negotiate the bracketed portions. He does not deal with the approved parameters with respect to his own authority. 53 He does not explain what is meant by “A” list directors and producers. Presumably this is a category of persons whose names appear on a particular list of priority. He does not identify any such list. He does not state that each sample agreement is with a person who appeared on such a list at the time of the agreement or otherwise can be identified as an “A” list director or producer. 54 Mr Levin does not reveal for any particular period, or at all, the number of agreements entered into by WB Pictures with “A” list directors and producers in the long form (which he says prevailed as at the date of the Letter Agreement or otherwise) - so as to enable a comparison to be made with the number of agreements said to have been entered into with “A” list directors and producers on terms not including what he says are standard terms. He provides no information to enable an assessment to be made of the numerical significance of the sample he provides. 55 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 118 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 12/15 These omissions from Mr Levin’s evidence are significant. Evidence is to be assessed according to the ability of a party to bring it. All the facts are within the knowledge of the WB camp. I consider that an inference is properly to be drawn that Mr Levin’s evidence on the omitted matters would not have assisted them: Hampton Court v Crooks (1957) 97 CLR 367 at 371-2; Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418. 56 WB also read the affidavit of Ms Sandra Smokler, one of the lawyers working under Mr Levin’s supervision. Ms Smokler was responsible for negotiating the terms of the Letter Agreement. She traced the history of those negotiations identifying precedent documents she used. She also identified what she described as a number of “A” list director and producer agreements with KMM’s representatives at Creative Artists’ Agency and KMM’s American lawyers, Gang Tyre Ramer & Brown Inc. in relation to other projects (not involving KMM, Miller or Mitchell) said to contain the arbitration provision. This affidavit evidence does not fill the lacunae in WB’s evidence which I have identified above. THE COEs 57 The issue which arises for determination is whether the controversy or dispute between KMM and WB arises out of, or is related to, the COEs or their interpretation, performance or breach, so as to be covered by the arbitration clause in those instruments. This is a question of contractual construction. 58 The scope of the dispute is to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including the defence, are based. No defence has yet been filed. 59 WB contended that this question falls to be decided according to the law of California. 60 There was evidence from experts on both sides as to the state of the law in California. Particular reference was made to Cione v Foresters Equity Services Inc. 58 Cal. App. 4th 625 (1997) in which the Californian Court of Appeal said that doubts as to whether an arbitration provision applies to a particular dispute are to be resolved in favour of sending the parties to arbitration, that the Court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute and that a heavy presumption weighs the scales in favour of arbitrability and that an order directing arbitration should be granted unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favour of coverage. 61 Where an analysis of the possible issues in a dispute reveals that it could come within an arbitration clause, I understand an approach (indeed I would adopt it) that favours sending the parties to arbitration. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 119 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 13/15 62 But I do not read the Californian authorities to stand for the proposition that the parties are to arbitrate when the dispute does not fall within the terms of an arbitration clause properly construed. 63 The present application is one under the Act. It requires the Court to determine whether, under a statute in force in this jurisdiction, there is a written arbitration agreement under which the parties have undertaken to submit the difference which has arisen between them to arbitration. This, I think, must be a question to be decided under the law of the forum. It is for the municipal law to determine whether the parties reached a consensus ad idem and what that consensus was; see Oceanic Sun Line Shipping Co Inc v Fay (1988) 165 CLR 197 at 225, 260-1. 64 However, I do not think that if the law of California applied, the outcome would be any different. 65 Arbitration provisions, are, when it comes to this construction, no different to any other provision in a commercial agreement. 66 The meaning of the words used is to be determined objectively, that is, by what a reasonable person would have understood them to mean. It requires attention to the language used by the parties, the commercial circumstances which the document addresses, the purpose of the transaction and the objects which it was intended to secure. The whole of the instrument has to be considered. Preference is given to a construction supplying a congruent operation to the various components of the whole and which does not make commercial nonsense or work commercial inconvenience: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350- 352; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at 529; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 657; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at 117. 67 Australian courts have repeatedly held that words such as “arising out of”, “arising under”, “in connection with” or “connected with” and “related to” have a wide ambit and that when commercial parties choose a forum for the resolution of disputes which may arise between them, such provisions should be liberally construed so as to further their ultimate intent, namely, that their disputes should be susceptible to the forum which they have chosen; see Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160; IBM Australia Ltd v National Distribution Services Pty Ltd (1999) 22 NSWLR 466; Comandate Marine Corporation v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45; Fiona Trust & Holding Corporation v Privalov [2008] 1 Lloyd’s Rep 254 at 256. 68 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 120 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 14/15 Phrases such as “in connection with” or “related to” have a wide ambit but they do not have unlimited reach. They are to be construed in the context of the agreement of which they form part, having regard to other cognate instruments. 69 The dispute as revealed by the Commercial List Statement is one which arises out of, and is related to, the Letter Agreement and its performance. The COEs are undoubtedly related to the Letter Agreement. But a dispute which arises out of, or is related to, the Letter Agreement does not arise out of, nor is it related to, the COEs because the Letter Agreement is related to the COEs. There is no controversy, claim or dispute about anything done or not done pursuant to or under the COEs. The Commercial List Statement makes no reference to the COEs and it is difficult to see how their existence or terms will play any role in the determination of the issues in the proceedings. WB did not suggest any. 70 Moreover, the second plaintiff is not a party to the COEs, and Miller and Mitchell (who are parties to the COEs) are not parties to the Letter Agreement. 71 The COEs have a specific and limited role in the overall transaction and they have their own arbitration clause. 72 It would be surprising if a reasonable person in the position of the parties to the Letter Agreement, would have understood that by the COEs (to which one of the plaintiffs is not a party) it was, by virtue of an arbitration clause contained in the COEs, choosing compulsory arbitration as the forum for a dispute about breach of the Letter Agreement, especially where there is no arbitration clause in the Letter Agreement itself. That is not an object which I consider the arbitration clause in the COEs was intended to secure. Even less is it its object to capture a claim of misleading or deceptive conduct under the Australian Consumer Law upon which the COEs have no bearing. 73 It follows that WB’s application under the Act must be dismissed. 74 Questions of a stay on other grounds do not arise for consideration. CONCLUSION 75 The application is dismissed. 76 I will hear the parties on costs should it be necessary. 77 I will make directions for the further conduct of the proceedings. ********** Endnotes 1. An anime is a style of Japanese film and television animation. 2. The two references to “and WB” are otiose. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 121 of 142 12/5/2017 Kennedy Miller Mitchell Films Pty Limited v Warner Bros. Feature Productions Pty Limited - NSW Caselaw https://www.caselaw.nsw.gov.au/decision/5a03c0afe4b058596cbabe5f# 15/15 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 November 2017 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 122 of 142 EXHIBIT H Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 123 of 142 Final Transcript Customer: Call Title: Ms. Zee Claiborne Confirmation Number: 46329658 Host: Matt Kline Date: January 17, 2018 Time/Time Zone: 2:30 pm Central Time SPEAKERS Matt Kline Monty Daniel Petrocelli Ron Nessim Zee Claiborne PRESENTATION Matt Kline: So who's on the line right now? I just want to make sure we have all the people that we need on our end. Male Speaker: Bird Marella. Matt Kline: Great. Monty: Matt, I'm on as well for Warner Brothers. Matt Kline: Oh, that's perfect. Thanks Monty (phon). I think they're trying to get Dan as well. We tried from every phone in our office and no luck. Monty: Yes, my iPhone 6 works but not the iPhone app. Matt Kline: Okay. Monty: I don't know why. Matt Kline: Hello? Daniel Petrocelli: Hi. Dan here. Matt Kline: Hey Dan. We have Monty, Warner Brothers. I'm in Century City and I think the Bird Marella team's on the line as well. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 124 of 142 Confirmation Number: 46329658 January 17, 2018 at 2:30 pm Central Time Page 2 Ron Nessim: Hi Dan. Ron Nessim. Daniel Petrocelli: Hey Ron. How are you? Ron Nessim: Good. Operator: Ms. Claiborne is joining. Matt Kline: Great. Zee Claiborne: Good morning everybody. I understand that there was a problem accessing this line and I'm sorry to hear that. I have had of course many calls on this line and have not had problems in the past. But welcome. I'm glad you're all here now. I understand that we are being recorded today, which is fine. This is a case of Warner Brothers Television Production versus Kripke Enterprises. I'm the hearing officer, Zee Claiborne. I have received your briefs and before that a correspondence and I have read all of that. So I'm interested in hearing whether you have anything to add. So since we're being recorded, it would be good if you would state your name, and then begin to speak and make sure that we're not stepping on each other during the discussion. So, Mr. Nessim, let's start with you. Ron Nessim: Thank you, Ms. Claiborne. I'm here with my colleagues, Tom Reichert and Fanxi Wang. As you said, both sides have had an opportunity to submit multiple letters and evidentiary support, both sides have submitted documents in terms of drafts and the one signed agreement, the certificate. We have also submitted a declaration of Rich Geneau (phon), who was the transactional lawyer involved in '04 and '05 and remains Mr. Kripke's lawyer. I think it's uncontradicted. We filed the last brief. I think our arguments have been set forth. If you have questions, we're certainly willing to answer them and we're certainly here to respond to any arguments that WBTV makes. I also want to just state as an introductory remark that we recognize that this is an awkward situation, at least for our firm, and for JAMS because we're asking for additional disclosures that may affect JAMS and of course our position is we're just raising that we believe a reasonable person can have a concern in this situation requiring further disclosures and of course we have our other independent ground that this is a consumer arbitration. But I don't know that it's-I don't think it's necessary unless you want me to to sort of outline our argument again. Zee Claiborne: No, I don't think it's necessary. As I said, I have reviewed all of the submissions of counsel in this matter and I have looked into it. So, Mr. Petrocelli or Mr. Kline, which of you would like to speak? Matt Kline: It's Mr. Kline here. I'll take the lead, but Dan if you want to make any introductory remarks, I'm happy to follow those. Dan Petrocelli: No need, Matt. Matt Kline: Well, let's be really clear now. A couple of things. First of all, the reply brief that Mr. Nessim submitted that was 19 pages long, single space, and included this Geneau declaration is very much controverted. That declaration is full of heresy and we object to it. We've not had an opportunity to depose him. We've not had an opportunity to take any discovery. So the notion that Your Honor would get into very complicated questions of employee versus independent contractor based on this whole record when the only evidence on their side is a reply declaration filed well after the fact that we were able to respond to any sort of briefing. We do object to that. Number one. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 125 of 142 Confirmation Number: 46329658 January 17, 2018 at 2:30 pm Central Time Page 3 Number two, we think it's quite clear that there is a contract here that governs. There are two contracts. The contract under which they seek this extra compensation for us is a Blind Script Agreement, and that's the place where they say we have not paid them enough money under our network deal with The CW. And that's the contract that's going to be litigated in the main case, and that contract says nothing about Mr. Kripke being a consumer, it says nothing about him being an employee, it says nothing about JAMS deviating from the normal rules it uses in thousands of cases. So, instead, what they're focusing on is a certificate of employment that's not the contested agreement in this case, that that agreement has to do with work for hire issues that are not contested in the dispute and they're saying their client was somehow forced to sign some contract. The case law is decidedly against them on that point and again we're suffering from having to respond to the single space, 19 page reply brief. But if Your Honor has the time to take a look at cases like Grand Prospect Partners versus Ross Dress For Less, which is a 232 Cal. App. 4th 1332 and look at pages 1350 to 1351, it just rejects the notion that when you have a sophisticated lawyer on the other side making extensive comments on both agreements at issue here, the COA and the Blind Script Agreement, it rejects the notion that this is somehow a form contract or this is somehow a contract of adhesion. And this clearly is not a consumer situation. These contracts are negotiated over multiple years. So... Zee Claiborne: I saw the-excuse me, I was just going to say I saw a redline document that you included with your brief. Thank you. Matt Kline: Great. And I just think it's worth also pointing out cases like Dunn and Gadsden versus Keltner (phon) which is a 50 Cal. App. 3rd 560 and 563, where the terms of the instrument of (inaudible) negotiations you can't construe the terms against one party or the other. And that's kind of what's being asked to be done here. Clearly what is being asked here is not what a reasonable person would ask for and these are disclosures that would grind JAMS to a half, it would grind our law practice to a halt. There are-I think it's up to 11 sets of disclosures that they want now in their reply brief. They've slightly narrowed it. I think they no longer are requiring that every O’Melveny & Myers client in the history of the firm disclose every arbitration its ever been involved in in front of JAMS and the results and the mediation. So they've narrowed it a tiny bit, but in no way shape or form in any reasonable fashion. So where we stand is we’ve spent tens of thousands of dollars, we've spent six months litigating these threshold issues and as I read Mr. Nessim's submissions he doesn't even exceed (phon) to Your Honor hearing this because you haven't made the disclosures that he requires of you, nor has JAMS made the further disclosures required of this national organization that looks at these issues. So I think all that's being said here is a trap to later on argue that this is somehow an improper proceeding. And we are deeply concerned about the tape recording of today's conference and we're concerned about a transcript being made because Mr. Nessim has been actively leaking the key documents in this proceeding to the press and he's going to argue, "Hey, there's no confidentiality provision governing this," but this is clearly a case that has very little to do right now with Mr. Kripke's rights or Kripke Production's rights and it's all about just a frontal assault on JAMS and JAMS' proceedings like this going forward. So I just want to be very clear, we do object to these proceedings, we do object to the disclosures being sought. If there was some reasonable middle ground that one could find here, we would love to find that to spare you and JAMS and everybody the wasted time and money, but what's happening is every time we get another brief we get an expanded list of disclosures they require. So, we're kind of at a loss what to do next. Zee Claiborne: Okay. Is there a middle ground, Mr. Nessim? Ron Nessim: Your Honor, may I respond to his points first, and then I will address that. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 126 of 142 Confirmation Number: 46329658 January 17, 2018 at 2:30 pm Central Time Page 4 Zee Claiborne: Sure. Ron Nessim: Thank you. First, in terms of the declaration being submitted in our December 5 letter, that's because we originally asserted that this was-our initial letter raised our arguments and that was our October 20 letter and then WBTV filed an opposition and we filed a reply and we thought we were ready for argument then. In fact, you sent out a letter, "Is this everything?" and it should have been everything, but Warner Brothers chose to then file a new brief on November 2 which raised entirely new factual arguments. They raised the amendment in 2005 when Kripke created a loan-out which could have been in their original papers, and was not. They made new factual arguments and new legal arguments, which is what our December 5 papers respond to. And the Geneau declaration goes to things he has personal knowledge of even if you were to enforce the strict rules of evidence here. Now in terms of the arguments about what's the contract, there's only one signed document and it contains an arbitration provision, the certificate of authorship. It expressly states that Kripke is an employee even when it's amended in the December, in 2005 he signs an inducement where he remains individually liable. We've cited you the case law which involved loan-outs in the entertainment area where they look to right to control and I think that's undisputed here. And the consumer test does not rely on whether it's a contract of adhesion. Now, Mr. Kline cites two cases that obviously we haven't read since-well, maybe they were cited in his papers and I missed it, but if he did in any case I haven't read them. But the issue is not whether for the consumer test whether it's a contract of adhesion, but as we briefed, it's a three-part test. First, whether he's an employee and we briefed that. Second, whether the certificate was drafted by or on behalf of a non-consumer party which it clearly was, and whether he was required to accept the arbitration provision. On that issue, not only do we have Geneau's declaration and he in fact tried to strike out the arbitration provision two years earlier with this exact client, and of course since it's a non-negotiable provision Warner Brothers rejected it. We also submitted the court ruling in Australia. We've asked you to order Warner Brothers to produce those affidavits because I think it goes to a contested issue of whether Kripke was entitled to accept. So we think the record's pretty clear that the consumer disclosures are required. And then for our second ground, of course, Standard 7, sub-part 15 is quite clear: "Anything that might cause a reasonable person aware of the facts to reasonably entertain a doubt that the arbitrator can be impartial needs to be disclosed" and our disclosures, of course, the ones who the consumer ruler mandated by law, and this goes to your question about whether all our requested disclosures are necessary. We think under that Standard 7 part 15 we took a lot of guidance from Professor Stone's declaration in the Monster (phon) case where she believed and we believed as well that the disclosures we requested are necessary in this situation, and in fact, in our December 5 letter, as Mr. Kline notes, we tried our best, we cut them back. As he notes, among other changes took out O’Melveny as one of the entities that constitute a repeat user, and we think these disclosures are necessary. And with respect to Mr. Kline's argument that this would grind JAMS to a halt, that goes to my initial comment about how awkward this is because we're in a sense asking you to rule something that has, as Mr. Kline argues himself, real implications for JAMS, and again, that's part of the issue here and that's why we also requested, as he correctly notes, disclosures from the NAC decision-makers. Now, I would also note that nowhere has, until this hearing, has Warner Brothers suggested that they would agree to some compromised disclosures. In fact, their entire posture to now has been to attack us to say that repeat player concerns are a made up concern, that they have no basis, this is a war against JAMS trying to fan the flames. In fact, as we point out, this phenomenon's been recognized by the California legislature, it's been confirmed in academic studies, sophisticated studies with many, many cases and using regression models. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 127 of 142 Confirmation Number: 46329658 January 17, 2018 at 2:30 pm Central Time Page 5 So, Your Honor, we believe that the disclosures are required in this case. Zee Claiborne: Well it may have been considered by the legislature but I'm not seeing a change in the law reflecting that. I'm really looking at the law here and the JAMS rules. Ron Nessim: I'm sorry, Your Honor... Matt Kline: And we agree with that, Your Honor. I think what really is the most salient point here is that if you look at Mr. Nessim's law review article that he cites in the opening letter, he concedes that clients of the sort that he's representing in this case, somebody who's made millions of dollars, somebody who had a very expensive entertainment lawyer representing him, in his words, are a far cry from the consumers that the California legislators were concerned about, and what they were concerned about is people who are getting essential medical services, are getting basic retail banking services, being forced to sign contracts of adhesion and in every part of his test that he keeps citing to that this is a consumer arbitration, he fails on. And the reason I cite cases like I did earlier is they say when you mark up a document and then make changes to a document, it is not a form contract drafted by the other party, it is a contract that both parties drafted together. And so we keep on seeing them trying to fit this square peg into a round hole, and you are correct, Your Honor, that the California legislature has not gone as far as Mr. Nessim would like and that's why he continues to write law review article that he does because he wants this further change in the law but that change in the law has not happened and nor should the brunt of that change be brought upon us in this case or JAMS because he wants to see this change in the law made. I think what's most troubling for me is Mr. Nessim keeps on saying this fact is undisputed, this is uncontroverted, and I tried to tell him a couple of times that's not the case and if you're right, 19-page briefs, single spaced, we're not going to spend tens of thousands of dollars of our client's money trying to respond to every minor little point but just understand we disagree with your point of view on this. And so I think the bottom line though is, Your Honor, that the law is not where they need it to be, number one, and number two, the disclosures that they're requiring are just way too extensive. Ron Nessim: Your Honor, may I respond? Zee Claiborne: Yes, you may, Mr. Nessim. I must be mispronouncing that. Ron Nessim: It's Nessim. Zee Claiborne: Go ahead. Ron Nessim: First of all, if I'm interpreting your comment correctly that you don't see a change of the law, maybe I'm not interpreting that correctly but because I think we're relying on very established law. This proceeding is about whether further disclosures are required and we're not seeking to change the law in that. If this is a consumer arbitration, there are certain disclosures required by California statute. And I'll come back to Mr. Kline's argument again on why he says this is not a consumer arbitration. And second, if even independent of that, if the facts and circumstances are such, and I'm quoting from sub-part 15 of Standard 7, "Might cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial, further disclose and then further disclosures are required," and we set forth 11 facts and circumstances that we believe are all supported by the Geneau declaration, the documents and the record, economic realities, human nature, and we believe that these 11 facts and circumstances require under sub-part 15 the further disclosures that we request. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 128 of 142 Confirmation Number: 46329658 January 17, 2018 at 2:30 pm Central Time Page 6 Now, Mr. Kline further argued again that we don't meet the requirements of a consumer arbitration, which includes any employment arbitration. I've already addressed in the papers and in my earlier comments why Mr. Kripke should be considered an employee. I think the documents-the certificate says, "Pursuant to artist's employment by WBTV." How more clear can you be on that? And the key factor is right of control and the cases make that clear and that's clear that Warner Brothers controlled him. There's no factor about how much-he happened to be at the very start of his career here. He didn't even have a loan-out. They make a big deal about he had done a few episodes of Tarzan, the Bogeyman, was some independent film, the credits are 2005, even after this. But there is no requirement that the person be a low-paid employee or a high-paid employee, it's any employee. In terms of-I think that I would agree with Mr. Kline that I'm not aware of a published case that construes drafted by or on behalf of a non-consumer party, but if you look at Mr.-clearly it was drafted by WBTV. There's no dispute about that. It's no dispute that it was their form. We clearly believe the evidence. They may contradict it, but the evidence is uncontradicted that it was a non-negotiable provision. But in any case, their argument that if you look at the comments that Mr. Geneau made on the certificate, there are a few things "Reasonable outsider." Very minimal comments, some of which were taken. The two comments he made to the arbitration provision which went to California Rules of Discovery, I think, was rejected. I don't think that transfers a document. I don't think the law is or should be that if the consumer party makes a couple of comments that the document automatically becomes not drafted by or on behalf of the non-consumer party. Matt Kline: So I'd just point, Your Honor, again to the Grand Prospect case, the Dunn and Gadsden case-and we can send you the citations, I'm mentioning it, but they'll be in the record as well-they just reject that proposition and if we just go back to the basic principle that Mr. Kripke's dispute is not about a certificate of employment with us, it's about his Blind Script Agreement and whether he's getting paid as much money as he think he's entitled to be paid under that agreement. And that agreement as well has an arbitration provision in it and that's the key operative agreement here and that's with Mr. Kripke's company, not with him, and Mr. Nessim says again and again and again that it's undisputed, Geneau says this and Geneau says that. Again, let me be very clear, it's completely disputed, the declaration was filed, too little too late, it's all heresy and we don't think Your Honor can reach those issues of employee or not on this record without discovery and especially when the argument being made, which is premised on the certificate of employment which has to do with work for hire issues and copyright, is not what this case is about. This case is all about the fee that Mr. Kripke's company was paid based on the license between Warner Brothers Television and CW and the provisions that deal with that issue are in the Blind Script Agreement and that Blind Script Agreement says nothing about him being an employee and that Blind Script Agreement is governed by an arbitration provision. And then I guess to go back to the last point, Mr. Nessim says his fallback argument is, well, give me what's reasonable, and I would submit that it's not reasonable to have these types of disclosures made in the blind. It's just a kind of broad, frontal attack on JAMS and this would become the reasonable disclosure required in every single JAMS case involved in any entertainment company, any consumer product company, any company that regularly uses JAMS or any other arbitration service, and the law does not require these sorts of extensive disclosures upfront. So he fails on the reasonableness test too. Ron Nessim: Your Honor. Zee Claiborne: Yes, Mr. Nessim. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 129 of 142 Confirmation Number: 46329658 January 17, 2018 at 2:30 pm Central Time Page 7 Ron Nessim: First, if the Blind Script Agreement is not signed, the operative arbitration provision is in the certificate which clearly establishes that he's an employee. But even if both agreements were silent on that, the case law is clear that right to control is the key factor, it's not magic words that are used, and here it's quite clear that Warner Brothers had the right to control and it's quite clear that California case law, which the arbitration provision binds you to follow, makes that the key factor. Now, when Mr. Kline again says this is a war on JAMS again, and the reasonableness of the disclosures and he argues this will be the standard, well, if you look at Standard 15, it doesn't say might cause-it says: "If a person might cause a person aware of the facts of reasonably entertained," It doesn't say, only if the request are easy for JAMS to do or easy for the parties. We have a unique situation here where all the big entertainment companies require these in all of their contracts. Warner Brothers does it across the board. These are non-negotiable provisions. They're very big and important players in the Los Angeles economy and I again go to the 11 factors that we mentioned. So they have created a situation where I think these disclosures are mandated and we would ask you to make all of the requested disclosures. Zee Claiborne: Okay. Anything in addition that your side would like to offer at this point? Mr. Kline, anything? Ron Nessim: I have a question, Your Honor, on the... Zee Claiborne: Yes. Ron Nessim: Let me-I just was passed a note. Let me look at that. Yes, I would also just note that the certificate of authorship was Exhibit A to their initial demands. For them to say it's not part of this dispute is a bit disingenuous, and for Mr. Kline to criticize the Geneau declaration it was because they for the first time added the July '05 documents, not in their demand, they didn't consider it part of the contract at that time, it wasn't in their initial opposition, it was only in their (inaudible) reply. And therefore, we have to contest it in our next filing. My other question to you, Your Honor, is what the process is from here and if you could explain that. Zee Claiborne: Yes. The process is that I send my review of this matter and my opinions about it on and you folks will get a copy of that and I will send it on to General Counsel Sheri Eisner, who will forward it to the members of the NAC, and at the same time you will be getting a copy of what I've written. Ron Nessim: And Your Honor, have you made any-we did, as Mr. Kline correctly points out, requested certain disclosures about the NAC decision-makers and we requested those prior to this hearing. Obviously, that wasn't done. I take it, are you making ruling-have you made rulings for that or will that be incorporated in what you forward on? Zee Claiborne: I will make a recommendation to the NAC. And I've done this before. I mean, from time to time I do this and I think probably one of the reasons that I was asked to do it is that I have not had worked with these particular parties before. Matt Kline: Great. Ms. Claiborne, we thank you for your time. I think the one kind of final note on our end, as Mr. Nessim did say when he submitted the Geneau declaration it was to contest what we were saying and so I just want to be really clear, all of the submissions here are highly contested, they are (inaudible), there's a need for discovery, and so I would just say that I don't think that Your Honor should be in a position of having to kind of make these factual rulings before a discovery is taken, depositions and the like and any representation that something is uncontested or uncontroverted should be taken with a big grain of salt because we do contest these assertions that Mr. Nessim and his witness made. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 130 of 142 Confirmation Number: 46329658 January 17, 2018 at 2:30 pm Central Time Page 8 Zee Claiborne: I understand not only from the arguments today but also from reading the papers that everything's contested. Matt Kline: I appreciate that, Your Honor. Zee Claiborne: Okay. Ron Nessim: Thank you. Zee Claiborne: Just so you know. Okay, thank you. Matt Kline: Thank you very much. Zee Claiborne: Everybody, I appreciate your thoughtful comments and you will be hearing from Ms. Eisner before long. Matt Kline: Terrific. Thank you so much. Zee Claiborne: Okay, thanks. Ron Nessim: Thank you. Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 131 of 142 EXHIBIT I Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 132 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 133 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 134 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 135 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 136 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 137 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 138 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 139 of 142 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 140 of 142 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES At the time of service, I was over 18 years of age and not a party to this action. I am employed in the County of Los Angeles, State of California. My business address is 1875 Century Park East, 23rd Floor, Los Angeles, CA90067-2561. On March 2,2018, I served the following document(s) described as: 1. MOTION FOR LEAVE TO FILE AMICUS CURIAE BRIEF OF ERIC KRIPKE AND KRIPKE ENTERPRISES IN SUPPORT OF APPELLANT 2. AMICAS CURIAE BRIEF OF ERIC KRIPKE AND KRIPKE ENTERPRISES IN SUPPORT OF APPELLANT CITY BERVERAGES, LLC URGING REVERSAL; DECLARATION OF RONALD J. NESSIM WITH EXHIBITS ATTACHED on the interested parties in this action as follows SEE ATTACHED SERVICE LIST BY E.MAIL OR ELECTRONIC TRANSMISSION: I caused the document(s) to be sent from e-mail address mhicks@birdmarella.com to the persons at the e-mail addresses listed in the Service List. I did not receive, within a reasonable time after the transmission, any electronic message or other indication that the transmission was unsuccessful. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on March 2,2018, at Los Angeles, California. /s/Michelle Hicks Michelle M. Hicks Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 141 of 142 SERVICE LIST Daniel Gardenswartz 17-55813 Solomon Ward Seidenwurm & Smith 17 -56082 LLP 401 B Street, Suite 1200 San Diego, CA 92101 Email : dgardensw arlz@sw sslaw. com David Harford Bryan Cave LLP 31,61Michelson Drive, Suite 1500 Irvine, CA 926t2 Email : david.har for d@bryancave. com Emily Rose Kelly Foster Pepper PLLC 1111 Third Avenue, Suite 3000 Seattle, WA 98101 Email : em i ly.kelly@foster.com Tanya Schierling Solomon Ward Seidenwurm & Smith LLP 401 B Street, 12th Floor San Diego, CA 9210I Email : tschierling@swsslaw. com Jonathan Craig Solish Bryan Cave LLP 120 Broadwoy, Suite 300 Santa Monica, CA 90401 Email : j onathan. solish@bryancave. com Michael K. Vaska Foster Pepper PLLC 1111 Third Avenue, Suite 3000 Seattle, WA 98101 Email : mike.vask a@foster. com 1 7-558 13 t7-s6082 17-55813 17-s6082 17-55813 l7-s6082 17-56082 17-55813 17-56082 Case: 17-55813, 03/02/2018, ID: 10784783, DktEntry: 16, Page 142 of 142 EXHIBIT 8 1 2 3 4 5 6 7 8 9 PILLSBURY WINTHROP SHAW PITTMAN LLP BLAINE I. GREEN #193028 DUSTIN J. CHASE-WOODS #318628 Four Embarcadero Center, 22nd Floor Post Office Box 2824 San Francisco, CA 94126-2824 Telephone: (415) 983-1000 Facsimile: (415) 983-1200 Attorneys for Claimants and Counter-respondents, JRV, LLC and Bill Leigon JAMS ARBITRATION SAN FRANCISCO RESOLUTION CENTER 10 ) JAMS Arbitration No. 1100090897 11 JRV, LLC and Bill Leigon, ) ) 12 Claimants, ) JRV, LLC'S AND BILL LEIGON'S ) MOTION AND MEMORANDUM IN 13 vs. ) SUPPORT OF ATTORNEYS' FEES ) AND COSTS AS PREVAILING 14 WINERY EXCHANGE, INC., ) PARTY ) 15 Respondent. ) ) [Filed concurrently with Declaration of 16 _______________ ) Blaine I. Green and Declaration of 17 WINERY EXCHANGE, INC., 18 Counter-claimant, 19 vs. 20 JRV, LLC and BILL LEIGON, 21 Counter-respondents. ) Dustin Chase-Woods] ) ) ) ) Arbitrator: Zela G. Claiborne, Esq. ) Location: JAMS ) Embarcadero Center 2 ) San Francisco, California ) ) 22 23 24 25 26 27 28 _______________ ) 4832-0l 50-0585.v3 1 2 3 I. 4 II. 5 6 7 8 9 TABLE OF CONTENTS Page INTRODUCTION ....................................................................................................... 1 THE AGREEMENTS PROVIDE FOR THE PREY AILING PARTY TO RECOVER ATTORNEYS' FEES, COSTS AND EXPENSES, AND BOTH SIDES REQUESTED THEM ............................................................... .4 A. B. The Agreements Broadly Provide For The Prevailing Party To Recover All Reasonable Attorneys' Fees, Costs And Expenses Of Any Type .................................................................................... 4 In Their Respective Pleadings, Both Sides Requested Fees, Costs And Expenses On All Claims ................................................................ 6 III. PURSUANT TO THE INTERIM A WARD AND AGREEMENTS, 10 CLAIMANTS ARE THE PREY AILING PARTY UNDER EACH AGREEMENT ............................................................................................................ 6 11 IV. CLAIMANTS HA VE INCURRED ABOUT $3 MILLION IN 12 ATTORNEYS' FEES, COSTS AND EXPENSES ..................................................... 6 13 V. THE PURPOSE OF AN AW ARD IS TO FULLY COMPENSATE COUNSEL FOR ALL HOURS REASONABLY WORKED, AND 14 THE NON-PREVAILING PARTY SHOULD BEAR SUCH FEES AND COSTS ............................................................................................................... 7 15 VI. ST AR TING POINT FOR AW ARD OF ATTORNEYS' FEES IS 16 THE LODESTAR, BASED ON HOURS ACTUALLY WORKED BY PILLSBURY, AND MARKET RATES FOR PILLSBURY'S 17 LAWYERS .................................................................................................................. 8 18 19 20 21 22 23 24 25 26 27 28 A. B. The Starting Point For The Fee Award Is The Lodestar, And A "Full Fee" Should Be Granted Unless Special Circumstances Would Render Such An Award Unjust. .................................. 9 The Hours Reflected In Pillsbury's Invoices For This Dispute Are Reasonable, And the Rates Used Are Within Prevailing Market Rates In The Relevant Community (San Francisco) ......................... 10 1. The Hours Reflected In Pillsbury's Invoices Are Reasonable, Pillsbury Appropriately Used Billing Judgment, And Pillsbury Has Voluntarily Reduced Hours For The Employment Claim ................................................... 10 a. The Hours Actually Worked Are Reasonable ...................... .10 b. Fees Are Recoverable For Pre-Filing Work Related To The Parties' Dispute ............................................ 14 c. Fees Are Recoverable For Procedural Battles Before Arbitration On The Merits, Regardless Of Outcome ........................................................................... 15 4832-0l 50-0585.v3 1 2 3 4 5 6 7 d. Pillsbury Used Billing Judgment To Reduce The Hours Actually Billed ..................................................... 16 e. In addition, Pillsbury Has Voluntary Reduced Its Lodestar To Remove Hours Devoted Solely To The Employment Claim ................................................... 16 f. Fees Should Not Be Apportioned .......................................... 17 2. Pillsbury's Requested Rates Are Within The Reasonable Range Of Market Rates In The San Francisco Community ....................................................................... 18 VII. CLAIMANTS AND PILLSBURY REQUEST AN UPWARD 8 ADJUSTMENT OF THE LODESTAR BASED ON CONTINGENCY RISK, WX'S AGGRESSIVE OPPOSITION, 9 UNCERTAINTY OF OUTCOME AND DELAY OF PAYMENT, 10 11 12 13 14 AMONG OTHER FACTORS ................................................................................... 20 A. Factors To Be Considered For Lodestar Adjustment. ............. : ..................... 20 B. Here, Case-Specific Factors Warrant Enhancing The Lodestar, And Pillsbury Requests A 1.25 Multiplier .................................................... 21 C. No Downward Adjustment To The Pillsbury Lodestar Is Warranted ...................................................................................................... 23 VIII. CLAIMANTS AND PILLSBURY REQUEST THEIR FEES FOR 15 POST-INTERIM AWARD WORK, INCLUDING THE INSTANT 16 17 18 19 20 21 22 23 24 25 26 27 28 FEES REQUEST ....................................................................................................... 24 IX. CONCLUSION ......................................................................................................... 25 ii 4832-0150-0585, v3 1 TABLE OF AUTHORITIES 2 Page(s) 3 Cases 4 Acree v. General Motors Acceptance Corp. (2001) 92 ,Cal.App.4th 3 85 ....................................................................................... 20, 21 5 Banas v. Volcano Corp. 6 (N.D. Cal. 2014) 47 F.Supp3d 957 ................................................................................. 22 7 Beasley v. Wells Fargo Bank (1991) 235 Cal.App.3d 1407 .......................................................................................... 29 8 Bernardi v. County of Monterey 9 (2008) 167 Cal.App.4th 13 79 ......................................................................................... 26 10 Cabrales v. County of Los Angeles (1991) 935 F.2d 1050 ..................................................................................................... 17 11 Children's Hosp. & Med. Ctr. v. Banta 12 (2002) ............................................................................................................................. 21 l 3 Creative Plastering, Inc. v. Hedley Builders, Inc. (1993) 19 Cal.App.4th 1662 ............................................................................................. 9 14 Digital Reg of Texas, LLC v. Adobe Sys., Inc. 15 · (N.D. Cal. 2015) 2015 WL 1968388 .............................................................................. 23 16 DisputeSuite.com, LLCv. Scoreinc.com (2017) 2 Cal.5th 968 ....................................................................................................... 17 17 Edgerton v. State Personnel Ed. 18 (2000) 83 Cal.App.4th 13 50 ............................................................................... 24, 25, 26 l 9 EnPalm, LLC v. Teitler (2008) 162 Cal.App.4th 770 ........................................................................................... 27 20 Frog Creek Partners, LLC v. Vance Brown, Inc. 21 (2012) 206 Cal.App.4th 515 ............................................................................... 17, 20, 21 22 Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553 ............................................................................................... 24, 26 23 Hensley v. Eckerhart 24 (1983) 461 U.S. 424 ....................................................................................................... 12 25 Ho gar v. Community Dev. Comm. Of City of Escondido 26 27 28 (2007) 157 Cal.App.4th 1358 .................................................................................... 17, 28 Horsford v. Board of Trustees o,f California State University (2005) 132 Cal.App.4th 359 ............................................................................. 8, 9, 12, 24 lll 4832-0l 50-0585,v3 l Hsu v. Abbara ( 1995) 9 Cal.4th 863 ....................................................................................................... 17 2 Kahn v. Chetcuti 3 (2002) 101 Cal.App.4th 61 ......................................................... · ...................................... 9 4 Kern River Public Access Com. v. City of Bakersfield (1985) 170 Cal.App.3d 1205 .............................................................................. 24, 25, 26 5 Ketchum v. Moses 6 (2001) 24 Cal.4th 1122 ............................................................................................ passim 7 Krumme v. Mercury Ins. Co. (2004) 123 Cal.App.4th 924 ........................................................................................... 29 8 Moreno v. City of Sacramento . 9 (9th. Cir. 2008) 534 F.3d 1106 ....................................................................................... 12 10 Niederer v. Ferreira (1987) 189 Cal.App.3d 1485 .......................................................................................... 28 11 Nishiki v. Dano Meredith, APC 12 (2018) 25 Cal.App.5th 883 ............................................................................................. 26 13 Peak-Las Positas Partners v. Bollag (2009) 172 Cal.App.4th 101 ..................................................................................... 15, 16 14 P LCM Group v. Drexler 15 (2000) 22 Cal.App.4th 1084 .................................................................................... passim l 6 Premier Med. Management Sys., Inc. v. California Ins. Guarantee Assn. (2008) 163 Cal.App.4th 550 ..................................................................................... 12, 13 17 Press v. Lucky Stores, Inc. 18 (1983) 34 Cal.3d 311 ...................................................................................................... 10 19 Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124 .......................................................................................... 20, 21, 27 20 Rogel v. Lynwood Redev. Agency 21 (2011) 194Cal.App.4th 1319 ......................................................................................... 27 22 Roth v. Plikaytis (2017) 15 Cal.App.5th283 ....................................................................................... 7, 8, 9 23 Russell v. Foglio 24 (2008) 160 Cal.App.4th 653 ........................................................................................... 22 25 San Diego Police Officers Assn. v. San Diego Police Department (1999) 76 Cal.App.4th 19 ............................................................................................... 27 26 Santisas v. Goodin 27 (1998) 17 Cal.4th 599 ............................................................................................... 4, 5, 8 28 IV 4832-0150-0585.v3 l Serrano v. Priest (1977) 20 Cal.3d 25 .................................................................................................. 10, 11 2 Serrano v. Unruh 3 (1982) 32 Cal.3d 621 ............................................................................................... passim 4 Syers Properties III, Inv. v. Rankin (2014) 226 Cal.App.4th 691 ................................................................. : ............. 19, 22, 23 5 Thayer v. Wells Fargo Bank, NA. 6 (2001) 92 Cal.App.4th 819 ....................................................................................... 11, 27 7 Thrifty Payless, Inc. v. Mariners Mile Gateway, LLC (2010) 185 Cal.App.4th 1050 ........................................................................................... 5 8 Vo v. Las Virgenes Mun. Water District 9 (2000) 79 Cal.App.4th 440 ............................................................................................. 16 10 Webb v. Board of Educ. (1985) 471 U.S. 234 ....................................................................................................... 16 11 Weeks v. Baker & McKenzie 12 (1998) 63 Cal.App.4th 1128 ......................................................................................... 8, 9 l 3 Wynn v. Chanos 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (N.D. Cal. 2015) 2015 WL 3832561 .............................................................................. 22 Wysinger v. Automobile Club of Southern California (2007) 157 Cal.App.4th 413 ................................................................................... 8, 9, 28 Other Authorities Pearl, California Attorney Fee Awards (Cont.Ed.Bar 3d ed. Mar. 2019 update), Section 8.1 ........................................................................................................................ 9 Section 8.3 - 8 .5 ............................................................................................................. 1 O Section 9.5 ...................................................................................................................... 19 Section 10.8 .............................................................................................................. 25, 26 Section 10.11 .................................................................................................................. 26 V 4832-0150-0585.v3 1 Pursuant to the Interim Award, dated October 2, 2019 ("Interim Award") and the 2 Arbitrator's message on October 12, 2019,1 and pursuant to the agreements at issue in this 3 Arbitration,2 JRV, LLC ("JRV") and Bill Leigon (collectively, "Claimants") submit the 4 following memorandum in support of their claim for fees and costs as prevailing parties, 5 I. INTRODUCTION. 6 Claimants explained on Arbitration Day 1 (June 20) that the JRV-WX transaction was 7 supposed to be much more than just an asset sale at a specific point in time. JRV sold and 8 transferred its brands to WX in March 2017; thereafter, the deal had short, medium and long- 9 term components: 10 • In the first year, WX was to pay (among other things) the Holdback and assumed 11 Accounts Payable. 12 • In the first two years, WX was to work closely with, and pay, Mr. Leigon on the sales 13 and marketing of the JRV brands. 14 • For five years post-closing, WX was to use "commercially reasonable" efforts to 15 promote and sell the JRV brands, consistent with WX's effort for its other brands. 16 As demonstrated over 11 days of testimony, hundreds of exhibits and extensive briefing, WX 17 breached all of these obligations. Interim Award, 11-15. 18 Instead of five years working together to grow the JRV brands, the last 2 ½ years (since 19 the deal closed on March 23, 2017) has mostly been consumed by the parties' dispute. 20 Immediately after the close, WX prioritized Bread & Butter (as well as Chronic) over the JRV 21 brands, in breach of the AP A and covenant of good faith and fair dealing. Interim A ward, 8, 11- 22 23 24 25 26 27 28 1 The Interim Award was served on October 4, 2019. At page 17, the Interim Award authorized Claimants to submit fees and costs, including copies of invoices, by October 14, 2019, with any opposition from WX due by October 22, 2019. On October 12, 2019 (prior to the original due date), the Arbitrator sent a message to all counsel directing that Claimants submit their fees and costs no later than October 16, and that Winery Exchange, Inc. ("WX") file any · opposition no later than October 23. 2 The Agreements at issue-which all include "prevailing party" attorneys' fees clauses-are the Asset Purchase Agreement ("APA," Ex, 81), the Consulting Agreement (Ex. 82), and the Transitional Services Agreement ("TSA," Ex. 84). See Interim Award, p. 17 ("The Agreements all contain a prevailing party attorneys' fees provision") & n.21 (identifying the agreements), See also WX's Closing Brief, p. 39 (claiming WX should be awarded fees based on the "prevailing party" provisions of the APA, Consulting Agreement and TSA), _ 1 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585. v3 1 12. WX promised to pay all the assumed Accounts Payable, but delayed and ultimately refused 2 to do so. Id. at 14. WX delayed paying Mr. Leigon's consulting fees, then paid the fees only in 3 part, and ultimately stopped paying entirely. Id. at 8-9, 14-15. WX refused to pay the Holdback 4 to JRV, id. at 13-14, and even claimed that JRV (and Mr. Leigon personally) owed $260,000 5 beyond the Holdback. WX Answer and Counterclaims Against JRV, LLC and Bill Leigon, filed 6 May 29, 2019 ("WX Counterclaims"),~ 63. 7 WX Launches Dispute, Threatening Arbitration 8 On March 8, 2018-barely 11 months into the parties' five-year deal-WX launched this 9 dispute, claiming JRV was "in breach of its obligations under the agreements related to WX's 10 acquisition," including the AP A and TSA. Ex. 229 (JRV 1046). WX threatened that if the 11 alleged breaches were not cured, it could terminate the Consulting Agreement and "file for 12 arbitration." Id. Ever since WX's "breach" letter-i.e. for the last 19+ months-IRV and Mr. 13 Leigon have been forced to defend against WX' s attacks and, through this Arbitration, vindicate 14 their rights under the transaction agreements. It has not been quick or easy. 15 WX Fights at Every Turn 16 At every turn, WX has fought tooth and nail against JR V, Mr. Leigon, and even against 17 Pillsbury. WX has used its much greater financial3 and legal4 resources to pressure JRV and Mr. 18 Leigon into giving up: first, by attempting to disqualify Pillsbury; second, by refusing to release 19 Mr. Leigon from the non-compete (while not paying or working with him), and aggressively 20 opposing his motion for relief; third, by resisting and delaying discovery, which required 21 extensive meet-and-confers and a lengthy motion to compel. 22 After WX was ordered to respond to written discovery and produce most of the requested 23 24 25 26 27 28 3 WX had over $130 million in net revenue in 2018. Ex. 298 (WX 343713). In contrast, as discussed below, JRV and Mr. Leigon have extremely limited ability to pay attorneys' fees. 4 During the deal, WX's General Counsel referred to JRV's "phalanx oflawyers" (Ex. 74, JRV 199) when, in fact, JRV used just two lawyers, compared to at least four for WX. Tr. 1969-70 (Colvin). During Arbitration, it's been WX itself that has used a phalanx (if not a legion) of lawyers. In addition to WX's two in-house counsel, Oliver Colvin and Genevieve Burch, WX has used three different law firms: first, Winston & Strawn, which filed WX's original Answer and Counterclaims, dated August 1, 2018 ("original WX Counterclaims"); second, Scheper Kim & Harris, which moved to disqualify Pillsbury; third, the Lewis Roca firm. _ 2 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585. v3 1 documents (Pre-Hearing Order No. 4, issued March 20, 2019), WX continued to drag its feet, 2 producing in piecemeal fashion: 22 separate productions over the next 5+ months, from March 3 27 (WX Prod. 002) through September 4, 2019 (WX Prod. 023). After the extended discovery 4 cutoff (May 8, 2019), WX made 11 more productions (WX Prods. 013 through 023), the last 5 five occurring after Arbitration commenced on June 20, 2019 (WX Prod. 019 on June 24 through 6 WX Prod. 023 on September 4). Declaration of Blaine I. Green ("Green Declaration"), ,r 5.5 7 Fees and Costs Incurred 8 As described in the accompanying Green Declaration and shown by Pillsbury's billing 9 records, WX's litigation strategy and tactics6 have made this Arbitration especially difficult, 10 time-consuming-nearly 5,000 hours worked by Pillsbury lawyers and other timekeepers-and 11 costly. Infra, Part VI.B. As a result, Claimants have incurred approximately $2.7 million in 12 attorneys' fees and over $300,000 in costs since WX started this dispute with its "breach" letter 13 on March 8, 2019. Green Deel., ,r 3 and Ex. 1. 14 Agreements Provide for Recovery of Fees and Costs 15 Fortunately for JRV, Mr. Leigon and Pillsbury, the parties' Agreements7 broadly provide 16 the prevailing party shall be entitled to recover all its reasonable attorneys' fees, costs and 17 expenses in connection with arbitration. Exs. 81, 82 and 84. Thanks to the persistence of 18 Claimants and their counsel, the Interim A ward found JRV and Mr. Leigon to have prevailed on 19 all claims for breach of the APA and Consulting Agreement. Interim Award, 16. The Interim 20 Award denied WX's claims for breach of the three Agreements, and also denied WX's fraud 21 claims (for approximately $5 million). Id. at 16-17. Accordingly, Claimants are entitled to their 22 23 24 25 26 27 28 5 In the end, WX buried Claimants in documents: over 100,000 documents produced, consisting of half-a-million pages. Tr, 1960 (Colvin: WX produced "a hundred thousand documents and half a million pages. I didn't have the opportunity to look at each page, , , , I don't know what one can find in a half million pages of documents."), 6 As another example of how WX sought to pressure Mr, Leigon by raising Claimants' costs oflitigation, WX insisted on deposing Mr. Leigon four separate times-first, as company representative for JRV (April 22); second, as an individual (April 23); third, after JRV amended its Arbitration Demand due to WX's closing the Tasting Room (June I); fourth, as an expert (June I ~totaling over twenty-one (21) hours of deposition time on the record. See Green Deel., ,r 8, (Yet, at the Arbitration hearing, WX elected to cross-examine Mr, Leigon for less than two hours. Tr, 465-543,) 7 The APA, Consulting Agreement and TSA are collectively referred to as the "Agreements," _ 3 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585, v3 1 reasonable attorneys' fees, arbitration costs and other expenses, as demonstrated herein and as 2 detailed in ( and attached to) the Green Declaration. 3 Request for Enhancement of Fees Lodestar 4 Furthermore, as discussed below in accord with California law, Pillsbury requests an 5 enhancement to the "lodestar" amount of attorneys' fees based on the contingent risk and delay 6 in being paid, the hard-fought nature of the dispute and attendant uncertainty of outcome, 7 excellent results, and the skill of counsel. Infra, Part VII. Specifically, Claimants and Pillsbury 8 request an award of $3,358,689 in attorneys' fees (voluntarily reduced lodestar of $2,632,671 x 9 1.25 multiplier= $3,290,839, plus $67,850 in fees incurred post-Interim Award), and $330,959 10 in costs incurred. 11 12 13 14 II. THE AGREEMENTS PROVIDE FOR THE PREVAILING PARTY TO RECOVER ATTORNEYS' FEES, COSTS AND EXPENSES, AND BOTH SIDES REQUESTED THEM. A. The Agreements Broadly Provide For The Prevailing Party To Recover All 15 Reasonable Attorneys' Fees, Costs And Expenses Of Any Type. 16 The scope of the attorneys' fees provisions is broad in every way. 17 First, the provisions apply to "any dispute between the parties, whether based on contract, 18 tort or other cause of action ... in any way related to this Agreement." Ex. 81 (APA), § 11.11. 8 19 Thus, fee-shifting applies as to all claims (in contract or tort) in the arbitration. See Santisas v. 20 Goodin (1998) 17 Cal.4th 599, 608 (if contractual attorney fees provision "is phrased broadly 21 enough, as this one is, it may support an award of attorney fees to the prevailing party" in action 22 alleging both contract and tort claims). 23 Second, the Agreements make clear there should be just one "prevailing party" for each 24 agreement, which shall be determined from "assessment ofwhfoh party's major arguments or 25 26 27 28 8 See also Ex. 82 (Consulting Agreement), § 10.10 (prevailing party entitled to fees in the event of "any litigation or arbitration between the parties respecting or in any way related to this Agreement, whether based on contract, tort or other cause of action"); Ex. 84 (TSA), § 18 (any "controversy or claim arising out ofor relating to this Agreement, or the enforcement or breach thereof," shall be arbitration, and the arbitration award shall include attorneys' fees, costs and expenses). · _ 4 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585, v3 1 positions taken in the action or proceeding could fairly be said to have prevailed (whether by 2 compromise, settlement, abandonment by the other party of its claim or defense, final decision, 3 after any appeals, or otherwise) over the other parties' major arguments or positions on major 4 disputed issues." Ex. 81 (APA), § 11.11.9 The Agreements do not contemplate different 5 prevailing parties for different claims, nor apportionment of fees on individual claims (based on 6 degree of success or otherwise). Id. See Santisas v. Goodin, 17 Cal.4th at 622 ( determination of 7 prevailing party should be made "by examining the terms of the contract at issue, including any 8 contractual definition of the term 'prevailing party' and any contractual provision governing 9 payment of attorney fees). 10 Third, the Agreements provide that the non-prevailing party shall pay to the prevailing 11 "all reasonable attorneys' fees and costs and expenses of any type, without restriction by 12 statute, court rule or otherwise, incurred by the prevailing party in connection with" arbitration. 13 Ex. 81 (APA),§ 11.11 (emphasis added). See also Ex. 82 (Consulting Agreement),§ IO.IO 14 (prevailing party entitled to recover all attorneys' fees, as well as "all expenses, fees, consultants' 15 and expert witness fees, costs or damages"); Ex. 84 (TSA), § 18 (final arbitration award shall 16 include "attorneys' fees, costs and expenses incurred ... whether or not such fees, costs and 17 expenses would otherwise be recoverable under applicable statutes and rules of court"). 18 While some statutes and court rules limit recoverability of fees, costs and expenses by the 19 prevailing party, the Agreements expressly provide that fee-shifting applies to all fees, costs and 20 expenses-the obvious intent being to make the prevailing party whole. See Thrifty Payless, Inc. 21 v. Mariners Mile Gateway, LLC (2010) 185 Cal.App.4th 1050, 1065 (while it's reasonable to 22 interpret a general contractual cost provision by reference to an established statutory definition, 23 "we do not discern any legislative intent to prevent sophisticated parties from freely choosing a 24 broader standard authorizing recovery of reasonable litigation charges and expenses"). 25 26 27 28 9 See also Ex. 82 (Consulting Agreement),§ 10.10 (prevailing party determined by assessing which party's "major arguments or positions" prevailed over "other party's major arguments or positions"); Ex. 84 (TSA), § 18 (fees, costs and expenses shall be awarded to "prevailing party"). _ 5 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0l 50-0585.v3 1 B. In Their Respective Pleadings, Both Sides Requested Fees, Costs And Expenses 2 On All Claims. 3 Consistent with the broad scope of the "prevailing party" provisions of the Agreements, 4 both sides requested fees and costs on all claims. See First Amended Arbitration Demand and 5 Statement of Claims by JRV, LLC and Bill Leigon, filed May 13, 2019 ("Arbitration Demand"), 6 pp. 26-27; WX Counterclaims, p. 23 (even requesting fees for "in-house counsel," i.e. Genevieve 7 Burch and Oliver Colvin). See also WX's Closing Brief, p. 39 & n.320. 8 III. PURSUANT TO THE INTERIM AWARD AND AGREEMENTS, CLAIMANTS ARE 9 THE PREVAILING PARTY UNDER EACH AGREEMENT. 10 As stated in the Interim Award, JRV and Mr. Leigon "prevailed on all of the breach of 11 contract claims regarding the AP A and the Leigon Consulting Agreement." Interim Award, 16. 12 WX lost on all its counterclaims, including its claims for breach of the AP A, breach of the 13 Consulting Agreement, breach of the TSA, and fraud (WX's claim to have "overpaid for the 14 assets by $4.8 million dollars"). Id. at 16-17. 15 Based on the plain language of the Agreements, as discussed above in Part II.A ( one 16 prevailing party under each Agreement, for all claims sounding in contract or tort; prevailing 17 party determination is based on which side's "major arguments" prevailed over the other's; no 18 apportionment of fees on, or as between, individual claims), the Interim Award properly 19 determined that "JRV and Leigon are the prevailing parties" and directed them to submit their 20 fees and costs. Id. at 17. 21 IV. CLAIMANTS HAVE INCURRED ABOUT $3 MILLION IN ATTORNEYS' FEES, 22 COSTS AND EXPENSES. 23 For the last 19 months, WX has vigorously opposed JRV's and Mr. Leigon's claims. In 24 addition, WX raised the stakes by counter-claiming against JRV (and Mr. Leigon as alleged alter 25 ego) for breaches of contract and fraud, seeking over $5 million in damages. Furthermore, WX 26 has taken aggressive positions throughout the parties' dispute (e.g. moving to disqualify 27 Pillsbury; refusing to release Mr. Leigon from a non-compete, and zealously opposing Mr. 28 Leigon's motion for relief), and WX's discovery strategy and tactics (e.g. deposing Mr. Leigon _ 6 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585.v3 1 four separate times, for over 20 hours; refusing to produce documents for four months; then 2 delaying production, and ultimately burying Claimants in half-a-million pages) have vastly 3 increased the cost of litigation for Claimants. 4 As shown by the Green Declaration, Claimants have (since March 2018) incurred 5 $2,649,714 in attorneys' fees (based on 4,887 hours worked; of which 4,710 hours were billed) 6 and $330,959 in costs. Green Deel.,~ 3, Ex. 1. Pillsbury's invoices relating to this dispute, 7 showing work performed from March 2018 through September 2019, are attached to the Green 8 Declaration. Id., Ex. 3. Because JRV and Mr. Leigon are prevailing parties pursuant to the 9 Agreements-and as determined in the Interim Award-the Final Award should include these 10 fees (subject to adjustment, as described in Parts VI and VII) and costs which Claimants 11 reasonably incurred. 12 V. THE PURPOSE OF AN A WARD IS TO FULLY COMPENSATE COUNSEL FOR 13 ALL HOURS REASONABLY WORKED, AND THE NON-PREVAILING PARTY 14 SHOULD BEAR SUCH FEES AND COSTS. 15 In the context of both contractual and statutory attorneys' fees, the purpose of a fees 16 award is to be "fully compensatory." Ketchum v. Moses (2001) 24 Cal.4th 1122, 1133, citing 17 Serrano v. Unruh (1982) 32 Cal.3d 621, 633. As the court recently explained in Roth v. Plikaytis 18 (2017) 15 Cal.App.5th 283 (applying contractual attorneys' fees provision): 19 We recognize that "the ability of lawyers to perform their important professional function in society is in the long run dependent on 20 assurances they will be fairly compensated for their work." (Cazares v. Saenz (1989) 208 Cal.App.3d 279,291,256 Cal.Rptr. 209.) As a 21 result, California law requires that attorneys' fee awards be "fully compensatory." (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1133, 22 104 Cal.Rptr.2d 377, 17 P.3d 735.) In general, parties who qualify for a fee should recover compensation for "all the hours reasonably 23 spent, including those relating solely to the fee." (Ibid.) 24 Id. at 290 (italics in original). The purpose of a fee award is not to punish the defendant, but "to 25 ensure that the plaintiff will be fully compensated and will not have to bear the expense of 26 litigation." Weeks v. Baker & McKenzie (1998) 63 Cal.App.4th 1128, 1176 (emphasis added). 27 See also Wysinger v. Automobile Club of Southern California (2007) 157 Cal.App.4th 413, 430- 28 31 ("To reduce the attorneys' fees of a successful party because he did not prevail on all his _ 7 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585. v3 1 arguments, makes it the attorney, and not the defendant, who pays the costs of enforcing the 2 plaintiffs rights"; affirming award for substantially all fees incurred in litigation, even though 3 employee prevailed on only 2 out of 8 claims). The fees award should be designed "to fully 4 compensate plaintiffs attorneys for the services provided." Horsford v. Board of Trustees of 5 California State University (2005) 132 Cal.App.4th 359, 395. Thus, Horsford found the trial 6 court abused its discretion in "requiring plaintiffs counsel to look to their clients ... to make up 7 for any undercompensation" through the fees award. Id. at 401. 8 Furthermore, fee awards should be governed and informed by equitable principles. 9 Santisas v. Goodin, 17 Cal.4th at 613; PLCM Group v. Drexler (2000) 22 Cal.App.4th 1084, 10 1091. This is especially true in arbitration where, as here, the parties have agreed the arbitration 11 award should include attorneys' fees to the prevailing party. Kahn v. Chetcuti (2002) 101 12 Cal.App.4th 61, 67 (arbitrator may base its fee decision on principles of "justice and equity" and 13 "good conscience"; arbitrator did not exceed powers in awarding attorneys' fees). See Creative 14 Plastering, Inc. v. Hedley Builders, Inc. (1993) 19 Cal.App.4th 1662, 1666 (affirming award of 15 attorneys' fees to plaintiff, even though plaintiff recovered less than the parties had stipulated; 16 arbitrator properly considered "arbitration results as a whole, wherein [ defendant] unsuccessfully 17 sought to escape all financial liability for a stipulated amount ... by claiming a setoff which the 18 arbitrator rejected") (italics in original). 19 The award of fees to Claimants and Pillsbury should be fully compensatory. Applying 20 the "fully compensatory" ethic of Ketchum, Roth, Weeks, Wysinger and Horsford, the non- 21 prevailing party-here, WX-should bear Claimants' costs to enforce their rights; these costs 22 should not be borne by Claimants themselves or Pillsbury. This essential outcome is supported 23 by the language of the parties' Agreements (supra, Part II.A), California law, justice and equity. 24 VI. ST AR TING POINT FOR AW ARD OF ATTORNEYS' FEES IS THE LODESTAR, 25 BASED ON HOURS ACTUALLY WORKED BY PILLSBURY, AND MARKET 26 RATES FOR PILLSBURY'S LAWYERS. 27 California courts have generally settled on the so-called "lodestar-adjustment" method for 28 determining the amount of reasonable attorneys' fees to award to the prevailing party. Pearl, Cal. _ 8 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-01 S0-0585.v3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Attorney Fee Awards (Cont.Ed.Bar 3d ed. Mar. 2019 update)§ 8.1, pp. 8-2 to 8-3. This is true for both statutory and contractual attorneys' fees. Id.,§§ 8.3 - 8.5, pp. 8-5 to 8-7. The California Supreme Court explained the two-step, "lodestar-adjustment" process in PLCM Group v. Drexler, 22 Cal.4th 1084 (contractual attorneys' fees case): the fee setting inquiry in California ordinarily begins with the "lodestar," i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate. California courts have consistently held that a computation of time spent on a case and the reasonable value of that time is fundamental to a determination of an appropriate attorneys' fee award. [Citation.] The reasonable hourly rate is that prevailing in the community for similar work. [Citations.] [,] The lodestar figure may then be adjusted, based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided. [Citing Serrano III.] Such an approach anchors the trial court's analysis to an objective determination of the value of the attorney's services, ensuring that the amount awarded is not arbitrary. (Id. at p. 48, fn. 23.) Id. at 1095 (internal quotation marks and citations omitted). See Press v. Lucky Stores, Inc. (1983) 34 Cal.3d 311, 324 ("lodestar adjustment method" set forth in Serrano III is designed for purposes of maintaining objectivity; reversed fee award as too low because it bore "no rational relationship to the skill, time, and effort expended by plaintiff attorneys in the litigation"). A. The Starting Point For The Fee Award Is The Lodestar, And A "Full Fee" Should 18 Be Granted Unless Special Circumstances Would Render Such An Award Unjust. 19 The lodestar method originated in the Serrano cases, Serrano v. Priest (1977) 20 Cal.3d 20 25 ("Serrano III") and Serrano v. Unruh (1982) 32 Cal.3d 621 ("Serrano IV''). "The starting 21 point for every fee award, once it is recognized that the court's role in equity is to provide just 22 compensation for the attorney, must be a calculation of the attorney's services in terms of the 23 time he has expended on the case." Serrano III, 20 Cal.3d at 48, n.23. This is the "only way of 24 approaching the problem that can claim objectivity, a claim which is obviously vital to the 25 prestige of the bar and the courts." Id. The "touchstone" is a "compilation of the time spent and 26 reasonable hourly compensation of each attorney." Id. at 48. The value of a private 27 practitioner's time is reflected in his or her "normal billing rate." Serrano IV, 32 Cal.3d at 640. 28 Absent circumstances "rendering an award unjust, the fee [award] should ordinarily _ 9 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585.vJ 1 include compensation for all hours reasonably spent, including those relating solely to the fee." 2 Id. at 624. In other words, a "full fee" should be granted "unless special circumstances would 3 render such an award unjust." Id. at 633. Compensation should not be limited to efforts that 4 were "demonstrably productive." Thayer v. Wells Fargo Bank, NA. (2001) 92 Cal.App.4th 819, 5 839. Furthermore, a non-prevailing party-such as WX here-"cannot litigate tenaciously and 6 then be heard to complain about the time necessarily spent by the plaintiff in response." Serrano 7 IV, 32 Cal.3d at 638. 8 B. The Hours Reflected In Pillsbury's Invoices For This Dispute Are Reasonable, 9 And the Rates Used Are Within Prevailing Market Rates In The Relevant 10 Community (San Francisco). 11 In applying the lodestar-adjustment method, the first step is to determine the lodestar 12 itself: hours reasonably worked, multiplied by a reasonable hourly rate. Serrano III, 20 Cal.3d 13 at 48. The process "begins with a touchstone or lodestar figure, based on the 'careful 14 compilation of the time spent and reasonable hourly compensation of each attorney ... involved 15 in the presentation of the case."' Ketchum, 24 Cal.4th at 1131-32 ( quoting Serrano III). Hours 16 are reasonable if they were "reasonably expended in pursuit of the ultimate result achieved in the 1 7 same manner that an attorney traditionally is compensated by a fee-paying client for all time 18 reasonably expended on a matter." Hensley v. Eckerhart (1983) 461 U.S. 424, 431. 19 20 21 22 1. The Hours Reflected In Pillsbury's Invoices Are Reasonable, Pillsbury Appropriately Used Billing Judgment, And Pillsbury Has Voluntarily Reduced Hours For The Employment Claim. a. The Hours Actually Worked Are Reasonable. 23 When available, counsels' time records and actual invoices should be used as the 24 "starting point for [the] lodestar determination." Horsford, 132 Cal.App4th at 397 (citing 25 Ketchum). "[V]erified time statements of the attorneys, as officers of the court, are entitled to 26 credence in the absence of a clear indication the records are erroneous." Id. at 396. Thus, such 27 time records are entitled to a "presumption of credibility." Id. Courts should generally "defer to 28 the winning lawyer's professional judgment as to how much time he was required to spend on _ 10 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0l 50-0585.v3 1 the case." Moreno v. City of Sacramento (9th. Cir. 2008) 534 F.3d 1106, 1111 ("after all, he 2 won, and might not have, had he been more of a slacker"). 10 3 As shown in the Green Declaration and attached invoices, Pillsbury lawyers and other 4 timekeepers worked 4,887 hours on this matter ( 4,710 hours billed), from March 2018 through 5 September 2019. Green Deel., Exs. 2 and 3. This was a complex, multi-faceted and high-stakes 6 dispute, with significant pre-hearing battles, against a formidable and aggressive adversary. 7 Green Deel., ,r 9. The case was discovery- and document-intensive, lengthy and time-consuming, 8 culminating in a 12-day arbitration that spanned three months, with extensive briefing before, 9 during and after the evidence: 10 • Complex. This was a complex case, involving three separate parties (WX, JRV 11 and Mr. Leigon), three primary agreements (AP A, TSA and Consulting 12 Agreement), and contractual and tort claims arising from each agreement. 13 • Multi-Faceted: Claims and Counterclaims. In their Arbitration Demand, JRV 14 and Mr. Leigon asserted claims for breach of contract, breach of covenant of good 15 faith and fair dealing and fraud, aU based on the AP A and Consulting Agreement. 16 WX counterclaimed for breaches of the AP A, TSA and Consulting Agreement, 1 7 fraud, breach of fiduciary duty, and breach of N oncompetition Agreement. 11 18 • High-Stakes. JRV sought compensatory damages of more than $7 million for 19 breaches of the AP A, and Mr. Leigon sought compensatory damages of $260,000 20 for breach of the Consulting Agreement. 12 WX requested more than $5.5 million 21 in damages against JRV and Mr. Leigon: $4.8 million in "overpayment" for the 22 23 24 25 26 27 28 10 Ifa non-prevailer challenges claimed hours as excessive, "it is the burden of the challenging party to point to the specific items challenged, with a sufficient argument and citations to the evidence. General arguments that fees claimed are excessive, duplicative, or unrelated do not suffice," Premier Med. Management Sys., Inc. v. California Ins. Guarantee Assn. (2008) 163 Cal.App.4th 550, 564. 11 See original WX Counterclaims, filed August I, 2018. WX filed amended its Counterclaims on May 29, 2019- just three weeks before the hearings commenced-by deleting its claims for breach of fiduciary duty and breach of Noncompetition Agreement. 12 See Arbitration Demand, pp. 26-27. In each instance, Claimants also requested prejudgment interest, attorneys' fees, and punitive damages. Id. _ 11 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585 .v3 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 JRV brands, plus over $700,000 for breaches of the APA, TSA and Consulting Agreement. 13 Thus, the total amount in dispute was over $12 million. • Significant Pre-Hearing Battles. The parties engaged in substantial motion practice on a series of important issues. First, WX moved to disqualify Pillsbury, which required extensive briefing, a half-day of argument, and a written decision. See Prehearing Order No. 2 (9/21/18). Next, Mr. Leigon moved for relief from the Noncompetition Agreement. This too required extensive briefing and a half- day of argument-as well as discovery demanded by WX-and resulted in a written decision. Prehearing Order No. 3 (11/30/18). Next, because WX objected to nearly all discovery requests and refused to produce relevant documents, Claimants engaged in a lengthy meet-and-confer and filed an omnibus motion to compel-which the Arbitrator granted in most respects. Prehearing Order No. 4 (3/22/19). Next, WX closed the JRV Tasting Room, and Claimants sought to amend their Arbitration Demand to encompass the Tasting Room closure. Because WX refused to stipulate and insisted on a third deposition of Mr. Leigon, Claimants moved to amend, resulting in Prehearing Order No. 5 (5/13/19). 14 • Formidable and Aggressive Adversary. WX is a very large company-among the top 20 wine-suppliers in the U.S.-with far greater resources (financial, legal and otherwise) than JRV and Mr. Leigon. Both of WX's in-house counsel, Ms. Burch and Mr. Colvin, were heavily involved in this dispute. Ms. Burch attended every deposition and every day of Arbitration. Together with Ms. Burch, Mr. Colvin attended most depositions, and the first 10 days of Arbitration. Besides in-house counsel, WX used three different outside law firms in this proceeding. WX aggressively fought every claim, motion and request. 15 If WX had prevailed, it 13 WX Closing Brief, 40. 14 Though not always reflected in Prehearing Orders, WX raised other discovery disputes and pre-hearing issues with the Arbitrator, See, e.g., 5/30/19 and 5/31/19 letters (conference call on 5/31/19). 15 See, e.g., Interim Award at 9, n.11 (noting WX "aggressively opposed" Mr. Leigon's motion for relief). _ 12 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0l 50-0585.v3 1 would have requested fees from all their counsel, including three outside firms 2 and "including in-house counsel." WX Counterclaims, p. 23. 3 • Discovery-Intensive. Both sides engaged in extensive written, document and 4 deposition discovery. After meet-and-confers (including a conference with and 5 briefing to the Arbitrator), each side responded to 30-35 interrogatories, and the 6 parties collectively responded to about 80 document requests. The parties took 12 7 depositions: 7 depositions of percipient witnesses, and 5 expert depositions. 8 • Document-Intensive. WX produced over 100,000 documents, consisting ofhalf- 9 a-million pages. Tr. 1960 (Colvin). According to WX's own estimate during the 10 discovery phase, the time needed just to review these documents would be >8,000 11 hours16-far in excess of the hours actually spent by all Pillsbury timekeepers on 12 the entire, 19-month dispute. The parties jointly prepared and used a hefty set of 13 exhibits (580) at arbitration. 14 • Lengthy Arbitration, with Many Witnesses. The hearings in the case were 15 originally scheduled for five days "but it quickly became clear that the time was 16 insufficient to hear from all of the scheduled witnesses." Interim Award, 3. 17 Ultimately, 14 witnesses testified over the course of 11 days of evidence, 18 spanning three months (late June to early September). 19 • Extensive Briefing on the Merits. The parties engaged in extensive briefing on 20 the merits: collectively, the parties submitted 90 pages of pre-hearing briefs; 50 21 pages of interim briefs; and 80 pages of closing briefs. 22 Under the circumstances of this case, the hours worked by Pillsbury lawyers and timekeepers 23 were reasonable. Green Deel.,~ 9. 24 Further, the non-prevailing party "cam1ot litigate tenaciously and then be heard to 25 complain about the time necessarily spent by the plaintiff in response." Serrano IV, 32 Cal.3d at 26 27 28 16 See Parties' Joint Table of Discovery Disputes, filed March 19, 2019, at 5 and 7 (WX claimed an average of five minutes needed for review of each document). 5 minutes multiplied by 100,000 documents = 500,000 minutes, or 8,333.33 hours. _ 13 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585.vJ 1 638. Peak-Las Positas Partners v. Bollag (2009) 172 Cal.App.4th 101 is instructive. There, the 2 losing defendant contested a contractual attorneys' fee award as "excessive because it exceeds 3 the purchase price" for the disputed real estate. Id. at 113. The court affirmed, holding "the fees 4 are well documented and reasonable in light of the complexity of the issues, Bollag's aggressive 5 litigation posture, and the results obtained. A defendant cannot litigate tenaciously and then be 6 heard to complain" about the fees incurred in response. Id. at 114. See also Vo v. Las Virgenes 7 Mun. Water District (2000) 79 Cal.App.4th 440,445,447 (in "intensely litigated" case, affirmed 8 fees that were more than 10 times the damages awarded to plaintiff; "reasonable award in 9 comparison to the scope of the litigation as a whole," taking into account "entire course" of case, 10 including pretrial matters, settlement negotiations, discovery, litigation tactics and trial). Here, 11 as in Peak-Las Positas, the Pillsbury fees are well documented, the issues were complex, WX 12 litigated aggressively, and Claimants obtained excellent results, prevailing on all three contracts. 13 b. Fees Are Recoverable For Pre-Filing Work Related To The 14 Parties' Dispute. 15 The APA broadly provides that "[i]n the event of any dispute between the parties, ... in 16 any way related to this Agreement, the non-prevailing party shall pay to the prevailing all 1 7 reasonable attorneys' fees and costs and expenses ... incurred by the prevailing party in 18 connection with any action or proceeding (including arbitration proceedings, any appeal, and the 19 enforcement of any judgment or award), whether or not the dispute is litigated or prosecuted to 20 final judgment." Ex. 81 (AP A), § 11.11 ( emphasis added). The clause is triggered by "any 21 dispute," and it covers fees incurred "in connection with" arbitration. Id. WX triggered the 22 dispute when it sent its "breach" letter on March 8, 2018, in which WX claimed JRV breached 23 the APA, and WX threatened to "file for arbitration." Ex. 229 (JRV 1046). Thus, Claimants' 24 attorneys' fees are recoverable from March 2018 forward. 17 25 26 27 28 17 See, e.g., Webb v. Board of Educ. (1985) 471 U.S. 234,243 (services performed before filing a lawsuit-such as drafting initial pleadings and developing theories of case-are "on the litigation"); Hagar v. Community Dev. Comm. Of City of Escondido (2007) 157 Cal.App.4th 1358, 1370 (successful litigant may "recover pre-complaint litigation expenses"). _ 14 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585, v3 1 c. Fees Are Recoverable For Procedural Battles Before Arbitration 2 On The Merits, Regardless Of Outcome. 3 "The prevailing party determination is to be made only after final resolution of the 4 contract claims." Hsu v. Abbara (l 995) 9 Cal.4th 863, 876. Contractual attorneys' fees should 5 be awarded "to the party who prevailed on the contract overall, not to a party who prevailed only 6 at an interim procedural step." DisputeSuite.com, LLC v. Scoreinc.com (2017) 2 Cal.5th 968, 7 977. See also Cabrales v. County of Los Angeles (1991) 935 F .2d 1050, 1053 ("If a plaintiff 8 ultimately wins on a particular claim, [it] is entitled to all attorney's fees reasonably expended in 9 pursuing that claim-even though it may have suffered some adverse rulings. . . . Rare, indeed, 10 is the litigant who doesn't lose some skirmishes on the way to winning the war"). 11 In any given lawsuit, "there can only be one prevailing party on a single contract for the 12 purposes of an entitlement to attorney fees." Frog Creek Partners, LLC v. Vance Brown, Inc. 13 (2012) 206 Cal.App.4th 515,531. Prevailing on the contract "implies a strategic victory at the 14 end of the day, not a tactical victory in a preliminary engagement." Id. at 540. Indeed, "a party 15 who ultimately prevails on a contract claim is entitled to all of its fees, including fees incurred 16 during the lawsuit in proceedings where it did not prevail." Id. at 546 ( emphasis added) 1 7 (holding that party which ultimately prevailed, on the merits, was entitled to fees on its 18 tmsuccessful motion to compel arbitration). 19 Here, Claimants prevailed on all pretrial motions except Mr. Leigon' s motion for relief 20 from the Noncompetition Agreement. 18 But even as to that skirmish, Claimants should recover 21 their fees based on the authorities discussed above: Mr. Leigon lost the battle, but won the war. 19 22 23 24 25 26 27 28 18 WX successfully opposed the motion "because there [were] questions of fact and because the [m]otion is inextricably intertwined with the complexities of the entire dispute" (Prehearing Order No. 3, at p. 4), including the Consulting Agreement which WX claimed Mr. Leigon breached. The Arbitrator "declined to make a decision about a breach of the Consulting Agreement until after she heard the evidence on this topic presented at the hearings." Interim Award, 3. After hearing all the evidence, the Arbitrator found in Mr. Leigon's favor on the Consulting Agreement (and for JRV on each of the other contracts). Id. at 14-16. 19 WX previously signaled-and requested Claimants' consent-that it may request attorneys' fees relating to this motion at "the end of the case ... in connection with any other fee requests." Green Deel.,~ 6. Claimants disputed WX's entitlement to fees on this interim ruling, and did not agree to "stay any WX request." Id. In any event, as discussed above, Mr. Leigon is entitled to these fees as the ultimately-prevailing party, not WX. - 15 - JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0l 50-0585.v3 1 d. Pillsbury Used Billing Judgment To Reduce The Hours Actually 2 Billed. 3 As described in the Green Declaration, Pillsbury tracked time and prepared bills in accord 4 with its customary practice and consistent with standards in the profession. Consistent with 5 standard practice, Pillsbury attorneys and paraprofessionals who worked on this matter prepared 6 contemporaneous records describing the services performed and the time spent-in one-tenth 7 hour increments-on a particular day. From March 2018 through September 2019, Pillsbury 8 lawyers and paraprofessionals recorded (in our billing system) 4,887 hours on this matter. Green 9 Deel., Ex. 2. 10 Furthermore, during the course of this matter, Pillsbury partners (Mr. Seff and Mr. Green) 11 reviewed monthly drafts of each bill ("pre bills") to eliminate hours that appeared duplicative, 12 unnecessary or otherwise excessive. As shown in the Green Declarati_on, Pillsbury partners 13 wrote off approximately 200 hours from the prebills, so that the time actually billed to Claimants 14 was 4,710 hours. Green Deel., Exs. 2 and 3. In addition, Pillsbury approved courtesy discounts 15 of another $12,500, so the amount of attorneys' fees actually billed to Claimants was $2,649,714. l 6 Id. Pillsbury's exercise of billing judgment supports finding that the hours reflected in the 17 Pillsbury invoices are reasonable. See Syers Properties III, Inv. v. Rankin (2014) 226 18 Cal.App.4th 691, 700 ( affirming fees award where plaintiffs counsel used "billing judgment" to 19 write off excessive hours). See also Pearl, Cal. Attorney Fee Awards,§ 9.5, p. 9-14 (importance 20 of billing judgment; counsel's voluntary reductions favor affirming hours claimed as reasonable). 21 e. In addition, Pillsbury Has Voluntary Reduced Its Lodestar To 22 Remove Hours Devoted Solely To The Employment Claim. 23 In preparing this motion, although not required to do so (infra, Part IV.B.2.f), Pillsbury 24 has voluntarily removed time that was devoted solely to the employment claim.20 Green Deel., 1 25 26 27 28 20 While all JRV's and Mr. Leigon's other claims are based on the Agreements (JR V's First and Second Claims for breach of contract and covenant of good faith and fair dealing, and its Sixth Claim for fraud, all based on the APA; Mr. Leigon's Third and Fifth Claims for breach of contract and covenant of good faith and fair dealing, and his Sixth Claim for fraud, all based on the Consulting Agreement), the employment claim (Fourth Claim-failure to provide employee benefits) was based on the Labor Code and other California law. Arbitration Demand, 'i['i[ 59-66, and p. 26. _ 16 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585. v3 1 19. As a result, the claimed lodestar is 4,687 hours, and $2,632,671 in fees. Green Deel., ,r 2 19. 3 f. Fees Should Not Be Apportioned. 4 In its Closing Brief, WX briefly addressed attorneys' fees (at 39). Initially, WX argued it 5 should be awarded fees because all three Agreements contain prevailing party attorneys' fee 6 provisions, and "WX should prevail on each of the claims and counterclaims." Id. By the same 7 rationale (and based on the same Agreements it cites), because WX lost on all claims, WX 8 should pay Claimants' fees. 9 As a fallback, WX asserted, without citation to any authority: "To the extent that JRV is 10 able to succeed on any of its claims, WX requests that the fee award be apportioned." WX 11 Closing Brief, 39. WX's "apportionment" request is contrary to the plain language of the 12 Agreements, contrary to the Interim Award, and contrary to case law. 13 First, the Agreements say there should be a single prevailing party, determined based on 14 which party's "major arguments" have prevailed over the other party's "major arguments." Ex. 15 81 (APA), § 11.11; Ex. 82 ( Consulting Agreement), § 10 .10. The Agreements do not authorize 16 apportionment based on individual claims or portions of claims.21 Id. 17 Second, the Interim Award found that JRV and Mr. Leigon prevailed on all the contract 18 claims. Interim Award, 16-17. The Interim Award further held that JRV and Mr. Leigon are the 19 prevailing parties and, as such, "are entitled to an award of fees and costs incurred in this 20 arbitration" (id. at 17), without limitation or apportionment based on individual claims. Id. 21 Third, as a matter of California law, "there can be only one prevailing party on a given 22 contract in a given lawsuit." Frog Creek Partners, 206 Cal.App.4th at 543. And, even where 23 certain contract claims (or portions of claims) were unsuccessful, apportionment is unnecessary 24 when the claims involved the same contract. Acree v. General Motors Acceptance Corp. (2001) 25 26 27 28 21 Also, as discussed supra Part II.A, the contractual fees provisions apply to claims "in any way related" to the Agreements, "whether based on contract, tort or other[wise]." Ex. 81 (APA), § 11.11; Ex. 82 (Consulting Agreement), § 10.10. Thus, fees related to the parties' fraud claims are encompassed by the fees provision. Whichever party's "major arguments" prevail over the other's is entitled to fees, without considering each individual claim. _ 1 7 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585.v3 1 92 Cal.App.4th 385, 405 (compensation ordinarily warranted even for unsuccessful attacks on 2 same contract). See Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129-30 ("fees need 3 not be apportioned when incurred for representation on an issue common to both a cause of 4 action in which fees are proper and one in which they are not allowed"). · 5 In its Closing Brief, WX suggested apportionment "given the vast amount of effort ... 6 caused by JRV's unfounded claims, particularly related to the incentive payments." WX Closing 7 Brief, 39. But, as shown by the Interim Award, JRV's claims concerning incentive payments 8 were not "unfounded." The Arbitrator found "JRV proved that WX breached section 1.04(f) of 9 the APA and the covenant of good faith and fair dealing by failing to provide the JRV brands 10 with the efforts to promote sales consistent with the efforts used to sell the other brands, 11 especially Bread & Butter." Interim Award, 11-12; see also id. at 8 (JRV presented "much 12 persuasive evidence" showing "WX focused its efforts on building the B&B brand to the 13 detriment of the JRV brands"). While declining to award damages for the AP A's incentive 14 payments as too speculative (id. at 12-13), the Arbitrator held WX breached the APA in three 15 separate ways-not using commercially reasonable efforts; not paying the Holdback; not paying 16 all assumed Accounts Payable-and awarded more than $1 million in damages to JRV based on 17 the APA. Id. at 13-14. Thus, JRV clearly prevailed on the claims concerning the APA (of which 18 the request for incentive payments was one portion22), and all fees should be recovered. 19 20 21 22 23 24 25 26 .27 28 2. Pillsbury's Requested Rates Are Within The Reasonable Range Of Market Rates In The San Francisco Community. Besides reasonable hours, the lodestar determination requires consideration of reasonable 22 Claimants' Arbitration Demand pleads three claims for JRV: First Claim-Breach of APA; Second Claim- Breach of AP A's Implied Covenant of Good Faith and Fair Dealing; Sixth Claim-Fraud. All these claims are based on WX's promises under the APA to use commercially reasonable efforts, pay the Holdback and pay all assumed Accounts Payable. Arbitration Demand,~~ 31-46 (First Claim),~~ 47-49 (Second Claim), and~~ 70-63 (Sixth Claim). There is no stand-alone claim just for incentive payments. Furthermore, all alleged breaches of the APA-as well as promissory fraud through the APA-arise from common, interrelated facts, which also makes apportionment inappropriate. Frog Creek Partners, 206 Cal.App.4th at 543 (only one prevailing party on a given contract); Acree, 92 Cal.App.4th at 405 (fees warranted even for unsuccessful attacks on same contract); Reynolds Metals, 25 Cal.3d at 129-30 (no apportionment where party prevails on one issue and other issues are related). _ 18 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0I 50-0585.v3 1 hourly rates. In assessing reasonableness, one must determine whether the requested rates are 2 "within the range of reasonable rates charged by and judicially awarded comparable attorneys for 3 comparable work." Children's Hosp. & Med. Ctr. v. Banta (2002) 97 Ca1App.4th 740, 783. 4 Requested rates are reasonable if they are "within the range." Id. The determination of "market 5 rate" is based on the rates prevalent in the community where the dispute is adjudicated. Syers 6 Prop. Ill, 226 Cal.App.4th at 700. Here, San Francisco, as designated in the Agreements. Ex. 81 7 (APA), § 1 l.12(a); Ex. 82 (Consulting Agreement), § 10.6; Ex. 84 (TSA), § 18. 8 The value of a private practitioner's time is reflected in his or her "normal billing rate." 9 Serrano IV, 32 Cal.3d at 640. An attorney's normal billing rate carries a presumption of 10 reasonableness. See, e.g., Russell v. Foglio (2008) 160 Cal.App.4th 653,661. Fee awards are 11 generally based on counsel's current standard rate (see id.), regardless of whether the attorneys 12 claiming fees actually charge a below-market or discounted rate. PLCM Group, 22 Cal.4th at 13 1098; Syers Props. III, 226 Cal.App.4th at 701. Pillsbury's rates are adjusted annually to reflect 14 increased experience, skill and changes in the legal marketplace. Green Deel., 1 22. The current 15 standard rate for Claimants' primary counsel, Mr. Green, is $930/hour, and such rate for Mr. 16 Chase-Woods is $575/hour. Id. & Ex. 4. These rates (as well as rates of other timekeepers on 17 this matter) are comparable to the rates charged by attorneys of similar skill and experience in 18 the San Francisco Bay Area. Green Deel., 122. 19 While Pillsbury could request current standard rates for the lodestar determination, it 20 instead seeks only the lower (discounted by about 10%), historic rates actually charged to 21 Claimants, as reflected in the Pillsbury invoices. Id., 123. For Mr. Green, these rates range 22 (over time) from $793/hour to $845/hour, and for Mr. Chase-Woods, from $430/hour to 23 $525/hour. Id. These rates are well within the range of rates judicially awarded to comparable 24 San Francisco attorneys, at comparable large firms, for similar work. Id. 23 25 26 27 28 23 See, e.g., Banas v. Volcano Corp. (N.D. Cal. 2014) 47 F.Supp.3d 957, 965-66 (in case involving breach of merger agreement, court found that Cooley law firm's claimed rates-ranging from $355 to $1,095/hour for partners and associates-are "within the range" of"prevailing market rates for comparable firms in the Northern District"); Wynn v. Chanos (N.D. Cal. 2015) 2015 WL 3832561, *2 (rates of$875-$1,085/hour for big-firm San Francisco litigation partners are reasonable; rates of $570-$710/hour for big-firm San Francisco litigation associates are reasonable); (continued ... ) _ 19 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585.v3 1 VII. CLAIMANTS AND PILLSBURY REQUEST AN UPWARD ADJUSTMENT OF THE 2 3 4 5 6 7 8 9 10 11 12 13 LODESTAR BASED ON CONTINGENCY RISK, WX'S AGGRESSIVE OPPOSITION, UNCERTAINTY OF OUTCOME AND DELAY OF PAYMENT, AMONG OTHER FACTORS. As discussed above, Pillsbury's claimed lodestar is 4,687 hours, and $2,632,671 in fees. Supra, pp. 16-17; Green Deel., 1 19. The final step of the "lodestar-adjustment" method is to consider whether to adjust the lodestar based on "factors specific to the case." PLCM Group v. Drexler, 22 Cal.4th at 1095: As recently explained in Syers Properties III, Our Supreme Court has recognized that the lodestar is the basic fee for comparable legal services in the community and that it may be adjusted by the court based on a number of factors in order "to fix a fee at the fair market value for the particular action. In effect, the court determines, retrospectively, whether the litigation involved a contingent risk or required extraordinary legal skill justifying augmentation of the unadorned lodestar in order to approximate the fair market rate for such services." 14 Syers, 226 Cal.App.4th at 697-98, quoting Ketchum v. Moses, 24 Cal.4th at 1122 (emphasis 15 added). Here, an upward adjustment of the "unadorned lodestar" is warranted based on the 16 pertinent, case-specific factors. 17 18 19 20 21 22 23 24 25 26 27 28 A. Factors To Be Considered For Lodestar Adjustment. In P LCM Group, the court described "factors specific to the case" which may warrant an adjustment, "including the nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, the success or failure, and other circumstances in the case." 22 Cal.4th at 1096. In addition, "[o]ne of the most common fee enhancers is for contingency risk." Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 579. The Graham court described the "economic rationale" for fee enhancement based on contingent risk: ( ... continued) A contingent fee must be higher than a fee for the same legal services paid as they are performed. The contingent fee compensates the lawyer not only for the legal services he renders but for the loan of Digital Reg of Texas, LLC v. Adobe Sys., Inc. (N.D. Cal. 2015) 2015 WL 1968388, *3 ("third quartile rates" in San Francisco in 2012 were $825 for partners and $576 for associates). _ 20 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585 .v3 1 2 3 4 those services .... A lawyer who both bears the risk of not being paid and provides legal services is not receiving the fair market value of his work if he is paid only for the second of these functions. Id. at 580. See also Ketchum, 24 Cal.4th at 1136 (enhancement appropriate to compensate attorney for "risk of nonpayment or delayed payment"); Horsford, 132 Cal.App.4th at 400 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (award should take into account "contingency and delay factors," including "ultimate risk of not obtaining fees"; failure to "fully compensate for the enormous risk in bringing even a wholly meritorious case" would immunize large defendants from being held to account). Finally, an enhancement or multiplier is warranted when counsel must overcome "intransigent opposition," Edgerton v. State Personnel Bd. (2000) 83 Cal.App.4th 1350, 1363 (affirming 1.5 multiplier), and "where success was not assured and [defendant] fought the case at every turn." Kern River Public Access Com. v. City of Bakersfield (1985) 170 Cal.App.3d 1205, 1228-29 (affirming 50 percent enhancement). B. Here, Case-Specific Factors Warrant Enhancing The Lodestar, And Pillsbury Requests A 1.25 Multiplier. The lodestar should be enhanced based on the pertinent case-specific factors: • Nature of litigation. It was complex and difficult litigation-involving multiple agreements between different parties, as well as competing claims and counterclaims-which required considerable skill. • Amount involved. More than $12 million was at issue. • Success or failure. JRV and Mr. Leigon prevailed on all three contracts. WX lost on all its claims. • Contingent risk and delay. As described in the Green Deel. (~ 20), Pillsbury's engagement turned into a de facto contingency matter due to (1) JRV's and Mr. Leigon's limited financial resources, (2) WX's refusal to pay Mr. Leigon or allow him to get other work in the wine industry, and (3) WX's aggressive litigation strategy and posture, which increased attorneys' fees substantially beyond what Claimants could pay on a month-to-month basis. Thus, there was a substantial _ 21 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585. v3 1 risk-indeed, high likelihood-Pillsbury would not be fully paid unless 2 Claimants prevailed. Furthermore, Pillsbury has not been compensated at all (e.g. 3 through higher rates) for the delay in payment or de facto "loan for services."24 4 • WX's aggressive opposition. As described above, WX fought Claimants "at 5 every turn,"25 and Pillsbury had to overcome WX's "intransigent opposition."26 6 Regarding the magnitude of enhancement, trial courts have often chosen multipliers in 7 the range of 1.25 to 2.25, and courts of appeal have frequently affirmed in this range. See Pearl, 8 Cal. Attorney Fee Awards, § 10.8, pp. 10-10 to 10-12. For example, in Edgerton, 83 9 Cal.App.4th at 1363 and Kern River Public Access Com., 170 Cal.App.3d at 1229, the courts 10 affirmed 1.5 multipliers (in each case) for overcoming "intransigent opposition." Multipliers for 11 contingent risk and delay are similar. See, e.g., Nishiki v. Dano Meredith, APC (2018) 25 12 Cal.App.5th 883, 897-98 (affirming 1.5 multiplier for contingent risk and where trial court noted 13 "the high quality of the legal representation on both sides"27); Bernardi v. County of Monterey 14 (2008) 167 Cal.App.4th 1379, 1399 (affirming "a modest multiplier of 1.25" in recognition of 15 contingent risk, "extended delay before counsel could receive compensation," and presence of 16 unique issues). 1 7 Based on these examples and the specific factors at issue in our case, Claimants and 18 Pillsbury request a modest multiplier (see id.) of 1.25. Applying the 1.25 multiplier to the 19 Pillsbury lodestar ($2,632,671) should result in a fees award of $3,290,839 (before adding fees 20 for post-Interim Award services, per Part VIII). 28 21 22 23 24 25 26 27 28 24 As shown in the billing statements attached to the Green Declaration (Ex. 3), Pillsbury invoices from July 2018 onward remain outstanding. Green Deel., ,r 20. 25 Kern River Public Access Com., 170 Cal.App.3d at 1229. 26 Edgerton, 83 Cal.App.4th at 1363. 27 Here, the Arbitrator has also noted the high quality of work from both sides. Tr. 2598. 28 Following the Interim Award, Pillsbury's main task has been claiming attorneys' fees. While so-called "fees on fees" are recoverable (infra, Part VIII) and courts have allowed multipliers for "fees on fees" work, Graham v. DaimlerChrysler Corp., 34 Cal.4th at 579, Pillsbury does not seek to enhance its post-Interim Award fees. _ 22 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585 ,v3 1 C. No Downward Adjustment To The Pillsbury Lodestar Is Warranted. 2 While many courts have adopted positive multipliers, negative multipliers are rare-and 3 even more rarely affirmed. Compare Pearl, Cal. Attorney Fee Awards,§ 10.8, pp. 10-10 to 10- 4 12 (listing dozens of cases affirming lodestar enhancements) to§ 10.11, pp. 10-13 to 10-14 5 (dozen cases involving negative multipliers; negative multipliers mostly rejected). See also 6 Rogel v, Lynwood Redev. Agency (2011) 194 Cal.App.4th 1319, 1329-31 (reversing a .2 negative 7 multiplier as unjustified; distinguishing three exceptional cases where courts applied negative 8 multipliers).29 In any event, as discussed above (Part VII.B), the analysis of case-specific factors 9 favors enhancing, not reducing, the lodestar. 10 While some courts have reduced a lodestar in cases of partial success,30 the clauses of the 11 Agreements at issue do not contemplate any such reduction. Indeed, quite the opposite: the 12 clauses provide there is a single prevailing party for each agreement-based on which party's 13 "major arguments" prevail over the other-which shall be entitled to fees. Ex. 81 (APA), § 14 11.11; Ex. 82 (Consulting Agreement), 10.10. Here, both sides asserted affirmative claims based 15 on the AP A and Consulting Agreement. On each agreement, Claimants succeeded and WX 16 failed. The Agreements do not place any "cap"31 or limitation on the amount ofreasonable 17 attorneys' fees recoverable, nor require that recoverable fees be proportionate to an award of 18 damages.32 Simply, "the non-prevailing party shall pay to the prevailing party all reasonable 19 attorneys' fees." Id. ( emphasis added). 20 21 22 23 24 25 26 ' 27 28 29 Rogel, l 94 Cal.App.4th at 1330-31 ( distinguishing San Diego Police Officers Assn. v, San Diego Police Department (1999) 76 Cal.App.4th 19, 24 because plaintiff achieved "very limited success"; distinguishing Thayer, 92 Cal.App.4th 819, 834 because prevailing lawyers "did little more than duplicate pleadings" from another case; distinguishing EnPalm, LLC v, Teitler (2008) 162 Cal.App.4th 770, 775-78 because prevailing lawyers "misrepresented the number of hours worked"). 30 San Diego Police Officers Assn., 76 Cal.App.4th at 24 (negative ,2 multiplier because "very limited success"), 31 If WX had wished to place a cap on recoverable attorneys' fees, or require proportionality, it could have bargained for such a cap in the Agreements, but it failed to do so. Compare P LCM Group v, Drexler, 22 Cal.4th at 1097, n.5 (parties did not establish "a specific monetary cap on attorneys fees as in Reynolds Metals;" contractual fees award affirmed) to Reynolds Metals Co, v. A/person, 25 Cal.3d at 127, 130 (promissory notes provided for recovery of collection costs, but expressly limited fees to 15% of the amount ofnotes; trial court erred by failing to observe 15% limitation). 32 Neither is there any requirement, as a matter of California law, that a fee award be proportionate to the amount of damages recovered. Niederer v. Ferreira (1987) 189 Cal.App.3d 1485, 1507-08. - 23 - JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-01 S0-0S8S,v3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Moreover, even if the language of the Agreements wasn't dispositive (we submit it is), case law does not support reducing the lodestar based on any claim of "partial success." For example, in Wysinger v. Automobile Club of Southern California, 157 Cal.App.4th 413, even though plaintiff prevailed on just two of his eight claims, the court awarded fees and "enhance[ d] the lodestar by an upward multiplier of 1.1." Id. at 430. In rejecting defendant's challenge to the fees, the court of appeal observed: [ w ]here a lawsuit consists of related claims, and the plaintiff has won substantial relief, a trial court has discretion to award all or substantially all of the plaintiffs fees even if the court did not adopt each contention raised." [Citation.] To reduce the attorneys' fees of a successful party because he did not prevail on all his arguments, makes it the attorney, and not the defendant, who pays the costs of enforcing the plaintiffs rights. [Citations.] Id. at 431 (internal quotation marks omitted). See also Hagar, 157 Cal.App.4th at 1368-69 (where plaintiff "pursued a number of claims which were not successful" and "reimbursement claim was only partially successful," court of appeal held, "given the overall results achieved and the relationship between the claims asserted," there was no need to reduce the lodestar amount; fees award is "not a gift [but] just compensation for expenses actually incurred"). Here, as in Wysinger and Hagar, the claims and counterclaims are related (premised on the same agreements), Claimants obtained "substantial relief' and, thus, Claimants should recover "all or substantially all" their fees "actually incurred."33 19 VIII. CLAIMANTS AND PILLSBURY REQUEST THEIR FEES FOR POST-INTERIM 20 A WARD WORK, INCLUDING THE INSTANT FEES REQUEST. 21 Since receipt of the Interim Award on October 4, 2019, Pillsbury has analyzed the award, 22 prepared and filed a request for correction and clarification, reviewed WX' s request for 23 24 25 26 27 28 33 If inclined to reduce the award in some way to account for "partial success" (i.e. because the Interim Award found WX breached § 1.04(f) of the APA, but that damages for this particular breach were too speculative), the Arbitrator could do so by reducing the requested enhancement multiplier (e.g. from 1.25 to 1.2 or 1. 1). See Krumme v. Mercury Ins, Co. (2004) 123 Cal.App.4th 924, 947 (defendant requested a negative multiplier because plaintiff failed to achieve the "primary objective" of the lawsuit; but appellate court found plaintiff "did achieve a significant objective," and trial court could account for "plaintiff's incomplete success when it reduced the multiplier requested by plaintiff' from 2.0 to 1.5); Beasley v. Wells Fargo Bank (1991) 235 Cal.App.3d 1407, 1418-19 (trial judge expressly considered and "cited the 'plaintiff's failure to prevail on many issues' as a reason for applying only a 1,5 multiplier instead of the 2.0 multiplier requested by plaintiffs"; contractual attorney fees award affirmed). _ 24 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0l 50-0585.v3 1 correction, and prepared claims for attorneys' fees and costs on behalf of Claimants as prevailing 2 parties. Green Deel., 135. All this falls within the broad ambit of work "in connection with" the 3 arbitration on which fees are recoverable. Ex. 81 (AP A), § 11.11. Furthermore, it is well 4 established under California law that fees incurred in connection with fee applications are 5 recoverable. See, e.g., Serrano JV, 32 Cal.3d at 624 (fee award "should ordinarily include 6 compensation for all hours reasonably spent, including those relating solely to the fee"). 7 Here, as evidenced by the Green Declaration (1 3 5) and Declaration of Dustin Chase- 8 Woods (13), Claimants have incurred reasonable attorneys' fees since the Interim Award in the 9 amount of $67,850, which should be included in the total fees award. Thus, the total requested 10 fees award (independent of costs34) is $3,358,689 (voluntarily reduced lodestar of $2,632,671 x 11 1.25 multiplier= $3,290,839, plus $67,850 in fees incurred post-Interim Award). 12 IX. CONCLUSION. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 For the foregoing reasons, Claimants and Pillsbury request an award of $3,358,689 in attorneys' fees (voluntarily reduced lodestar of $2,632,671 x 1.25 multiplier= $3,290,839, plus $67,850 in fees incurred post-Interim Award), and $330,959 in costs incurred. Respectfully submitted, Dated: October 16, 2019. PILLSBURY WINTHROP SHAW PITTMAN LLP BLAINE I. GREEN DUSTIN J. CHASE-WOODS Four Embarcadero Center, 22nd Floor San Francisco, CA 94126-2824 B ,,K~~ y ________________ _ Blaine I. Green Attorneys for Claimants, JRV, LLC and Bill Leigon 34 As discussed supra, Part IV, Claimants incurred and seek recovery of $330,959 in costs. See Green Deel.,, 3, Ex. 1. Claimants have incurred additional costs in connection with this fees motion, but these costs are relatively small and will not be pursued, _ 25 _ JRV & LEIGON MEMO IN SUPPORT OF FEES AND COSTS 4832-0150-0585 ,v3 EXHIBIT 9 109666546.1 Michael J. McCue Admitted in California, Nevada, Virginia and Washington, D.C. 702.949.8224 direct 702.949.8363 fax mmccue@lrrc.com Lewis Roca Rothgerber Christie LLP 203 Redwood Shores Pkwy, Suite 670 Redwood City, CA 94065 650.391.1380 main 650.391.1395 fax lrrc.com Albuquerque / Colorado Springs / Denver / Irvine / Las Vegas / Los Angeles / Phoenix / Reno / Silicon Valley / Tucson November 4, 2019 Our File Number: 305124-00003 VIA CASEANYWHERE Re: JRV, LLC and Bill Leigon v. Winery Exchange, Inc., JAMS Reference No. 1100090897 Dear Ms. Hanley: As counsel for Winery Exchange, Inc. in the above referenced matter, we are writing to request additional disclosure information. We are directing this request to you rather than to Arbitrator Claiborne in light of the July 26, 2018 Memorandum from JAMS, which states, “Please advise the arbitrator’s Case Manager Kathleen C. Hanley . . . if you know of any additional information that should be in the disclosure report to all parties.” Under Rule 15(h) of the JAMS Comprehensive Rules, the obligation of the Arbitrator, the parties, and their representatives to make all required disclosures continues throughout the arbitration process. In light of the Ninth Circuit’s decision in Monster Energy Company v. City of Beverages, LLC, Case No. 17-55813 (9th Cir. Oct. 12, 2019), and information disclosed by Claimants’ counsel, Pillsbury Winthrop Shaw Pittman (“Pillsbury”) on October 16 that one of its attorneys, Mr. James Seff (who had previously represented Winery Exchange) billed a substantial amount of time on this matter to Claimants but was not listed as counsel of record, we believe that it is appropriate to request that JAMS provide the following additional disclosure information: 1. Whether Arbitrator Claiborne has any ownership interest in JAMS (or the entity that owns JAMS) and whether she shares in the profits of JAMS other than profits from the fees that she earns through her service as an arbitrator or mediator. 2. The number of matters that Pillsbury has had before JAMS in the past five (5) years (at any location of JAMS). 3. Any professional or personal connection between James Seff, on the one hand, and JAMS or Arbitrator Claiborne, on the other hand.1 1 JAMS’ prior disclosures were limited to relationships between JAMS and Messrs. Green and Chase- Woods and did not include Mr. Seff. See July 26, 2018 Memorandum from JAMS. Kathleen C. Hanley, Case Manager JAMS Two Embarcadero Center Suite 1500 San Francisco, CA 94111 109666546.1 November 4, 2019 Page 2 We request that JAMS provide this information on an expedited basis and at least seven (7) days prior to the entry of any Final Award so that Winery Exchange, Inc. has sufficient time to consider the information provided and seek any appropriate relief from JAMS. Sincerely, Michael McCue Lewis Roca Rothgerber Christie LLP cc: Blaine I. Green, Esq. (via CaseAnywhere) EXHIBIT 10 1 Jones, Joy From: Kathleen Hanley Sent: Tuesday, November 5, 2019 12:52 PM To: blaine.green@pillsburylaw.com; dustin.chasewoods@pillsburylaw.com; McCue, Michael; jsklar@lrcc.com; james.seff@pillsburylaw.com Cc: deirdre.campino@pillsburylaw.com; Jones, Joy; Contla, Rebecca Subject: JRV, LLC vs. Winery Exchange, Inc. - JAMS Ref No. 1100090897 Attachments: Mkt016A California - 1100090897.pdf; Mkt016C - 1100090897.pdf; JRV ZC letter 11.5.19.pdf [EXTERNAL] Dear Counsel, In answer to Mr. McCue’s letter of Nov. 4, 2019 posted to Case Anywhere after I left yesterday, I respond here so Ms. Claiborne will not be included in this discussion. I have added Mr. Seff to our service list, and confirm that in the last five years he has had no cases of any nature with her. The attached files “Mkt016A California” and “Mkt016C” reflect same. Also attached is her letter confirming her relationship to JAMS. I will follow up again shortly with an institutional report from JAMS that answers the second of the three questions posed in Mr. McCue’s letter. Please let me know if you have any questions. Thank you. Best regards, Kathleen Kathleen C. Hanley ADR Specialist JAMS - Local Solutions. Global Reach.TM Two Embarcadero Center | Suite 1500 | San Francisco, CA 94111 P: 415-774-2617 | F: 415-982-5287 www.jamsadr.com Follow us on LinkedIn and Twitter. Please consider the environment before printing this email. California General Disclosures & Mediation Disclosures � Report A (MKT016A) JRV, LLC vs. Winery Exchange, Inc. This report includes General Disclosure of Client Activity. Case counts are provided for Arbitrations, Court Reference Matters, Mediations and other ADR. As required by the California Ethics Standards, Arbitration, Med-Arb, and Court Reference numbers are provided for the last 5 years; Mediation numbers are provided for the past 2 years. This Report also includes the detail required for Mediations per Standard 7. (Required additional case detail for Arbitrations, Med-Arbs and Court Reference cases are included in a separate report, JAMS Case Disclosure Report B (MKT016C). ) Panelist: Zela G. Claiborne Reference #: 1100090897 11/5/2019 Co-Counsel(s) Katherine Farkas Scheper Kim & Harris LLP 800 West Sixth Street 18th Floor Los Angeles, CA 90017 Relevant Cases heard with Katherine Farkas No Cases to Report Richard E. Drooyan Scheper Kim & Harris LLP 800 West Sixth Street 18th Floor Los Angeles, CA 90017 Relevant Cases heard with Richard E. Drooyan No Cases to Report Relevant Cases heard with Scheper Kim & Harris LLP No Cases to Report Claimant(s) Bill Leigon No Address Listed Relevant Cases heard with Bill Leigon No Cases to Report JRV, LLC No Address Listed Relevant Cases heard with JRV, LLC No Cases to Report The neutral practices in association with JAMS. Each JAMS neutral, including the neutral in this case, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 11/5/2019 Page 1 of 6 * "Matter(s) Assigned to Another Neutral" includes cases where the matter was moved to a different neutral. California General Disclosures & Mediation Disclosures � Report A (MKT016A) JRV, LLC vs. Winery Exchange, Inc. This report includes General Disclosure of Client Activity. Case counts are provided for Arbitrations, Court Reference Matters, Mediations and other ADR. As required by the California Ethics Standards, Arbitration, Med-Arb, and Court Reference numbers are provided for the last 5 years; Mediation numbers are provided for the past 2 years. This Report also includes the detail required for Mediations per Standard 7. (Required additional case detail for Arbitrations, Med-Arbs and Court Reference cases are included in a separate report, JAMS Case Disclosure Report B (MKT016C). ) Panelist: Zela G. Claiborne Reference #: 1100090897 11/5/2019 Counsel for Claimant Blaine I. Green Pillsbury Winthrop Shaw Pittman LLP 4 Embarcadero Center 22nd Floor San Francisco, CA 94111-5998 Relevant Cases heard with Blaine I. Green No Cases to Report Relevant Cases heard with Pillsbury Winthrop Shaw Pittman LLP Mediations\Neutral Analysis\Other 1Mediation(s) - Closed cases· Hawthorne Mill Land Company, L.P. vs. Private Party (JAMS Reference No. 1100087069) Representative FirmRepresentative Name Party/Parties Represented Kenneth E. Keller, Esq. Pillsbury Winthrop Shaw, et al. Hawthorne Mill Land Company, L.P. Douglas C. Straus, Esq. Archer Norris PLC Private Party & Private Party & Cannon Partners David G. Knitter, Esq. Knitter & Knitter Private Party & Private Party Basil S. Shiber, Esq. Miller Starr Regalia Hawthorne Mill Land Company, L.P. Dustin J. Chase-Woods Pillsbury Winthrop Shaw Pittman LLP 4 Embarcadero Center San Francisco, CA 94111-5998 Relevant Cases heard with Dustin J. Chase-Woods No Cases to Report James M. Seff Pillsbury Winthrop Shaw Pittman LLP 4 Embarcadero Center 22nd Floor San Francisco, CA 94111-5998 The neutral practices in association with JAMS. Each JAMS neutral, including the neutral in this case, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 11/5/2019 Page 2 of 6 * "Matter(s) Assigned to Another Neutral" includes cases where the matter was moved to a different neutral. California General Disclosures & Mediation Disclosures � Report A (MKT016A) JRV, LLC vs. Winery Exchange, Inc. This report includes General Disclosure of Client Activity. Case counts are provided for Arbitrations, Court Reference Matters, Mediations and other ADR. As required by the California Ethics Standards, Arbitration, Med-Arb, and Court Reference numbers are provided for the last 5 years; Mediation numbers are provided for the past 2 years. This Report also includes the detail required for Mediations per Standard 7. (Required additional case detail for Arbitrations, Med-Arbs and Court Reference cases are included in a separate report, JAMS Case Disclosure Report B (MKT016C). ) Panelist: Zela G. Claiborne Reference #: 1100090897 11/5/2019 Relevant Cases heard with James M. Seff No Cases to Report Respondent(s) Winery Exchange No Address Listed Relevant Cases heard with Winery Exchange No Cases to Report The neutral practices in association with JAMS. Each JAMS neutral, including the neutral in this case, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 11/5/2019 Page 3 of 6 * "Matter(s) Assigned to Another Neutral" includes cases where the matter was moved to a different neutral. California General Disclosures & Mediation Disclosures � Report A (MKT016A) JRV, LLC vs. Winery Exchange, Inc. This report includes General Disclosure of Client Activity. Case counts are provided for Arbitrations, Court Reference Matters, Mediations and other ADR. As required by the California Ethics Standards, Arbitration, Med-Arb, and Court Reference numbers are provided for the last 5 years; Mediation numbers are provided for the past 2 years. This Report also includes the detail required for Mediations per Standard 7. (Required additional case detail for Arbitrations, Med-Arbs and Court Reference cases are included in a separate report, JAMS Case Disclosure Report B (MKT016C). ) Panelist: Zela G. Claiborne Reference #: 1100090897 11/5/2019 Counsel for Respondent Jeffrey L. Sklar Lewis Roca Rothgerber Christie LLP One S. Church Ave. Suite 700 Tucson, AZ 85701 Relevant Cases heard with Jeffrey L. Sklar No Cases to Report Michael J. McCue Lewis Roca Rothgerber Christie LLP 4300 Bohannon Drive Suite 230 Menlo Park, CA 94025 Relevant Cases heard with Michael J. McCue No Cases to Report Relevant Cases heard with Lewis Roca Rothgerber Christie LLP No Cases to Report Erin R. Ranahan Winston & Strawn, LLP 333 S. Grand Ave. 38th Floor Los Angeles, CA 90071-1543 Relevant Cases heard with Erin R. Ranahan No Cases to Report Lev Tsukerman Winston & Strawn, LLP 333 S. Grand Ave. 38th Floor Los Angeles, CA 90071-1543 The neutral practices in association with JAMS. Each JAMS neutral, including the neutral in this case, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 11/5/2019 Page 4 of 6 * "Matter(s) Assigned to Another Neutral" includes cases where the matter was moved to a different neutral. California General Disclosures & Mediation Disclosures � Report A (MKT016A) JRV, LLC vs. Winery Exchange, Inc. This report includes General Disclosure of Client Activity. Case counts are provided for Arbitrations, Court Reference Matters, Mediations and other ADR. As required by the California Ethics Standards, Arbitration, Med-Arb, and Court Reference numbers are provided for the last 5 years; Mediation numbers are provided for the past 2 years. This Report also includes the detail required for Mediations per Standard 7. (Required additional case detail for Arbitrations, Med-Arbs and Court Reference cases are included in a separate report, JAMS Case Disclosure Report B (MKT016C). ) Panelist: Zela G. Claiborne Reference #: 1100090897 11/5/2019 Relevant Cases heard with Lev Tsukerman No Cases to Report Warren R. Loui Winston & Strawn, LLP 333 S. Grand Ave. 39th Floor Los Angeles, CA 90071-1543 Relevant Cases heard with Warren R. Loui No Cases to Report Relevant Cases heard with Winston & Strawn, LLP Arbitration 1Arbitration(s) - Closed cases· The neutral practices in association with JAMS. Each JAMS neutral, including the neutral in this case, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 11/5/2019 Page 5 of 6 * "Matter(s) Assigned to Another Neutral" includes cases where the matter was moved to a different neutral. California General Disclosures & Mediation Disclosures � Report A (MKT016A) JRV, LLC vs. Winery Exchange, Inc. This report includes General Disclosure of Client Activity. Case counts are provided for Arbitrations, Court Reference Matters, Mediations and other ADR. As required by the California Ethics Standards, Arbitration, Med-Arb, and Court Reference numbers are provided for the last 5 years; Mediation numbers are provided for the past 2 years. This Report also includes the detail required for Mediations per Standard 7. (Required additional case detail for Arbitrations, Med-Arbs and Court Reference cases are included in a separate report, JAMS Case Disclosure Report B (MKT016C). ) Panelist: Zela G. Claiborne Reference #: 1100090897 11/5/2019 Other Disclosures N/A The neutral practices in association with JAMS. Each JAMS neutral, including the neutral in this case, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 11/5/2019 Page 6 of 6 * "Matter(s) Assigned to Another Neutral" includes cases where the matter was moved to a different neutral. JAMS Relevant Case Disclosure, Report B (MKT016C) JRV, LLC vs. Winery Exchange, Inc. This report includes Disclosure of Activity in Relevant Cases (defined as Arbitration, Med-Arb, and Court Reference Cases) from 11/05/2014 to 11/05/2019. All branches of counsel firms are included. **Note this report does not include mediations , which are reflected in the General Disclosures, Report A. Panelist: Zela G. Claiborne Reference #: 1100090897 11/5/2019 Co-Counsel(s) Katherine Farkas Scheper Kim & Harris LLP 800 West Sixth Street 18th Floor Los Angeles, CA 90017 Relevant Cases heard with Katherine Farkas No Cases to Report Richard E. Drooyan Scheper Kim & Harris LLP 800 West Sixth Street 18th Floor Los Angeles, CA 90017 Relevant Cases heard with Richard E. Drooyan No Cases to Report Relevant Cases heard with Scheper Kim & Harris LLP No Cases to Report Claimant(s) Bill Leigon No Address Listed Relevant Cases heard with Bill Leigon No Cases to Report JRV, LLC No Address Listed Relevant Cases heard with JRV, LLC No Cases to Report The neutral practices in association with JAMS. Each JAMS neutral, including the neutral in this case, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 11/5/2019 Page 1 of 5 * "Matter(s) Assigned to Another Neutral" includes cases where the matter was moved to a different neutral. JAMS Relevant Case Disclosure, Report B (MKT016C) JRV, LLC vs. Winery Exchange, Inc. This report includes Disclosure of Activity in Relevant Cases (defined as Arbitration, Med-Arb, and Court Reference Cases) from 11/05/2014 to 11/05/2019. All branches of counsel firms are included. **Note this report does not include mediations , which are reflected in the General Disclosures, Report A. Panelist: Zela G. Claiborne Reference #: 1100090897 11/5/2019 Counsel for Claimant Blaine I. Green Pillsbury Winthrop Shaw Pittman LLP 4 Embarcadero Center 22nd Floor San Francisco, CA 94111-5998 Relevant Cases heard with Blaine I. Green No Cases to Report Relevant Cases heard with Pillsbury Winthrop Shaw Pittman LLP No Cases to Report Dustin J. Chase-Woods Pillsbury Winthrop Shaw Pittman LLP 4 Embarcadero Center San Francisco, CA 94111-5998 Relevant Cases heard with Dustin J. Chase-Woods No Cases to Report James M. Seff Pillsbury Winthrop Shaw Pittman LLP 4 Embarcadero Center 22nd Floor San Francisco, CA 94111-5998 Relevant Cases heard with James M. Seff No Cases to Report Respondent(s) Winery Exchange No Address Listed Relevant Cases heard with Winery Exchange No Cases to Report The neutral practices in association with JAMS. Each JAMS neutral, including the neutral in this case, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 11/5/2019 Page 2 of 5 * "Matter(s) Assigned to Another Neutral" includes cases where the matter was moved to a different neutral. JAMS Relevant Case Disclosure, Report B (MKT016C) JRV, LLC vs. Winery Exchange, Inc. This report includes Disclosure of Activity in Relevant Cases (defined as Arbitration, Med-Arb, and Court Reference Cases) from 11/05/2014 to 11/05/2019. All branches of counsel firms are included. **Note this report does not include mediations , which are reflected in the General Disclosures, Report A. Panelist: Zela G. Claiborne Reference #: 1100090897 11/5/2019 Counsel for Respondent Jeffrey L. Sklar Lewis Roca Rothgerber Christie LLP One S. Church Ave. Suite 700 Tucson, AZ 85701 Relevant Cases heard with Jeffrey L. Sklar No Cases to Report Michael J. McCue Lewis Roca Rothgerber Christie LLP 4300 Bohannon Drive Suite 230 Menlo Park, CA 94025 Relevant Cases heard with Michael J. McCue No Cases to Report Relevant Cases heard with Lewis Roca Rothgerber Christie LLP No Cases to Report Erin R. Ranahan Winston & Strawn, LLP 333 S. Grand Ave. 38th Floor Los Angeles, CA 90071-1543 Relevant Cases heard with Erin R. Ranahan No Cases to Report Lev Tsukerman Winston & Strawn, LLP 333 S. Grand Ave. 38th Floor Los Angeles, CA 90071-1543 Relevant Cases heard with Lev Tsukerman No Cases to Report The neutral practices in association with JAMS. Each JAMS neutral, including the neutral in this case, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 11/5/2019 Page 3 of 5 * "Matter(s) Assigned to Another Neutral" includes cases where the matter was moved to a different neutral. JAMS Relevant Case Disclosure, Report B (MKT016C) JRV, LLC vs. Winery Exchange, Inc. This report includes Disclosure of Activity in Relevant Cases (defined as Arbitration, Med-Arb, and Court Reference Cases) from 11/05/2014 to 11/05/2019. All branches of counsel firms are included. **Note this report does not include mediations , which are reflected in the General Disclosures, Report A. Panelist: Zela G. Claiborne Reference #: 1100090897 11/5/2019 Warren R. Loui Winston & Strawn, LLP 333 S. Grand Ave. 39th Floor Los Angeles, CA 90071-1543 Relevant Cases heard with Warren R. Loui No Cases to Report Relevant Cases heard with Winston & Strawn, LLP ICC//Grifols International S.A., et al. vs. Alere Healthcare SLU, et al. (JAMS Reference No. 1100089619) - Arbitration Panelist Role: Neutral Arbitrator Case Result(s): Settled prior to hearing: Non-Monetary - 02/06/2019 Party/Parties RepresentedP/DRepresentative Name Representative Firm CLAIAllan E. Anderson, Esq. Arent Fox LLP Grifols International, SA & Grifols Movaco, SA & Instituto Grifols S.A. & Grifols S.A. & HemoSense, Inc & Grifols Portugal, LTDA & Grifols Chile CLAIAram Ordubegian, Esq. Arent Fox LLP Grifols International, SA & Grifols Movaco, SA & Instituto Grifols S.A. & Grifols S.A. & HemoSense, Inc & Grifols Portugal, LTDA & Grifols Chile CLAIJeffrey Robert Makin, Esq. Arent Fox LLP Grifols International, SA & Grifols Movaco, SA & Instituto Grifols S.A. & Grifols S.A. & HemoSense, Inc & Grifols Portugal, LTDA & Grifols Chile CLAIDiane B. Roldan, Esq. Arent Fox LLP Grifols International, SA & Grifols Movaco, SA & Instituto Grifols S.A. & Grifols S.A. & HemoSense, Inc & Grifols Portugal, LTDA & Grifols Chile RESPKenneth S. Leonetti, Esq. Foley Hoag LLP Alere Healthcare SLU & Alere San Diego, Inc. & Alere International Limited RESPMadeleine K. Rodriguez, Esq. Foley Hoag LLP Alere Healthcare SLU & Alere San Diego, Inc. & Alere International Limited RESPKenneth J. Figueroa, Esq. Foley Hoag LLP Alere Healthcare SLU & Alere San Diego, Inc. & Alere International Limited RESPStephen V. D'Amore, Esq. Winston & Strawn, LLP Alere Healthcare SLU & Alere San Diego, Inc. & Alere International Limited RESPRicardo E. Ugarte, Esq. Winston & Strawn, LLP Alere Healthcare SLU & Alere San Diego, Inc. & Alere International Limited NPMarek Krasula, Esq. ICC International Court of Arbitration Private Party NPMary Katherine Wagner ICC International Court of Arbitration no party listed NPCamille Ng, Esq. ICC International Court of Arbitration no party listed NPPedro Arcoverde International Chamber of Commerce no party listed The neutral practices in association with JAMS. Each JAMS neutral, including the neutral in this case, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 11/5/2019 Page 4 of 5 * "Matter(s) Assigned to Another Neutral" includes cases where the matter was moved to a different neutral. JAMS Relevant Case Disclosure, Report B (MKT016C) JRV, LLC vs. Winery Exchange, Inc. This report includes Disclosure of Activity in Relevant Cases (defined as Arbitration, Med-Arb, and Court Reference Cases) from 11/05/2014 to 11/05/2019. All branches of counsel firms are included. **Note this report does not include mediations , which are reflected in the General Disclosures, Report A. Panelist: Zela G. Claiborne Reference #: 1100090897 11/5/2019 NPLiman Oseni ICC International Court of Arbitration no party listed NPChelsea Flanagan ICC International Court of Arbitration no party listed NPPatricia Despagne International Chamber of Commerce no party listed RESPJoanna C. Wade, Esq. Winston & Strawn, LLP Alere Healthcare SLU & Alere San Diego, Inc. & Alere International Limited ICC//Grifols International S.A., et al. vs. Alere Healthcare SLU, et al. (JAMS Reference No. 1100089619) - Arbitration The neutral practices in association with JAMS. Each JAMS neutral, including the neutral in this case, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future. 11/5/2019 Page 5 of 5 * "Matter(s) Assigned to Another Neutral" includes cases where the matter was moved to a different neutral. EXHIBIT 11 109684031.1 Michael J. McCue Admitted in California, Nevada, Virginia and Washington, D.C. 702.949.8224 direct 702.949.8363 fax mmccue@lrrc.com Lewis Roca Rothgerber Christie LLP 203 Redwood Shores Pkwy, Suite 670 Redwood City, CA 94065 650.391.1380 main 650.391.1395 fax lrrc.com Albuquerque / Colorado Springs / Denver / Irvine / Las Vegas / Los Angeles / Phoenix / Reno / Silicon Valley / Tucson November 6, 2019 Our File Number: 305124-00003 VIA CASEANYWHERE Re: JRV, LLC and Bill Leigon v. Winery Exchange, Inc., JAMS Reference No. 1100090897 Dear Ms. Hanley: Thank you for your letter dated November 6, 2019. In light of the disclosure information provided, we have the following questions under Rule 15(h) of the JAMS Comprehensive Rules that relate to issues addressed in the Ninth Circuit’s decision in Monster Energy Company v. City of Beverages, LLC, Case No. 17-55813 (9th Cir. Oct. 12, 2019). As noted in Monster Energy, JAMS should disclose information about: (1) “the arbitrator’s ownership interest, if any, in the entity under whose auspices the arbitration is conducted”; and (2) “whether the entity under whose auspices the arbitration is conducted and one or more of the parties were previously engaged in nontrivial business dealings.” Monster Energy at 14. The Monster Energy case also notes that the parties may have follow-up inquires “as a result of knowing that information” that can allow them to “make their own informed decisions about whether a particular arbitrator is likely to be neutral.” Id. The following questions will help us make such a decision. These questions also concern whether a person aware of the facts could reasonably doubt that the arbitrator would be able to be impartial and therefore subject to disqualification. See Cal. Civ. Proc. Code §§ 170.1(a)(6)(A)(iii), 1281.91(d). 1. In our November 5, 2019, letter, we asked “[w]hether Arbitrator Claiborne has any ownership interest in JAMS (or the entity that owns JAMS) and whether she shares in the profits of JAMS other than profits from the fees that she earns through her service as an arbitrator or mediator.” In response, you provided a letter from Arbitrator Claiborne letter dated November 1, 2019, in which she stated that she is “an owner panelist of JAMS” and “has an equal share ownership interest.” We request disclosure of: (a) the percentage of Arbitrator Claiborne’s ownership interest in JAMS; and (b) the percentage and amount of any distribution of profit that she received for 2018 and the amount expected to be distributed for 2019 for all JAMS matters, not just the matters in which Arbitrator Claiborne served; (c) Arbitrator Claiborne’s ability to sell her shares or other interest in JAMS and any valuation assigned to such shares or interest; and (d) any payments or earnings that Arbitrator Claiborne may be entitled to receive upon or after retirement and the basis for calculation of such payments and earnings. This is relevant in light of the Monster Energy case’s statement that the ownership interest of an owner panelist “greatly Kathleen C. Hanley, Case Manager JAMS Two Embarcadero Center Suite 1500 San Francisco, CA 94111 109684031.1 November 6, 2019 Page 2 exceeds the general economic interest that all JAMS neutrals naturally have in the organization” and is “therefore substantial.” Monster Energy at 12. 2. Arbitrator Claiborne indicated in her November 1, 2019, letter that “as an owner,” she is “not informed about how [her] profit distribution is impacted by any particular client, laywer [sic], or law firm.” However, this leaves open the question of whether she received such information in some other capacity and what type of profit information she received. Accordingly, we request disclosure of the following information: (a) whether Arbitrator Claiborne has served in any capacity for JAMS other than a panelist or owner within the past five (5) years, including, for example, as an officer or managing member of JAMS, and, if so, the title and time period in which she served in each capacity; (b) specifically identify the nature and extent of the information that Arbitrator Claiborne received in the past five (5) years regarding the calculation of her profit distribution and JAMS’ sources of revenue. 3. Given the number of matters that Pillsbury has had before JAMS in the past five (5) years (at any location of JAMS), we request disclosure of the total revenue that JAMS generated from matters in which Pillsbury was counsel of record so that we can assess existence and potential impact of “repeat player” bias. Again, we request that JAMS provide this information on an expedited basis and at least seven (7) days prior to the entry of any Final Award so that Winery Exchange, Inc. has sufficient time to consider the information provided and seek any appropriate relief. Sincerely, Michael McCue Lewis Roca Rothgerber Christie LLP cc: Blaine I. Green, Esq. (via CaseAnywhere) EXHIBIT 12 EXHIBIT 13 1 Jones, Joy From: service@caseanywhere.com Sent: Tuesday, November 12, 2019 2:55 PM To: McCue, Michael Subject: Document - Letter of Nov. 12, 2019 Regarding Disclosures - Uploaded in JRV, LLC v. Winery Exchange, Inc., Case No. 1100090897 [EXTERNAL] The following document has been uploaded in JRV, LLC v. Winery Exchange, Inc., Case No. 1100090897: Document Uploaded By: JAMS Number of Documents in Transaction: 1 Upload Date: 11/12/19 Time of Upload: 2:54 PM (PST) Document Title: Letter of Nov. 12, 2019 Regarding Disclosures Page Range: 1 - 10 To access this record, click on the document link. You will be directed to the JAMS Electronic Filing System log in page. After entering your username and password, you will be taken to the requested document. If you have saved your log in information by selecting the "Remember me at this computer" option, you will be automatically logged in and directed to the record. Please allow time for larger documents to open. If your organization is no longer involved in the above-referenced matter, or if there is any other reason your organization's subscription should be terminated, please contact us immediately. It is your organization's responsibility to request removal from the case site and conclusion of your subscription for this matter. Please contact Case Anywhere by phone at (800) 884-3163 or (818) 650-1040 or by email at support@caseanywhere.com if you have any questions. EXHIBIT 14 109651802.1 561650.1 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 Michael J. McCue Jeffrey L. Sklar LEWIS ROCA ROTHGERBER CHRISTIE LLP 203 Redwood Shores Parkway, Suite 670 Redwood City, CA 94065 Tel: 702-949-8200 E-mail: mmccue@lrrc.com E-mail: jsklar@lrrc.com Attorneys for Respondent and Counter-claimant, WINERY EXCHANGE, INC. JAMS ARBITRATION JRV, LLC and BILL LEIGON, Claimants/Counter-respondents, vs. WINERY EXCHANGE, INC., Respondent/Counter-Claimant. JAMS Ref. No.: 1100090897 WINERY EXCHANGE, INC.’S RESPONSE TO JRV, LLC’S AND BILL LEIGON’S MOTION AND MEMORANDUM IN SUPPORT OF ATTORNEYS’ FEES AND COSTS AS PREVAILING PARTY 109651802.1 i 561650.1 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 TABLE OF CONTENTS TABLE OF AUTHORITIES ......................................................................................................... iii I. THE FEE REQUEST SHOULD BE DENIED OUTRIGHT AS EXCESSIVE .................3 A. California law allows outright denial of an extreme fee request .............................3 B. The fees sought are excessive, as evidenced by a comparison with WX’s fees ...........................................................................................................................4 C. The fees are likely excessive due to lack of billing judgment .................................5 II. JRV AND MR. LEIGON ARE ENTITLED TO ONLY A REASONABLE FEE .............6 III. THE FEE REQUEST SHOULD BE REDUCED BY APPROXIMATELY 84 PERCENT BASED ON THE LIMITED SUCCESS ACHIEVED .....................................8 A. JRV did not prevail on the incentive-payments claim, so its degree of success is limited ......................................................................................................8 B. Fees should be apportioned based on JRV and Mr. Leigon’s limited success ........9 C. The Arbitrator should reject JRV and Mr. Leigon’s arguments against apportionment ........................................................................................................11 D. Pillsbury made apportionment impossible by block-billing ..................................12 E. Mr. Leigon should not recover fees for his motion for relief from the Noncompetition Agreement ...................................................................................13 F. JRV is improperly seeking to recover fees related to the disqualification motion ....................................................................................................................13 G. Due to JRV and Mr. Leigon’s limited success, as well as the block billing, the Arbitrator should reduce the fees based on the percentage of success ............14 IV. THE FEE REQUEST IS UNREASONABLE IN MYRIAD OTHER WAYS .................15 1. Pillsbury’s spare-no-expense strategy necessitates close scrutiny of its time entries .............................................................................. 15 2. Pillsbury overstaffed the case, including with “discovery attorneys” whose work was unnecessary ......................................... 15 3. Pillsbury spent an unreasonable amount of time on many tasks ..... 17 4. Pillsbury billed an excessive number of hours on many days ......... 18 109651802.1 ii 561650.1 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. Counsel improperly used partners on tasks that should have been delegated to associates, and associates on tasks that should have been delegated to paralegals............................................................. 19 6. Counsel performed many tasks that were not necessary at all ......... 20 7. JRV and Mr. Leigon’s criticism of WX’s litigation tactics is incorrect ............................................................................................ 21 8. The involvement of Pillsbury lawyer James Seff, who formerly represented WX, raises other serious concerns ................................ 22 9. Reduction in Fee to $192,497.02 ..................................................... 23 A. The case did not present novel or difficult questions ............................................24 B. Pillsbury’s skill did not exceed that of typical lawyers who bill at those hourly rates.............................................................................................................25 C. There is no indication that this case precluded other employment for the Pillsbury lawyers ....................................................................................................25 D. This was not a contingent-fee case, so no multiplier for contingency risk is justified ..................................................................................................................25 E. No enhancement is necessary due to WX’s litigation tactics ................................26 F. The Arbitrator would be justified in reducing the lodestar ....................................26 VI. JRV HAS NOT FOLLOWED THE PROPER PROCEDURE FOR SEEKING RECOVERY OF COSTS, INCLUDING JAMS FEES, SO SHOULD NOT BE AWARDED THEM ...........................................................................................................26 A. JRV and Mr. Leigon are not entitled to recover their JAMS fees .........................27 B. California law requires that expert witness fees and other costs be proven at trial, rather than submitted with a fee motion ........................................................27 C. JRV and Mr. Leigon are improperly seeking to recover expenses like meals and car rides, which are not compensable, as well as excessive and unclear clerical expenses ....................................................................................................27 VII. THE ARBITRATOR SHOULD FIND WX TO BE THE PREVAILING PARTY ON THE APA AND NONCOMPETITION AGREEMENTS AND AWARD WX ITS FEES AND COSTS ....................................................................................................28 VIII. CONCLUSION ..................................................................................................................29 109651802.1 iii 561650.1 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 TABLE OF AUTHORITIES Cases A.I. Credit Corp. v. Aguilar & Sebastinelli, 113 Cal. App. 4th 1072, 6 Cal. Rptr. 3d 813 (2003) ................................................................. 7, 23 Acree v. Gen. Motors Acceptance Corp., 92 Cal. App. 4th 385, 112 Cal. Rptr. 2d 99 (2001) ................................................................... 4, 11 Amtower v. Photon Dynamics, 158 Cal.App4th 1582, 71 Cal.Rptr.3d 361 (2008) ........................................................................ 10 Artesia Med. Dev. Co. v. Regency Assocs, Ltd., 214 Cal.App.3d 957, 266 Cal.Rptr. 657 (1989) ........................................................................ 6, 29 Bell v. Vista Unified Sch. Dist., 82 Cal.App.4th 672, 98 Cal.Rptr.2d 263 (2000) ................................................................... 7, 9, 13 Carwash of America-PO LLC v. Windswept Ventures No., 97 Cal.App.4th 540, 118 Cal.Rptr.2d 536 (2002) ......................................................................... 27 Chavez v. City of Los Angeles, 47 Cal. 4th 970, 224 P.3d 41 (2010) ............................................................................................... 8 Christian Research Inst. v. Alnor, 165 Cal. App. 4th 1315, 81 Cal. Rptr. 3d 866 (2008) ................................................................... 15 Clemens v. New York Cent. Mut. Fire Ins. Co., 903 F.3d 396 (3d Cir. 2018) ........................................................................................................ 3, 4 Donahue v. Donahue, 182 Cal.App.4th 259, 105 Cal.Rptr.3d 723 (2010) ................................................................... 4, 15 Doran v. Corte Madera Inn Best Western, 360 F.Supp.2d 1057 (N.D. Cal. 2005) .......................................................................................... 20 Gorman v. Tassajara Dev. Corp., 178 Cal.App.4th 44, 100 Cal.Rptr.3d 152 (2009) ........................................................................... 3 Hensley v. Eckerhart, 461 U.S. 424 (1983) .............................................................................................................. passim Heppler v. J.M. Peters Co., Inc., 73 Cal.App.4th 1265, 87 Cal.Rptr.2d 497 (1999) .................................................................... 9, 10 In re Gorina, 109651802.1 iv 561650.1 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 28 296 B.R. 23 (Bankr. C.D. Cal. 2002) .......................................................................................... 7, 9 Juarez v. Wash Depot Holdings, Inc., 24 Cal.App.5th 1197, 235 Cal.Rptr.3d 250 (2018) ......................................................................... 1 Martel v. Colvin, 2013 WL 6173794 (N.D. Cal. Nov. 25, 2013) ................................................................................ 6 Meister v. Regents of Univ. of Calif., 67 Cal.App.4th 437, 78 Cal.Rptr.2d 913 (1998) ......................................................................... 7, 8 Mintz v. Mark Bartelstein & Assocs. Inc., 2013 WL 12182147 (C.D. Cal. Dec. 4, 2013) .......................................................................... 7, 17 Montgomery v. Bio-Med Specialties, Inc., 183 Cal.App.3d 1292, 228 Cal.Rptr. 709 (1986) ............................................................................ 6 Olive v. Gen. Nutrition Ctrs., Inc., 30 Cal.App.5th 804, 242 Cal.Rptr.3d 15 (2018) ........................................................................... 29 PLCM Group v. Drexler, 22 Cal.4th 1084, 95 Cal.Rptr.2d 198 (2000) ............................................................................. 6, 24 Reynolds Metals Co. v. Alperson, 25 Cal. 3d 124, 599 P.2d 83 (1979) .............................................................................................. 11 Ripley v. Pappadopoulos, 23 Cal.App.4th 1616, 28 Cal.Rptr.2d 878 (1994) ......................................................................... 27 Rodriguez v. W. Publ'g Corp., 563 F.3d 948 (9th Cir. 2009) ......................................................................................................... 22 Serrano v. Priest, 20 Cal.3d 25, 141 Cal.Rptr. 315 (1977) ........................................................................................ 24 Serrano v. Unruh, 32 Cal. 3d 621, 652 P.2d 985 (1982) .................................................................................... 3, 6, 24 Sokolow v. Cty. of San Mateo, 213 Cal. App. 3d 231 (1989) ........................................................................................................... 8 St. Agnes Med. Ctr. v. PacifiCare of Calif., 31 Cal.4th 1187, 82 P.3d 727 (2003) .............................................................................................. 4 St. Paul Fire & Marine Ins. Co. v. Am. Dynasty Surplus Lines Ins. Co., 101 Cal.App.4th 818, 124 Cal.Rptr.2d 818 (2002) ......................................................................... 9 Van v. Language Line, LLC, 109651802.1 v 561650.1 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 2016 WL 5339805 (N.D. Cal. Sept. 23, 2016) ................................................................................ 8 Weeks v. Baker & McKenzie, 63 Cal.App.4th 1128, 74 Cal.Rptr.2d 510 (1998) ........................................................................ 25 Yeager v. Bowlin, 2010 WL 1689225 (E.D. Cal. Apr. 26, 2010) ............................................................................... 13 Statutes Cal. Civ. Code § 1717(b) ................................................................................................................. 29 Rules Cal. R. Prof. Cond. 1.09 ....................................................................................................................... JAMS Rules: Rule 17 ............................................................................................................................................ 1 Rule 18 ............................................................................................................................................ 1 Rule 20 ............................................................................................................................................ 1 Rule 22 ............................................................................................................................................ 1 Rule 24(g) ................................................................................................................................. 6, 27 Other Authorities JAMS, Mediation, Arbitraion and ADR Services Arbitraion Discovery Protocols, available at https://www.jamsadr.com/arbitration-discovery- protocols/ ........................................................................................................................................ 1 109651802.1 561650.1 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 INTRODUCTION Arbitration should be an “efficient and cost-effective alternative to litigation.”1 JAMS promulgates its commitment to “the most efficient, cost-effective arbitration process that is possible in the particular circumstances of each case.”2 Yet JRV and Mr. Leigon, as well as their counsel at Pillsbury Winthrop Shaw Pittman LLP (“Pillsbury”), handled this arbitration in a grossly inefficient and non-cost-effective manner. They should not be awarded anything close to their eye-popping request for nearly $3.7 million in fees and costs. No reasonable client would pay even the $2.6 million in fees and $330,000 in costs reflected on Pillsbury’s bills. Nor should the Arbitrator require WX to do so - let alone apply a lodestar enhancement. As explained below, JRV and Mr. Leigon’s request should be denied outright. If the Arbitrator does award fees, they should be no greater than $192,497.02, and if she awards costs, they should be no greater than $32,625. To award even close to $3.7 million would simply reward Pillsbury for its excessive and unscrutinized billing practices. The matter was not particularly complicated. But Pillsbury nevertheless allowed 20 lawyers to bill time to the matter. They sought hundreds of thousands of pages of discovery, and they billed extraordinary numbers of hours on virtually every task. They billed 271.5 hours, on average, every month for a year and a half. That is the equivalent of one and a half employees, full time, for that period. They took twice the amount of time as WX to present their case. Pillsbury’s inefficiencies were the primary reason the arbitration lasted 12 days rather than the five days that had originally been agreed upon. And in spite of all these excesses, JRV and Mr. Leigon recovered only 16 percent of the non-punitive damages they sought - approximately $1.15 million (before interest) out of a $7.15 million request. There are so many issues in Pillsbury’s hundreds of pages of invoices that it would take scores of pages to explain them all. Instead, WX focuses on the most important: • Most of Pillsbury’s time concerned JRV’s claim to recover the incentive payments. JRV did not prevail on this claim. It would not be reasonable - and contrary to common sense - to award JRV millions of dollars for 1 Juarez v. Wash Depot Holdings, Inc., 24 Cal.App.5th 1197, 1199, 235 Cal.Rptr.3d 250, 251 (2018). 2 https://www.jamsadr.com/arbitration-discovery-protocols/; see also JAMS Rules 17, 18, 20, 22 (concerning limits on discovery) 109651802.1 2 561650.1 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 prosecuting an unsuccessful claim simply because JRV prevailed on the holdback and accounts-payable claim, and Mr. Leigon prevailed on the Consulting Agreement claim. • Pillsbury’s legal bills primarily consisted of block billed entries - a practice that California courts have denounced - making it impossible to evaluate the reasonableness of time spent on specific tasks or deduct fees that should be denied. • JRV and Mr. Leigon are seeking fees for significant amounts of Pillsbury’s non-compensable work. For example, they seek fees for over 100 hours spent unsuccessfully prosecuting Mr. Leigon’s motion to release him from the Noncompetition Agreement. They also seek fees for nearly 150 hours spent opposing the motion to disqualify Pillsbury, for which a law firm would not normally bill a client. • Pillsbury billed extraordinary amounts of time on tasks that did not require such efforts. For example, it billed nearly 140 hours on the pre-hearing brief and an incredible 220 hours on the closing brief. These were far in excess of the amount of time spent by WX’s counsel, though the briefs were of comparable quality. • Pillsbury exercised poor judgment in delegating tasks. Mr. Green, a partner with 22 years of experience, spent huge numbers of hours performing routine legal research that could have been handled by Mr. Chase-Woods. In turn, Mr. Chase-Woods spent hundreds of hours performing paralegal-level tasks. And of the nearly 5,000 hours worked by Pillsbury, fewer than 200 were actually performed by paralegals. • WX’s former lawyer at Pillsbury, James Seff, billed over $140,000 on the matter. From the time descriptions available now - which were not available to WX at the time it moved to disqualify Pillsbury - it appears that Mr. Seff may have used confidential information obtained in representing WX for the benefit of JRV and Mr. Leigon in this litigation. Viewed collectively, Pillsbury’s bills would never be paid by - and perhaps would never have been sent to - a client who would actually review the bills and determine their reasonableness. As set forth below, there are valid grounds to deny the fee request in its entirety. But, at a minimum, the Arbitrator should apportion the fees to account for JRV’s limited recovery. Given that JRV prevailed in obtaining, at most, only 16.08 percent of the award sought, WX urges that the Arbitrator determine that only 16.08 percent of the fees are recoverable. That amount should be further reduced by 50 percent to account for Pillsbury’s excessive and improper billing practices. Hence, WX’s request that fees be limited to $192,497.02. There are also substantial 109651802.1 3 561650.1 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 reasons to reduce the $330,000 in costs claimed by JRV and Mr. Leigon. They should be reduced to $32,625. I. THE FEE REQUEST SHOULD BE DENIED OUTRIGHT AS EXCESSIVE JRV and Mr. Leigon bear the burden of proving that their exceptionally high attorneys’ fees were reasonable.3 At the highest level, it is not reasonable to seek nearly $3.7 million in fees and costs for a case that: (1) took only 15 months from filing of the arbitration demand through issuance of the Interim Award (most of which was concentrated during the period of February through September 2019); (2) involved a fairly small number of witnesses (six depositions per side and a total of 14 witnesses at the hearing); (3) resulted in JRV obtaining an award of 16 percent of the total amount sought; and (4) resulted in an award of approximately $1.15 million. Nevertheless, JRV now seeks fees that are nearly triple the actual award. This request is extreme. Under these circumstances and based on persuasive, on-point authorities, the Arbitrator should deny the request outright. A. California law allows outright denial of an extreme fee request JRV relies on the very case that authorizes outright denial of an extreme fee request - Serrano v. Unruh.4 There, the California Supreme Court explained that denying extreme fees is necessary to deter prevailing parties from making “unreasonable demands.”5 Otherwise, “the only unfavorable consequence of such misconduct would be reduction of their fee to what they should have asked for in the first place.”6 The court explained, “To discourage such greed, a severer reaction is needful.”7 (emphasis added). 3 Gorman v. Tassajara Dev. Corp., 178 Cal.App.4th 44, 98, 100 Cal.Rptr.3d 152, 196 (2009). 4 32 Cal. 3d 621, 635, 652 P.2d 985, 994 (1982) (“A fee request that appears unreasonably inflated is a special circumstance permitting the trial court to reduce the award or deny one altogether”) (cited by JRV passim within Motion for Fees); see also Clemens v. New York Cent. Mut. Fire Ins. Co., 903 F.3d 396, 403 (3d Cir. 2018) (affirming denial of $900,000 in fee petition in case involving $100,000 given petition was “not adequately supported and that the requested amount was grossly excessive given the nature of the case” and collecting cases from around the country). 5 Serrano, 32 Cal. 3d at 635, 652 P.2d at 994. 6 Id. 7 Id. 109651802.1 4 561650.1 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 After all, “When a party submits a fee petition, it is not the opening bid in the quest for an award.”8 Rather, “it is the duty of the requesting party to make a good faith effort to exclude ... hours that are excessive, redundant, or otherwise unnecessary, just as a lawyer in private practice ethically is obligated to exclude such hours from his fee submission.”9 This is precisely the case here. B. The fees sought are excessive, as evidenced by a comparison with WX’s fees Pillsbury made no such effort to exclude unnecessary hours, either in working them to begin with or seeking to recover them here. Its $3.7 million request is clearly beyond the normal range for this type of arbitration, especially given that arbitration is supposed to be a “speedy and relatively inexpensive means of dispute resolution.”10 One comparable case illustrates just how excessive Pillsbury’s request is. WX located a California Court of Appeal decision from 2001 that upheld a $3.6 million fee, but in a class action that involved 116,000 members, four interlocutory appeals, and six years of litigation.11 This case - where JRV and Mr. Leigon are seeking a similar award of fees - was nowhere near as complicated or as lengthy. And while there has been inflation in legal fees since then, that inflation is not even close to a full explanation of the difference between the fees in that case and this one. Another illustration of the excessiveness of Pillsbury’s fees comes from comparing them with fees incurred by WX. California courts recognize that “[a] comparative analysis of each side’s respective litigation costs may be a useful check on the reasonableness of any fee request.”12 The comparison is especially relevant because, as JRV and Mr. Leigon note, both sides’ lawyers performed high-quality work. Here, the total fees charged by WX’s counsel were $1,071,193.81 - well below half of the amount Pillsbury billed, and less than one-third the enhanced amount it seeks to recover. 8 Clemens, 903 F.3d at 403 (internal citation omitted). 9 Hensley v. Eckerhart, 461 U.S. 424, 434 (1983). 10 St. Agnes Med. Ctr. v. PacifiCare of Calif., 31 Cal.4th 1187, 1204, 82 P.3d 727, 738 (2003). 11 Acree v. Gen. Motors Acceptance Corp., 92 Cal. App. 4th 385, 112 Cal. Rptr. 2d 99 (2001). 12 Donahue v. Donahue, 182 Cal.App.4th 259, 272, 105 Cal.Rptr.3d 723, 733 (2010). 109651802.1 5 561650.1 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 WX’s original counsel, Winston and Strawn, charged WX only $60,036.87.13 Scheper Kim & Harris, which handled the disqualification motion, charged only $23,057.68.14 Lewis Roca Rothgerber Christie LLP (“Lewis Roca”), which has handled the matter since October 2018, has charged $925,267 in fees and $62,832.26 in costs, for a total of $988,099.26 (plus about $11,000 incurred by outside document reviewers).15 And this amount does not reflect to-be-negotiated reductions of such fees between WX and Lewis Roca. So the total fees for what Pillsbury mocks as a “legion” of lawyers are still less than half the fees incurred by JRV’s counsel.16 In contrast to the 4,887 hours worked by Pillsbury, Lewis Roca worked 2,343 hours - less than half of Pillsbury’s total.17 The chart attached as Exhibit A illustrates this difference on a month-by-month basis. In brief, though, there were only two months - February and March 2019 - when WX’s counsel billed more hours than JRV’s. In those two months, WX was hard at work producing the 100,000 documents that JRV demanded, but about which JRV now complains. In many other months, Pillsbury billed vastly more hours than Lewis Roca. For example, in April 2019, Pillsbury worked 1,149 hours, while Lewis Roca worked only 427, for a difference of 722 hours. These extreme differences continued through June, the month of the first six hearing days. In May, Pillsbury billed 534 more hours than Lewis Roca, and in June, it billed 337 hours more. JRV and Mr. Leigon have failed to carry their burden of showing why these extreme hours were reasonable. Nor have they demonstrated how those extra hours helped them achieve their limited success. Thus, before even examining the individual time entries, there is substantial reason to be suspect of Pillsbury’s fees. C. The fees are likely excessive due to lack of billing judgment The excessive nature of JRV and Mr. Leigon’s fee request might be explained by the very real possibility that Pillsbury’s fees are simply not the result of true billing judgment. Billing judgment refers to the natural incentive by private attorneys to charge only for reasonable 13 Declaration of Oliver Colvin (“Colvin Decl.”) at ¶ 2. 14 Colvin Decl. at ¶ 3. 15 Declaration of Michael McCue (“McCue Decl.”) at ¶ 2. 16 Fee Application at 2 n.4. 17 McCue Decl. at ¶ 4. 109651802.1 6 561650.1 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 and necessary services to a client because the client might not pay for them or might hire new counsel.18 Billing judgment is important for fee applications because “[h]ours that are not properly billed to one’s client also are not properly billed to one’s adversary pursuant to statutory authority.”19 Here, while Pillsbury claims that it exercised billing judgment, it did not. Importantly, Pillsbury admits that its clients have not paid it since July 2018 - over a year ago and before discovery began. It has known for over a year that its clients lacked the ability to pay its fees unless it obtained a fee award against WX. Any asserted billing judgment was therefore illusory. Its only motivation was to bill as much as possible with the hope of convincing the Arbitrator to award as much as possible. This sort of “everything but the kitchen sink” approach to fee requests is exactly the reason why courts, and this Arbitrator, are empowered to deny such excessive fees.20 And that is exactly what the Arbitrator should do here. II. JRV AND MR. LEIGON ARE ENTITLED TO ONLY A REASONABLE FEE Even if the Arbitrator decides to award attorneys’ fees, JRV and Mr. Leigon’s fee request should be drastically reduced, both due to their limited success and the excessive fees they are seeking. While the amount of a reasonable fee is ultimately in the Arbitrator’s discretion, that discretion is limited.21 In exercising that discretion, California courts often follow the “lodestar” method.22 The “lodestar” is simply “the number of hours reasonably expended multiplied by the reasonable hourly rate.”23 The lodestar methodology is consistent with the Asset Purchase 18 Martel v. Colvin, No. CV 11-02961-CRB, 2013 WL 6173794, at *1 (N.D. Cal. Nov. 25, 2013) (defining billing judgment as “the fees must be for services for which a private client would pay”). 19 Hensley, 461 U.S. at 434 (emphasis original). 20 Serrano, 32 Cal. 3d at 635, 652 P.2d at 994 (“A fee request that appears unreasonably inflated is a special circumstance permitting the trial court to reduce the award or deny one altogether”). 21 See JAMS Rule 24(g); see also Artesia Med. Dev. Co. v. Regency Assocs, Ltd., 214 Cal.App.3d 957, 966, 266 Cal.Rptr. 657, 661 (1989) (reversing fee award where trial court abused discretion in granting it). 22 Montgomery v. Bio-Med Specialties, Inc., 183 Cal.App.3d 1292, 1297, 228 Cal.Rptr. 709, 711-12 (1986) (emphasis added). 23 PLCM Group v. Drexler, 22 Cal.4th 1084, 1095, 95 Cal.Rptr.2d 198, 206 (2000). 109651802.1 7 561650.1 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 Agreement and Consulting Agreement, which limit the prevailing party to a “reasonable” fee24 and which is governed by California law. In determining the number of hours reasonably expended, California courts consider several factors, including: • the prevailing party’s “degree of success,”25 • whether the claims can be apportioned based on the claims that succeeded and ones that did not,26 • whether the fees are block-billed,27 • whether the fees sought are associated with any breach of ethical duties,28 and • whether the fees are inadequately documented, duplicative, inefficient, or appear excessive or unnecessary.29 The lodestar calculation is the starting point. The first component of the lodestar is the number of hours reasonably expended. JRV and Mr. Leigon’s fee application misstates the standard. Rather than referring to the hours “reasonably” expended, they contend that the lodestar is based on the number of “hours actually worked.”30 But that standard is not supported by the contract language or case law. And, as set forth below, the number of hours reasonably worked by Pillsbury is far less than that presented in their motion. 24 Arbitration Exhibit (“Arb. Ex.”) 81 (APA) at § 11.11; Arb. Ex. 82 (Consulting Agreement) at § 10.10. The Transitional Services Agreement does not contain a reasonableness limitation, but consumed a comparatively small amount of time and effort. 25 Meister v. Regents of Univ. of Calif., 67 Cal.App.4th 437, 454, 78 Cal.Rptr.2d 913, 924 (1998) (affirming the reduction of a fee request in excess of $500,000 to $75,000). 26 In re Gorina, 296 B.R. 23, 32 (Bankr. C.D. Cal. 2002) 27 Bell v. Vista Unified Sch. Dist., 82 Cal.App.4th 672, 689, 98 Cal.Rptr.2d 263 (2000). 28 A.I. Credit Corp. v. Aguilar & Sebastinelli, 113 Cal. App. 4th 1072, 1076, 6 Cal. Rptr. 3d 813, 817 (2003). 29 Mintz v. Mark Bartelstein & Assocs. Inc., No. 2:12-CV-02554-SVW-SS, 2013 WL 12182147, at *1 (C.D. Cal. Dec. 4, 2013) (“The court may reduce those hours if the documentation is inadequate, the submitted hours are duplicative or inefficient, or the requested fees appear excessive or otherwise unnecessary.”) (citing Hensley , 461 U.S. at 434. 30 JRV, LLC’s and Bill Leigon’s Motion and Memorandum in Support of Attorneys’ Fees and Costs as Prevailing Party (“Fee Application”) at 8 (section heading VI) 109651802.1 8 561650.1 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 III. THE FEE REQUEST SHOULD BE REDUCED BY APPROXIMATELY 84 PERCENT BASED ON THE LIMITED SUCCESS ACHIEVED In determining the lodestar for this case, the first step is determining the effect of JRV and Mr. Leigon’s limited success.31 A. JRV did not prevail on the incentive-payments claim, so its degree of success is limited As noted above, a party’s degree of success is an important factor in determining the reasonableness of a fee - not just in determining the prevailing party. As JRV and Mr. Leigon’s own authority explains, when “a plaintiff has achieved only partial or limited success, the product of hours reasonably expended on the litigation as a whole times a reasonable hourly rate may be an excessive amount.”32 Or as another court found, “[T]he trial court reasonably could and presumably did conclude that plaintiff's attorney fee request…was grossly inflated when considered in light of the single claim on which plaintiff succeeded, the amount of damages awarded on that claim, and the amount of time an attorney might reasonably expect to spend in litigating such a claim”) (emphasis added).33 Here, JRV and Mr. Leigon’s success was clearly limited. As indicated in their arbitration demand, they sought to recover four buckets of payment totaling over $7.15 million - the incentive payments (a $6+ million bucket), the holdback (an approximately $600,000 bucket), the accounts payable (an approximately $300,000 bucket), and the amount due on the Consulting Agreement (an approximately $250,000 bucket). JRV later increased its total demand to more than $14 million, including a fifth bucket for punitive damages of another $7 million.34 31 See Meister, 67 Cal.App.4th at 454, 78 Cal.Rptr.2d at 924 (affirming the reduction of a fee request in excess of $500,000 to $75,000). 32 Hensley, 461 U.S. at 436. (cited by JRV on page 10); See also Van v. Language Line, LLC, No. 14-CV- 03791-LHK, 2016 WL 5339805, at *13 (N.D. Cal. Sept. 23, 2016) (“California courts...have adopted the approach set forth in Hensley… Work on an unsuccessful and unrelated claim generally will not be compensable, as it cannot be deemed to have been expended in pursuit of the ultimate result achieved”) (internal citations omitted and emphasis added). 33 Chavez v. City of Los Angeles, 47 Cal. 4th 970, 991, 224 P.3d 41, 54 (2010); see also Sokolow v. Cty. of San Mateo, 213 Cal. App. 3d 231, 249 (1989) (“[U]nder state law as well as federal law, a reduced fee award is appropriate when a claimant achieves only limited success”) (emphasis added). 34 See JRV, LLC’s and Bill Leigon’s Closing Brief at 41. 109651802.1 9 561650.1 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 JRV and Mr. Leigon prevailed on only the three smallest buckets - the holdback, accounts payable, and Consulting Agreement. Thus, the principal balance of its award is about $1.15 million, with interest adding a little over $100,000 more.35 But JRV and Mr. Leigon lost the lion’s share of their claims. Of the non-punitive-damage buckets, by far the largest is the incentive payments. JRV described that claim in its Opening Brief as “the most important and highest-value ($6+ million) question in the case.” 36 On that issue, it did not prevail. It did not prove causation or damages.37 This is critical, as both causation and damages are “essential element[s]” of a claim for breach of contract.38 A party’s failure to prove those elements means that it has not prevailed on its claim. As a result, JRV and Mr. Leigon recovered only a fraction of the amount they were seeking. Their $1.15-million recovery was only 16.08 percent of the $7.15 million they sought. This amount is subject to potential reduction of $324,000 in light of WX’s Request for Correction of Computational Error. If that error is corrected, JRV and Mr. Leigon’s percentage recovery would be even lower - only 11.98 percent of the amount demanded (a total of $856,775.95). When their failure to recover punitive damages is factored in, the percentage is even lower. But WX recognizes that the parties did not focus heavily on punitive damages and is ignoring that for purposes of its analysis. B. Fees should be apportioned based on JRV and Mr. Leigon’s limited success Given JRV’s failure to prevail on the incentive-payment claim, the Arbitrator should deny fees incurred in prosecution of that claim. Indeed, it would be an abuse of discretion to do otherwise. Specifically, in Heppler v. J.M. Peters Co., Inc., the California Court of Appeal found that it was an abuse of discretion to award all fees for a seven-week trial where much of the work involved handling claims against other parties.39 In that case, there was a “clear line of 35 Interim Award at 17. 36 JRV Opening Brief at 2 (emphasis added). 37 Interim Award at 10-13. 38 See St. Paul Fire & Marine Ins. Co. v. Am. Dynasty Surplus Lines Ins. Co., 101 Cal.App.4th 818, 834, 124 Cal.Rptr.2d 818, 834 (2002) (describing causation and damages as “an essential element” of a contract claim). 39 73 Cal.App.4th 1265, 1297, 87 Cal.Rptr.2d 497, 523 (1999); see also Bell 82 Cal.App.4th at 687 (trial court abused discretion in awarding attorney fees under Brown Act by failing to first apportion out those fees unrelated to Brown Act violation); In re Gorina, 296 B.R. 23, 32 (Bankr. C.D. Cal. 2002) (where party 109651802.1 10 561650.1 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 demarcation” between the compensable claims and the non-compensable claims.40 Stated another way, the fee award should be apportioned unless the compensable and non-compensable fees are “inextricably intertwined.”41 Here, there is a “clear line of demarcation” between the claims on which JRV and Mr. Leigon prevailed and those on which they did not. They prevailed on claims that turned on straightforward contract interpretation issues - liability for the holdback and accounts payable and whether Mr. Leigon should have been paid the balance of his consulting fee. These were fairly discrete issues. There was also a limited number of documents and limited testimony on these issues. Nor did they require much attorney time. They were not “inextricably intertwined” with the facts concerning incentive payments, which primarily involved WX’s efforts to market and sell the JRV brands. Thus, apportionment is necessary. Even JRV and Mr. Leigon implicitly acknowledge that apportionment is appropriate. They excluded from the fee petition any fees incurred on the claim that Mr. Leigon was an employee, because he did not prevail on that claim.42 Based on the same logic, JRV should not be awarded fees incurred on the incentive payments claim. Moreover, the time entries do not distinguish between work performed for Mr. Leigon and JRV. The bills also provide at least some evidence that Pillsbury had been engaged by Mr. Leigon only.43 This raises further questions about how fees should be apportioned, given JRV’s failure to prevail on its biggest claim. There would be a reasonable basis to deny fees to JRV altogether given that it is not clear whether Pillsbury ever billed it, as opposed to Mr. Leigon (or visa versa). only prevailed on one of seven claims, apportionment was “required, notwithstanding the difficulties presented by the complexities of the case”). 40 Amtower v. Photon Dynamics, 158 Cal.App4th 1582, 1604, 71 Cal.Rptr.3d 361, 381 (2008). 41 Heppler, 73 Cal.App.4th at 1297, 87 Cal.Rptr.2d at 523. 42 Fee Application at 16-17. 43 See Declaration of Blaine I. Green in Support of JRV, LLC and Bill Leigon’s Motion for Attorneys’ Fees and Costs (“Green Decl.”) at Ex. 3 (p. 7 of PDF). 109651802.1 11 561650.1 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 C. The Arbitrator should reject JRV and Mr. Leigon’s arguments against apportionment JRV and Mr. Leigon’s contention that the Arbitrator should award all of their fees without apportionment is meritless. First, they argue that the APA does not envision apportionment because it contemplates only a “single prevailing party.” That misses the point. The contract contemplates that the prevailing party is entitled to a “reasonable” fee.44 JRV and Mr. Leigon’s demand that WX pay 100 percent of their fees when they prevailed in recovering no more than 16 percent of the amount sought is excessive and not “reasonable.” Next, JRV and Mr. Leigon misrepresent that the Interim Award held that the fee award is “without limitation or apportionment based on individual claims.”45 The Interim Award is actually silent on this issue. Finally, JRV claims that because its winning and losing claims are all based on the APA, there is no need to apportion fees between the claims. They rely on Acree v. Gen. Motors Acceptance Corp.,46 and Reynolds Metals Co. v. Alperson.47 But both cases affirm that apportionment is required unless the compensable and non-compensable issues are inextricably intertwined. They state that “fees need not be apportioned when incurred for representation on an issue common to both a cause of action in which fees are proper and one in which they are not allowed.”48 Here, the issues related to the holdback, accounts payable, and consulting fee (on which JRV and Mr. Leigon prevailed) have nothing in common with the claim for the incentive payments (on which JRV lost). They involve different contract terms, different facts, and different evidence. They were part of the same claim only because JRV chose to characterize them that way, not because they were actually intertwined. 44 Arbitration Exhibit (“Arb. Ex.”) 81 (APA, Sec. 11.11: “non-prevailing party shall pay…all reasonable attorney’s fees…”); Arb. Ex. 82 (Consulting Agreement, Sec. 10.10: “prevailing party shall be entitled to…reasonable attorneys’ fees”); Arb. Ex. 84 (TSA, Sec. 15(b): “reasonable attorney’s fees”). 45 Fee Application at 17. 46 92 Cal. App. 4th 385, 112 Cal. Rptr. 2d 99 (2001). 47 25 Cal. 3d 124, 599 P.2d 83 (1979). 48 Reynolds, 25 Cal. 3d at 129-30, 599 P.2d at 86 (emphasis added); Acree, 92 Cal. App. 4th at 404-05, 112 Cal. Rptr. 2d at 115 (emphasis added). 109651802.1 12 561650.1 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 D. Pillsbury made apportionment impossible by block-billing JRV and Mr. Leigon’s fee petition offers no suggestion or proposal as to how to apportion their fees. Unfortunately, while WX has attempted to apportion the fees, it cannot do so because Pillsbury has block-billed nearly all of the entries making it impossible to apportion between the claims. For illustrative purposes, here are two examples. This is a block billed entry on October 14, 2018, for 14.5 hours:49 The entry includes approximately 13 tasks.50 Absent detail about the time spent on each task, it is unclear whether that time was excessive or related to issues on which JRV and Mr. Leigon actually prevailed. The second example is a block billed entry for 13 hours on June 9, 2019:51 This entry clearly contains work specific to the incentive claim (which is not compensable) and entries that deal with other claims that may be compensable (“other claims for breaches of the APA”). But given the block entry, it is impossible to tell how much to allocate between the claims. 49 Green Decl. at Ex. 3 (p. 66 of PDF). 50 Id. 51 Green Decl. at Ex. 3 (p. 179 of PDF). 109651802.1 13 561650.1 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 Block billing “hides accountability” and may increase time by lumping together tasks.52 More importantly, the use of block billing is “fundamentally inconsistent”53 with the lodestar method because it “render[s] it virtually impossible to break down hours.”54 When the use of block billing prevents meaningful apportionment, California courts have held that a trial court may “exercise its discretion in assigning a reasonable percentage to the [block billed] entries, or simply cast them aside.”55 Given the excessive and outrageous nature of JRV’s fee request, the Arbitrator should simply not award any fees for block billed time. E. Mr. Leigon should not recover fees for his motion for relief from the Noncompetition Agreement Aside from JRV’s failure to recover on the claim for incentive payments, Mr. Leigon also failed to succeed on the motion for relief from the Noncompetition Agreement. Based on WX’s review of the timesheets, it appears that Pillsbury spent approximately 160 hours and $120,000 in fees on that motion.56 Importantly, the Noncompetition Agreement is an entirely separate agreement from the Asset Purchase Agreement, and it also contains a prevailing party provision.57 Since WX prevailed on that motion, it should actually be entitled to recover its fees from Mr. Leigon that are associated with that motion, which are approximately $52,000. It would welcome the opportunity to brief that issue. But at a minimum, Mr. Leigon should not recover the fees associated with the motion. F. JRV is improperly seeking to recover fees related to the disqualification motion Further complicating the issue of apportionment is that the Pillsbury invoices show a substantial amount of time incurred on issues described as “Conflicts.” This work appears to have been assigned a separate matter number in Pillsbury’s billing system.58 Pillsbury billed $118,429.50 for this work, including $81,740.50 in September 2018 alone.59 This was the month 52 Yeager v. Bowlin, No. CIV 2:08-102 WBS JFM, 2010 WL 1689225, at *1 (E.D. Cal. Apr. 26, 2010) (citing California State Bar's Committee on Mandatory Fee Arbitration). 53 Id. 54 Bell, 82 Cal.App.4th at 689. 55 Id. 56 These numbers are estimates due to Pillsbury’s block-billing. 57 Arb. Ex. 83 at § 12. 58 See, e.g., Green Decl. at Ex. 3 (p. 48-50 of PDF). 59 Green Decl. at Ex. 3 (p. 50, 61 of PDF). 109651802.1 14 561650.1 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 that the disqualification motion was argued. It is unclear whether this was ever billed, or even intended to be billed to JRV. Most likely, given the separate accounting and fact that the issue dealt with Pillsbury’s prior representation of WX, Pillsbury never intended to charge JRV for this time. As such, it is not compensable. “Hours that are not property billed to one’s client also are not properly billed to one’s adversary….”60 G. Due to JRV and Mr. Leigon’s limited success, as well as the block billing, the Arbitrator should reduce the fees based on the percentage of success If the Arbitrator is inclined to award fees for block-billed time, it is still necessary to determine the scope of any reduction associated with JRV and Mr. Leigon’s limited success. Because the block billing renders it impossible to determine how much time Pillsbury actually spent on the claims for which it prevailed, an alternative method of approximation is necessary. Here, the appropriate way to apportion the actual fees submitted should be based on the percentage of JRV and Mr. Leigon’s success. As noted above, they recovered only 16.08 percent of the $7.15 million they sought. Thus, their fees should be reduced to 16.08 percent of the $2,632,671 they billed. Before that reduction is applied, the fees should also be reduced by the estimated $120,000 in fees incurred litigating over the Noncompetition Agreement and $118,429.50 litigating the Pillsbury conflict issue. After that reduction, the fees billed were $2,394,242. A proportional reduction to 16.08 percent leads to an apportioned fee of $384,994.03. (If the computational error is corrected, and the $324,000 is removed from JRV’s damages, the proportional reduction should be to 11.55 percent and result in an apportioned fee of $276,534.89.) WX believes this amount is actually generous, for two reasons. First, it ignores that JRV and Mr. Leigon were unsuccessful in recovering the $7 million in punitive damages they sought. Second, WX expects that Pillsbury actually spent less than 16.08 percent of its time on the claims for which JRV and Mr. Leigon prevailed. The incentive-payment claim was by far the most fact-intensive, and it likely consumed more than 90 percent of Pillsbury’s time. But due to the block-billing, WX has no ability to quantify this. 60 Hensley, 461 U.S. at 434 (emphasis original). 109651802.1 15 561650.1 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 IV. THE FEE REQUEST IS UNREASONABLE IN MYRIAD OTHER WAYS The apportioned fee accounts only for JRV’s limited success. It does not yet account for the excessive inefficiencies and overbilling in Pillsbury’s invoices. In light of those deficiencies, WX believes that the Arbitrator should reduce the award by another 50 percent. 1. Pillsbury’s spare-no-expense strategy necessitates close scrutiny of its time entries It would not be possible to undertake an exhaustive analysis of the over 300 pages of Pillsbury’s timesheets. Notably, though, JRV and Mr. Leigon apparently believe this is WX’s burden.61 This is not accurate. As discussed above, it is JRV and Mr. Leigon’s burden to prove the reasonableness of the fee request. In general, Pillsbury performed an enormous amount of unnecessary work and spent too much time on the work that was necessary. A “spare-no-expense strategy” such as this “calls for close scrutiny on questions of reasonableness, proportionality, and …benefit.”62 As one court put it, JRV and Mr. Leigon received a “Rolls Royce” representation when they “could have arrived at the same destination in a Buick, Chrysler or Taurus.”63 WX discusses the primary issues below. 2. Pillsbury overstaffed the case, including with “discovery attorneys” whose work was unnecessary In reviewing the timesheets, the Arbitrator should “consider whether the case was overstaffed, how much time the attorneys spent on particular claims, and whether the hours were reasonably expended.”64 Pillsbury dramatically overstaffed the case. It allowed 27 people to bill time on the file, including 20 attorneys, two paralegals and seven “other paraprofessionals.”65 This is far too many people for a case that was no more complex than many commercial cases. The overstaffing likely contributed to the inefficiencies described below and is de facto unreasonable. 61 See Fee Application at 11, n.10. 62 Donahue v. Donahue, 182 Cal.App.4th 259, 273, 105 Cal.Rptr.3d 723, 734 (2010) (examining reasonableness of fees in context of billings by attorneys for trust, where their work may have benefited trustee more than trust). 63 Id. 64 Christian Research Inst. v. Alnor, 165 Cal. App. 4th 1315, 1320, 81 Cal. Rptr. 3d 866, 870 (2008). 65 Green Decl at Ex. 2. 109651802.1 16 561650.1 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 The 20 attorneys included 10 “discovery attorneys.” They billed $125,064 for approximately 1,000 hours reviewing the documents that WX produced. This work was unnecessary. Although WX produced a large number of documents (which JRV demanded and even sought the Arbitrator’s assistance in receiving), these could have been reviewed much more efficiently with keyword searches and other tools. Indeed, when Pillsbury demanded that WX produce documents from WX’s entire sales staff and WX objected to such requests because of the time and expense of reviewing and producing such documents, Pillsbury indicated that it would not be burdensome or expensive for WX to do so because WX could employ keyword searches and other tools. Apparently, Pillsbury did not follow its own advice. Its bills show that while it used keyword searches in some instances, its attorneys still reviewed all or most of the documents anyhow.66 Counsel’s decision to look at each or most of the more than 100,000 documents produced was not reasonable. Also notable is that a high percentage of the documents produced were documents from WX’s sales team. So if they were relevant at all, they would have been relevant primarily or exclusively to the incentive payment claim - on which JRV did not prevail. This reinforces the need for apportionment. A comparison with WX’s efforts is again relevant. Like Pillsbury, WX used a team of reviewers. But the cost of that review was only about $11,000.67 A key difference is that WX did not instruct its reviewers to review every document. It instead used keyword searches to review only important documents.68 This was an effective strategy, as the two sides had substantial overlap in their final exhibit list. Pillsbury’s review strategy - at 10 times the cost - added little. 66 Green Decl. at Ex. 3 (p. 162 of PDF). (“D. Chase-Woods’s time entry stating, “Review WX-produced documents not reviewed by our contract reviewers…”). 67 Colvin Decl. at ¶ 5. 68 Colvin Decl. at ¶ 6. 109651802.1 17 561650.1 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. Pillsbury spent an unreasonable amount of time on many tasks In addition to staffing levels, also relevant is whether hours are inadequately documented, duplicative, inefficient, or appear excessive or unnecessary.69 Although Pillsbury’s block billing masks the time spent on many tasks, the excesses are still apparent. For example, drafting the arbitration demand took over a month, from at least June 7, 2018, through the filing on July 11, 2018.70 The total time spent drafting appears to be over 40 hours. WX’s former lawyer, Mr. Seff, was heavily involved.71 This was after Pillsbury spent four months gathering facts. Drafting that demand should not have taken so long. Pillsbury also spent too much time on the briefing. It spent 140 hours on the Opening Brief, in contrast to approximately 70 hours spent by Lewis Roca. It also spent 109 hours on the Interim Brief, in contrast to 95 hours by Lewis Roca. This was the only significant task in which Pillsbury’s and Lewis Roca’s hours were even close. And notably, prior to drafting the interim brief, Pillsbury spent spent 114 hours and nearly $75,000 in July 2019, a time when little was actively occuring in the case. Their time included dozens of hours revising trial demonstratives over the course of the month.72 Perhaps, most notably, JRV’s counsel spent approximately 218 hours on the Closing Brief.73 By contrast, WX spent 72 hours. While WX does not dispute that both parties’ briefs were well done - as the Arbitrator acknowledged at closing argument - it does not follow that spending triple the time was necessary or even reasonable. Nothing about the briefing required an excessive amount of time. The timesheets are replete with other examples of excessive time on simple tasks. For example: • Pillsbury spent nearly 140 hours addressing the motion to disqualify Pillsbury, which should not be compensable at all because it concerned Pillsbury itself rather than JRV or Leigon. (By contrast, WX was billed for 69 Mintz, 2013 WL 12182147, at *1 (“The court may reduce those hours if the documentation is inadequate, the submitted hours are duplicative or inefficient, or the requested fees appear excessive or otherwise unnecessary.”) (citing Hensley t, 461 U.S. at 434. 70 Green Decl. at Ex. 3 (p. 26-33 of PDF). 71 Green Decl. at Ex. 3 (p. 26-33 of PDF). 72 Green Decl. at Ex. 3 (p. 199-200 of PDF). 73 Green Decl. at Ex. 3 (p. 218-20 of PDF). 109651802.1 18 561650.1 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 its work on the disqualification motion because it was for the benefit of WX rather than its lawyers.)74 • Mr. Chase-Woods spent over 30 hours drafting discovery requests in the week between Christmas and New Year’s, with he and Mr. Green spending at least 20 more hours on those same requests in January 2019.75 • Pillsbury spent over 90 hours working on the hearing exhibit list, including a considerable amount of time spent on “logistics” that should not be compensable.76 • Mr. Green appears to have spent excessive amounts of time outlining and drafting simple items like demand letters.77 • Pillsbury spent large amounts of time reading cases, which is not reasonable given that the law associated with this dispute is not complicated.78 • Mr. Chase-Woods spent over 50 hours identifying documents to include in the Opening Brief, despite the fact that Pillsbury discovery attorneys had already spent hundreds of hours reviewing documents.79 Taken together, these time entries illustrate an inefficient use of time and irresponsible approach to the resources of whoever is paying the bill. As explained above, Pillsbury used no billing judgment in performing or billing for the tasks. 4. Pillsbury billed an excessive number of hours on many days Equally excessive is the amount of time Pillsbury purpoted to spend working on this case on many days. On numerous days, Mr. Green and Mr. Chase-Woods purported to bill 14 or more hours.80 According to their timesheets, some workdays equaled or exceeded 17 hours.81 74 Green Decl. at Ex. 3 (p. 48-49, 54-56 of PDF). 75 Green Decl. at Ex. 3 (p. 88, 94-95 of PDF). 76 Green Decl. at Ex. 3 (p. 166-67, 181-84 of PDF). 77 Green Decl. at Ex. 3 (p. 13-15 of PDF) (April 16, 23, 25, 2018 entries). 78 See, e.g., Green Decl. at Ex. 3 (p. 221 of PDF) (September 24, 2019 entries). 79 Green Decl. at Ex. 3 (p. 177-79 of PDF). 80 Green Decl. at Ex. 3 (p. 166, 167, 168, 182, 183, 206, 207, 209, 219, 221 of PDF). 81 Green Decl. at Ex. 3 (p. 54, 179, 185, 186, 208, 210, 220 of PDF). Examples of these entries include: 10/4/18 (14.5 hrs), 11/26/18 (14.5 hrs), 04/23/19 (13.8 hrs), 05/02/29 (12.7 hrs), 05/06/2019 (14.5 hrs), 5/15/10 (14 hrs), 5/15/19 (13 hrs), 5/22/2019 (13.5 hrs), 5/22/10 (14.8 hours on exhibit list), 5/23/19 (14 hours more on exhibit list), 05/23/2019 (14 hrs), 5/24/19 (16.7 hours more on exhibit list); 5/28/19 (13.1 hrs), 5/28/19 (14 hrs), 5/29/2019 (15.3 hrs), 5/30/19 (14 hrs), 5/31/2019 (13 hrs), 6/9/2019 (13 hrs), 6/10/19 (15.2 hrs), 6/10/2019 (17 hrs), 6/15/19 (13 hrs), 6/16/2019 (13 hrs), 6/17/19 (14.5 hrs), 6/18/2019 (15.3 hrs more on exhibit list), 6/19/19 (14.4 hours more on exhibit list), 6/19/19 (15 hrs), 6/23/19 (15.2 hrs), 6/23/19 (13 hrs), 6/24/19 (16.6 hrs), 6/24/2019 (17 hrs), 6/25/2019 (16.6 hrs), 6/25/2019 (16 hrs), 6/26/10 (15.5 hrs), 6/26/10 (17 hrs), 6/27/19 (15.7 hrs), 6/27/19 (17 hrs), 8/20/19 (15 hrs), 8/21/19 (14 hrs), 8/21/19 (14.5 hrs), 8/25/19 (14 hrs), 8/26/19 (14.1 hrs), 8/26/19 (14.5 hrs), 8/27/19 (15.3 hrs), 8/27/19 (17.5 hrs), 8/28/19. 109651802.1 19 561650.1 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 These entries are facially suspect and should be considered with scrutiny. Counsel likely did not exclude non-billable tasks or other normal human activities, such as eating, sleeping, or commuting. It is unlikely that Pillsbury would have actually billed 17 hours per day if it had clients who were paying the bills. 5. Counsel improperly used partners on tasks that should have been delegated to associates, and associates on tasks that should have been delegated to paralegals Compounding the problem of excessive time is that too much of the time was spent at the partner level performing tasks better suited for associates. The timesheets contain numerous examples of Mr. Green performing legal research, reviewing documents, and performing basic drafting.82 One extreme example occurred on September 6, 2018, when Mr. Green spent nearly 15 hours researching cases in connection with the disqualification motion.83 The next day, he spent an unbelievable 18 hours drafting the response to the motion - apparently working nonstop from 6 a.m. to midnight.84 That same day, Mr. Seff (WX’s former counsel) spent another 12 hours.85 It does not appear that any associates were involved in drafting that response, though an associate named Derek Mayor spent another 13 hours reviewing cases.86 As a lawyer in practice for 22 years and billing at over $800 per hour, Mr. Green should be delegating research and drafting to junior lawyers rather than performing these tasks himself. This is yet another example of Pillsbury’s lack of billing judgement - because the conflict work was not billable to a client, Pillsbury exercised no discretion in its billing in reliance on the chance that someday, it could convince the arbitrator to make WX pay these bills. (15.6 hrs), 8/28/19 (16 hrs), 8/29/19 (14.7 and 15 hrs), 8/30/19 (12.1 and 14 hrs), 9/4/19 (13 hrs), 9/18/19 (17 hrs), 9/19/19 (18 hrs), 9/19/19 (17 hrs), 9/25/19 (16 hrs). 82 Green Decl. at Ex. 3 (p. 65-66, 68, 97, 104, 107-09, 160 of PDF) Examples include:10/3/18 - 10/5 - Mr. Green reviewing docs for JRV production; 10/4/18 - Mr. Green paying “attention to filing and service” of mediation brief; 10/10 /18 - Mr. Green reviewing WX’s document production; 1/25/19 - Mr. Green drafting discovery; 2/4/19, 2/7/19, and 2/24/19 - Mr. Green doing basic discovery work; 2/28/19 - Mr. Green reviewing cases. 83 Green Decl. at Ex. 3 (p. 54 of PDF). 84 Green Decl. at Ex. 3 (p. 54 of PDF). 85 Green Decl. at Ex. 3 (p. 54 of PDF). 86 Green Decl. at Ex. 3 (p. 54 of PDF). 109651802.1 20 561650.1 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 Compounding the problem is that much of Mr. Chase-Woods’ time was spent performing tasks that do not require an attorney. For example, he billed time in June 2019 for “work[ing] with printer on exhibit binder logistics” and “manag[ing] physical exhibit creation for hearing” - the latter being part of an over-14-hour day.87 These are, at best, tasks that should be performed by a paralegal. And many are clerical tasks that should be considered “overhead to run the office, not recoverable in a motion for attorneys’ fees.”88 Notably, WX used a paralegal, Joy Jones, for similar tasks. But Ms. Jones’ primary contact at Pillsbury throughout the arbitration was Mr. Chase-Woods, not a paralegal at Pillsbury. Mr. Chase-Woods’ time on paralegal and clerical tasks is especially striking given the limited amount of time billed by paralegals at all. The total number of paralegal and “other paraprofessional” hours billed for the entire case was only 187.5.89 This is less than two-thirds the number of hours billed by Mr. Chase-Woods in June 2019 alone.90 6. Counsel performed many tasks that were not necessary at all Much of the work performed by Pillsbury simply should not have been performed at all. WX has no obligation to pay for Pillsbury’s leave-no-stone-unturned approach. For example, Pillsbury performed excessive legal research on elementary issues like “rules of contract interpretation” and the “elements of fraud.”91 It also apparently re-researched the alter-ego issue even though they had already prepared a memorandum about it.92 Pillsbury performed all this legal research in a case where the primary issues were factual, and the key legal issues were straightforward questions of contract interpretation. One example involved Nan McGarry (who attended the first day of the hearing) billing three hours for reviewing the closing briefs and another 10 hours for legal research - after the closing briefs were filed.93 Such work had no reasonable purpose. 87 Green Decl. at Ex. 3 (p. 180, 183 of PDF). 88 Doran v. Corte Madera Inn Best Western, 360 F.Supp.2d 1057, 1062 (N.D. Cal. 2005). 89 Green Decl. Ex. 2. 90 Green Decl. Ex. 3 (p. 187 of PDF). 91 Green Decl., Ex. 3 (p. 179, 182 of PDF). 92 Green Decl., Ex. 3 (p. 196 of PDF). 93 Green Decl. at Ex. 3 (p. 220-22 of PDF). 109651802.1 21 561650.1 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. JRV and Mr. Leigon’s criticism of WX’s litigation tactics is incorrect In seeking to justify the time spent, JRV and Mr. Leigon criticize WX’s litigation tactics. For example, they criticize WX for defending against Mr. Leigon’s motion for relief from the Noncompetition Agreement. But WX prevailed on that motion. JRV also criticizes WX for asking the Arbitrator’s intervention in a discovery dispute, after JRV served an exceptionally broad set of document requests and refused to limit the requests to a reasonable scope. As is common in discovery disputes, the Arbitrator granted some of JRV’s requests and denied others.94 Strangely, though, JRV and Mr. Leigon criticize WX for “burying” them in documents - the very documents they had demanded that WX produce and the documents they argued before the Arbitrator were required - despite WX’s advance notice to Pillsbury regarding the high number of documents that it was demanding.95 Nowhere do JRV and Mr. Leigon allege that WX produced irrelevant documents. JRV and Mr. Leigon similarly criticize WX for disclosing documents over time, including after the arbitration began. But this happens frequently in cases with large quantities of documents. And it was not just WX that surprised the other side with documents. JRV and Mr. Leigon did the same thing and did so multiple times (even though they only produced a fraction of the number of documents that WX was forced to produce). It was not until seven days into the hearing that JRV disclosed the e-mail string between Mr. Lewin and Mr. Leigon concerning discussions with distributors. The Arbitrator cited that e-mail in the Interim Award.96 Other criticisms are of conduct that had no bearing on the fees incurred at all. These include the presence of in-house counsel at depositions and hearings.97 As Pillsbury knows from its prior representation of WX, use of in-house counsel is an important way for WX to monitor its legal affairs. WX is not a large company and has limited resources and budgets for legal expenses.98 94 See Prehearing Order No. 4 (March 22, 2019). 95 Fee Application at 7. 96 See Interim Award at 16 n.19. 97 Fee Application at 12-13. 98 Colvin Decl. at ¶ 7. 109651802.1 22 561650.1 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. The involvement of Pillsbury lawyer James Seff, who formerly represented WX, raises other serious concerns Closely related to the “conflicts” issue is another concerning element of Pillsbury’s fee application - the involvement of now retired Pillsbury partner James Seff. As the Arbitrator knows from the disqualification motion, Mr. Seff represented WX for many years.99 He possesses confidential information about WX, and he was entrusted with its secrets for over a decade.100 Until now, the extent of Mr. Seff’s involvement in this case against WX was unclear. The timesheets reveal, though, that Mr. Seff spent over 160 hours on this case. This translates to $144,341.73 in fees.101 Mr. Green and Mr. Chase-Woods even discussed stategy with Mr. Seff for months after Mr. Seff’s retirement, including within a week of the hearing beginning.102 JRV now seeks to recover fees for time spent on these communications. Mr. Seff’s involvement raises new questions beyond those in the disqualification motion. He is not a litigator and he did not appear as counsel on any of the pleadings so his work likely had little relevance to advancing the case. Rather, some of those 160 hours may have been spent using WX’s confidential information against it. For example, Mr. Seff interviewed Judge Snowden about serving as a mediator, then apparently conferred with Mr. Green.103 It is difficult to see how he could have put aside his knowledge about WX, including the personalities involved, in evaluating potential mediators. And, of course, using confidential information - even against a former client - is prohibited by the California Rules of Professional Conduct.104 “Under California law, an attorney cannot recover fees for such conflicting 99 See WX’s Motion to Disqualify Pillsbury Winthrop Shaw Pittman LLP, filed August 30, 2018 (“DQ Motion”) at 1-4. 100 Declaration of Oliver Colvin in Support of DQ Motion at ¶¶ 2-10. 101 Green Decl. at Ex. 2. 102 Green Decl. at Ex. 3 (p. 130, 181, 182, 195 of PDF). 103 Green Decl. at Ex. 3 (p. 41, 54-56 of PDF). 104 See Cal. R. Prof. Cond. 1.09. 109651802.1 23 561650.1 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 representation.”105 Likewise, it is relevant in determining a “reasonable” fee whether any fees are associated with any breach of ethical duties.106 Much of the substance of Mr. Seff’s work has also been redacted from the timesheets.107 Those redactions could mask evidence that Mr. Seff used WX’s confidential information against it. Nor is it of consequence that JRV is not seeking to recover for some of the redacted time. If that time involved the misuse of WX’s confidential information, simply not being compensated is an insufficient consequence. When WX filed its motion to disqualify Pillsbury as counsel for this arbitration, WX sought an in camera review of Pillsbury’s timesheets.108 It did so precisely because it was concerned about Mr. Seff’s potential use of confidential information. That request was denied. But given the substance of the unredacted timesheets, WX hereby renews its request for an in camera review of the redacted portions of the timesheets. Depending on what they reveal, WX may need to renew its disqualification motion. Mr. Green also consulted with at least one other partner who previously represented WX - Carrie Bonnington -- though Ms. Bonnington did not record any time.109 WX also has valid concerns about whether she used WX’s confidential information in advising Mr. Green to the benefit of JRV and Mr. Leigon. 9. Reduction in Fee to $192,497.02 To account for the deficiencies in Pillsbury’s bills, the Arbitrator should reduce the fee request by another 50 percent ($384,994.03 x .5), resulting in a fee award of $192,497.02 (if any fee award is granted). If the computational error is corrected and the award is reduced by $324,000, the fee award would be $138.267.45. 105 Rodriguez v. W. Publ'g Corp., 563 F.3d 948, 967-68 (9th Cir. 2009) (internal quotation omitted); see also A.I. Credit Corp. v. Aguilar & Sebastinelli, 113 Cal. App. 4th 1072, 1076, 6 Cal. Rptr. 3d 813, 817 (2003) (“[A] court may prevent counsel's recovery of fees from the client where the attorney has violated ethical rules”). 106 A.I. Credit Corp., 113 Cal. App. 4th at 1076, 6 Cal. Rptr. 3d at 817. 107 See, e.g., Green Decl. at Ex. 3 (p. 27, 68, 87, 88 of PDF). 108 DQ Motion at 6 n.2. 109 Green Decl. at Ex. 3 (p. 34 of PDF) (Bonnington); Green Decl. at Ex. 3 (p. 140 of PDF) (Gump). 109651802.1 24 561650.1 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 V. NO MULTIPLIER SHOULD BE ADDED TO THE LODESTAR The next issue is whether the lodestar calculation should be enhanced or reduced. JRV and Mr. Leigon seek enhancement of the lodestar by a factor of 1.25. Any adjustments to the lodestar must be “based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided.”110 California courts have set forth a range of factors relevant to this determination. These include: 1. The novelty and difficulty of the questions involved; 2. The skill displayed in presenting the issues; 3. The extent to which the nature of the litigation precluded other employment by the attorneys; 4. The contingent nature of the fee award, both from the point of view of eventual victory on the merits and the point of view of establishing eligibility for the award;111 Based on consideration of the appropriate factors, if the lodestar amount is too high, the award shall be reduced to a reasonable figure.112 In extreme cases, it is even appropriate to deny a fee entirely. 113 Analysis of the relevant factors here shows that no enhancement is warranted. A. The case did not present novel or difficult questions In seeking an enhancement, JRV and Mr. Leigon argue that the litigation was complex and difficult.114 This is an overstatement. There was one major fact issue - whether JRV could prove its claim for the incentive payments - and a set of contractual interpretation issues that governed the holdback and accounts payable claims. This is well within the range of typical commercial cases that counsel for both sides, as well as the Arbitrator, see on a regular basis. Similarly, while JRV and Mr. Leigon claim there was $12 million at issue, they ignore that they recovered only $1.15 million, and the only claims on which they “prevailed” were straight- forward contract interpretation issues, not some difficult or complex factual or legal issue. 110 PLCM Group, 22 Cal.4th at 1095, 95 Cal.Rptr.2d at 206. 111 Serrano v. Priest, 20 Cal.3d 25, 49, 141 Cal.Rptr. 315, 328 (1977) (identifying these factors, among others not relevant here). 112 Id. 113 Serrano v. Unruh, 32 Cal.3d 621, 635, 186 Cal.Rptr. 754, 763 (1982). 114 Fee Application at 21. 109651802.1 25 561650.1 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 B. Pillsbury’s skill did not exceed that of typical lawyers who bill at those hourly rates JRV and Leigon also point to counsel’s skill as justifying an enhancement.115 On that point, the Court of Appeal case of Weeks v. Baker & McKenzie is instructive. It explains that attorneys’ hourly rates generally reflect their experience and skill level. An enhancement is therefore appropriate only when the lawyer exhibits skills “beyond those that might be expected of attorneys of comparable expertise or experience.”116 Here, Mr. Green, Mr. Chase-Woods, and the other Pillsbury lawyers charge high rates already. And while their performance may have been consistent with those rates, nothing about that performance justifies an enhancement. C. There is no indication that this case precluded other employment for the Pillsbury lawyers A lodestar enhancement can also be justified if the case prevented the lawyer from taking on other work. There is nothing in Pillsbury’s fee application to suggest this was the case. That factor therefore also militates against an enhancement. D. This was not a contingent-fee case, so no multiplier for contingency risk is justified Finally, JRV and Mr. Leigon seek an enhancement because the case was a “de facto contingency matter” due to Mr. Leigon’s limited resources.117 It is true that courts sometimes apply an enhancement due to the risk associated with taking contingent fee matters. But this is not such a case. As explained in Weeks, enhancement based on contingent risk may be proper “[w]hen the public value of the case is great and the risk of loss results from the complexity of the litigation or the uncertainty of the state of the law.”118 Of course, this case presents no public value, and the risk of loss was merely based on the risk incurred by all law firms that a client might not pay the bills. JRV and Mr. Leigon have pointed to no instance in which a lodestar enhancement was authorized under such circumstances. Nor has WX’s research revealed any such cases. 115 Fee Application at 21. 116 63 Cal.App.4th 1128, 1176, 74 Cal.Rptr.2d 510, 541 (1998). 117 Fee Application at 21-22. 118 Weeks, 63 Cal.App.4th at 1175, 74 Cal.Rptr.2d at 540. 109651802.1 26 561650.1 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 E. No enhancement is necessary due to WX’s litigation tactics JRV and Mr. Leigon also argue that an enhancement is appropriate due to WX’s “aggressive opposition.” But WX’s tactics were no more aggressive than is typical in commercial litigation. This is reflected in the result. On the pre-hearing motions, WX won one (JRV’s motion for relief from the Noncompetition Agreement), lost one (the motion to disqualify Pillsbury), and had a mixed result on the other (the discovery motion). At the hearing, it prevailed on the largest issue, as well as some of the smaller ones, and lost others. Its tactics reflect those of a litigant protecting its interests in an efficient and cost-effective way, not an overly aggressive litigant. In contrast, it is Pillsbury’s aggressive tactics that drove the fees up in this case. Pillsbury exercised no restraint or reasonableness in the amount of discovery sought. It repeatedly reneged on agreements for allocation of the time for witnesses at the arbitration hearing. This resulted in the arbitration ballooning from five days to 12 days and resulting in JRV taking more than double the time that WX spent examining witnesses. Multiple WX witnesses had to return multiple times to the arbitration hearing, including from out of state, because of Pillsbury’s inability to stick to the agreed-upon witness schedule. Moreover, unlike JRV, WX dropped claims that it determined would not be financially fruitful, such as its claims for breach of the Noncompetition Agreement and breach of ficuciary duty. In contrast, JRV kept arguing its meritless claims for punitive damages and fraud, and that Mr. Leigon was really an employee - until the very end. F. The Arbitrator would be justified in reducing the lodestar As explained above, the factors do not support a lodestar enhancement. WX believes that a reduction to the lodestar amount would be appropriate. But to avoid double-counting the reductions described above, WX is not seeking a further reduction here. VI. JRV HAS NOT FOLLOWED THE PROPER PROCEDURE FOR SEEKING RECOVERY OF COSTS, INCLUDING JAMS FEES, SO SHOULD NOT BE AWARDED THEM JRV and Mr. Leigon also seek approximately $330,000 in costs, including $133,996 in JAMS fees and $66,463 in expert witness fees. It is not entitled to either. As for the remaining 109651802.1 27 561650.1 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 costs, they include numerous charges that were frivolous or excessive, so they too should be sharply reduced. A. JRV and Mr. Leigon are not entitled to recover their JAMS fees JRV and Mr. Leigon also seek recovery of their share of Arbitration fees and expenses. Awards of such fees and expenses are governed by JAMS Rules 24(f) and 31. However, Rule 31(a) sets forth a presumptive requirement that “[e]ach party shall pay its pro rata share of JAMS fees and expenses.” Rule 24(f) allows the Arbitrator to allocate those fees and expenses between the parties, but this is a distinct allocation from the allocation of attorneys’ fees and expenses under Rule 24(g). The Interim Award contained no allocation of JAMS fees and expenses between the parties. Therefore, WX should not be required to pay JRV and Mr. Leigon’s share of the JAMS fees and expenses. B. California law requires that expert witness fees and other costs be proven at trial, rather than submitted with a fee motion JRV includes a a request for $66,463 in expert witness fees.119 The APA does not provide for recovery of expert witness expenses.120 Nor are they authorized by the Interim Award, which allows only for recovery of fees and costs.121 Under California law, expert witness expenses are not considered costs.122 Even if they were, California law is also clear that expert witness expenses “must be specially pleaded and proven at trial.”123 Simply submitting them in a cost bill is insufficient.124 JRV and Mr. Leigon did not follow the proper procedure and should, therefore, be precluded from recovering any expert witness fees. C. JRV and Mr. Leigon are improperly seeking to recover expenses like meals and car rides, which are not compensable, as well as excessive and unclear clerical expenses The remaining portion of costs requested by JRV and Mr. Leigon is $130,500. This amount includes numerous costs that are both non-compensable and unreasonable. These include 119 Green Decl. at Ex. 2. 120 Arb. Ex. 81 at § 11.11. 121 Interim Award at 17. 122 Carwash of America-PO LLC v. Windswept Ventures No. 1, 97 Cal.App.4th 540, 544, 118 Cal.Rptr.2d 536, 538-39 (2002). 123 Id. 124 Ripley v. Pappadopoulos, 23 Cal.App.4th 1616, 1627, 28 Cal.Rptr.2d 878, 884 (1994). 109651802.1 28 561650.1 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 many vague and unnecessary clerical costs. For example, the May 30 invoice includes a $10,635.12 line item for “Data Services / Summary.”125 The invoices also include thousands of dollars for color copies, and even for color scans (which should not be charged at all).126 Even for costs that could be compensable, such as for court reporters, Pillsbury inflated the expense by incurring fees for expedited transcripts, rough drafts, and Livenote.127 Some costs are smaller in number, but illustrate the unreasonableness of the expenses incurred by Pillsbury. For example, the bills include $345 for lunches over five days in May 2019, and $200 for a single dinner bill in June 2019.128 It is unclear why WX should pay for the Pillsbury lawyers to eat, let alone expensive meals. Pillsbury also seeks to charge WX for car expenses on many days. These expenses may correspond to counsel electing to work late nights at the office rather than commuting at a reasonable hour and continuing to work at home.129 It may be Pillsbury’s policy to reimburse attorneys or charge clients for such expenses, but JRV and Mr. Leigon have presented no basis for arguing that WX should be responsible for them. Due to the excessive costs incurred by Pillsbury, WX requests a 75-percent reduction in the $130,500 in costs, to a total of $32,625. VII. THE ARBITRATOR SHOULD FIND WX TO BE THE PREVAILING PARTY ON THE APA AND NONCOMPETITION AGREEMENTS AND AWARD WX ITS FEES AND COSTS As a final matter, WX respectfully respectfully requests reconsideration of the Arbitrator’s conclusion that JRV and Leigon are the “prevailing parties” under the APA. The prevailing party is defined in California law as “the party who recovered a greater relief in the action.”130 Awarding fees based on an improper determination of the prevailing party can be an abuse of discretion.131 125 Green Decl., Ex. 3 (p. 149 of PDF). 126 See, e.g., Green Decl., Ex. 3 (p. 170 of PDF). 127 Green Decl., Ex. 6 (p. 277-308 of PDF). 128 Green Decl., Ex. 3 (p. 171, 189 of PDF). 129 Green Decl., Ex. 3 (p. 149, 200, 211, 223). 130 Cal. Civ. Code § 1717(b). 131 Artesia, 214 Cal.App.3d at 966, 266 Cal.Rptr. at 661. 109651802.1 29 561650.1 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 California law is consistent with the APA, which contemplates that the prevailing party is determined based on who won on the “major disputed issues”: The ‘prevailing party’ shall be determined based upon an assessment of which party’s major arguments or position taken in the action or proceeding could fairly be said to have prevailed…over the other’s major arguments or positions on major disputed issues.132 JRV and Leigon admitted that their claim on the APA’s incentive payment clause was “the most important and highest-value ($6+ million) question in the case…”133 Since JRV and Leigon lost the “major important” and “highest-value” claim, they did not obtain a greater relief than WX, which successfully defended against that claim. Rather, WX should be considered the prevailing party under the APA, and WX should be awarded its fees and costs. That amount would be subject to a reasonableness determination. Alternatively, the Arbitrator could also determine that no party prevailed, which is allowed under California law.134 In addition, WX prevailed against Mr. Leigon’s motion for relief from the Noncompetition Agreement. That agreement is a separate contract, which also contains an attorneys’ fee clause.135 There is no basis to award JRV fees for a separate agreement, briefed separately, on which JRV lost. The Arbitrator should award WX the fees it expended on that claim. Thus, the Arbitrator should find that WX is the prevailing party on the APA and the Noncompetition Agreement. If the Arbitrator makes this determination, WX would request the opportunity for briefing on the amount of a reasonable fee, which would be in the range of the $1,071,193.81 billed to WX. VIII. CONCLUSION The Arbitrator should deny JRV and Mr. Leigon’s request for fees in its entirety, or should at best award them a portion of their fee requests to account for apportionment and the improper, excessive and unnecessary bills - a total of $192,497.02. The Arbitrator should also deny JRV and Mr. Leigon’s request for costs for expert fees and JAMS fees, as well as the 132 Arb. Ex. 81 at § 11.11. 133 JRV Opening Brief at 3 (emphasis added). 134 Olive v. Gen. Nutrition Ctrs., Inc., 30 Cal.App.5th 804, 828, 242 Cal.Rptr.3d 15, 33 (2018) (affirming determination that no party was prevailing when plaintiff recovered only 40 percent of amount sought and did not recover punitive damages he had sought). 135 Arb. Ex. 83 at § 12. 109651802.1 30 561650.1 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 excessive and improper costs discussed above associated above, and award costs of no greater than $32,625. DATED this 1st day of November, 2019. LEWIS ROCA ROTHGERBER CHRISTIE LLP /s/ Michael J. McCue Michael J. McCue Jeffrey L. Sklar 203 Redwood Shores Parkway, Suite 670 Redwood City, CA 94065 Tel: 702-949-8200 E-mail: mmccue@lrrc.com Attorneys for Respondent and Counter-claimant, WINERY EXCHANGE, INC. 109651802.1 1 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 PROOF OF SERVICE-JAMS ARBITRATION I, Joy A. Jones, ACP, hereby declare as follows: I am over the age of 18 years, and am not a party to the within cause. I am an employee of Lewis Roca Rothgerber Christie LLP, whose office is located at 203 Redwood Shores Parkway, Suite 670, Redwood City, California 94065. My business and mailing addresses are 3993 Howard Hughes Parkway, Suite 600, Las Vegas, Nevada 89169. I hereby certify that on November 1, 2019, a copy of WINERY EXCHANGE, INC.’S RESPONSE TO JRV, LLC’S AND BILL LEIGON’S MOTION AND MEMORANDUM IN SUPPORT OF ATTORNEYS’ FEES AND COSTS AS PREVAILING PARTY was served on the following counsel of record via CaseAnywhere: Blaine I. Green Dustin J. Chase-Woods PILLSBURY WINTHROP SHAW PITMAN LLP Four Embarcadero Center, 22nd Floor San Francisco, CA 94111-5998 T: (415) 983-1000 E-mail: blaine.green@pillsburylaw.com E-mail: dustin.chasewoods@pillsburylaw.com Attorneys for Claimants Bill Leigon and JRV, LLC Further, I caused such document described herein to be uploaded electronically onto the Case Anywhere website at https://secure.caseanywhere.com. /s/ Joy A. Jones, ACP Joy A. Jones, ACP An Employee of Lewis Roca Rothgerber Christie LLP EXHIBIT 15 109284956.1 561650.1 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 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 Michael J. McCue Jeffrey Sklar LEWIS ROCA ROTHGERBER CHRISTIE LLP 4300 Bohannon Drive, Suite 230 Menlo Park, CA 94025 Tele: 702-949-8200 E-mail: mmccue@lrrc.com E-mail: jsklar@lrrc.com Attorneys for Respondent and Counter-claimant, WINERY EXCHANGE, INC. JAMS ARBITRATION JRV, LLC and BILL LEIGON, Claimants/Counter-respondents, vs. WINERY EXCHANGE, INC., Respondent/Counter-Claimant. JAMS Ref. No.: 1100090897 WINERY EXCHANGE, INC.’S CLOSING BRIEF 109284956.1 i 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 TABLE OF CONTENTS TABLE OF CONTENTS ................................................................................................................. I TABLE OF AUTHORITIES ......................................................................................................... iv INTRODUCTION ...........................................................................................................................1 I. SUMMARY OF ARGUMENT ...........................................................................................2 II. JRV HAS FAILED TO CARRY ITS BURDEN ON ITS FIRST AND SECOND CLAIMS - THAT WX BREACHED THE APA AND THE COVENANT OF GOOD FAITH AND FAIR DEALING ...............................................................................2 A. JRV HAS FAILED TO SHOW THAT IT IS ENTITLED TO RECOVER THE INCENTIVE PAYMENTS .............................................................................3 1. SECTION 1.04(F) MERELY REQUIRES WX TO PROMOTE THE JRV BRANDS AS IT WOULD ITS OTHER BRANDS AS A WHOLE ..3 2. WX HAS SATISFIED SECTION 1.04(F)’S STANDARD ........................6 3. JRV CANNOT SHOW THAT ANY PERCEIVED BREACH OF SECTION 1.04(F) CAUSED IT DAMAGES FOR FAILURE TO MEET THE INCENTIVE THRESHOLDS ...............................................14 B. JRV HAS FAILED TO DEMONSTRATE THAT IT IS ENTITLED TO PAYMENT OF THE HOLDBACK ......................................................................20 1. THE APA AUTHORIZED WX TO USE THE HOLDBACK TO PAY POST-CLOSE DEPLETION ALLOWANCES FOR WINE SOLD BY JRV PRIOR TO THE CLOSE ...................................................................20 2. WX DID IN FACT PAY OVER $871,000 IN POST-CLOSE DEPLETION ALLOWANCES .................................................................24 3. MR. LEIGON ACKNOWLEDGED THAT JRV WAS RESPONSIBLE FOR AT LEAST $324,000 IN DEPLETION ALLOWANCES THAT WX PAID ..........................................................24 C. JRV HAS FAILED TO DEMONSTRATE THAT IT IS ENTITLED TO FURTHER PAYMENT OF ITS ACCOUNTS PAYABLE ..................................25 D. JRV CANNOT CARRY ITS BURDEN OF PROVING THAT WX BREACHED THE APA’S COVENANT OF GOOD FAITH AND FAIR DEALING ..............................................................................................................26 109284956.1 ii 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 III. MR. LEIGON CANNOT CARRY HIS BURDEN ON THE THIRD AND FIFTH CLAIMS - THAT WX BREACHED THE CONSULTING AGREEMENT AND ITS COVENANT OF GOOD FAITH AND FAIR DEALING .........................................27 A. MR. LEIGON COMMITTED MATERIAL BREACHES OF THE CONSULTING AGREEMENT THAT JUSTIFIED WX CEASING PAYMENTS ..........................................................................................................27 B. WX PROVIDED MR. LEIGON WITH NOTICE OF HIS BREACHES .............28 C. JRV HAS FAILED TO PROVE THAT WX BREACHED THE CONSULTING AGREEMENT’S COVENANT OF GOOD FAITH AND FAIR DEALING ....................................................................................................28 IV. MR. LEIGON CANNOT CARRY HIS BURDEN ON THE FOURTH CLAIM - THAT WX FAILED TO PAY HIM WAGES AND EMPLOYEE BENEFITS ...............28 V. JRV AND MR. LEIGON CANNOT CARRY THEIR BURDEN ON THE SIXTH CLAIM - THAT WX DEFRAUDED THEM .................................................................30 VI. WX HAS CARRIED ITS BURDEN OF PROVING ITS SECOND COUNTERCLAIM - THAT JRV AND MR. LEIGON, AS ITS ALTER EGO, BREACHED THE REPRESENTATIONS AND WARRANTIES IN THE APA ...........30 A. THE APA CONTAINED NUMEROUS REPRESENTATIONS AND WARRANTIES ABOUT JRV’S FINANCIAL CONDITION .............................31 B. WX HAS DEMONSTRATED THAT JRV AND MR. LEIGON MADE NUMEROUS MISREPRESENTATIONS ABOUT THE JRV BRANDS ...........31 C. WX SUFFERED DAMAGES OF AS MUCH AS $5.3 MILLION DUE TO JRV’S MISREPRESENTATIONS ........................................................................33 D. MR. LEIGON SHOULD BE DEEMED JRV’S ALTER EGO .............................35 VII. WX HAS CARRIED ITS BURDEN OF PROVING ITS FIRST COUNTERCLAIM - THAT JRV AND MR. LEIGON FRAUDULENTLY INDUCED WX TO ENTERING INTO THE TRANSACTION ......................................36 A. JRV AND MR. LEIGON MADE MISREPRESENTATIONS .............................36 B. JRV AND MR. LEIGON KNEW THAT THEIR REPRESENTATIONS WERE FALSE .......................................................................................................36 C. JRV AND MR. LEIGON INTENDED TO INDUCE RELIANCE BY WX ........37 D. WX DID RELY ON JRV AND MR. LEIGON’S MISREPRESENTATIONS ...................................................................................37 109284956.1 iii 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 VIII. WX HAS CARRIED ITS BURDEN OF PROVING ITS THIRD COUNTERCLAIM - THAT JRV AND MR. LEIGON, AS ITS ALTER EGO, BREACHED THE TRANSITIONAL SERVICES AGREEMENT .................................38 IX. WX HAS CARRIED ITS BURDEN OF PROVING ITS FOURTH COUNTERCLAIM - THAT MR. LEIGON BREACHED THE CONSULTING AGREEMENT ...................................................................................................................39 X. WX SHOULD BE AWARDED ITS ATTORNEYS’ FEES .............................................39 XI. CONCLUSION ..................................................................................................................40 PROOF OF SERVICE-JAMS ARBITRATION ...........................................................................41 109284956.1 iv 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 TABLE OF AUTHORITIES Cases Banas v. Volcano Corp., 47 F.Supp.3d 941 (N.D. Cal. 2014) ................................................................................................ 3 Beckwith v. Dahl, 205 Cal.App.4th 1039, 141 Cal.Rptr.3d 142 (2012) ..................................................................... 36 Bloor v. Falstaff Brewing, 601 F.2d 609 (1st Cir. 1979) ........................................................................................................... 3 Brown v. Grimes, 192 Cal.App.4th 265, 120 Cal.Rptr.3d 893 (2011) ....................................................................... 27 Cansino v. Bank of Am., 224 Cal.App.4th 1462, 169 Cal.Rptr.3d 619 (2014) ............................................................... 30, 36 Casa Herrera, Inc. v. Beydoun, 32 Cal.4th 336, 344, 83 P.3d 497 (2003) ....................................................................................... 22 Castro v. State of California, 70 Cal. App. 3d 156, 138 Cal. Rptr. 572 (App. 1977) .................................................................. 29 Citri-Lite Co. v. Cott Beverages, Inc., No. 1:07-CV-01075 OWW, 2011 WL 4751110 (E.D. Cal. Sept. 30, 2011) ............................................................................... 4, 5 Dynamex Operations W. v. Superior Ct., 4 Cal.5th 903, 232 Cal.Rptr.3d 1 (2018) ...................................................................................... 29 Eastwood Ins. Servs., Inc. v. Titan Auto Ins. of N.M., Inc., 469 Fed.Appx. 596, 598 (9th Cir. 2012) ........................................................................................ 3 Former Shareholders of CardioSpectra, Inc. v. Volcano Corp., 2012 WL 3237144 (N.D. Cal. Aug. 6, 2012) ............................................................................... 26 Gifford v. J & A Holdings, 54 Cal.App.4th 996, 63 Cal.Rptr.2d 253 (App. 1997) .................................................................... 3 Gopal v. Kaiser Foundation Health Plan, Inc., 248 Cal.App.4th 425, 203 Cal.Rptr.3d 549 (2016) ....................................................................... 35 Guz v. Bechtel National, Inc., 24 Cal.4th 317 (2000) .................................................................................................................... 26 109284956.1 v 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Holland Loader Co., LLC v. FLSmidth A/S, 313 F.Supp.3d 447 (S.D.N.Y. 2018) ............................................................................................... 3 Hoy v. DRM, Inc., 114 P.3d 1268 (Wyo. 2005) ............................................................................................................ 8 In re Chateaugay Corp., 198 B.R. 848 (S.D.N.Y. 1996) ........................................................................................................ 3 Kelley v. Trunk, 66 Cal.App.4th 519, 78 Cal.Rptr.122 (1998) .................................................................................. 8 Kids’ Universe v. In2 Labs, 95 Cal.App.4th 870, 116 Cal.Rptr.2d 158 (2002) ......................................................................... 20 Marsu v. Walt Disney Co., 185 F.3d 932 (9th Cir. 1999) ..................................................................................................... 5, 26 Natural Soda Prods. Co. v. City of Los Angeles, 23 Cal.2d 193, 143 P.2d 12 (1943) ............................................................................................... 20 Plotnik v. Meihaus, 208 Cal.App.4th 1590, 146 Cal.Rptr.3d 585 (2012) ..................................................................... 27 Richman v. Hartley, 224 Cal.App.4th 1182, 169 Cal.Rptr.3d 475 (2014) ....................................................................... 2 Sargon Enterps., Inc. v. Univ. of S. Calif., 55 Cal.4th 747, 149 Cal.Rptr.3d 614 (2012) ..................................................................... 14, 19-20 Sekisui Am. Corp. v. Hart, 15 F.Supp.3d 359 (S.D.N.Y. 2014) ................................................................................................. 4 Toho-Towa Co., Ltd. v. Morgan Creek Prods., Inc., 217 Cal.App.4th 1096, 159 Cal.Rptr.3d 469 (2013) ..................................................................... 35 Triple-A Baseball Club Assocs. v. Northeastern Baseball, Inc., 832 F.2d 214 (1st Cir. 1987) ........................................................................................................... 3 Wyler v. Feuer, 85 Cal.App.3d 392, 149 Cal.Rptr. 626 (1978) .............................................................................. 39 Statutes Cal. Civ. Code § 1625 ...................................................................................................................... 22 Cal. Civ. Code § 1636 ........................................................................................................................ 3 109284956.1 vi 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Cal. Civ. Code § 1638 .................................................................................................................... 3, 6 Cal. Civ. Code § 1689(b)(2) ............................................................................................................ 39 Cal. Civ. Code § 1692 ...................................................................................................................... 39 Cal. Civ. Code § 2332 ...................................................................................................................... 36 Cal. Civ. Code § 3301 ...................................................................................................................... 14 Cal. Labor Code § 3351.5 ................................................................................................................ 29 Cal. Labor Code § 3369 ................................................................................................................... 29 109284956.1 1 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 INTRODUCTION For 11 days and over 40 hours of examination, JRV and Mr. Leigon presented their “Tale of Two Rabbits.” WX said at the outset that this tale is fiction. It has now proven so. JRV’s tale is built on a false rewriting of the Asset Purchase Agreement (“APA”) and related agreements and non-credible expert testimony. Under the non-fiction version of events, WX has been aggrieved and is owed damages. Section 1.04(f) of the APA required WX to use “commercially reasonable efforts” that are “consistent with” its efforts to promote its other brands - of which there are more than 70. WX exceeded that standard. It demonstrated this in the hearing’s first week. JRV’s interim brief seemingly conceded this point. It devoted less than two pages to this topic.1 But when the hearing resumed, JRV doubled down. In doing so, it relied on expert opinions derived from a handful of documents that counsel cherry-picked to craft a fictionalized version of WX’s efforts. The experts ignored or never saw evidence that contradicted their views. WX’s witnesses refuted each of the experts’ criticisms, explaining time and again how the documents did not say what JRV claimed. There is simply no basis to conclude that WX breached Section 1.04(f). JRV’s claims concerning the holdback and its payables are based on a similarly fictionalized rewriting of the APA. Section 1.07 provides two mechanisms to use the holdback for depletion allowances for wine sold by JRV before the closing. WX used the holdback amount, plus another $258,000, for just that purpose. Compounding the problem is WX’s inability to collect over $197,000 in JRV’s receivables that JRV represented as valid. The evidence also established that WX properly stopped payment to Mr. Leigon under the Consulting Agreement. Both he and JRV failed to live up to their end of the bargain. As the evidence established, Mr. Leigon set the precedent of covering amounts owed by JRV through deductions under the Consulting Agreement. WX should also prevail on its counterclaims. JRV and Mr. Leigon made numerous misrepresentations in the APA. They also defrauded WX into entering into those agreements and 1 JRV Interim Brief at 24-25. 109284956.1 2 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 breached the Transitional Services Agreement. Accordingly, JRV’s fictionalized “Tale of Two Rabbits” should be rejected in favor of the actual facts, and WX should prevail. I. SUMMARY OF ARGUMENT In sum, WX’s closing brief will demonstrate the following: • The claims would impermissibly require the rewriting of the APA. • JRV and Mr. Leigon have failed to carry their burden of proof to support their claims and are refuted by the overwhelming weight of the evidence. • JRV and Mr. Leigon’s claims rely nearly entirely on the testimony of witnesses they have designated as experts but who lack the knowledge and basis to substantiate their opinions. • JRV and Mr. Leigon failed to put forward any evidence that WX’s alleged actions and omissions were the cause of not meeting the case volume thresholds necessary to establish payment of any incentive payments. • JRV and Mr. Leigon are entitled to no damages. • WX proved its counterclaims based on a proper reading of the APA, the Transitional Services Agreement (“TSA”) and the Consulting Agreement. • WX is entitled to damages of $708,348.05 as follows: o $257,861.85 that it paid in depletion allowances above and beyond the amount of the holdback; o $197,086.20 in uncollectible receivables; o $23,000 in undisclosed samples; o $220,000 that it paid Mr. Leigon on the Consulting Agreement; and o $10,400 for JRV’s breach of the TSA. • WX is entitled to $4.8 million for the amount it overpaid for JRV’s assets due to JRV’s breach of the warranties and representations in the APA. • WX is entitled to recover attorneys’ fees against JRV and Mr. Leigon. II. JRV HAS FAILED TO CARRY ITS BURDEN ON ITS FIRST AND SECOND CLAIMS - THAT WX BREACHED THE APA AND THE COVENANT OF GOOD FAITH AND FAIR DEALING JRV claims that WX breached the APA by failing to pay the incentive payments, the holdback, and JRV’s accounts payable. JRV cannot prevail unless it proves: (1) the existence of a contract (which is not disputed); (2) its own performance of the contract or excuse for nonperformance; (3) WX’s breach; and (4) JRV’s resulting damage.2 The second element is 2 Richman v. Hartley, 224 Cal.App.4th 1182, 1186, 169 Cal.Rptr.3d 475, 478 (2014). 109284956.1 3 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 addressed in Section VI, which addresses JRV’s breaches of the APA. WX turns now to the third and fourth elements, focusing in turn on the three alleged breaches. A. JRV has failed to show that it is entitled to recover the incentive payments With respect to the incentive payments claim, JRV contends that WX failed to satisfy Section 1.04(f)’s requirement that it “use commercially reasonable efforts to promote sales of the [JRV] brands that are consistent with the efforts used by [WX] to sell wine of other brands owned by [WX].” JRV’s position suffers from three flaws. First, it rewrites Section 1.04(f) to impose requirements that do not exist. Second, JRV ignores WX’s extensive efforts to promote the JRV brands. Third, JRV did not establish that any alleged failure to satisfy Section 1.04(f) actually caused sales of the JRV brands to be less than the incentive thresholds. 1. Section 1.04(f) merely requires WX to promote the JRV brands as it would its other brands as a whole The first issue is Section 1.04(f)’s interpretation. The Arbitrator must “give effect to the mutual intention of the parties as it existed at the time of contracting.”3 A contract’s “clear and explicit” language must govern its interpretation.4 Although the “commercially reasonable” and “consistent with” phrases form a single standard, WX addresses them in turn. a) “Commercially reasonable” efforts need not be “best efforts” or efforts that would harm a company’s commercial interests Commercial reasonableness is a fact question, “based on all the circumstances.”5 “There is no settled or universally accepted definition.6 Nor does Section 1.04(f), which was drafted by JRV’s counsel, define the term.7 In general, though, “commercially reasonable efforts” is a less stringent standard than “best efforts.”8 And even a “best efforts” requirement is merely “equivalent to that of good faith.”9 It allows a party to give “reasonable consideration to its own interests.”10 3 Cal. Civ. Code § 1636. 4 Cal. Civ. Code § 1638. 5 Eastwood Ins. Servs., Inc. v. Titan Auto Ins. of N.M., Inc., 469 Fed.Appx. 596, 598 (9th Cir. 2012) (mem.) (citing Gifford v. J & A Holdings, 54 Cal.App.4th 996, 63 Cal.Rptr.2d 253, 259 (App. 1997)). 6 Holland Loader Co., LLC v. FLSmidth A/S, 313 F.Supp.3d 447, 469 (S.D.N.Y. 2018). 7 See, e.g., Banas v. Volcano Corp., 47 F.Supp.3d 941, 946 (N.D. Cal. 2014) (citing definition in contractual provision). 8 In re Chateaugay Corp., 198 B.R. 848, 854 (S.D.N.Y. 1996). 9 Triple-A Baseball Club Assocs. v. Northeastern Baseball, Inc., 832 F.2d 214, 225 (1st Cir. 1987). 10 Chateaugay, 198 B.R. at 854-55 (citing Bloor v. Falstaff Brewing Co., 601 F.2d 609, 614 (1st Cir. 1979)). 109284956.1 4 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Perhaps the most useful elucidation of “commercially reasonable efforts” comes from comparing the two primary cases the parties have cited in prior briefing. WX addresses those next. (1) Citri-Lite provides that “commercially reasonable efforts” need not harm a company’s commercial interests The most important case on the “commercially reasonable” standard is the Eastern District of California’s decision in Citri-Lite Co. v. Cott Beverages, Inc.11 Citri-Lite involved a defendant that had agreed under a licensing agreement to be the exclusive distributor of the plaintiff’s weight-loss drink. The agreement required the defendant to use “commercially reasonable efforts” to promote and sell that drink. The plaintiff alleged that the defendant failed to satisfy this standard by ending in-store product demos, failing to follow through on a product repackaging, and failing to engage in promotional activity at certain chains.12 During an eight-day trial, the court heard detailed evidence on these issues, including from dueling experts.13 The court concluded that the defendant had used commercially reasonable efforts, so was not liable. It explained that “commercially reasonable” is a less demanding standard than “best efforts.”14 Prevailing requires more than showing, in hindsight, that different efforts might have produced a different result.15 Rather, a factfinder must consider the “totality of the business relationship,” such as the defendant’s resources, expertise, and practices.16 Also relevant are the costs associated with the defendant’s efforts.17 Notably, JRV’s marketing expert, Pat Roney, wrongly opined that the standard could even require WX to lose money.18 But in reality, a defendant may “consider its own economic business interests,” as it would not be commercially reasonable for a business “to perform to its detriment.”19 11 No. 1:07-CV-01075 OWW, 2011 WL 4751110, at *3-4 (E.D. Cal. Sept. 30, 2011), aff’d, 546 F. App’x 651 (9th Cir. 2013). 12 Citri-Lite, 2011 WL 4751110, at *5. 13 Citri-Lite, 2011 WL 4751110, at *5-17. 14 Citri-Lite, 2011 WL 4751110, at *3-4. 15 Citri-Lite, 2011 WL 4751110, at *19. 16 Citri-Lite, 2011 WL 4751110, at *19. 17 Citri-Lite, 2011 WL 4751110, at *19. 18 Day 11 Tr. at 2523 (Roney). 19 Citri-Lite, 2011 WL 4751110, at *19; Sekisui Am. Corp. v. Hart, 15 F.Supp.3d 359, 381 (S.D.N.Y. 2014) (finding that a defendant did not violate a “commercially reasonable efforts” standard when it abandoned efforts to bring a drug to market after realizing that “the necessary studies would be prohibitively expensive and time-consuming”). 109284956.1 5 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Given this case’s similarities with Citri-Lite, that case’s analysis is instructive. Both cases concern the sufficiency of sales and marketing efforts for a beverage product, weighed against a “commercially reasonable efforts” provision that lacked specific performance standards. And Citri-Lite is well-reasoned. Therefore, based on Citri-Lite, WX was allowed to consider its own interests in determining the efforts it used to promote the JRV brands. (2) JRV’s reliance on the Disney case is misplaced Based on its prehearing brief, JRV is likely to rely heavily on Marsu v. Walt Disney Co.20 However, Marsu involves a different standard and distinguishable facts. In Marsu, Disney had obtained exclusive rights to license a cartoon character. The issue was whether Disney’s efforts to license that character satisfied the licensing agreement. Importantly, that agreement imposed more stringent requirements on Disney than Section 1.04(f) did on WX. It required Disney to make 13 films with the character, as well as to employ its “best efforts” to secure a network commitment to air those films.21 The District Court concluded that Disney had not met that standard, and the Ninth Circuit affirmed. The Ninth Circuit relied heavily on Disney’s failure to meet the specific objectives.22 By contrast, neither this case nor Citri-Lite involves such objectives. Also, as explained above, the “best efforts” standard in Marsu is more demanding than the “commercially reasonable efforts” standard that is applicable here. Therefore, Marsu is not persuasive. b) “Consistent with” merely requires WX to promote the JRV brands consistently with its efforts for its other brands in general, not just for Bread & Butter or Chronic Cellars Under Section 1.04(f), WX’s commercially reasonable efforts to promote the JRV brands should also be “consistent with” WX’s other wine brands. JRV attempts to rewrite the “consistent with” portion of the standard by arguing that WX’s other brands include only Bread & Butter and Chronic Cellars.23 Or as Mr. Roney testified, the only applicable comparisons are WX’s “priority” and “wholesale” brands.24 But JRV has not cited a meaningful basis for that limitation.25 20 JRV Prehearing Brief at 29 (citing Marsu v. Walt Disney Co., 185 F.3d 932, 937 (9th Cir. 1999)). 21 Marsu, 185 F.3d at 935. 22 Marsu, 185 F.3d at 935. 23 Day 10 Tr. at 2256-57 (Kelly). 24 Day 11 Tr. at 2518-20 (Roney). 109284956.1 6 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Nor does Section 1.04(f)’s clear and explicit language support JRV’s view.26 That language does not limit the relevant brands to “priority” or “wholesale” brands, or to Bread & Butter or Chronic Cellars. The only modifier for the word “brands” is “other.” Thus, all of WX’s 70-plus other brands are appropriate comparisons, including national brands and private labels.27 JRV’s efforts to add a modifier or a limitation is an improper attempt to rewrite Section 1.04(f). Notably, JRV was represented by Pillsbury in negotiating the APA, and Pillsbury proposed the language at issue.28 It also could have proposed a different modifier but it did not. JRV cannot now substitute its efforts to rewrite the APA through arbitration for its counsel’s omission. 2. WX has satisfied Section 1.04(f)’s standard a) WX’s efforts have been “commercially reasonable” and “consistent with” its efforts to promote other WX brands The next issue is whether WX’s efforts to promote the JRV brands have satisfied Section 1.04(f). WX’s interim brief detailed those efforts.29 It explained how when WX acquired the JRV brands, they were underpriced and suffering from poor sales penetration.30 JRV had excessively discounted the wine, effectively reducing its price.31 It also used excessive free goods, which in some instances was illegal.32 Nevertheless, it had an all commodity volume (“ACV”) of only 2 percent.33 Rather than being primed for fast growth like Bread & Butter, it needed rehabilitation.34 WX’s interim brief also described how the marketing and sales teams have worked to rehabilitate the brands and make them sustainable. It explained how WX’s marketing team, led by Natasha Hayes, made packaging improvements, hired a brand manager, spent substantial marketing money, and engaged in year-round promotions.35 Ms. Hayes’ testimony was bolstered by that of WX’s marketing expert, Reid Stinnett. Mr. Stinnett’s report is submitted herewith.36 25 Day 10 Tr. at 2259-66 (Kelly); Day 11 Tr. at 2519-21 (Roney). 26 See Cal. Civ. Code § 1638 (requiring “clear and explicit” language of contract to control). 27 Day 7 Tr. at 1467 (Byck); Day 8 Tr. at 1805-06 (Colvin) (noting number of brands). 28 Day 3 Tr. at 481-82 (Leigon); Day 8 Tr. at 1804 (Colvin). 29 WX Interim Brief at 5-12. 30 WX Interim Brief at 2-4. 31 Day 1 Tr. at 70 (Lewin); Day 5 Tr. at 1094-95 (Moreno); Arb. Ex. 126. 32 Day 5 Tr. at 1095-99 (Moreno). 33 Day 1 Tr. at 56-57 (Lewin). 34 Day 6 Tr. at 1341-42 (Schiffer). 35 WX Interim Brief at 5-7; see also Arb. Ex. 416-19 (examples of display material). 36 Arb. Ex. 489. 109284956.1 7 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 WX also explained how the sales team, led by Shawn Schiffer and Bryan Moreno, corrected the JRV brands’ pricing, hired new salespeople, and worked to sell the JRV brands in chains and other accounts around the country.37 Even Mr. Leigon though WX “had a great sales team,” and he was “very happy” with them.38 WX will not repeat the testimony of Ms. Hayes, Mr. Schiffer and Mr. Moreno, but the evidence shows that it complied with Section 1.04(f). b) JRV has failed to meet its burden of proving that WX failed to comply with Section 1.04(f) JRV bears the burden of proving that WX failed to comply with Section 1.04(f). It has failed to satisfy that burden. Its interim brief provided only a conclusory list of criticisms, with no citations.39 WX preemptively addressed those criticisms in its own interim brief.40 But because JRV’s experts, Mr. Roney and Brian Kelly, made similar criticisms in the hearing’s final five days, WX must address them again. Mr. Leigon had also provided some expert testimony, though JRV does not appear to be relying on it, and it is largely duplicative of JRV’s other experts.41 (1) Mr. Roney’s and Mr. Kelly’s testimony was based on a few documents hand-picked by counsel, rather than a full understanding of WX’s sales and marketing efforts As an initial matter, neither of JRV’s experts relied on sufficient information. As for Mr. Roney, his opinion was based on a small set of documents that were largely hand-picked by counsel, well after the deadline for the expert report and when the hearing was half complete.42 By adding significant detail to his opinion at the hearing, Mr. Roney prejudiced WX. Consistent with Mr. Roney’s lack of methodology, he simply disregarded documents that did not fit his opinion.43 He even called Ms. Hayes’ summary of the efforts that WX made to promote the JRV brands “fluff.” And he did so without having seen that summary before or 37 WX Interim Brief at 7-8; WX presented numerous presentations and other documents showing these efforts, but at the Arbitrator’s request, has not included them here. It has included only one example, a Consolidated Sales Report prepared by Mr. Schiffer that details the sales team’s efforts for a particular period. See Arb. Ex. 529. 38 Day 3 Tr. at 484 (Leigon). 39 JRV Interim Brief at 24-25. 40 WX Interim Brief at 8-12. 41 Day 2 Tr. at 452-56 (Leigon). 42 Day 11 Tr. at 2536, 2548 (Roney). 43 See, e.g., Day 11 Tr. at 2528-29, 2532 (Roney). 109284956.1 8 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 reviewing most of it.44 He also insulted Ms. Hayes, calling her “not very smart.”45 He made these generalizations based on his “40 years of experience” and his ability to “read between the lines.”46 However, that is not the proper methodology for an expert opinion.47 By contrast, Mr. Stinnett reviewed 85 documents, many of which were broad in scope, and wrote a detailed report.48 Simply due to the amount of detail and support in his opinion, his opinion is more reliable than Mr. Roney’s. This is especially true because Mr. Roney is biased. His company, Vintage Wine Estates, is a competitor of WX.49 Mr. Kelly’s testimony was similarly uninformed. He did not know basic facts, such as how much WX spent in price support for the JRV brands or how much money the tasting room lost.50 He even acknowledged wanting more information.51 Similar gaps in Mr. Kelly’s knowledge on the damages issue are addressed in Section II.A.3.b. In short, Mr. Roney and Mr. Kelly’s lack of information undermines their opinions. Nonetheless, WX addresses their substance. (2) Mr. Roney and Mr. Kelly’s opinion that WX failed to act commercially reasonably are misplaced Mr. Roney and Mr. Kelly first argue that WX’s efforts were not commercially reasonable because wine went out of stock, WX temporarily closed the tasting room, and it stopped working with Mr. Leigon. As explained below, each of these criticisms is misplaced. (a) WX demonstrated that the out-of-stock situation was not its fault and had no impact on sales As for the out-of-stocks, neither Mr. Roney nor Mr. Kelly could quantify their effect, if any, on sales.52 For example, Mr. Roney testified that he thought the out-of-stock situation had led hundreds of retailers to stop selling JRV brands.53 But he could not identify one.54 In fact, as Mr. 44 Day 11 Tr. at 2556-57 (Roney). 45 Day 11 Tr. at 2552 (Roney). 46 See, e.g., Day 11 Tr. at 2531, 2535 (Roney) 47 Hoy v. DRM, Inc., 114 P.3d 1268, 1280-83 (Wyo. 2005); see also Kelley v. Trunk, 66 Cal.App.4th 519, 523-25, 78 Cal.Rptr.122, 124-25 (1998) (explaining that expert opinion failed to establish facts where it contained no explanation, as “an expert opinion is worth no more than the reasons upon which it rests”). 48 Day 5 Tr. at 953 (Stinnett) & Arb. Ex. 492 at 32-36. 49 Day 11 Tr. at 2591 (Roney). 50 Day 10 Tr. at 2270, 2284-86 (Kelly). 51 Day 10 Tr. at 2253-55 (Kelly). 52 Day 10 Tr. at 2292-93 (Kelly). 53 Day 11 Tr. at 2577-78 (Roney). 54 Day 11 Tr. at 2577-80 (Roney). 109284956.1 9 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Moreno testified, the out-of-stock situation had virtually no effect. Although WX’s warehouse had low inventory immediately after the closing, distributors and retailers had plenty of inventory.55 JRV had sold them a significant amount of wine at low prices just prior to close.56 Mr. Roney and Mr. Kelly also ignored evidence of WX’s extensive efforts to bottle JRV- branded wine.57 Its winemaking team undertook bottled more than 100,000 cases of wine in the first nine months after closing.58 As WX’s head of winemaking, Kurt Lorenzi, stated in an e-mail about inheriting JRV’s out of stock issues, “We are in effect doing a year[’]s worth of neglected work and performing it in 90 days.”59 In addition, Mr. Roney’s examples of post-closing out-of-stock conditions were either JRV’s fault or had little effect on sales. Some occurred in the few months after closing.60 Another was limited to kegs, which comprised only 1 percent of JRV’s sales.61 Others were limited to vintage changeovers, which is not an out-of-stock issue.62 More broadly, WX’s Chief Operating Officer, Oliver Colvin, presented an inventory report showing that WX had inherited the out-of- stock problem from JRV.63 (b) WX acted appropriately in temporarily closing the tasting room Mr. Roney and Mr. Kelly also claim that it was not commercially reasonable to close the tasting room, given the APA’s direct-to-consumer incentive.64 Mr. Roney asserts that the closure sends the message that the JRV brands are unimportant.65 But neither he nor Mr. Kelly can explain why Section 1.04(f) required WX to keep the tasting room open when WX lost well over a million dollars in two years from operating it. Mr. Kelly was not even aware of the losses.66 55 Day 5 Tr. at 1151-52 (Moreno). 56 Day 5 Tr. at 1151-52 (Moreno). 57 Day 8 Tr. at 1827-35 (Colvin). 58 Day 8 Tr. at 1830-34 (Colvin) & Arb. Ex. 124, 207. 59 Day 8 Tr. at 1833 (Colvin) & Arb. Ex. 124. 60 Day 11 Tr. at 2579 (Roney) & Arb. Ex. 150, 173. 61 Day 11 Tr. at 2577-78 (Roney) & Arb. Ex. 296. 62 Day 11 Tr. at 2578-79 (Roney) & Arb. Ex. 249, 304. 63 Day 8 Tr. at 1827-35 (Colvin) & Ex. 346. 64 Day 10 Tr. at 2197-2203 (Roney); Day 10 Tr. at 2224-25 (Kelly). 65 Day 10 Tr. at 2198 (Roney). 66 Day 10 Tr. at 2284-87 (Kelly). 109284956.1 10 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Nor did either expert acknowledge WX’s efforts to turn the tasting room around.67 They likewise could not counter Mr. Moreno’s testimony that the temporary closure has not made selling the JRV brands more challenging.68 And they fail to account for the fact that, as Mr. Colvin testified, WX is negotiating a lease for a tasting room in a superior location.69 Notably, Mr. Roney and Mr. Kelly also could not explain how maintaining a tasting room was “consistent with” efforts to promote WX’s other brands.70 WX maintains a tasting room only for one other brand, Chronic Cellars, and that tasting room is profitable.71 (c) It was commercially reasonable for WX to stop working with Mr. Leigon Mr. Roney and Mr. Kelly next assert that it was commercially unreasonable for WX to stop working with Mr. Leigon.72 Mr. Roney describes Mr. Leigon as having a “sterling” reputation and experience building brands.73 But aside from his “knowledge of the industry,” Mr. Roney’s opinion is based on one e-mail from a JRV broker.74 He has never seen Mr. Leigon in the field.75 As for Mr. Kelly, he could not quantify the effect of WX ending its relationship with Mr. Leigon.76 The only testimony on that issue came from Mr. Moreno and Mr. Schiffer, who explained that distributors did not notice when WX stopped working with him.77 Also of note is that WX retained founders of only one other brand it purchased.78 Therefore, keeping Mr. Leigon was not necessary to be “consistent with” WX’s efforts for other brands. (3) Mr. Roney’s and Mr. Kelly’s opinion that WX failed to promote the JRV brands consistent with its other brands is also misplaced Mr. Roney and Mr. Kelly also testified that WX failed to promote the JRV brands in a manner that was consistent with Bread & Butter or Chronic Cellars. But these brands alone are not 67 See Day 3 Tr. at 648-53 (Hayes) (describing WX’s efforts). 68 Day 11 Tr. at 2415-17 (Moreno) & Arb. Ex. 331. 69 Day 8 Tr. at 1826-27 (Colvin). 70 Day 10 Tr. at 2288 (Kelly); Day 11 Tr. at 2580-81 (Roney). 71 Day 3 Tr. at 653 (Hayes) (noting profitability of Chronic tasting room); 72 Day 10 Tr. at 2203-08 (Roney); Day 10 Tr. at 2222-23 (Kelly). 73 Day 10 Tr. at 2204-05 (Roney). 74 Day 10 Tr. at 2205-07 (Roney). 75 Day 11 Tr. at 2585 (Roney). 76 Day 10 Tr. at 2276-84 (Kelly). 77 Day 5 Tr. at 1167 (Moreno); Day 6 Tr. at 1338-39 (Schiffer). 78 Day 8 Tr. at 1816-17 (Colvin). 109284956.1 11 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 the relevant comparison. Rather, Section 1.04(f) requires that WX market the JRV brands “consistent with” its “other” brands. See § II.A.1.b. Because Mr. Roney and Mr. Kelly used an inappropriate metric, their entire testimony should be disregarded. Even even on their opinions’ own terms, though, the evidence does not support them. (a) Bread & Butter was not a higher priority simply because WX set higher case goals First, Mr. Roney and Mr. Kelly testified that Bread & Butter was a higher priority for WX because WX set higher case goals with distributors.79 Mr. Moreno explained, though, that goals and priorities are not the same.80 A higher goal does not mean the brand is a higher priority. It simply means that there is more opportunity to sell the brand.81 Mr. Roney identified a few presentations and e-mails in which Bread & Butter or Chronic Cellars is described as a higher priority.82 Mr. Kelly made the same point, but without referring to documents.83 Even the documents to which Mr. Roney referred were only a few out of thousands of e-mails and hundreds of presentations.84 They are entitled to little weight. This is especially true because, as Mr. Moreno explained, many do not actually show other brands as a priority.85 In fact, WX’s efforts to sell JRV wine have in many ways exceeded its efforts to sell Bread & Butter.86 (b) WX’s marketing efforts for the JRV brands were not inadequate relative to Bread & Butter Mr. Roney and Mr. Kelly also criticize WX’s marketing efforts for the JRV brands as inadequate relative to Bread & Butter. They first note that WX has more seasonal promotions for Bread & Butter.87 Mr. Roney also argued that the “flow” material prepared by WX was of limited value, because most flow material “flows right into the garbage can.”88 But Ms. Hayes explained 79 Day 10 Tr. at 2146-48, 2166-68 (Roney); Day 10 Tr. at 2225 (Kelly). 80 Day 11 Tr. at 2420-22 (Moreno). 81 Day 11 Tr. at 2420-22 (Moreno). 82 Day 10 Tr. at 2153-57 (Roney). 83 Day 10 Tr. at 2226 (Kelly). 84 Day 11 Tr. at 2422-26 (Moreno). 85 Day 11 Tr. at 2368-73, 2378-80 (Moreno). 86 Day 5 Tr. at 1112-16 (Moreno); Day 6 Tr. at 1344-49 (Schiffer). 87 Day 10 Tr. at 2151-53 (Roney); Day 10 Tr. at 2226-27 (Kelly). 88 Day 10 Tr. at 2152, 2171-72 (Roney). 109284956.1 12 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 that “flow” is a “very active” marketing mechanism that involves creating materials that are useful year-round, including coupons and display pieces.89 Mr. Roney also discounts the fact that WX spends more marketing money per case on the JRV brands than Bread & Butter.90 He believes that the better comparison is absolute dollars.91 But it is not commercially reasonable to have the same marketing budget for all brands, regardless of sales or profitability. Nor did Mr. Roney consider that WX provided the JRV brands with price support of over $30 per case in 2017 and nearly $27 per case in 2018.92 This is more than any other brand and double Bread & Butter.93 Mr. Roney also did not consider WX’s investment in the JRV tasting room - a massive marketing expense.94 As WX’s CEO, Peter Byck, explained, WX bet the company on Bread & Butter - spending over $50 million.95 This was over $40 million more than it spent on the JRV brands. For such a significant investment, a higher absolute marketing spend not only makes sense, but would be both consistent with WX’s efforts and the only commercially reasonable choice. (c) WX’s aspirational goal of 1 million cases of Bread & Butter has not diminished the effort it is expending on the JRV brands JRV also criticizes WX for not implementing a 1-million case goal for JRV, as it did for Bread & Butter.96 But an equal plan for JRV would not be consistent with the purchase price or sales trajectories for the two brands.97 As Mr. Schiffer testified, “It would be impossible to sell a million cases of the JRV brands.”98 Nor does the million-case goal affect how distributors treat the two brands.99 Both the WX sales team and the distributors remain responsible for meeting the entire portfolio’s goals - including for the JRV brands.100 89 Day 4 Tr. at 715-17 (Hayes) & Arb. Ex. 364 at WX-00339485-86. 90 Day 10 Tr. at 2174-76 (Roney). 91 Day 10 Tr. at 2175-76 (Roney). 92 Day 8 Tr. at 1810-12 (Colvin) & Arb. Ex. 526. 93 Day 5 Tr. at 975-977 (Stinnett). 94 Day 3 Tr. at 641-52 (Hayes) & Arb. Ex. 384. 95 Day 7 Tr. at 1480-81 (Byck). 96 Day 10 Tr. at 2158-63 (Roney). 97 Day 7 Tr. at 1580-81 (Byck). 98 Day 6 Tr. at 1458 (Schiffer). 99 Day 6 Tr. at 1458-59 (Schiffer). 100 Day 6 Tr. at 1350 (Schiffer). 109284956.1 13 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 (d) It was not inconsistent with the APA for WX to implement sales incentives for Bread & Butter Next, Mr. Roney criticized WX for implementing sales incentives for Bread & Butter without doing the same for JRV.101 But not all the Bread & Butter incentives that Mr. Roney identified were implemented.102 Nor did he know about the incentives for the JRV brands.103 In reality, WX has many JRV-related incentives, including cash incentives and sweepstakes.104 Similarly, Mr. Kelly asserted that WX’s bonus plan created a greater incentive for salespeople to sell Bread & Butter as opposed to the JRV brands.105 He may have been referring to the points assigned to each brand, which for some JRV brands are lower than Bread & Butter.106 But the points are assigned based on gross margin. More profitable brands are assigned more points.107 And salespeople cannot even achieve their full bonus unless they meet their JRV goal.108 (e) WX did not violate the APA by prioritizing certain brands in different classes of trade Mr. Roney and Mr. Kelly also criticize WX for allegedly prioritizing Bread & Butter in all classes of trade, while limiting JRV to certain classes.109 Mr. Roney argues, for example, that WX limited Double Lariat by prioritizing it in fine-dining restaurants, not higher-volume channels.110 But there are fundamental differences between Double Lariat and Bread & Butter. Double Lariat is a higher-end brand, while Bread & Butter is a fast-growing, mass-market brand that is well-suited for grocery chains.111 That is why Double Lariat - as well as Reata - are prioritized above Bread & Butter in fine-wine stores and fine-dining restaurants.112 Making such strategic choices is wholly appropriate and does not mean that the JRV brands are treated inconsistently. 101 Day 10 Tr. at 2166-68 (Roney). 102 Day 10 Tr. at 2168-69 (Roney); Day 11 Tr. at 2373-76 (Moreno) (concerning “truckload” incentive). 103 Day 11 Tr. at 2548 (Roney). 104 Day 5 Tr. at 1123-25 (Moreno). 105 Day 10 Tr. at 2225-26 (Kelly). 106 Day 11 Tr. at 2402-03 (Moreno) & Arb. Ex. 212. 107 Day 11 Tr. at 2403 (Moreno). 108 Day 6 Tr. at 1349-50 (Schiffer). 109 Day 10 Tr. at 2173-74 (Roney); Day 10 Tr. at 2227 (Kelly). 110 Day 10 Tr. at 2177-78, 2180-82 (Roney). 111 Day 7 Tr. at 1561-62 (Byck). 112 Arb. Ex. 198 at WX-00018462-63 & 272 at WX-00022387-88. 109284956.1 14 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Mr. Roney also claims that WX missed opportunities to place the JRV brands in grocery stores.113 But WX tried to place the JRV brands in every major grocery chain.114 Similarly, Mr. Kelly criticizes WX for “cut[ting] Double Lariat from Costco.”115 But he assumed that Costco constituted 50 percent of Double Lariat’s volume.116 It was only 10 percent.117 In fact, WX did try to sell Double Lariat at Costco. It simply could not do so at a profit.118 Nor did WX deem it commercially appropriate to jeopardize the brand’s identity by selling to Costco at too low of a price.119 Costco works on low margins, which facilitate its low prices, which push down prices elsewhere.120 As WX’s former Senior Vice President of Marketing and Strategy, Oren Lewin, testified, Costco is often “not as strategic a place to sell wine.”121 WX has, however, had success at Costco with Whiplash.122 3. JRV cannot show that any perceived breach of Section 1.04(f) caused it damages for failure to meet the incentive thresholds The next issue is whether any alleged breach of Section 1.04(f) caused WX to fail to meet the incentive thresholds. To be recoverable, damages must be “clearly ascertainable in both their nature and origin.”123 JRV must prove that it is “reasonably certain” that it would have achieved the thresholds but for WX’s asserted breach.124 It has not. None of its experts testified to any level of certainty as to whether WX’s alleged failures caused the shortfall in case sales. See § II.A. a) JRV has failed to controvert the testimony of WX’s expert, Richard Eichmann WX presented evidence and testimony that JRV could not satisfy its burden regarding causation and damages. WX’s expert, Richard Eichmann, concluded that the likelihood of achieving the sales thresholds was less than 2 percent.125 His reports are submitted herewith.126 113 Day 10 Tr. at 2182-83 (Roney). 114 Day 6 Tr. at 1357-58 (Schiffer). 115 Day 10 Tr. at 2224 (Kelly). 116 Day 10 Tr. at 2224 (Roney). 117 Day 11 Tr. at 2569-72 (Roney) & Arb. Ex. 578. 118 Day 11 Tr. at 2428-29 (Moreno). 119 Day 11 Tr. at 2429-30 (Moreno). 120 Day 8 Tr. at 1786-87 (Colvin). 121 Day 1 Tr. at 107-08 (Lewin). 122 Day 11 Tr. at 2427-29 (Moreno). 123 Cal. Civ. Code § 3301. 124 Sargon Enterps., Inc. v. Univ. of S. Calif., 55 Cal.4th 747, 773-74, 149 Cal.Rptr.3d 614, 633-34 (2012). 125 Day 1 Tr. at 179-81 (Eichmann). 109284956.1 15 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Mr. Eichmann’s conclusion was consistent with that of WX’s independent valuation firm, Alvarez & Marsal. That firm made its projection for tax purposes, not litigation.127 It projected a 9.8 percent probability of hitting the first Double-Lariat incentive, and only a 1.2 percent probability of hitting the second.128 For the non-Double-Lariat incentives, it projected only a 2.3 percent chance of hitting the first incentive, and a 0.3 percent chance of hitting the second. These numbers are consistent with WX’s position that the incentive thresholds were achievable, but a “stretch.”129 Also, neither Mr. Eichmann’s nor Alvarez & Marsal’s model accounted for JRV’s higher-than-disclosed depletion allowances, which artificially increased demand.130 JRV’s interim brief challenges the validity of Mr. Eichmann’s Monte Carlo analysis. It argues that Mr. Eichmann improperly relied on the industrywide growth rate for wine, rather than the higher rate for WX’s national brands.131 But that growth rate is driven almost entirely by the extraordinary sales of Bread & Butter.132 And as Mr. Eichmann explained, using the Bread & Butter growth rate to predict JRV growth would be improper. The brands are not similar.133 JRV’s interim brief also criticizes Mr. Eichmann for viewing the JRV brands as having matured, rather than being poised for growth under the “Chronic Cellars” model.134 That model involved WX acquiring a brand that had experienced success in a limited geographic area, then using that success to secure distribution and retail accounts elsewhere.135 The JRV brands did not fit that model. They had already been in national distribution, though with limited success.136 b) Mr. Kelly did not opine on the likelihood that the thresholds would be achieved Mr. Kelly, who served primarily as a damages expert, also did not effectively rebut Mr. Eichmann’s testimony. As an initial matter, Mr. Kelly is unqualified to offer opinions on estimated 126 Arb. Ex. 490-91. 127 Day 4 Tr. at 925-27 (Gilmer). 128 Day 8 Tr. at 1841-42 (Colvin) & Arb. Ex. 245 at Sched. 9-13. 129 Day 9 Tr. at 2101-02 (Colvin). 130 Day 5 Tr. at 1109 (Moreno); see also Arb. Ex. 490 at ¶ 77. 131 JRV Interim Brief at 20. 132 Arb. Ex. 376 (showing flat to negative growth for most other WX national brands). 133 Day 1 Tr. at 245-51. 134 JRV Interim Brief at 21. 135 Day 1 Tr. at 47-48 (Lewin). 136 Day 7 Tr. at 1478-79 (Byck); Day 8 Tr. at 1842-43 (Colvin). 109284956.1 16 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 sales performance. He lacks relevant experience in sales forecasting, has no certification in valuation, and has no experience running a wine business.137 As discussed below, his opinion also lacked any statistical, economic, or empirical basis. (1) No JRV witness has been willing to project the likelihood that the incentive thresholds would have been met JRV carries the burden of demonstrating a reasonable certainty of achieving the thresholds. But Mr. Kelly was not willing to provide any level of certainty at all.138 He merely characterized the thresholds as “achievable.”139 That opinion is based solely on his experience with other clients, which he refused to describe.140 That methodology is not reliable. Nor does the bare assertion that the thresholds are “achievable” demonstrate that any alleged failure by WX to comply with Section 1.04(f) caused the thresholds not to be met. Only one witness was willing to project the likelihood of achieving even a single threshold. That was Mr. Lewin. He said he saw a better than 50-percent chance that Double Lariat could achieve the 30,000-case threshold.141 But at the time of the acquisition, and when presenting to the WX Board of Directors, Mr. Lewin did not project meeting even this threshold.142 And not even he was willing to testify that he saw a better than 50-percent chance of achieving the 50,000-case threshold.143 Nor was he willing to project the likelihood of achieving the non-Double Lariat incentives.144 And no witness has opined on the likelihood of achieving the $1.4-million gross- margin threshold for the direct-to-consumer business. Moreover, both Mr. Schiffer and Mr. Colvin characterized Mr. Lewin as overly optimistic, sometimes to WX’s detriment.145 His speculative projections are therefore entitled to little weight. In any event, they fall short of the reasonable certainty that JRV bears the burden of proving. 137 Day 10 Tr. at 2251-52 (Kelly). 138 Day 10 Tr. at 2275-76 (Kelly). 139 Day 10 Tr. at 2298 (Kelly). 140 Day 10 Tr. at 2299 (Kelly). 141 Day 1 Tr. at 120-21 (Lewin). 142 Day 1 Tr. at 134-36 (Lewin) & Arb. Ex. 54; Arb. Ex. 58 at WX-00342615. 143 Day 1 Tr. at 121 (Lewin). 144 Day 1 Tr. at 121 (Lewin). 145 Day 6 Tr. at 1342 (Schiffer); Day 8 Tr. at 1783-85 (Colvin). 109284956.1 17 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 (2) Mr. Kelly’s projection of straight-line growth does not reflect market reality and is not accepted practice Rather than projecting levels of certainty, Mr. Kelly simply presented models under which the thresholds could theoretically be achieved. Under each of them, the JRV brands grow at a straight-line rate through 2022, based on a single year’s growth rate for either the JRV brands or Bread & Butter.146 But wine sales do not grow on a straight line.147 Mr. Eichmann’s Monte Carlo projection, which models thousands of scenarios, better accounts for this reality than Mr. Kelly’s projection. As Mr. Eichmann explained, any projection based on a single data point - such as Bread & Butter or JRV’s growth rate for one time period - is “mathematically speculative.”148 Moreover, comparing the JRV brands to Bread & Butter makes no sense. The brands are very different. But Mr. Kelly was unaware of these differences and ignored them in his analysis. For example, he did not know where Bread & Butter had been distributed.149 This is significant because scope of distribution is a key factor in determining the applicability of the Chronic Cellars model. See § II.A.3.a. Nor did he appreciate the pricing differences between the brands, especially the extent to which the JRV brands had been discounted under Mr. Leigon.150 One of Mr. Kelly’s models also suffers from an incorrect premise. That model purports to apply the non-Double Lariat brands’ growth rate from 2016 to 2017. Mr. Kelly said that rate was 20.4 percent.151 But the brands achieved that rate only when the 8,154 cases of Whiplash for the Publix BOGO are included.152 Excluding that one-time, unprofitable event results in a real growth rate of only 6 percent.153 This is consistent with the brands’ 5-percent growth rate from 2015 to 2016.154 If they grew at this rate through 2022, they would not achieve either threshold.155 146 Day 10 Tr. at 2308 (Kelly) & Arb. Ex. 465 at Ex. B. 147 Day 8 Tr. at 1848 (Colvin); Day 5 Tr. at 1029-30 (Stinnett) (explaining normal growth trajectories). 148 Day 1 Tr. at 240:8-241:15 (Eichmann). 149 Day 10 Tr. at 2259-64 (Kelly). 150 Day 10 Tr. at 2261-64 (Kelly). 151 Day 10 Tr. at 2234-35 (Kelly). 152 Day 3 Tr. at 511-13 (Leigon). 153 Day 9 Tr. at 2098-99 (Colvin); Arb. Ex. 520. 154 Arb. Ex. 520. 155 See Arb. Ex. 520. 109284956.1 18 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Also, even under Mr. Kelly’s speculative models, the second threshold is not met. This is because Mr. Kelly’s models project through the end of 2022.156 But the APA requires that the thresholds be met by the fifth anniversary of the closing - March 23, 2022.157 (3) WX discredited Mr. Kelly’s reliance on the volume-build model prepared by Mr. Leigon for Mr. Lewin Mr. Kelly also provided a damages calculation based on the volume-build model prepared by Mr. Leigon for Mr. Lewin.158 But Mr. Kelly engaged in little actual analysis. He simply assumed the model to be true, determined when the two thresholds would have been met, and adjusted for present value.159 The model, though, is not a reliable basis for a damages projection. It was not a projection at all, and WX never adopted it.160 Rather, it was an exercise built “on the assumption that we wanted to reach 50,000 cases and working backward.”161 Even Mr. Leigon testified that the model was merely a “road map how you get to 50,000 cases.”162 The model also had numerous flaws, including a reliance on astronomical growth and a heavy reliance on Costco.163 Nevertheless, WX has made efforts that are consistent with that model, which assumed that Double Lariat would grow aggressively in national chains.164 WX attempted to sell Double Lariat to nearly all those chains.165 But it has not been as successful as hoped. For example, WX was unsuccessful in Costco, which demanded pricing that was too low. Whole Foods also rejected the brands.166 The buyer “does not like the whole ‘Cowboy, Ranch, Spurs, Horses’ label concept, saying it doesn’t resonate with his team, or with those people he has showed it to….and the 156 Day 11 Tr. at 2300 (Kelly). 157 Arb. Ex. 81 at § 1.04(d). 158 Day 10 Tr. at 2228-43 (Kelly) & Arb. Ex. 165. 159 Day 10 Tr. at 2229 (Kelly). 160 Day 1 Tr. at 114 (Lewin); Day 8 Tr. at 1783, 1790-91 (Colvin). 161 Day 1 Tr. at 140-41 (Lewin). 162 Day 2 Tr. at 455-56 (Leigon). 163 Day 8 Tr. at 1785-88 (Colvin). 164 Day 8 Tr. at 1785-86 (Colvin); Arb. Ex. 165. 165 Day 8 Tr. at 1812 (Colvin); Day 11 Tr. at 2426-28 (Moreno). 166 Day 8 Tr. at 1813-15, 1844-46 (Colvin); Day 9 Tr. at 2114-20 (Colvin) & Arb. Ex. 243, 555; Day 11 Tr. at 2413-15 (Moreno). 109284956.1 19 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 packaging looks cheap.”167 WX’s limited success in following the volume-build model further demonstrates its unreliability as a basis for calculating damages. (4) Mr. Kelly failed to explain how the direct-to-consumer threshold would have been met The APA also contains an incentive threshold for direct-to-consumer sales. If the gross margin on those sales exceeds $1.4 million in a year, JRV is entitled to be paid 20 percent of the excess.168 To calculate the likely payments, Mr. Kelly applied a 33-percent annual growth rate to what he perceived as the gross margin from 2016, which was about $1 million.169 Mr. Kelly is wrong on two levels. First, his assumption of the beginning gross margin of $1 million is inaccurate. In reality, the direct-to-consumer profitability for 2016 is unknown, because JRV did not track tasting room expenses.170 Even Mr. Leigon thought the tasting room was only break even.171 Moreover, even after WX acquired the tasting room, the gross margin was under $500,000 per year - with over $1 million in expenses even beyond that.172 As for the 33-percent growth rate, it too is without support. Mr. Kelly described it only as “achievable.”173 And he based that opinion on numbers that were not in his report, as well as his experience with clients that he would not name.174 c) JRV’s opinions would be too speculative for admission in court Because the evidentiary rules have only limited application in arbitration, WX did not object to Mr. Kelly’s opinion. But if this matter were pending in court, that opinion would have been excluded as speculative because it relies on unsupported assumptions about future growth. The California Supreme Court’s decision in Sargon Enterprises, Inc. v. University of Southern California is instructive. There, the court affirmed the exclusion of a lost-profits expert whose opinion assumed that the plaintiff’s “market share would have increased spectacularly over 167 Arb. Ex. 243 at WX-00010943. 168 Arb. Ex. 81 at § 1.04(e). 169 Day 10 Tr. at 2240-41 (Kelly). 170 Day 3 Tr. at 592-93 (Cairns). 171 Day 3 Tr. at 497 (Leigon). 172 Arb. Ex. 384. 173 Day 10 Tr. at 2316 (Kelly). 174 Day 10 Tr. at 2315-16 (Kelly). 109284956.1 20 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 time to levels far above anything it had ever reached.”175 The expert “provided no logical basis to infer that [the plaintiff] would have achieved the market share” that was projected.176 In another case, a California court concluded that a single year’s growth rate is not the required “operating experience sufficient to permit a reasonable estimate of probable income.”177 JRV’s models present the same problem. They fail to demonstrate that JRV-branded wine would have achieved the projected growth rates. To the extent they assume that growth of the brands would have continued at a single year’s rate - as most of them do - that is not a sufficient level of experience for a reliable projection. Using growth rates for other brands is especially unreliable. Accordingly, JRV’s damages analysis is entitled to no weight. d) JRV’s claim is premature, because the incentive period has not expired JRV also cannot prove causation or damages because the incentive period will not end until March 2022. Until then, it is impossible to determine if the thresholds will be satisfied.178 B. JRV has failed to demonstrate that it is entitled to payment of the holdback JRV next alleges that WX breached the APA’s holdback provision by failing to pay it the holdback amount. But the full $613,360 has been properly used to cover depletion allowances for sales made by JRV prior to the close and to cover misrepresented accounts receivable.179 1. The APA authorized WX to use the holdback to pay post-close depletion allowances for wine sold by JRV prior to the close The holdback is governed by Section 1.07 of the APA.180 Section 1.07’s clear language provides that depletion allowances are a proper use of the holdback funds. 175 55 Cal.4th 747, 776 149 Cal.Rptr.3d 614, 636 (2012). 176 Id. at 781, 149 Cal.Rptr.3d at 640. 177 See Kids’ Universe v. In2 Labs, 95 Cal.App.4th 870, 883, 116 Cal.Rptr.2d 158, 168 (2002) (setting forth the standard) (citing Natural Soda Prods. Co. v. City of Los Angeles, 23 Cal.2d 193, 199, 143 P.2d 12, 17 (1943)). 178 Day 8 Tr. at 1782 (Colvin). WX acknowledges presenting a similar issue when it sought leave to file a motion concerning ripeness. WX lost on the ground that “the ripeness doctrine does not apply” and the APA’s arbitration provision is “broad.” But that was not a ruling on whether JRV could prove its damages. It simply concerned a jurisdictional issue 179 Day 8 Tr. at 1699-1700 (Colvin) & Arb. Ex. 361. 180 Arb. Ex. 81 at § 1.07. 109284956.1 21 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 a) Section 1.07 allows WX to apply the holdback toward post-close depletion allowances Section 1.07 allows the holdback to be used to cover “any and all claims or Losses related to broker, distributor and employee related costs.”181 The term “Losses” includes “costs or expenses of whatever kind.”182 Depletion allowances are “Losses” that constitute a “distributor … related cost[].” Therefore, they are a proper use of the holdback.183 Although the holdback language is unambiguous, the extrinsic evidence reinforces that the holdback could be used for depletion allowances for wine sold prior to the close. For example, Mr. Colvin testified that a holdback was standard in WX’s acquisitions, and that it could be used for this purpose.184 John Gilmer, WX’s former senior vice president of finance, agreed.185 WX’s position also makes economic sense. JRV received the pre-close revenue from the wine sales. It should also be responsible for depletion allowances for those sales, which are contra revenue.186 Finally, WX’s position is consistent with the parties’ negotiations. Mr. Colvin explained that JRV had initially resisted allowing the holdback to be used for depletion allowances. But it ultimately yielded.187 The parties also agreed to increase the holdback just before closing, to account for depletion allowances related to the Publix BOGO.188 Notably, the APA does not require that any notice be provided to JRV that the holdback would be used for “distributor … related costs.189 Notice is required only for indemnification claims, which are discussed in Section II.B.1. b) JRV has not seriously contested that WX was entitled to use the holdback to pay depletion allowances JRV has not seriously disputed that Section 1.07’s language allows the holdback to be used for depletion allowances. Mr. Leigon testified that he thought the holdback could be used for “an 181 Day 8 Tr. at 1735 (Colvin); Arb. Ex. 81 at § 1.07 182 Arb. Ex. 81 at Art. X. 183 Day 8 Tr. at 1735-36 (Colvin). 184 Day 8 Tr. at 1737-38 (Colvin). 185 Day 4 Tr. at 912-13 (Gilmer). 186 Day 8 Tr. at 1737-38 (Colvin). 187 Day 8 Tr. at 1737-38 (Colvin) & Arb. Ex. 538r. 188 Day 8 Tr. at 1739 (Colvin) & Arb. Ex. 538r. 189 Day 8 Tr. at 1735-36 (Colvin). 109284956.1 22 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 encumbrance, or a lien, or attached something like that.”190 Section 1.07’s language does not support this limited view. At best, JRV has argued that the APA is silent on whether the holdback can be used for post-close depletion allowances. The APA is not silent. It expressly addressed “distributor … related claims and Losses,” like depletion allowances. Based on the faulty premise that the APA is silent, JRV contends that the industry standard should govern. JRV and Mr. Roney contend that the industry standard is for the buyer to pay post- close depletion allowances, even though the seller realized the revenue.191 But the industry standard is that because the seller realized the revenue, it is responsible for the depletion allowances.192 Not only is this practice consistent with WX’s prior acquisitions and economic reality, it is also consistent with Mr. Leigon’s own prior sale of the Rex Goliath brand at Hahn.193 JRV also appears to argue that it should be obligated only for billbacks received prior to March 31, 2017. This argument is based on a pre-close e-mail from Mr. Leigon in which he purports to agree to honor billbacks received prior to March 31.194 That e-mail is of no legal effect. It predates the APA and proposes terms that are inconsistent with it. The APA contains no cutoff. Under the parol evidence rule, the e-mail is therefore irrelevant.195 c) WX could also pay the depletion allowances through the APA’s indemnification procedure Section 1.07 also provides an alternative basis for using the holdback to cover depletion allowances. It allows the holdback to be used “to satisfy any of [JRV’s] indemnification obligations under Article VIII.”196 190 Day 2 Tr. at 378 (Leigon). 191 Day 10 Tr. at 2208-10 (Roney). 192 Day 8 Tr. at 1746 (Colvin). 193 Day 8 Tr. at 1750 (Colvin) & Arb. Ex. 3-4. See also WX Interim Brief at 18 (noting that Mr. Leigon agreed that in Rex Goliath sale, there was no dispute how billbacks would be handled). 194 Day 9 Tr. at 2028-29 (Colvin) & Arb. Ex. 68. 195 Casa Herrera, Inc. v. Beydoun, 32 Cal.4th 336, 344, 83 P.3d 497, 502-03 (2003) (“The parol evidence rule establishes that in integrated written agreement supersedes any prior or contemporaneous promise at variance with the terms of that agreement.”); see also Cal. Civ. Code § 1625 (“The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.”). 196 Arb. Ex. 81 at § 1.07. 109284956.1 23 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 (1) The post-close depletion allowances also fit within JRV’s indemnification obligation Depletion allowances fit the APA’s definition of indemnification. Article VIII requires JRV to “defend, indemnify and hold harmless [WX] from and against all claims, judgments, damages, liabilities, settlements, Losses, costs and expenses … arising from or relating to … any … Excluded Liability.”197 An “Excluded Liability” is defined as any liability of JRV that is not an “Assumed Liabilit[y].”198 And “Assumed Liabilities” are only those liabilities associated with “Assumed Contracts.”199 The Assumed Contracts are primarily contracts to purchase grapes for winemaking.200 They do not include contracts with distributors for depletion allowances. Such liabilities are therefore Excluded Liabilities and subject to JRV’s indemnity obligations. In addition, any breaches of JRV’s representations and warranties in the APA give rise to an indemnification obligation.201 As discussed in Section VI.B, JRV committed many such breaches. (2) WX provided notice to JRV that it was paying the post- close depletion allowances To the extent the depletion allowances constitute indemnity obligations, Section 8.06 of the APA would require notice to JRV.202 Although JRV contends that WX failed to satisfy this requirement, it is mistaken. Mr. Gilmer and his staff provided considerable notice.203 Moreover, Section 8.06 provides that any failure by WX to provide notice will not relieve JRV of liability, except if JRV is prejudiced.204 Mr. Colvin explained that JRV could not have been prejudiced, because the depletion allowances were valid expenses.205 Nor would it have been practical to negotiate with the distributors, because WX “needed them for execution in the field, in getting our product to a retail account.”206 So regardless of whether WX had provided any notice, 197 Arb. Ex. 81 at § 8.02. 198 Arb. Ex. 81 at § 1.03. 199 Arb. Ex. 81 at § 10 and Schedule 1.01(c). 200 Arb. Ex. 81 at Schedule 1.01(c). 201 Ex. 81 at § 8.02. 202 Arb. Ex. 81 at § 8.06. 203 Day 4 Tr. at 922 (Gilmer); Day 8 Tr. at 1739-43 (Colvin) & Arb. Ex. 159, 175, 188, 194, 539r, 541r. 204 Arb. Ex. 81 at § 8.06(a). 205 Day 8 Tr. at 1735-36 (Colvin). 206 Day 8 Tr. at 1736 (Colvin). 109284956.1 24 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 the depletion allowances were due and were JRV’s responsibility. And JRV has failed to present any evidence that it had been prejudiced by any purported lack of notice, particularly given that JRV lacked the funds to pay the bills - as evidenced by Mr. Leigon using his Consulting Agreement money to pay some of them. See § VI.D. 2. WX did in fact pay over $871,000 in post-close depletion allowances Not only does the APA authorize WX to use the holdback for post-close depletion allowances, WX did so. Mr. Colvin presented a spreadsheet based on WX’s financial system, Navision, showing the depletion allowances that WX had paid, broken down by month.207 The total amount paid was $871,221.85.208 This was $257,861.85 more than the holdback amount. JRV has not disputed that WX paid this amount. Compounding the problem is that JRV’s receivables were also overstated by $197,086.20. Mr. Leigon acknowledged that the holdback could properly be applied to uncollectible receivables.209 So even after applying the holdback, the gap between JRV’s payables and receivables was $454,861.85 greater than JRV had represented. This is the reason that WX has not released the holdback amount to JRV.210 JRV and Mr. Leigon’s misrepresentations concerning payables and receivables is discussed further in Section VI.B. 3. Mr. Leigon acknowledged that JRV was responsible for at least $324,000 in depletion allowances that WX paid Notably, $324,041.05 of the $871,221.85 was paid by WX for wine sold by JRV and depleted by distributors prior to the closing.211 Mr. Leigon even acknowledged in writing that JRV is responsible for this amount. In a September 10, 2017 letter to Mr. Gilmer, he wrote, “JRV will only pay for verified DA amounts that were incurred before March 23, 2017.”212 Mr. Leigon again acknowledged responsibility on November 9, 2017. That day, he wrote in an e-mail to Mr. Gilmer, “JRV acknowledges responsibility for programming in place prior to 3-31-2017. This would 207 Day 8 Tr. at 1699-1700 (Colvin) & Arb. Ex. 361. 208 Day 8 Tr. at 1700 (Colvin). 209 Day 8 Tr. at 1727-29 (Colvin) & Arb. Ex. 553. 210 Day 8 Tr. at 1752 (Colvin). 211 Day 8 Tr. at 1700 (Colvin) & Arb. Ex. 361. 212 Day 8 Tr. at 1714-16 (Colvin) & Arb. Ex. 541r 109284956.1 25 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 include bill-backs for depletions occurring January 1st through March 31st 2017.”213 Nonetheless, JRV has denied responsibility for those amounts here. C. JRV has failed to demonstrate that it is entitled to further payment of its accounts payable The third portion of JRV’s claim for breach of the APA is its assertion that WX has failed to pay JRV’s accounts payable and indemnify it from third-party collections.214 Specifically, JRV contends that WX failed to pay $297,494 of JRV’s payables. This includes bills from JRV’s lawyers at Pillsbury Winthrop, though many of these concerned work not for JRV, or the work on the transaction itself, which the parties had agreed WX would not pay.215 WX did not assume JRV’s payables. The APA is clear. As noted in Section II.B.1, WX assumed only the “Assumed Liabilities,” which relate to the “Assumed Contracts,” which in turn are primarily for the supply of grapes. WX’s only role with the JRV payables was to manage them.216 It did so because the parties had agreed on a gap between payables and receivables - specified in the APA as a set amount.”217 Following the execution of a side letter, that gap was set at $436,335.90.218 In effect, WX acquired that gap as part of the transaction.219 If the actual gap exceeded that amount, the APA allowed WX to withhold the difference from the closing payment.220 Alternatively, the holdback could be used to pay the excess.221 But the holdback was exhausted by depletion allowances and the uncollectible receivables. See Section II.B.2. Nothing was left to pay JRV’s payables, which were and remain JRV’s responsibility. JRV’s counterargument appears primarily to be that in a few e-mails, lower-level WX employees referenced WX assuming the payables.222 But as both Mr. Colvin and Mr. Gilmer noted, those employees were not privy to the APA’s terms and could not have bound WX.223 To 213 Day 8 Tr. at 1717-18 (Colvin) & Arb. Ex. 194. 214 First Amended Demand at ¶¶ 35-37. 215 Day 8 Tr. at 1862-66 (Colvin). 216 Day 8 Tr. at 1720 (Colvin). 217 Day 8 Tr. at 1720-24 (Colvin) & Arb. Ex. 81 at Art. X. 218 Day 8 Tr. at 1722-23 (Colvin) & Arb. Ex. 101. 219 Day 8 Tr. at 1720-24 (Colvin). 220 Day 8 Tr. at 1721-22 (Colvin) & Arb. Ex. 81 at § 1.04(b). 221 Day 4 Tr. at 915 (Gilmer). 222 Day 9 Tr. at 2032-37 (Colvin) & Arb. Ex. 100, 106. 223 Day 4 Tr. at 922-24 (Gilmer); Day 9 Tr. at 2032-36 (Colvin). 109284956.1 26 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 the extent JRV is intimating that WX acquiesced to those statements by not correcting them, that is not reasonable. Senior executives like Mr. Colvin and Mr. Gilmer would not correct every erroneous statement by a subordinate.224 Nor does the fact that WX employees discussed management of the payables with JRV mean that WX assumed them.225 D. JRV cannot carry its burden of proving that WX breached the APA’s covenant of good faith and fair dealing JRV also alleges that WX violated the APA’s covenant of good faith and fair dealing. But that covenant “cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.”226 Thus, in the context of an earnout’s “commercially reasonable efforts” requirement, a court dismissed a claim for breach of the covenant where the plaintiff simply alleged that the defendant failed to make such efforts.227 Here too, JRV has identified no other obligation with which WX has failed to comply. Therefore, JRV’s claim for breach of the covenant of good faith and fair dealing must fail. JRV relied on Marsu in its opening brief, but that case is distinguishable and factually intensive. In Marsu, the Ninth Circuit upheld the trial court’s finding that Disney had breached the covenant of good faith and fair dealing based on the factual circumstances of that case. For instance, in Marsu, the court relied heavily on an internal Disney document stating that Disney was too busy with other projects to market the cartoon character properly. In the context of Disney’s obligation to use “best efforts,” this was a breach. Here, by contrast, WX’s obligation was only to use “commercially reasonable” efforts “consistent with” effort to promote its other brands, not its “best efforts,” which is a much higher standard. And WX has used commercially reasonable efforts to market the JRV brands. Given the lower standard applicable here and WX’s efforts, Marsu is distinguishable on the facts. 224 Day 4 Tr. at 923 (Gilmer); Day 9 Tr. at 2035 (Colvin). 225 Day 9 Tr. at 2037-42 (Colvin). 226 Guz v. Bechtel National, Inc. 24 Cal.4th 317, 349-350 (2000). 227 Former Shareholders of CardioSpectra, Inc. v. Volcano Corp., 2012 WL 3237144, *3 (N.D. Cal. Aug. 6, 2012) (applying Delaware law). 109284956.1 27 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 III. MR. LEIGON CANNOT CARRY HIS BURDEN ON THE THIRD AND FIFTH CLAIMS - THAT WX BREACHED THE CONSULTING AGREEMENT AND ITS COVENANT OF GOOD FAITH AND FAIR DEALING The third and fifth claims concern the Consulting Agreement. Mr. Leigon alleges that WX breached that agreement and its covenant of good faith and fair dealing.228 A. Mr. Leigon committed material breaches of the Consulting Agreement that justified WX ceasing payments Under California law, one party’s material breach of a contract excuses further performance by the innocent party.229 Whether a breach is material depends on “the importance or seriousness thereof and the probability of the injured party getting substantial performance.”230 In its interim brief, WX explained that Section 1.2 of the Consulting Agreement required Mr. Leigon to perform his services “in good faith and in a professional manner.” It also explained how Mr. Leigon failed to comply with this requirement through his poor judgment, passiveness, and inability to engage with distributors.231 Even Mr. Lewin, who had supervised Mr. Leigon, did not believe that WX would renew the Consulting Agreement after the two years expired.232 Mr. Leigon also materially breached another portion of the Consulting Agreement. Section 2 required him to “devote as much time as is necessary, but in no event less than an average of forty hours per week as reasonably determined by [WX].”233 Mr. Leigon did not meet this standard.234 He credited himself with 24 hours per day for each full day on the road, and even then, failed to devote the necessary hours.235 When the 24 hours were reduced to a more realistic 12 hours per day, Mr. Leigon worked only about 1,300 hours in a year when he should have worked 2,000.236 Taken together, Mr. Leigon’s breaches of the Consulting Agreement were material. Had Mr. Leigon spent the required hours, he could have visited more accounts and built relationships 228 First Amended Demand at ¶¶ 50-58. 229 Plotnik v. Meihaus, 208 Cal.App.4th 1590, 1602, 146 Cal.Rptr.3d 585, 596 (2012). 230 Brown v. Grimes, 192 Cal.App.4th 265, 278, 120 Cal.Rptr.3d 893, 903 (2011). 231 WX Interim Brief at 19. 232 Day 1 Tr. at 122-23 (Lewin). 233 Ex. 82 at § 2. 234 Day 8 Tr. at 1850-53 (Colvin); Day 9 Tr. at 1936 (Colvin). 235 Day 8 Tr. at 1852-53 (Colvin) & Arb. Ex. 85. 236 Day 8 Tr. at 1853 (Colvin). 109284956.1 28 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 with more distributors. Such efforts could have provided WX the type of performance it expected and satisfied the “good faith and professional manner” requirement. Finally, Mr. Leigon failed to take responsibility for the numerous other issues that arose after the transaction.237 Because JRV and Mr. Leigon were “one and the same,” this too breached the Consulting Agreement.238 See also § VI.D (discussing WX’s alter-ego claim). B. WX provided Mr. Leigon with notice of his breaches Another issue raised by JRV and Mr. Leigon is whether WX provided Mr. Leigon with notice of his breaches of the Consulting Agreement and a 30-day opportunity to cure, as required in the Consulting Agreement.239 Mr. Leigon received notice of this breach via letter dated March 8, 2018.240 The letter referenced WX’s “right to terminate the Consulting Agreement.”241 WX then waited more than 30 days before advising Mr. Leigon that it would not be scheduling further trips for him and asking him to not go to the winery. Those communications came on April 16, 2018 and April 20, 2018.242 Accordingly, WX provided Mr. Leigon with the required notice. C. JRV has failed to prove that WX breached the Consulting Agreement’s covenant of good faith and fair dealing As for Count Five’s good-faith-and-fair-dealing claim, Mr. Leigon again has not carried his burden. He appears to claim only that WX violated the Consulting Agreement itself by ceasing payments. He has not identified any violations of the covenant of good faith and fair dealing. IV. MR. LEIGON CANNOT CARRY HIS BURDEN ON THE FOURTH CLAIM - THAT WX FAILED TO PAY HIM WAGES AND EMPLOYEE BENEFITS Mr. Leigon’s fourth claim is that WX improperly classified him as an independent contractor rather than an employee, and that as a result, he is entitled to wages and benefits.243 He makes this claim even though the same law firm asserting this claim was his counsel in negotiating the Consulting Agreement. At any rate, the Consulting Agreement states in multiple locations that Mr. Leigon is not an employee. For example: 237 Day 9 Tr. at 1942 (Colvin). 238 Day 9 Tr. at 1936-37 (Colvin). 239 Arb. Ex. 82 at § 8.2. 240 Day 9 Tr. at 2047-48 (Colvin) & Arb. Ex. 229. 241 Arb. Ex. 229. 242 Arb. Ex. 238, 240. 243 First Amended Demand at ¶¶ 59-66. 109284956.1 29 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 • The agreement defines Mr. Leigon as “Consultant”; • Section B of the Preamble describes Mr. Leigon as an “independent contractor”; • Section 1.1 provides that Mr. Leigon “shall not be considered, under the provisions of this Agreement or otherwise, as having the status of an employee, agent or partner of [WX]”; • Section 3.3 provides that Mr. Leigon lacks authority to bind WX; • Section 4 provides that no taxes will be withheld, and that reporting income was Mr. Leigon’s sole responsibility; and • Section 4 also provides that Mr. Leigon “does not have and will not make any claim for sick leave, vacation pay, stock participation plans, retirement benefits, worker’s compensation benefits or employee benefits of any kind in any way related to this Agreement” - though these are the exact claims he now makes.244 In the arbitration demand, Mr. Leigon relies on the fact that the Consulting Agreement characterizes Mr. Leigon’s work product as a “work made for hire.” He contends that under Cal. Labor Code § 3351.5, this makes him an employee. But Section 3351.5 is not a law that applies generally. It is limited to the worker’s compensation context.245 It has no applicability here.246 At the arbitration, Mr. Leigon’s counsel also made reference to Dynamex Operations West, Inc. v. Superior Court, a California Supreme Court decision that expands the definition of “employee.”247 But Dynamex applies to wage orders, so is inapplicable.248 Nor does Dynamex suggest that, even if Mr. Leigon were misclassified, he would be entitled to the benefits he seeks, like vacation pay and health benefits. Mr. Leigon’s attempt to re-write another agreement he signed, after being well represented by counsel, cannot be accepted and he is therefore not entitled to recover on the fourth claim. 244 Arb. Ex. 82. 245 Cal. Labor Code § 3369. 246 See, e.g., Castro v. State of California, 70 Cal. App. 3d 156, 159, 138 Cal. Rptr. 572, 574 (App. 1977) (finding that worker’s compensation statute’s characterization of a person as an employee does not control whether he was an employee for liability) 247 4 Cal.5th 903, 232 Cal.Rptr.3d 1 (2018). 248 Dynamex, 4 Cal.5th at 913-14, 232 Cal.Rtpr.3d at 6. 109284956.1 30 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 V. JRV AND MR. LEIGON CANNOT CARRY THEIR BURDEN ON THE SIXTH CLAIM - THAT WX DEFRAUDED THEM JRV and Mr. Leigon’s sixth claim is that WX fraudulently induced them into entering into the agreements.249 The alleged misrepresentations include that: • JRV could earn the incentive payouts; • WX would use commercially reasonable efforts to promote sales of JRV brands; • WX would promote and market the JRV brands “just as much as WX’s other brands”; • Mr. Leigon was vital to the success of the JRV brands; and • Mr. Leigon would be the brand manager. In alleging fraudulent representation, the claimant must show a misrepresentation with knowledge of falsity and the intent to induce reliance, justifiable reliance, and damages.250 Here, JRV has provided no evidence that these representations were false, let alone that WX knew they were false when made. Further, JRV has not demonstrated how any prioritization of Bread & Butter makes them untrue. The statements about Mr. Leigon were made in the November 2016 term sheet, which was nonbinding.251 JRV has presented no evidence that WX believed that language was inaccurate at the time. WX did not realize until later that the brands were in weaker condition than JRV had represented.252 The term sheets were then superseded by the APA and the Consulting Agreement. Those documents do not contain similar statements, and they each have integration clauses.253 Once they were executed, Mr. Leigon could not have justifiably relied on the term sheet. VI. WX HAS CARRIED ITS BURDEN OF PROVING ITS SECOND COUNTERCLAIM - THAT JRV AND MR. LEIGON, AS ITS ALTER EGO, BREACHED THE REPRESENTATIONS AND WARRANTIES IN THE APA The remainder of this brief focuses on WX’s counterclaims. WX begins with the second counterclaim, which alleges that JRV falsely made representations and warranties in the APA. 249 First Amended Demand at ¶¶ 70-76. 250 Cansino v. Bank of Am., 224 Cal.App.4th 1462, 1469, 169 Cal.Rptr.3d 619, 625 (2014). 251 Day 7 Tr. at 1529-30 (Byck); Arb. Ex. 22 at § G (Nov. 9, 2016 Term Sheet); 252 Day 7 Tr. at 1472-74 (Byck). 253 Arb. Ex. 81 at § 11.07; Arb. Ex. 82 at § 10.2. 109284956.1 31 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 A. The APA contained numerous representations and warranties about JRV’s financial condition JRV’s representations and warranties in the APA include: • Section 3.03 - “The execution, delivery and performance by Seller of this Agreement and the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated herein and thereby, do not and will not … (d) result in the creation or imposition of any Encumbrance on the Purchased Assets.” Article X of the APA defines “Encumbrance” as including “any depletion allowance, scan dollars, or any support or incentive provided by Seller to distributors, brokers or retailers in connection with the sale of wine.” • Section 3.04(a) - “The Financial Statements and Interim Financial Statements fairly and accurately represent the financial position of the Business.” • Section 3.04(a) - “The amount of accounts receivable calculated as of the Closing less the amount of accounts payable calculated as of the Closing is negative three Hundred Fifty-Six Thousand Three Hundred Eight[y]-Nine Dollars and Seventy-Nine Cents (-$356,389.79).” This amount was later amended by the side letter to -$436,335.90. • Section 3.05 - “Seller has no Liabilities with respect to the Business, except (a) those which are adequately reflected or reserved against in the Financial Statements and the Interim Financial Statements, (b) those which have been incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date and which are not, individually or in the aggregate, material in amount, and (c) Excluded Liabilities.” • Section 3.12(a) - “Seller has no obligation to refund the purchase price of any wine that was sold to any such customer or distributor with respect to the brands.” • Section 3.12(b) - “Seller has provided Buyer with … all agreements with distributors ... including all material terms.” B. WX has demonstrated that JRV and Mr. Leigon made numerous misrepresentations about the JRV brands JRV and Mr. Leigon’s misrepresentations related first to pricing and depletion allowances.254 Mr. Colvin explained that JRV failed to disclose a spike in depletion allowances in early 2017.255 This spike was the result of JRV discounting its product prior to the sale. Doing so 254 WX Interim Brief at 20-23. 255 Day 8 Tr. at 1709-12 (Colvin). 109284956.1 32 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 allowed JRV to sell as much as possible and keep the proceeds.256 The spike was even more pronounced when the post-close depletion allowances were accounted for, as demonstrated here:257 But JRV never disclosed the spike. It was not contained on the colored spreadsheet containing JRV’s sales data, which was limited to 2016 and lacked information about specific deal levels.258 Nor did JRV’s sales manager, Bill Spear, detail the extent of JRV’s discounting, despite a request for information about each deal level.259 The result was that many distributors sent billbacks for higher depletion allowances than JRV had disclosed in its pricing grid.260 JRV’s pricing also differed from the pricing grid it had provided at the January 2017 meeting with the WX sales team.261 Mr. Schiffer testified that he relied on that grid as JRV’s market pricing.262 But many distributors billed WX for depletion allowances that were deeper than 256 Day 8 Tr. at 1711-12 (Colvin). 257 Day 8 Tr. at 1712-13 (Colvin) & Arb. Ex. 549. 258 Day 8 Tr. at 1714 (Colvin); Day 11 Tr. at 2432-33 (Moreno) & Arb. Ex. 61. 259 Day 11 Tr. at 2494-98 (Spear). 260 Day 8 Tr. at 1705-06, 1755-57, 1760-61 (Colvin) & Arb. Ex. 427. 261 Arb. Ex. 34 (JRV-000469 at “Pricing On,” “Pricing Off,” and “Pricing Chain” tabs). 262 Day 6 Tr. at 1312-13 (Schiffer). 109284956.1 33 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 shown on the grid. WX presented nearly 40 examples.263 Mr. Lewin also testified that certain deals were used more prevalently than JRV had disclosed.264 JRV’s misrepresentations on these issues masked the fact that JRV had propped up the brands with aggressive pricing. See § II.A.2. JRV’s misrepresentations concerning pricing breached Sections 3.03, 3.04, 3.05, 3.12(a), and 3.12(b).265 JRV also made misrepresentations about its payables and receivables, specifically the extent of the gap between the two. Mr. Colvin testified that JRV had overstated its receivables by $197,086.20.266 The primary components were: • $9,195 from Community Health, which had already been paid to JRV; • $58,333.53 from Roots Run Deep, for revenue that was not owed because JRV ceased operating the production facility; and • $18,952 from Terravant, which was also not a valid receivable.267 • Approximately $88,000 from two Colorado distributors.268 Except for the amount due from the Colorado distributors, Mr. Leigon acknowledged that each of these amounts had been incorrectly classified as receivables owed to JRV.269 A precise calculation of the $197,086.20, which includes other small components, can be found on Exhibit 350. JRV’s failure to properly disclose the payables and receivables constitutes a breach of Section 3.04.270 C. WX suffered damages of as much as $5.3 million due to JRV’s misrepresentations Mr. Colvin provided undisputed testimony that WX relied on the representations in the APA.271 It therefore suffered two components of damages. First is the $477,948.05 by which JRV understated the gap between payables and receivables, including the amount by which the depletion allowances exceeded the holdback. Mr. Colvin explained that this is calculated by adding the depletion allowances related to cases sold by JRV before the close and undisclosed samples to the uncollectible receivables, then subtracting the holdback.272 The formula is: 263 Day 6 Tr. at 1317-19 (Schiffer) & Arb. Ex. 432. 264 Day 1 Tr. at 138-39 (Lewin). 265 Day 8 Tr. at 1756-57 (Colvin). 266 Day 8 Tr. at 1723-28 (Colvin) & Arb. Ex. 350. 267 Day 8 Tr. at 1724-25 (Colvin) & Arb. Ex. 350. 268 Day 8 Tr. at 1726 (Colvin). 269 Day 3 Tr. at 527-28 (Leigon). 270 Day 8 Tr. at 1755-56 (Colvin). 271 Day 8 Tr. at 1776 (Colvin). 272 Day 8 Tr. at 1859-60 (Colvin). 109284956.1 34 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 $871,221.85 in post-close depletion allowances plus $197,086.20 in uncollectible receivables plus $23,000 in undisclosed samples273 equals $1,091,308.05 less holdback ($613,360) equals $477,948.05 Notably, JRV’s counsel attempted to assert on Mr. Colvin’s cross-examination that WX’s damages should be offset by the $297,494 in payables that JRV asserts were not paid.274 This is incorrect. Because WX did not assume the JRV’s payables, they remain JRV’s responsibility. The second component of WX’s damages is the $4.8 million that it overpaid for the JRV brands. WX’s interim brief explains the methodology that Mr. Eichmann applied to reach this number.275 Importantly, JRV presented no testimony - at any stage of the arbitration - to counter Mr. Eichmann’s analysis. His $4.8 million damages calculation is unrebutted. Mr. Colvin confirmed Mr. Eichmann’s analysis, saying that WX should have paid approximately $4 million for the JRV brands, “on the high side,” had JRV’s financial condition been properly disclosed.276 He explained, “[T]his was a business that Mr. Leigon, 16, 18 months before, purchased in September of 2015 for $4 million. He incurred $4.5 million in bank debt. Apparently loaned the company $870,000. Lost 2.3 million and was on the brink of bankruptcy before we closed the transaction.”277 Notably, among the assets that WX paid for were the Noncompetition Agreement with Mr. Leigon.278 That agreement lasted for two years and had nothing to do with the Consulting Agreement.279 In fact, WX requires similar non-competes even when it does not enter into consulting agreements with sellers.280 Hence, WX had no reason to release Mr. Leigon from the Noncompetition Agreement. Nor did it have any basis for knowing whether this would pose a 273 Day 8 Tr. at 1859-60 (Colvin) & Arb. Ex. 549. 274 Day 9 Tr. at 2026-28 (Colvin). 275 WX Interim Brief at 23-24. 276 Day 8 Tr. at 1861-62 (Colvin). 277 Day 8 Tr. at 1861 (Colvin). 278 Arb. Ex. 83. 279 Day 8 Tr. at 1848-50 (Colvin). 280 Day 8 Tr. at 1850 (Colvin). 109284956.1 35 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 hardship to Mr. Leigon, given that it had just paid over $1.5 million in cash for JRV’s assets and to this day, has no information about where that money went. D. Mr. Leigon should be deemed JRV’s alter ego JRV was also Mr. Leigon’s alter ego. The alter-ego doctrine allows the court to disregard a corporation’s entity and treat its acts as though they were conducted by the person controlling the corporation.281 Factors that can support the application of the alter-ego theory include undercapitalization, commingling of business and personal assets, and failure to follow corporate formalities.282 The alter-ego doctrine is applied to avoid the perpetration of a fraud, circumvention of a statute, or the accomplishment of some other wrongful or inequitable purpose.283 Here, WX has shown that JRV was Mr. Leigon’s alter ego. Mr. Leigon acknowledged that JRV was undercapitalized and held no annual meetings.284 Mr. Spear and JRV’s controller, Steve Cairns, agreed that the company was undercapitalized.285 And JRV made undocumented loans to its members, including Mr. Leigon and Mr. Cairns.286 In addition, Mr. Leigon treated himself and JRV interchangeably. For example, he once took a reduction in his consulting fee so a JRV vendor could be paid.287 As Mr. Byck said, “I looked at Bill as JRV.”288 This is especially true because Mr. Leigon has used the corporate form as a sword - to come after WX for incentive payments - and a shield from personal liability for any judgment against JRV.289 He has also used personal funds to pay JRV’s legal bills for this proceeding, though if WX obtains a judgment against it, JRV will undoubtedly assert that it has no assets.290 The alter-ego doctrine seeks to avoid such an inequitable result.291 281 Toho-Towa Co., Ltd. v. Morgan Creek Prods., Inc., 217 Cal.App.4th 1096, 1106, 159 Cal.Rptr.3d 469, 479 (2013). 282 Toho-Towa, 217 Cal.App.4th at 1107, 159 Cal.Rptr.3d at 479. 283 Gopal v. Kaiser Foundation Health Plan, Inc., 248 Cal.App.4th 425, 430, 203 Cal.Rptr.3d 549, 554 (2016). 284 Day 3 Tr. at 528-29 (Leigon). 285 Day 3 Tr. at 591 (Cairns); Day 11 Tr. at 2505 (Spear). 286 Day 3 Tr. at 529 (Leigon); Day 3 Tr. at 592 (Cairns); 287 Day 8 Tr. at 1856-57 (Colvin); Day 9 Tr. at 2053 (Colvin) & Arb. Ex. 552. 288 Day 7 Tr. at 1483 (Byck). 289 Day 9 Tr. at 1940-41, 2050 (Colvin). 290 Day 3 Tr. at 529-30 (Leigon). 291 Day 9 Tr. at 1940-41 (Colvin). 109284956.1 36 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Moreover, JRV and Mr. Leigon denied WX discovery into how JRV used the approximately $1.5 million that WX paid at close.292 It is unclear whether any of that money went to a proper corporate purpose. Piercing the corporate veil would correct any injustice concerning the use of this money. Accordingly, Mr. Leigon should be determined to be JRV’s alter ego, such that he should be personally liable for all damages awarded to WX and against JRV. VII. WX HAS CARRIED ITS BURDEN OF PROVING ITS FIRST COUNTERCLAIM - THAT JRV AND MR. LEIGON FRAUDULENTLY INDUCED WX TO ENTERING INTO THE TRANSACTION WX’s first counterclaim is closely related to the counterclaim for breach of the APA. It alleges that JRV and Mr. Leigon fraudulently induced WX into entering into the agreements.293 To prove fraud, WX must show that JRV or Mr. Leigon made a misrepresentation with knowledge of falsity and the intent to induce reliance by WX, and that WX justifiably relied and suffered damages.294 The misrepresentation may be a false statement, concealment, or nondisclosure.295 A. JRV and Mr. Leigon made misrepresentations The misrepresentations giving rise to WX’s first counterclaim are the same as those giving rise to its claim for breach of the APA. Those are discussed in Section VI.B. B. JRV and Mr. Leigon knew that their representations were false JRV and Mr. Leigon also knew their misrepresentations were false. Although they have downplayed the misrepresentations as unintentional, this is not credible. For example, Mr. Spear testified that he was unaware of the spike in depletion allowances, because he was not a micromanager.296 But the chart in Section VI.B shows that the spike was too significant for Mr. Leigon and Mr. Spear to be unaware. Mr. Spear also asserted that the spike was merely the result of increased sales around the holidays.297 But on cross-examination, he acknowledged that the spike in early 2017 was much 292 See Prehearing Order No. 4. 293 WX’s: (1) Answer to First Amended Arbitration Demand and Statement of Claims by JRV, Inc. and Bill Leigon and (2) Counterclaims Against JRV, LLC and Bill Leigon (“Amended Answer and Counterclaims”) at ¶¶ 81-88. 294 Cansino, 224 Cal.App.4th at 1469, 169 Cal.Rptr.3d at 625. 295 Beckwith v. Dahl, 205 Cal.App.4th 1039, 1060, 141 Cal.Rptr.3d 142, 159 (2012). 296 Day 11 Tr. at 2493 (Spear). 297 Day 11 Tr. at 2464-66 (Spear). 109284956.1 37 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 greater than in the prior year even though the total number of cases sold in each relevant time period were similar.298 Moreover, even if Mr. Leigon and Mr. Spear were somehow unaware of the spike, the salespeople were aware. Their knowledge is imputed to JRV.299 C. JRV and Mr. Leigon intended to induce reliance by WX WX has also shown that JRV and Mr. Leigon intended to induce reliance by WX. JRV knew that other than the information it provided, WX had no knowledge of JRV’s finances and had to rely on the information JRV was providing.300 This undermines JRV’s argument that it could not have defrauded WX because WX engaged in due diligence.301 That due diligence was only as good as the information JRV provided. It also did not provide WX with information regarding the extent of depletion allowances incurred in 2017, which were never disclosed.302 D. WX did rely on JRV and Mr. Leigon’s misrepresentations Finally, WX has also demonstrated that it relied on JRV’s representations by overpaying for the brands. JRV’s misrepresentations about pricing alone led WX to overpay for the brands by $4.8 million, as Mr. Eichmann explained.303 JRV may argue that WX could have learned about the spike in depletion allowances by talking to distributors. But JRV cannot escape its fraud by alleging that WX should have done more to discover it. This is especially true in light of Section 8.08 of the APA, which provides that WX’s right to indemnity, which includes for any misrepresentations, “will not be affected by any investigation conducted by WX.”304 JRV did produce an e-mail in which Mr. Leigon gave Mr. Lewin permission to speak to distributors.305 But actually following through doing so could have jeopardized the brands. As Mr. Byck explained, distributors worry that if the brands are being sold, the buyer might end the 298 Day 11 Tr. at 2498-2500 (Spear). 299 Cal. Civ. Code § 2332 (“As against a principal, both principal and agent are deemed to have notice of whatever either has notice of, and ought, in good faith and the exercise of ordinary care and diligence, to communicate to the other.”); 300 Day 3 Tr. at 596-97 (Cairns). 301 See JRV Interim Brief at 5-11. 302 Day 11 Tr. at 2431-32 (Moreno); see also Day 8 Tr. at 1703-04 (Colvin) (noting that colored spreadsheet provided by JRV contained information through 2016 only). 303 Day 1 Tr. at 193-95 (Eichmann). 304 Ex. 81 at § 8.08. 305 Day 9 Tr. at 2046-47 (Colvin) & Arb. Ex. 562. 109284956.1 38 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 relationship with the distributor. This could lead the distributor to stop selling the brands.306 Further, there is no evidence to suggest that the distributors would have disclosed to WX the excessive, and sometimes illegal, conduct that JRV engaged in prior to close. JRV also argued in its interim brief that WX had not relied on Mr. Cairns’ representation that post-close depletion allowances would be only $108,000.307 But in doing so, it misquoted Mr. Gilmer. He actually said that WX did not “absolutely rely” on Mr. Cairns’ representation, but had “[v]ery limited” ability to get a better estimate of depletion allowances.308 Mr. Colvin further clarified that WX did in fact rely on that representation, because it had “limited, if any, visibility into what the DAs were for 2017.”309 Even in due diligence, it obtained limited financial information, given the lack of sophistication in JRV’s accounting practices.310 VIII. WX HAS CARRIED ITS BURDEN OF PROVING ITS THIRD COUNTERCLAIM - THAT JRV AND MR. LEIGON, AS ITS ALTER EGO, BREACHED THE TRANSITIONAL SERVICES AGREEMENT WX’s third claim against JRV relates to another agreement that was entered into along with the APA - the Transitional Services Agreement (“TSA”).311 As Mr. Colvin explained, the TSA’s purpose was for JRV to transact orders for JRV-branded wine after the closing. JRV was supposed to act as WX’s agent, then remit funds to WX.312 Mr. Colvin also testified that JRV failed to satisfy its obligations under the TSA. He explained that JRV was unable to transact orders. Instead, it turned its financial system over to WX so it could do so.313 This resulted in Vanessa McNorton, WX’s head of customer service, spending one day a week for half a year performing services that were JRV’s responsibility.314 WX’s damages are based on the time that Ms. McNorton spent. Her salary for one day a week over 26 weeks is $10,400.315 The alter ego doctrine also applies to this claim, so Mr. Leigon is liable too. 306 Day 7 Tr. at 1554-55 (Byck). 307 JRV Interim Brief at 7; see also Ex. 77 (Cairns e-mail re depletion allowances). 308 Day 4 Tr. at 910 (Gilmer). 309 Day 8 Tr. at 1702 (Colvin). 310 Day 8 Tr. at 1762 (Colvin). 311 Amended Answer and Counterclaims at ¶¶ 96-101. 312 Day 8 Tr. at 1753-54 (Colvin) & Ex. 84 at §§ 4-6. 313 Day 8 Tr. at 1754 (Colvin). 314 Day 8 Tr. at 1754 (Colvin); Day 9 at 2060-61 (Colvin). 315 Day 8 Tr. at 1754 (Colvin). 109284956.1 39 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 IX. WX HAS CARRIED ITS BURDEN OF PROVING ITS FOURTH COUNTERCLAIM - THAT MR. LEIGON BREACHED THE CONSULTING AGREEMENT WX’s final counterclaim asserts that Mr. Leigon breached the Consulting Agreement.316 The nature of Mr. Leigon’s breaches is detailed in Section III.A. Those breaches provide ample evidence to support granting judgment in WX’s favor. The Consulting Agreement should be rescinded as a result of Mr. Leigon’s breach. If a breach is sufficiently material to constitute a failure of consideration, it can justify rescinding a contract.317 Here, Mr. Leigon’s breaches were sufficiently material. As explained above, they deprived WX of virtually all the benefits of the Consulting Agreement. Once a contract is rescinded, the “aggrieved party shall be awarded complete relief, including restitution of benefits, if any, conferred by him as a result of the transaction.”318 Doing so would require Mr. Leigon to repay all money he received under the Consulting Agreement. This is $220,000. WX paid Mr. Leigon the full $20,000 for the 10 months from April 2017 through January 2018. It then made partial payments of $10,000 for February and March 2018.319 X. WX SHOULD BE AWARDED ITS ATTORNEYS’ FEES The APA, Consulting Agreement, and TSA all contain provisions allowing the prevailing party to recover its reasonable attorneys’ fees.320 Because WX should prevail on each of the claims and counterclaims, it should be deemed the prevailing party and awarded its fees. To the extent that JRV is able to succeed on any of its claims, WX requests that the fee award be apportioned. This is appropriate given the vast amount of effort, and resultant fees, caused by JRV’s unfounded claims, particularly related to the incentive payments. It is especially appropriate in light of the excessive time that JRV took to present its case, as well as the numerous misrepresentations made by JRV and Mr. Leigon. By WX’s count, JRV spent 42.8 hours examining witnesses, more than double the 20.3 hours that WX spent. 316 Amended Answer and Counterclaims at ¶¶ 102-07. 317 Wyler v. Feuer, 85 Cal.App.3d 392, 403-04, 149 Cal.Rptr. 626, 633-34 (1978) (applying Cal. Civ. Code § 1689(b)(2) (allowing a party to rescind a contract “if the consideration for the obligation of the rescinding party fails, in whole or in part, through the fault of the party as to whom he rescinds”). 318 Cal. Civ. Code § 1692. 319 Day 2 Tr. at 426-27 (Leigon). 320 Arb. Ex. 81 at § 11.11; Arb. Ex. 82 at §§ 10.6, 10.10; Arb. Ex. 84 at § 15(b). 109284956.1 40 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 Moreover, because Mr. Leigon and JRV are alter egos, they should not be separately analyzed in determining whether either is a prevailing party. Rather, neither should be deemed a prevailing party unless their claims, taken together, prevail against WX. XI. CONCLUSION JRV’s “Tale of Two Rabbits” is demonstrably fiction - an attempt to rewrite the agreements that JRV and Mr. Leigion signed. WX has more than complied with its obligations under the APA and all the other agreements. The only parties to breach them have been JRV and Mr. Leigon, whose breaches caused WX significant damages. The Arbitrator should rule in WX’s favor on all claims, award no damages to JRV or Mr. Leigon, and award WX damages of $4.8 million, in addition to the $708,348.05, broken down as follows: a. $257,861.85 that WX paid in depletion allowances above the holdback; b. $197,086.20 in uncollectible receivables; c. $23,000 in undisclosed samples; d. $220,000 that WX paid Mr. Leigon on the Consulting Agreement; and e. $10,400 for JRV’s breach of the TSA.. WX should also be awarded its attorneys’ fees against JRV and Mr. Leigon. And it should be awarded a declaratory judgment that JRV is responsible for its own accounts payable. DATED this 19th day of September, 2019. LEWIS ROCA ROTHGERBER CHRISTIE LLP /s/ Michael J. McCue Michael J. McCue Jeffrey L. Sklar 4300 Bohannon Drive, Suite 230 Menlo Park, CA 94025 Tele: 702-949-8200 E-mail: mmccue@lrrc.com Attorneys for Respondent and Counter-claimant, WINERY EXCHANGE, INC. 109284956.1 41 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 PROOF OF SERVICE-JAMS ARBITRATION I, Joy A. Jones, ACP, hereby declare as follows: I am over the age of 18 years, and am not a party to the within cause. I am an employee of Lewis Roca Rothgerber Christie LLP, whose office is located at 4300 Bohannon Drive, Suite 230, Menlo Park, California 94025. My business and mailing addresses are 3993 Howard Hughes Parkway, Suite 600, Las Vegas, Nevada 89169. I hereby certify that on September 19, 2019, a copy of foregoing WINERY EXCHANGE, INC.’S CLOSING BRIEF was uploaded electronically onto the CaseAnywhere website at https://secure.caseanywhere.com. The supporting exhibits will be served by counsel for Claimants simultaneous with Claimants’ exhibits on a single flash drive, as requested by Arbitrator Claiborne. This document will be served on the following counsel of record via email upon Claimants’ service of their Closing Brief, which is expected to occur later this evening or after September 19, 2019: Blaine I. Green Dustin J. Chase-Woods PILLSBURY WINTHROP SHAW PITMAN LLP Four Embarcadero Center, 22nd Floor San Francisco, CA 94111-5998 T: (415) 983-1000 E-mail: blaine.green@pillsburylaw.com E-mail: dustin.chasewoods@pillsburylaw.com Attorneys for Claimants Bill Leigon and JRV, LLC I declare under penalty of perjury that the foregoing is true and correct. Executed September 19, 2019, at Las Vegas, Nevada. /s/ Joy A. Jones, ACP An Employee of Lewis Roca Rothgerber Christie LLP EXHIBIT 16 EXHIBIT 16 REDACTED EXHIBIT 17 WX-00342698 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY.xlsx Summary of DA bills received by depletion month - all billed against the holdback, related to inventory sold by JRV to distributors pre-close Source Type (Multiple Items) Sum of Amount Months Depletion Month Jan Feb Mar Apr May Jun Jul Aug Sep Grand Total Depletion State Source No. AL GEORGIA CROWN - AL 997.64$ 816.01$ 15,248.56$ 617.92$ 17,680.13$ AR GLAZERS-DALLAS, TX 7,691.08$ 3,881.41$ 4,871.45$ 2,871.09$ 19,315.03$ AZ SOUTHERN WINE - BILL 684.00$ 404.00$ 194.50$ 653.50$ 1,936.00$ CA SOUTHERN WINE - BILL 35,065.75$ 33,054.00$ 15,143.00$ 16,161.06$ 99,423.81$ CO LOCAL MERCHANTS CO -$ -$ CT OPICI FAMILY 1,066.92$ 676.00$ 6,053.33$ 694.00$ 993.00$ 9,483.25$ DC OPICI FAMILY 330.00$ 330.00$ DE OPICI FAMILY 60.00$ 60.00$ 75.00$ 15.00$ 210.00$ FL OPICI FAMILY 15,101.93$ 39,943.81$ 27,855.00$ 254,786.59$ 9,528.91$ 347,216.24$ GA ATLANTA BEV CO 2,096.50$ 1,447.75$ 1,920.67$ 5,464.92$ IL PURE WINE 8,958.26$ 6,331.96$ 15,290.22$ IN SOUTHERN WINE - BILL 708.54$ 362.20$ 23.00$ 413.50$ 167.00$ 589.00$ 2,028.44$ 4,291.68$ KS HANDCRAFTED WINES 21,690.42$ 5,725.09$ 27,415.51$ LA INTERNATIONAL LA 5,320.00$ 5,320.00$ MA RUBY WINES 3,554.00$ 3,905.00$ 4,173.52$ 4,506.48$ 3,829.54$ 2,755.48$ 4,261.00$ 26,985.02$ MD OPICI FAMILY 292.33$ 235.67$ 321.25$ 398.50$ 1,247.75$ MN PAUSTIS 3,033.64$ 1,592.59$ 4,626.23$ MO MAJOR BRANDS 125.75$ 35.00$ 207.75$ 597.15$ 965.65$ NC CAROLINA SELECT 2,886.92$ 2,923.98$ 3,010.03$ 3,245.04$ 2,778.46$ 2,080.49$ 4,670.98$ 2,926.78$ 24,522.68$ NE SOUTHERN WINE - BILL 415.00$ 415.00$ NH PINE STATE BEV NH 163.10$ 164.67$ 201.08$ 117.16$ 174.17$ 820.18$ PINE STATE BEVERAGE 224.83$ 224.83$ NJ OPICI FAMILY 1,498.66$ 1,272.67$ 10,468.10$ 2,707.55$ 1,599.17$ 17,546.15$ NM FAVORITE BRANDS 15.12$ 15.12$ NV SOUTHERN WINE - BILL 1,925.00$ 910.00$ 1,750.00$ 4,585.00$ NY OPICI FAMILY 243.00$ 6,243.42$ 4,288.00$ 249.67$ 11,024.09$ OK GLAZERS-DALLAS, TX 378.00$ 379.00$ 654.00$ 1,411.00$ SC ALEPH WINES 12,716.00$ 12,716.00$ TN WEST TENNESSEE CROWN 15.53$ 62.12$ 15.53$ 62.12$ 155.30$ TX FAVORITE 37,855.93$ 35,463.29$ 23,399.40$ 24,329.33$ 26,262.83$ 23,930.80$ 171,241.58$ FAVORITE BRANDS 23,416.04$ 1,433.91$ 24,849.95$ VA TRI-CITIES 1,027.73$ 1,050.39$ 573.87$ 601.26$ 817.85$ 4,071.10$ VIRGINIA IMPORTS 300.00$ 600.00$ 131.50$ 417.40$ 216.20$ 499.18$ 2,164.28$ VT BAKER DIST 133.98$ 61.63$ 94.00$ 90.29$ 65.21$ 445.11$ WI CAPITOL HUSTING 2,289.61$ 584.00$ 1,196.11$ 1,478.93$ 1,173.45$ 6,722.10$ WV BEVERAGE DIST 306.10$ 302.88$ 451.39$ 30.57$ 1,090.94$ Grand Total 44,599.75$ 86,060.13$ 193,381.17$ 350,975.02$ 75,318.45$ 55,755.25$ 48,232.53$ 10,194.33$ 6,705.22$ 871,221.85$ 324,041.05$ 547,180.80$ From: Steve Cairns [mailto:scairns@jamiesonranch.com] Sent: Monday, March 20, 2017 4:16 PM To: John Gilmer ; Amy Cavallero ; Bill Leigon Subject: Revisiting DA's to come Hi, John. Monthly DA Spend WX-00342698.1 WX-00342698 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY.xlsx There was an error in my thought process when I gave you that $220k number. First off, Bill Spear had cut way back on bill backs in the 2 nd half of 2016. The DA percentage of sales for Q4 was closer to 14% than 17%. That is a more accurate number to use. Still got $44k Sales in Feb were $600k. $600k x 14% = $84k in expected bill backs, and I show $32k of billbacks already received in Mar for Feb depletions. That leaves $52k or so still to come in. Actually got $86K Sales in Mar so far are $400k. We obviously have not received Mar DA billback invoices yet since we’re still in the month of March. $400k x 14% = $56k. Actual was $193k So I think $108,000 ($52k still to come for Feb bill backs and $56k to come from Mar) is a much more accurate figure. Total Received 324,041$ Estimate 108,000$ Hope that helps. All the best, Variance 216,041$ STEVE CAIRNS Controller From: Steve Cairns [mailto:scairns@jamiesonranch.com] Sent: Monday, March 20, 2017 2:27 PM To: John Gilmer Cc: Albert Savedra ; Amy Cavallero ; Bill Leigon Subject: RE: Final Detail Items for Close Good afternoon. Here is a list of AP vs AR as I have it today. There is also a tab of AP invoices that are stacked on my desk awaiting entry into NAV. There will be AR invoices from today’s shipments that will go into the AR side of things tomorrow morning - as soon as Groskopf puts out its daily end-of-the-day shipment report. I don’t know what those were until I see that report. Depletion allowances - In 2016, we had $1.8M in DA’s vs $10.7M in wholesale sales. That’s 17% of wholesale sales. If we apply that 17% to the $1.3M in AR, you get about $220k. Let me know if you need anything else. STEVE But more importantly, DA should be figured as a percentage of SALES not RECEIVABLES. While we have $1.3M in receivables, but the DA’s for much of that has probably already been received. Sales in Jan were just under $1M, but I would expect no DA’s going forward from those sales. I believe we have already received the vast majority of January DA billbacks. Monthly DA Spend WX-00342698.2 WX-00342698 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY.xlsx holdback XW-00342698.1 EXHIBIT 18 From Bill Leigon To John Gilmer Sent 9112017 111501 PM Subject Bill Leigon Response to WX Hold Back Calculations Attachments BillLeigonResponseToWXHoldBackCalculations 9102017docx JRV SIDE LETTER TO APApdf Updated JRV due to due from 083017 Sept 5 2017xlsx RE WX Acquisition of Jamieson Ranch Vineyards Need Signed Letter from Bill Legionmsg SchifferAnnouncementLetter 3232017pdf RaboWireConfirmationpdf Hi John I left you a voicemail that Ive reviewed the spreadsheets in detail over the weekend We are far apart on the numbers so I dont think a phone call is appropriate at this time Once you have had a chance to digest my response I would like to get together with you to discuss Im fine if you want the first meeting to just be between you and me andor Im fine if you want to include Amy Albert and Steve Its your call I would like to meet sooner rather than later ideally by the end of the week as Im on the road all next week on my sales trip back east Thank you again for sending the information over and giving me a chance to go through it all I look forward to working things out Regards Bill This email and any files transmitted with it are proprietary and intended solely for the use of the individual or entity to whom they are addressed If you have received this email in error please notify the system manager Please note that any views or opinions presented in this email are solely those of the author and do not necessarily represent those of the company CONFIDENTIAL WX00033324 Bill Leigon Response to WX Hold Back Calculations 9102017 WX has provided a spreadsheet only with no back up documents In order to validate any of the numbers represented on the spreadsheet JRV needs complete back up including invoices canceled checks etc JRV will not pay WX under any circumstance without complete backup with validation including Invoices WX Proof of Payment ie canceled checks wire transfer confirmations or other valid documents Box 1 Titled AP AR Offset JRV Agrees with the Beginning Balances and $356390 Actual APA listing $35638979 AP AR Offset however we note the following observations WX lists that it has not paid the $297494 of assumed AP WX is obligated by the terms of the APA to make these payments There is no listing or acknowledgement in the WX summary of the adjusting entry made via the Side Letter 3222017 See Attached At the last minute an adjustment was made to the APAR spread via Side Letter to increase the spread to $43633580 Please note the obvious typo in the Side Letter however despite the omission from WXs Summary Tab and the typo in the signed Side Letter JRV accepts this number as the final figure Upon reconciliation of the original payment amount please note the following WX via APA agreed to pay $2 million minus $613360 Hold Back minus the difference between $43635580 and $35638939 which equals $7996641 Thus the payment at close to JRV should have equaled $130667359 The actual payment made as per the attached RaboBank Transaction Report was $130554649 JRV believes that WX still owes $112710 of the original payment Box 2 Titled Bad Debt WX lists as uncollectable AR $130000 JRV needs the JRV AR Invoice numbers in order to pull individual invoices validate this number and continue its collection efforts The spreadsheet sent does not list these numbers and JRV no longer has access to them CONFIDENTIAL WX00342635 We would appreciate receiving those JRV AR invoice numbers Please note that $65110 listed as outstanding is due from Local MerchantsII Castagno in Colorado These two distributors are owned by Domaine Select JRV advised WX on multiple occasions not to terminate its relationship with Local MerchantsII Castagno LMIC before WX had collected all the outstanding debt as JRV had negotiated a payment plan with LMIC and if a move was made it would be extremely difficult to collect any outstanding balance due and that WX would risk being unable to collect the balance WX did not take this advice and pulled all of the JRV Brands from LMIC before receiving full payment and moved the brands to Baroness Distributors in Colorado Bill Leigon is scheduled to fly to Denver for the kickoff meeting at Baroness on 9222017 LMIC had been adhering to the payment plan until they were notified that they had been terminated Due to WX disregarding the advice ofJ RV JRV does not believe it should be held liable for this $65110 JRV of course will continue rigorous efforts to collect the outstanding balance Please note that according to the numbers listed in the AP AR Offset Box WX lists $297494 in unpaid AP and $130485 in uncollectable AR Using WXs numbers as of this date JRV believes it is owed a credit of $167009 $297494 $130485 This calculation does not include taking into account the $65110 that JRV disputes The credit of $167009 is not listed or referred to in the WX spreadsheet Box 3 Titled HOLDBACK JRV disputes and disagrees with all the Hold back numbers listed and calculations made The WX Spreadsheet lists that $645617 in DAs Paid by WX for JRV inventory in distribution at 3312017 WX states next to each entry Est DAs in Dist Invnty at Acq followed by the distributor name The entire $645617 is listed as an estimate JRV does not recognize and will not pay any amounts listed as estimates JRV also notes that many of the estimates of distributor DAs listed are for months after the close on March 22nd 2017 including estimates for April May June and July DAs JRV will only pay amounts that can be verified by actual invoices and proof of payment by WX JRV will only pay for verified DA amounts that were incurred before March 23 2017 On March 23rd both WX and JRV notified all distributors that all programming after that date was the responsibility of WX CONFIDENTIAL WX00342636 To quote the announcement sent by Shawn Schiffer Global Sales Manager for WX We will honor all programming previously scheduled with your ABV or Jamieson Ranch sales manager on these brands after review with your new WX salesperson Ive added italics for emphasis Attached please find a copy of Mr Schiffers announcement that was sent by WX This announcement agrees with standard practice in the wine industry that upon the sale of a brand the Buyer assumes all responsibility for future programming distributor decisions pricing etc The fact that WX would be responsible for all ongoing decisions relating to the brands was discussed at numerous meetings with Shawn Schiffer Bryan Moreno Oren Lewin and many others I have notes from all of these meetings including my meeting with Bryan Moreno in January 2017 regarding the distributors and brokers that WX planned to terminate and those they planned to keep Notice was sent to those brokers and distributors including several distributors listed in the WX estimates of $645617 that were in fact terminated by WX post sale ie SGWSArizona Indiana International Wines LA Lipman BrosTenn Local Wine MerchantsII Ca stagno Colorado Johnson Bros Rhode Islands and several others As further support Ive attached an email string between J RVs largest distributor SGWS California Bryan Moreno Bill Leigon and many others regarding SGWS concerns about programming and pricing at acquisition In fact SGWS froze all JRV brand shipments and programming for a few days pending direct contact and confirmation from WX that SGWS was not going to be terminated and confirmation of WX pricing and programming going forward Ive attached my email to Bryan Moreno alerting him to Jon Newlons concerns at SGWS and that Southern might freeze shipments if they did not get an official letter of appointment from WX and confirmation of pricing and programming There is a great deal of back and forth between all parties in the attached email string ultimately ending once official notice came from WX I sent the first email on March 11th 11 days before the JRVWX deal closed The last email in the string is from Colby Frye SGWS dated April 26th a month after the close of the JRVWX deal Once JRV receives invoices and proof of payment by WX we can review and make a determination as to which of the amounts listed in the WX spreadsheet JRV believes to be valid As it currently stands the estimates listed as being incurred prior to March 23rd 2017 total to $30084114 Ive highlighted these in yellow on the spreadsheet Again JRV does not agree with any of the amounts listed until verification and proof of payment are presented by WX $46940 Listed as distributor samples incentive and other bill backs Jan Mar 2017 WX provided only a list of numbers with no back up WX must provide invoices canceled checks and other such corroborating details including WX proof of payment CONFIDENTIAL WX00342637 The majority of the $46940 is listed as JRV Acquisition Price Variance From the spreadsheet presented JRV has no way to know or verify the variance or even what variance is being referred to in the notations Box 4 Titled JRV Agent Receivables $172628 is listed as collected by JRV but not remitted to WX JRV Disputes all amounts listed It was and is physically impossible for JRV to have collected checks at 1 Kirkland Ranch Rd for all but two of the invoices listed The two invoices dated March 22nd All other invoices are noted as being after the sale date of March 22nd From March 23rd forward WX personnel received all distributor checks sent to 1 Kirkland Ranch Rd From March 23rd forward JRV personnel never touched handled or saw the checks received from distributors JRV is dependent upon notification from WX that a check from a distributor has been received in order to learn that a check has been sent from a distributor Our understanding is that the checks were collected by WX personnel and then driven to Novato by WX personnel and given to the accounting department In addition all cash received from the tasting room sales is placed in a safe on property again by WX personnel Beginning March 23rd forward in order for JRV to have received a check it would have needed to have been sent to the JRV PO Box at 4225 Solano Ave 739 Napa CA 94558 This address was unknown to the former JRV distributors One check 30205 from Favorite Brands for $2913604 was mistakenly forwarded from the winery at 1 Kirkland Ranch Road by Lyn Saqueton a WX employee to the J RV PO Box as she believed it was a check for Tall Cotton sales When received at1RV payment for this check was immediately sent to WX the same day It was included in the wire sent 526 which also included the tasting room reconcile on tasting room receipts from 518 thru 524 4 Wire transfers were received by JRV on behalf of WX 3 from international distributors 2 from Juuls Engros in Denmark 1 from LCB0 in Canada and 1 from Groupon Monies that JRV received by wire were immediately sent to WX JRV has back up to verify that payment was sent to WX JRV notes that none of these payments appear to be in dispute as none of these wire transfers are listed as part of the $172628 that WX claims is owed them CONFIDENTIAL WX00342638 Deductions from Bill Leigon Consulting Fees for WX reimbursement of Opici bill back Invoice 521374 in the amount of $4259208 WX deducted $10000 July 1 $10000 August 1 and presumably $10000 September 1st from Leigon Consulting Fees At the time of this writing I have received none of my consulting fee due September 1stand so cannot make a determination of what might or might not have been deducted WX made these deductions beginning July 1st but did not make any progress payments to Opici for Invoice 521374 JRV contacted the Opici Accounting department and confirmed that no payments had been made JRV learned that in fact Opici had issued a credit against the invoice so that the new amount due Opici for Inv 521374 totaled only $39948 JRV was informed by the accounting department at Opici that on or about the week of September 4th Opici deducted the amount of $39948 as full payment for Inv 521374 against AP due from Opici to WX Opicis deduction was done with the approval of WX As of this writing WX has not notified JRV that the invoice was settled in full Conclusions JRV disputes both the accuracy and validity of the numbers and calculations in the spreadsheet presented by WX to JRV JRV believes that as of September 10th 2017 the following reflects the current situation JRV should be credited $112710 from the shortfall of the original WX payment due at close JRV should be credited at least $167009 for the net difference between AP that remains unpaid by WX and AR that remains uncollected by WX Upon proper verification of the WX estimates the amount due WX for bill backs could possibly total $30084114 JRV should be credited $2644 for the overage charged against JRV for Opici Inv 521374 Therefore as of September 10 2017 JRV believes that the maximum that WX could possibly be entitled to withhold from the Hold Back is $13006090 calculated as follows $112710 + $167009 $300841 + $2644 = $13006090 $613360 $13006090 = $48329910 JRV calculates that at this time JRV would be owed $48329910 of the $613360 withheld at close Respectfully submitted Bill Leigon 9102017 CONFIDENTIAL WX00342639 EXHIBIT 19 109472929.1 561650.1 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 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 Michael J. McCue Jeffrey Sklar LEWIS ROCA ROTHGERBER CHRISTIE LLP 203 Redwood Shores Parkway, Suite 670 Redwood City, CA 94065 Tel: 702-949-8200 E-mail: mmccue@lrrc.com E-mail: jsklar@lrrc.com Attorneys for Respondent and Counter-claimant, WINERY EXCHANGE, INC. JAMS ARBITRATION JRV, LLC and BILL LEIGON, Claimants/Counter-respondents, vs. WINERY EXCHANGE, INC., Respondent/Counter-Claimant. JAMS Ref. No.: 1100090897 WINERY EXCHANGE, INC.’S REQUEST FOR CORRECTION OF COMPUTATIONAL ERROR Pursuant to JAMS Rule 24(j), Winery Exchange, Inc. (“WX”) hereby requests that the Arbitrator correct a computational error in the Interim Award issued on October 4, 2019. Specifically, in the Interim Award, the Arbitrator awarded JRV the holdback amount of $613,360, plus interest that brought the holdback award to $690,030. Interim Award at 14. In the Interim Award, the Arbitrator concluded that WX was responsible for distributor billbacks received after closing. Id. at 13. However, WX paid out $324,041.05 for billbacks for wine sold by JRV and depleted by distributors prior to the closing. See Arb. Ex. 361. This amount should have been deducted in the calculation of the holdback amount, to be consistent with the Arbitrator’s finding that WX was responsible for distributor billbacks after the closing. Also, Mr. Leigon admitted that these amounts were JRV’s responsibility. In a September 10, 2017 letter to Mr. Gilmer, Mr. Leigon wrote that JRV would “pay for verified DA amounts that were incurred before March 23, 2017.” Arb. Ex. 541r. On November 9, 2017, Mr. Leigon again admitted responsibility for these depletion allowances in an e-mail that he wrote to Mr. Gilmer: “JRV acknowledges responsibility for programming in place prior to 3-31-2017. This would 109472929.1 2 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 include bill-backs for depletions occurring January 1st through March 31st 2017.” Arb. Ex. 194. Accordingly, the $324,041.05 was improperly included in the calculation of the holdback award. The corresponding interest, which totals $40,505, was also improperly included. The holdback award should be reduced to $325,483.95. The corrected calculation is as follows: Holdback Award $690,030.00 JRV’s Portion -$324,041.05 Associated Interest -$40,505.00 Corrected Award $325,483.95 DATED this 11th day of October, 2019. LEWIS ROCA ROTHGERBER CHRISTIE LLP /s/ Michael J. McCue Michael J. McCue Jeffrey L. Sklar 203 Redwood Shores Parkway, Suite 670 Redwood City, CA 94065 Tel: 702-949-8200 E-mail: mmccue@lrrc.com Attorneys for Respondent and Counter-claimant, WINERY EXCHANGE, INC 109472929.1 1 561650.1 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 Lewis and Roca LLP 3993 Howard Hughes Parkway Suite 600 Las Vegas, Nevada 89169 PROOF OF SERVICE-JAMS ARBITRATION I, Joy A. Jones, ACP, hereby declare as follows: I am over the age of 18 years, and am not a party to the within cause. I am an employee of Lewis Roca Rothgerber Christie LLP, whose office is located at 203 Redwood Shores Parkway, Suite 670, Redwood City, California 94065. My business and mailing addresses are 3993 Howard Hughes Parkway, Suite 600, Las Vegas, Nevada 89169. I hereby certify that on October 11, 2019, a copy of WINERY EXCHANGE, INC.’S REQUEST FOR CORRECTION OF COMPUTATIONAL ERROR was served on the following counsel of record via CaseAnywhere: Blaine I. Green Dustin J. Chase-Woods PILLSBURY WINTHROP SHAW PITMAN LLP Four Embarcadero Center, 22nd Floor San Francisco, CA 94111-5998 T: (415) 983-1000 E-mail: blaine.green@pillsburylaw.com E-mail: dustin.chasewoods@pillsburylaw.com Attorneys for Claimants Bill Leigon and JRV, LLC Further, I caused such document described herein to be uploaded electronically onto the Case Anywhere website at https://secure.caseanywhere.com. /s/ Joy A. Jones, ACP Joy A. Jones, ACP An Employee of Lewis Roca Rothgerber Christie LLP
