Second Skin Film v. Independent Film
& Television Alliance
Filed 7/29/13 Second Skin Film v. Independent Film &
Television Alliance CA2/1
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
ONE
SECOND SKIN FILM, LLC,
Plaintiff and Appellant,
v.
INDEPENDENT FILM &
TELEVISION ALLIANCE et al.,
Defendants and Respondents.
B242451
(Los Angeles
County
Super. Ct.
No. SC115391)
APPEAL from
a judgment of the Superior Court
of
County. Norman P.
Tarle, Judge. Affirmed.
Law Offices
of Barry K. Rothman and Fredric R. Brandfon for Plaintiff and Appellant.
Pillsbury
Winthrop Shaw Pittman, Christine A. Scheuneman, Gevik M. Baghdassarian and
Nathaniel R. Smith for Defendants and Respondents.
__________________________________
Plaintiff appeals from a judgment entered after the trial
court sustained defendants’ demurrer to plaintiff’s complaint without leave to
amend. We affirm.
BACKGROUND
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On December
28, 2011, plaintiff Second Skin Film, LLC (plaintiff) filed this action against
defendants Independent Film & Television Alliance, Richonda Starkey, Kim
Tommaselli and Susan Cleary (collectively, defendants). Starkey, Tommaselli and Cleary are employees
and/or officers of defendant Independent Film & Television Alliance
(IFTA). IFTA administered arbitration
proceedings between plaintiff and third party Liberation Entertainment, Inc.
(Liberation) as discussed in more detail below.
As alleged
in plaintiff’s complaint, in December 2008, plaintiff and Liberation entered
into an agreement under which plaintiff granted Liberation the right to
distribute the film Second Skin (the film) and Liberation agreed to compensate
plaintiff for the distribution rights.
The agreement included an arbitration clause requiring plaintiff and
Liberation to arbitrate before IFTA, in accordance with IFTA’s Rules, any
disputes arising under the agreement.
The agreement is attached to the complaint as exhibit 1.
Plaintiff
alleges, after it delivered the film to Liberation for distribution in July
2009, Liberation did not pay all compensation as required under the
agreement. In January 2010, Liberation
assigned its assets to CMBG Advisors, Inc. (CMBG) “in a General Assignment for
the Benefit of Creditors.†CBMB informed
plaintiff it planned to sell the film or sublicense the distribution rights to
the film for the benefit of creditors.
Plaintiff did not believe CMBG had the right to do either of these
things under the agreement.
On or about June
3, 2010, plaintiff filed an arbitration claim with IFTA against
Liberation and CMBG. Plaintiff paid a
$5,000 arbitration fee to IFTA. In late
June 2010, plaintiff dismissed the arbitration claim against CMBG after CMBG’s
counsel argued the claim against it was not subject to arbitration. In July 2010, plaintiff filed an action
against CMBG in Los Angeles Superior Court (case number SC108757).
On July 7, 2010, IFTA sent a letter to
plaintiff acknowledging the filing of the arbitration claim against Liberation
and enclosing a copy of IFTA’s Rules, dated June 1, 2009. In
the letter, IFTA pointed out Rule 15 requires the parties to waive all present
and future claims against IFTA and its officers and employees relating to the
arbitration. This letter (without the
enclosure) is attached to the complaint as exhibit 3.
arbitration and that it had 21 days from receipt of the Notice to respond.â€
As set
forth in the complaint, IFTA appointed an arbitrator in late July 2010. On August
23, 2010, the arbitrator notified Liberation it had not timely
responded to plaintiff’s arbitration claim and the arbitrator “would ‘declare a
default’ against Liberation†if it did not respond by August 30, 2010.
Liberation did not respond. The
arbitrator asked plaintiff to request a default. Plaintiff did so.
The
arbitrator did not take Liberation’s default.
According to the allegations of the complaint, without notice to
plaintiff, the arbitrator called CMBG’s counsel on September 9 and 13, 2010,
asking CMBG to respond to the arbitration claim. As set forth above, plaintiff already had
dismissed CMBG from the arbitration. On September 13, 2010, CMBG’s
counsel responded to the arbitration
claim, reiterating CMBG’s position that plaintiff’s claim against it was
not subject to arbitration.
Plaintiff
alleges, “On September 16, [the arbitrator] wrote a long email to Plaintiff
admitting he had had inappropriate
attorney and offering to withdraw as arbitrator.†On September
20, 2010, plaintiff requested the arbitrator’s
disqualification. The arbitrator
withdrew.
On October 6, 2010, IFTA appointed a second arbitrator. “IFTA sent a few, but not all, pertinent
documents concerning the arbitration to [the second arbitrator] and informed
him that Liberation had been required to respond to the [arbitration] Petition
by August 2, 2010.†The second arbitrator asked Liberation to
respond to plaintiff’s arbitration claim.
Plaintiff alleges, “On October 8, 2010, [plaintiff] immediately
responded to [the second arbitrator] and demanded that Liberation, which had
had numerous opportunities over a three month period to respond to the
Petition, be held in default.†The same
day, the second arbitrator withdrew.
On or about October 11, 2010, IFTA appointed a third
arbitrator, “giving him the same limited information it had provided†the
second arbitrator. Plaintiff alleges
this third arbitrator “scheduled a conference call for October 21, 2010 and took no notice of the fact
that Liberation had been in default for two and one half months. Nor did he take notice of the fact that
Liberation, having been given every opportunity to respond to the arbitration petition,
had apparently decided not to respond.â€
Plaintiff “demanded†the third arbitrator take Liberation’s default.
On October 21, 2010, IFTA notified plaintiff the third
arbitrator had withdrawn and IFTA would not appoint a fourth arbitrator. IFTA withdrew as the arbitral agent. IFTA’s October 21, 2010 letter to plaintiff’s
counsel states, in pertinent part: “IFTA
[is] unable to continue to administer the arbitration (including soliciting
arbitrators) in a neutral manner as a result of your continuing threats of
litigation and hostility against IFTA, the IFTA Arbitral Agent and each IFTA
Arbitrator assigned to the arbitration.â€
Plaintiff requested return of the arbitration fees it had paid. IFTA refused this request.
Plaintiff named Liberation as a
defendant in its action against CMBG pending in Los Angeles Superior Court
(case number SC108757). Liberation filed
a motion to compel arbitration. IFTA
notified plaintiff and Liberation that IFTA would comply with a court order
compelling arbitration. In November
2011, the Los Angeles Superior Court granted Liberation’s motion to compel
arbitration. On December 12, 2011, IFTA
notified plaintiff that Liberation had filed an arbitration claim and plaintiff
had 21 days to respond. IFTA also sent
plaintiff another copy of its Rules, dated June 1, 2009, and again made
reference to Rule 15 regarding waiver of all claims against IFTA, its officers
and employees relating to the arbitration.
IFTA’s December 12, 2011 letter is attached to the complaint as exhibit
6.
As set forth above, plaintiff filed
the present action against defendants (IFTA and three of its employees and/or
officers) on December 28, 2011.
Plaintiff asserted causes of action for breach of contract, breach of
the implied covenant of good faith and fair dealing, intentional interference
with contract, negligence, conversion, disgorgement and fraud, based on
allegations, including but not limited to, that IFTA appointed incompetent
arbitrators, failed to administer the first arbitration, refused to return the
arbitration fees plaintiff paid, and notified plaintiff it would administer the
second arbitration only if plaintiff waived all claims against defendants.
On or about January 19, 2012,
plaintiff filed an ex parte application seeking an order requiring the trial
court in this action to stay the second arbitration which was ordered after the
trial court in case number SC108757 granted Liberation’s motion to compel
arbitration. Plaintiff argued it would
“be irreparably harmed if forced to go forward with an arbitration before the
IFTA while Plaintiff has an open and active lawsuit against IFTA, arising out
of a prior incomplete arbitration with IFTA [the first arbitration] concerning
the same parties and issues that are before the IFTA†in the second
arbitration. The trial court denied
plaintiff’s ex parte application.
On February 8, 2012, defendants
demurred to the complaint in the present action on grounds (1) “the causes of
action set forth in Plaintiff’s Complaint are barred by the common law of
arbitral immunity;†(2) “the Complaint fails to state facts sufficient to
constitute a cause of action for intentional interference with contract;†(3)
“the Complaint seeks the refund of an arbitration fee which is non-refundable
according to the applicable arbitration rules;†and (4) “the Plaintiff has
waived all claims made in the Complaint.â€
In support of the demurrer,
defendants filed a request for judicial notice of several documents. Plaintiff did not oppose the request for
judicial notice. Defendants asked the trial
court to take judicial notice of IFTA’s Rules, dated June 1, 2009. As noted above, these Rules are referenced in
exhibits 3 and 5 to plaintiff’s complaint (letters from IFTA to plaintiff). Although these letters attached to the
complaint indicate IFTA enclosed the Rules with the letters, plaintiff did not
attach the Rules to the complaint.
In connection with the demurrer,
defendants pointed out three of IFTA’s Rules.
Rule 1.3 provides, in pertinent part, “Filing fees are
non-refundable.†Rule 11 governing
default provides: “If one of the parties
fails to respond to any demand by the Arbitrator for documents or other
materials, or fails to appear for a hearing or in any manner fails to conform
to the provisions of these Rules of Arbitration or any order of the Arbitrator,
the Arbitrator may declare that party to be in default and make appropriate
orders or interim awards to require compliance or may make a final award based
upon the evidence that is before the Arbitrator at such time or may be
subsequently received by the Arbitrator under formal proceedings authorized
under these Rules except that no final award shall be issued in any arbitration
under these Rules without the prevailing party establishing a prima facie case
to the satisfaction of the Arbitrator.â€
Rule 15, discussed above, provides the parties waive all present and
future claims against the arbitral agent and its employees relating to the
arbitration.
Plaintiff filed an opposition to
the demurrer. Plaintiff argued arbitral
immunity does not apply where an arbitrator fails to arbitrate a dispute in
front of it. Plaintiff further argued
defendants cannot enforce IFTA’s Rules, including Rule 15 regarding waiver of
claims, because defendants breached the agreement to arbitrate the dispute
between plaintiff and Liberation, and the Rules are part of the agreement
defendants breached. Plaintiff also
disputed defendants’ argument that plaintiff did not state a cause of action
for intentional interference with its agreement with Liberation by refusing to
conduct the arbitration. Defendants
filed a reply brief.
On April 23, 2012, the trial court
heard oral argument on the demurrer and thereafter adopted its tentative ruling
sustaining the demurrer without leave to amend.
The court concluded plaintiff’s causes of action are barred by arbitral
immunity. On May 10, 2012, the
court entered judgment in favor of defendants and dismissed the complaint.
On February 20, 2013, defendants
filed a request for judicial notice asking this court to take judicial notice
of documents filed in the trial court in case number SC108757. On July 10, 2012, plaintiff filed an ex parte
application seeking an order staying the second arbitration between plaintiff
and Liberation, which had already “completed its first phase†in which
“Plaintiff ha[d] lost and Liberation Entertainment ha[d] won.†On August 31, 2012, plaintiff filed a request
for dismissal of its Complaint as to Liberation, CMGB and others. On September 4, 2012, plaintiff filed a
Notice of Partial Settlement, stating it had settled the causes of action
asserted in its Complaint as to Liberation, CMBG and others. In their Request For Judicial Notice,
defendants argue these three documents “are relevant to this appeal because
they establish (1) that [defendants] administered an arbitration between
[plaintiff] and Liberation, and (2) that [plaintiff] settled and dismissed its
claims against Liberation.†We grant
defendants’ unopposed request for judicial
notice.
DISCUSSION
Plaintiff
contends the trial court erred in sustaining defendants’ demurrer to
plaintiff’s complaint without leave to amend on the ground arbitral immunity
bars plaintiff’s causes of action against defendants.
In reviewing the trial court’s
order sustaining the demurrer, “we examine the complaint de novo.†(McCall
v. PacifiCare of California, Inc. (2001) 25 Cal.4th 412, 415.) “We give the complaint a reasonable
interpretation, reading it as a whole and its parts in their context. [Citation.]
Further, we treat the demurrer as admitting all material facts properly
pleaded, but do not assume the truth of contentions, deductions or conclusions
of law. [Citations.]†(City
of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.) “‘We also consider matters which may be
judicially noticed.’†(
318.) “When a demurrer is sustained, we
determine whether the complaint states facts sufficient to constitute a cause
of action. [Citation.] And when it is sustained without leave to
amend, we decide whether there is a reasonable possibility that the defect can
be cured by amendment: if it can be, the
trial court has abused its discretion and we reverse. [Citation.]â€
(City of Dinuba v. County of
Tulare, supra, 41 Cal.4th at p.
865.)
“‘Arbitral immunity shields all
functions which are “integrally related to the arbitral process.†. . .
[A]rbitrators [and the organizations that sponsor arbitrations] . . . are
exempt from civil liability for failure to exercise care or skill in the
performance of their arbitral functions.’
[Citation.]†(
420, 431-432, 433 (Stasz).) “The purpose of arbitral immunity is to
encourage fair and independent decisionmaking by immunizing arbitrators from
lawsuits arising from conduct in their decisionmaking role.†(Morgan
Phillips, Inc. v. JAMS/Endispute, L.L.C. (2006) 140 Cal.App.4th 795, 800 (
principled and fearless decision-making†is best achieved by shielding persons
involved in the arbitral process from “. . . intimidation caused by the fear of
a lawsuit†arising out of the exercise of arbitral functions. . . .’†(Stasz,
supra, 121 Cal.App.4th at
p. 431.)
“California common law has
recognized a narrow exception to arbitral immunity: the immunity does not apply to the
arbitrator’s breach of contract by failing to make any decision at all.†(Morgan
Phillips, supra, 140 Cal.App.4th
at p. 801.) “‘[A]rbitrators may be held
liable for complete nonperformance of their contract with the parties. Anything short of complete nonperformance
would be protected by arbitral immunity.’
[Citations.]†(
Arbitral immunity does not apply where the “unjustified abandonment of
the arbitration and refusal to render an award . . . is effectively a ‘complete
nonperformance’ of the ultimate object of the arbitration†contract. (Morgan
Phillips, supra, 140 Cal.App.4th
at p. 803; see id., p. 802.)
To illustrate the reasons arbitral
immunity applies here, we discuss the facts of cases in which courts have
applied the narrow exception to arbitral immunity. In Baar
v. Tigerman (1983) 140 Cal.App.3d 979, 981-982 (Baar), the plaintiffs alleged an arbitrator held 43 days of
evidentiary hearings and 10 days of closing argument over a four-year period,
but failed to render an award and “lost the authority vested in him by the AAA
[American Arbitration Association] contract and the statutory law to make an
award.†The Court of Appeal concluded
arbitral immunity did not bar a breach of contract action brought by the
parties to the arbitration against the arbitrator and AAA based on the failure
to make an award. (Id. at pp. 982-985.)
Therefore, the appellate court reversed orders of dismissal sustaining
defendants’ demurrers without leave to amend.
(Id. at pp. 981, 987.)
In Morgan Phillips, supra,
140 Cal.App.4th at page 799, the plaintiff alleged, at the conclusion of the
presentation of evidence in an arbitration, the arbitrator attempted to settle
the case without rendering an award and then “‘suddenly announced, with no
lawful justification, that he decided to withdraw as the arbitrator’†and
“‘thereafter failed and refused to issue a binding arbitration award.’†The plaintiff’s breach of contract action
against the arbitrator and the organization that sponsored the arbitration was
based on the allegation the arbitrator “improperly withdrew from the
arbitration proceeding, without cause, following evidence and argument in order
to coerce a settlement, and refused to render an arbitration award.†(Id.
at p. 800.) The Court of Appeal
concluded the allegations of the complaint demonstrated the arbitrator’s
“‘complete nonperformance’ of the ultimate object of the arbitration he
contracted to conduct.†(
the plaintiff’s action. The appellate
court reversed the judgment entered after the trial court sustained defendants’
demurrer without leave to amend. (
The Morgan Phillips court explained “arbitral immunity ‘shields all
functions which are “integrally related to the arbitral process.†[Citations.]’
[Citation.]†(140 Cal.App.4th at
p. 801.) The court noted, “An
arbitrator’s decision to withdraw based on ethical standards is integral to the
arbitral function; the act itself, as well as the consequent failure to render
an arbitration award, is covered by arbitral immunity.†(Id.
at p. 803.)
In this case, plaintiff argues the
narrow exception to arbitral immunity applies because defendants “failed
utterly to arbitrate the dispute in front of them.†Plaintiff asserts, “in the face of numerous
demands by [plaintiff] that default be taken, [defendants] simply withdrew as
the arbitral agent.†For the reasons
explained below, we conclude arbitral immunity bars this action.
There can be no doubt defendants
are immune from liability for their refusal to take Liberation’s default. An arbitrator’s decision to take a default or
not to take a default is certainly a function integrally related to the
arbitral process within the meaning of the case law discussed above. IFTA Rule 11, set forth above, provides that
the arbitrator “may,†not “must†or “shall,†declare a default. Rule 11 further provides that no award can be
final until the prevailing party establishes a prima facie case.
Plaintiff asserts defendants
“abandoned†the first arbitration without explaining why they were abandoning
it. Not so. As set forth above, in an October 21,
2010 communication to plaintiff, referenced in the complaint, IFTA explained it
was “unable to continue to administer the arbitration (including soliciting
arbitrators) in a neutral manner as a result of your [plaintiff’s] continuing
threats of litigation and hostility against IFTA, the IFTA Arbitral Agent and
each IFTA Arbitrator assigned to the arbitration.†This is not a case in which defendants
refused to render an award and withdrew for no apparent reason. Defendants stated they were making the
decision to withdraw because they believed their neutrality had been
compromised by plaintiff’s threats to sue them.
Defendants’ decision to withdraw based on their perceptions of
plaintiff’s conduct is a function integrally related to the arbitral process.
Plaintiff likens this case to a
hypothetical question the Seventh Circuit Court of Appeals posed in
(7th Cir. 2000) 230 F.3d 920. The
appellate court in that case concluded there was no federal court jurisdiction
over plaintiff’s lawsuit against AAA. (
however, the court posed the following question and tentative answer: “Suppose Caudle had paid the full $9,200 the
AAA specified, and the Association had pocketed the money without arbitrating
the dispute; it is unlikely that the AAA could claim ‘immunity’ in response to
a demand for a refund (or an order to furnish the arbitration service for which
it had been paid).†(
Here, the allegations of the
complaint demonstrate defendants made efforts to administer the
arbitration. The arbitrators worked to
get a response filed to plaintiff’s arbitration claim. They contacted Liberation and CMBG to find out
who would be responding to the claim. On
October 21, 2010, the third arbitrator scheduled a conference call with the
parties before IFTA withdrew as the arbitral agent. Plaintiff did not want defendants to afford
Liberation additional time to respond to the claim. Plaintiff repeatedly demanded the arbitrators
take Liberation’s default, although plaintiff has cited no authority
demonstrating defendants were required
to take Liberation’s default. As
discussed above, defendants withdrew from the arbitration after they determined
their neutrality had been compromised by plaintiff’s threats of
litigation. When the Los Angeles
Superior Court issued an order compelling arbitration, defendants opened the
second arbitration and the proceeding moved forward.
This action is barred by arbitral
immunity. All of plaintiff’s causes of
action, including the causes of action seeking return of arbitration fees, are
based on defendants’ decision to withdraw from the first arbitration. Defendants are immune from liability for that
decision. Plaintiff has not argued it
can amend the complaint to assert additional facts or causes of action. We find the defect cannot be cured by
amendment. The trial court did not err
in sustaining defendants’ demurrer without leave to amend.
DISPOSITION
The judgment is affirmed. Respondents are entitled to recover costs on
appeal.
NOT TO BE PUBLISHED.
CHANEY,
J.
We concur:
MALLANO,
P. J.
ROTHSCHILD,
J.
In accordance
with the standard of review set forth below, the background facts are taken from the complaint and matters
subject to judicial notice. Facts are attributable to the
allegations of the complaint unless another document is specified (e.g.,
exhibit attached to the complaint, exhibit attached to defendants’ request for
judicial notice).
We identify
herein only those exhibits to the complaint which are pertinent to our
discussion of the issues on appeal.
