By Nicholas Grether, Esq., The Maloney Firm, APC

Employers weighing their dispute resolution options are often enticed by the ability to delegate as much power as possible to an arbitrator.  Arbitrators are typically given the authority to allow as much discovery as needed and to limit the types of motions that may be brought.  Additionally, arbitrators can be granted the authority to determine which claims must be arbitrated.  For example, if a dispute arises between an employee and employer, the arbitrator will determine if the dispute must be arbitrated or may be pursued in court.  While this appears to be a straightforward procedure, a recent California appellate court decision demonstrates that it is not always clear who decides the subject of arbitrability.  In Neal Mortiz v. Universal City Studios, et al., Appellate No. B299083 (September 2, 2020), the appellate court denied Universal’s attempt to force a dispute with producer Neal Moritz over the 2019 film Fast & Furious Presents: Hobbs & Shaw (“Hobbs & Shaw”) into arbitration.  The ruling speaks to two key issues within the arbitration process: one, does the court or the arbitrator decide whether the dispute is required to be arbitrated, and two, can an agreement to arbitrate cover any disputes between the parties?

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The Contracts Provided that the Parties Agreed to Arbitrate Disputes

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Producer Neal Moritz spent 16 years producing Fast and Furious films for Universal City Studios LLC. Moritz and Universal entered into separate contracts for six of the first seven movies in the franchise (contracts FF1-FF4, FF6, FF7), and entered into a seventh contract that covered the eighth, ninth, and tenth movies (contract FF8-10). The terms of the FF7 contract, which required arbitration to resolve any future disputes, were incorporated into the FF8-10 contract and applied to any “sequels” or “remakes” in the Fast and Furious franchise.  

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The Dispute Over Hobbs & Shaw

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Moritz claims to have worked on Hobbs & Shaw, which was released in 2019 and was referred to by both Moritz and Universal as a “spin-off.”  While both parties agree that they exchanged written drafts of another producer contract for Hobbs & Shaw with Universal, the contract was never finalized or signed.  Shortly before filming on Hobbs & Shaw began, Universal notified Moritz that since there was no agreement, Universal was under no obligation to compensate him. Moreover, Universal directed Moritz not to work on the film unless an agreement was reached.  Subsequently, Moritz filed a lawsuit in the Los Angeles Superior Court claiming that he and Universal had an oral contract that Universal breached, and that he is owed compensation for his work on Hobbs & Shaw.

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Universal Moved to Compel Arbitration

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Universal sought to compel arbitration based on Moritz’s producer contracts for FF6 and FF7, which stated that the parties were required to arbitrate any “controversy, claim, or dispute.”  Even though Hobbs & Shaw was considered a “spin-off,” Universal took the position that an arbitrator should determine the threshold question of whether the dispute over Hobbs & Shaw was arbitrable under any of the agreements. 

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The question of whether a particular dispute is to be arbitrated is usually a matter for the court, unless the parties “clearly and unmistakably provide otherwise.”  Henry Schein, Inc. v. Archer & White Sales, Inc. (2019) ___U.S.___ [139 S.Ct. 524, 530, 202 L.Ed.2d 480, 487].  In the FF1-4 contracts, the question of arbitrability was delegated to the arbitrator, but such language was not in the FF6 and FF7 contracts.  Nonetheless, Universal argued that since all disputes with Moritz were to be arbitrated, this meant an arbitrator should decide if the Hobbs & Shaw dispute should be heard in arbitration.

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The trial court found that the FF6 and FF7 contracts did not demonstrate the parties’ “clear and unmistakable” intent to arbitrate and therefore did not allow an arbitrator to decide if the Hobbs & Shaw dispute should be arbitrated.  Moving to the next phase of the inquiry, the trial court found that since the parties considered Fast & Furious Presents: Hobbs & Shaw a “spin-off,” and not a “sequel,” or a “remake,” the dispute should be decided in court.

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The Arbitration Provisions Do Not Require This Dispute to be Arbitrated

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Universal appealed, claiming that since the arbitration provisions in the FF6 and FF7 agreements required arbitration of any dispute, any question of whether the claim has to be arbitrated must be decided by an arbitrator.  The appellate court disagreed.  First, the court determined it was not clear that the parties agreed to delegate arbitrability questions concerning a dispute over Hobbs & Shaw to an arbitrator. Second, Universal’s interpretation would mean that any dispute would have to first go to an arbitrator no matter how unrelated the dispute was to the underlying contractual relationship.  It noted that there must be “some minimal connection between the contract and the dispute.”  Otherwise, the contract would create absurd results.   As an example, if an employee at Universal assaulted Moritz, it would not stand to reason that Moritz would be compelled to arbitrate that dispute.  For these reasons, the appellate court affirmed the decision to deny the motion to compel arbitration.

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What are the Key Takeaways? 

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• 1. Make sure the contract is clear.  The trial court observed that the FF8-10 contract was “hardly a model of clarity.”  Having a contract with clear language on arbitration increases the chances that it will be enforced as intended.
• 2. Determine if an arbitrator or the court should decide whether a particular dispute must be arbitrated.  Consult with legal counsel to determine which is more advantageous.  While the FF1-4 contracts all expressly delegated questions of arbitrability to an arbitrator, Universal removed this term from the FF6-7 contracts.  Had this term been in the contract, it would have provided Universal with a better argument that an arbitrator needed to decide if the dispute over Hobbs & Shaw should be arbitrated.  
• 3. Never cut corners, even when the parties have a good relationship.  The Fast & Furious franchise is one of the most successful movie franchises in the world.  Moritz is undoubtedly a part of that success, but neither Moritz nor Universal likely anticipated what would happen if their relationship broke down.  Certainly, the FF8-10 contract could have referred to any film in the series rather than only sequels or remakes.  Universal could have taken steps when the idea for the Hobbs & Shaw film was conceived to make sure Moritz did no work until there was a written contract.

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About the Author:

Nicholas Grether is an employment attorney in the Employment Law Department at The Maloney Firm, APC. If you have questions regarding this article, contact Nicholas Grether at ngrether@maloneyfirm.com.

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