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noting if any ambiguity exists as to the scope of the arbitration clause, the Court must resolve those issues in favor of arbitration
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CASE NO. 03-20282-CIV-MORENO/GARBER
February 25, 2003
REPORT AND RECOMMENDATION
THIS CAUSE is before the Court on Plaintiffs' Renewed Emergency Motion for Injunctive Relief (D.E. #11), and Defendant's Motion and Application to Compel Arbitration and to Dismiss or Stay Proceedings (D.E. #18), pursuant to Orders of Reference entered by the Honorable Federico A. Moreno, United States District Judge. On February 14, 2003, and February 24, 2003, the Court held hearings regarding Defendant's Motion and Application to Compel Arbitration and to Dismiss or Stay Proceedings. For the reasons set forth below, it is respectfully recommended that the Court GRANT Defendant's Motion and Application to Compel Arbitration and to Dismiss or Stay Proceedings, and DENY AS MOOT Plaintiff's Renewed Emergency Motion for Injunctive Relief.
BACKGROUND
Plaintiff Heritage Skin Care, Inc. ("Heritage") is a skin-care products company that Plaintiff Dr. Thrower founded. In May of 2002, Heritage and Defendant entered into a License and Development Agreement, and Dr. Thrower and Defendant entered into a Name and Likeness Agreement. in those agreements, Defendant agreed to take certain actions regarding the product line, including marketing and promotion, and Plaintiffs gave Defendant a license to use certain of the products' trademarks during the term of the agreement.
In this action, Plaintiffs allege that Defendant has breached those agreements by, inter alia, failing to employ its best efforts to promote and market the line of skin-care products, failing to preserve and enhance Plaintiffs' reputations, and failing to afford Plaintiffs a significant role in the decision-making process with respect to the product line. In their Verified Complaint, Plaintiffs have asserted ten claims, which are labeled: Declaratory Judgment Concerning Ownership of Intellectual Property, and Termination of License Agreement (Count I); Declaratory Judgment Concerning Ownership of Intellectual Property, and Termination of Name and Likeness Agreement (Count II); Trademark Infringement and Unfair Competition under 15 U.S.C. § 1125 (a)(1) (Count III) and under Common Law (Count IV); Misappropriation of Trade Secrets (Count V); Breach of License Agreement (Count VI); Breach of Name and Likeness Agreement (Count VII); Infringement of Right of Publicity (Count VIII); Misrepresentation (Count IX); and Breach of Obligation of Good Faith and Fair Dealing (Count X).
In their Renewed Emergency Motion for Injunctive Relief, Plaintiffs ask the Court to declare that they properly terminated the agreements because Defendant breached its obligations under those agreements, and to declare that Defendant's use of Plaintiffs' trademarks after termination of the agreements constitutes infringement.
DISCUSSION
Defendant seeks an order compelling arbitration of the parties' entire dispute, pursuant to arbitration clauses contained in both the License and Development Agreement, and the Name and Likeness Agreement. Section 16.2 of the License and Development Agreement provides: "Except for any controversy or claim relating to the ownership by either party of any intellectual property rights, which shall not be subject to the provisions of this section and shall be subject to the provisions of Subsection 23.4 ("Forum"), any other Dispute between the parties shall be settled through mandatory and binding arbitration to be conducted in Miami, Florida. . . ." (italics added). Section 23.4 of the License and Development Agreement provides that "[t]he State and Federal Courts located in Dade County, Florida, shall have exclusive jurisdiction over disputes under" the License and Development Agreement that are not covered by the arbitration clause.
Similarly, § 8 of the Name and Likeness Agreement provides: "Except for any controversy or claim relating to the ownership by either party of any intellectual property rights, which shall not be subject to the provisions of this section and shall be subject to the provisions of Subsection 15.3 ("Forum"), any other dispute between the parties shall be settled through mandatory and binding arbitration to be conducted in Miami, Florida. . . ." (italics added). Section 15.3 of the Name and Likeness Agreement provides that "[t]he State and Federal Courts located in Dade County, Florida, shall have exclusive jurisdiction over disputes under" the Name and Likeness Agreement that are not covered by the arbitration clause.
Therefore, Plaintiffs' claims are subject to mandatory arbitration unless they are claims "relating to the ownership by either party of any intellectual property rights. . . ." Plaintiffs assert that their claims relate to their rights to use and enjoy the trademarks, which they possess by virtue of their ownership of the marks. Thus, the gist of Plaintiffs' assertion regarding the Motion to Compel Arbitration is that the intellectual property rights that they seek to protect in this action arise out of, and therefore relate to, their ownership interest in those intellectual property rights. The Court disagrees.
The Federal Arbitration Act provides that "an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. If the parties have agreed to arbitrate a dispute, then the Court "shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration." 9 U.S.C. § 3.
Plaintiffs have not asserted that Defendant is "in default in proceeding with such arbitration." 9 U.S.C. § 3.
The Court must address any "questions of arbitrability . . . with a healthy regard for the federal policy favoring arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941 (1983); see also, e.g., Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76, 109 S.Ct. 1248, 1254 (1989). A party, however, "cannot be required to submit to arbitration any dispute which he has not agreed to submit." United Steelworkers of Am. v. Warrior Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353 (1960); see also, e.g., Telecom Italia, SpA v. Wholesale Telecom Corp., 248 F.3d 1109, 1114 (11th Cir. 2001). Thus, the Court must construe "negotiated agreements to arbitrate, like other contracts, in accordance with their terms." Volt Info. Sciences, Inc., 489 U.S. at 478, 109 S.Ct. at 1255.
If, however, any ambiguities exist "as to the scope of the arbitration clause," the Court must resolve those ambiguities "in favor of arbitration." Id. at 476, 109 S.Ct. at 1254. This principle applies "whether the problem at hand is the construction of the contract itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem'l Hosp., 460 U.S. at 25; 103 S.Ct. at 941. Thus, the Court "must resolve any doubts about the scope of arbitrable issues in favor of arbitration." Scott v. Prudential Secs., Inc., 141 F.3d 1007, 1011 (11th Cir. 1998).
Additionally, where, as here, "a contract provides for arbitration of some issues, and given the law's presumption in favor of arbitration, it may be presumed that the parties likely gave some thought to the scope of the arbitration clause." Collins v. Int'l Dairy Queen, Inc., 2 F. Supp.2d 1473, 1477 (M.D. Ga. 1998). Because the law "insist[s] upon clarity before concluding that the parties did not want to arbitrate a related matter. . . ." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 945, 115 S.Ct. 1920, 1924 (1995), "where the contract contains an arbitration clause, . . . `[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'" ATT Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 1419 (1986) (quoting United Steelworkers of Am. v. Warrior and Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 1353 (1960)); see also, e.g., Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1320 (11th Cir. 2002) ("[T]he FAA `creates a presumption in favor of arbitrability; so, parties must clearly express their intent to exclude categories of claims from their arbitration agreement.'") (quoting Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1057 (11th Cir. 1998)).
As a preliminary matter, Plaintiffs have labeled two of their claims — Counts I and II — as claims for "Declaratory Judgment Concerning Ownership of Intellectual Property." However, the substance of a claim, not the label that Plaintiffs have ascribed to it, controls. E.g., Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 604 (5th Cir. Nov. 1981); cf. Adler v. Duval County Sch. Bd., 206 F.3d 1070, 1087 (11th Cir.) ("[I]t remains the language and substance of the policy, rather than its title, that is controlling."), vacated on other grounds, 531 U.S. 801, 121 S.Ct. 31 (2000).
Despite the labels that Plaintiffs have chosen for their claims, the ownership of the relevant trademarks is not at issue in this action. In essence, this dispute involves Plaintiffs' contention that Defendant violated the agreements, and therefore no longer has the right to use the trademarks at issue.
It is true that a plaintiff may not maintain a trademark infringement claim unless it owns the mark at issue. E.g., Inmuno Vital, Inc. v. Golden Sun, Inc., 49 F. Supp.2d 1344, 1350 (S.D. Fla. 1997) (J. Moreno) ("A party claiming statutory and common law trademark infringement and unfair competition must establish that (1) it is the owner of a valid trademark, and (2) the use of the contested mark is likely to cause confusion."). In this action, however, the parties agree that Plaintiffs own the relevant trademarks. E.g., Defendant's Memorandum of Law in Support of Motion and Application to Compel Arbitration and to Dismiss or Stay Proceedings, at 2 ("Dyno does not challenge any ownership right . . ., let alone ownership of intellectual property rights."). In fact, the agreements specifically provide that Plaintiffs own the relevant intellectual property rights, and that Defendant has not acquired any ownership interest in them. License and Development Agreement, § 3.6 ("Dyno acknowledges . . . Heritage's assertion that it is the sole and exclusive owner of the Trademarks. . . ."); id., § 4.3; Name and Likeness Agreement, § 2.5. The Court therefore concludes that this case does not involve claims "relating to the ownership by either party of any intellectual property rights," and therefore, pursuant to § 16.2 of the License and Development Agreement and § 8 of the Name and Likeness Agreement, this entire controversy must be resolved by arbitration.
At the February 24, 2003, hearing, the Court discussed the analogous, hypothetical situation of a 99-year leasehold interest. If the lessee believed that the lessor had violated provisions of the lease and that the lease had therefore terminated, the lessee could sue for possession of, i.e. the exclusive right to use, the property, just as Plaintiffs have sued for the exclusive right to use the trademarks at issue based upon the assertion that Defendant breached the agreements. However, in such a suit — assuming that the lessor did not dispute that the lessee owned the property at issue, but instead only disputed whether the lease had terminated — the lessee's claims would not be claims relating to the ownership of the property, but instead would be claims relating to the lessor's right to use that property. Similarly, Plaintiffs' claims in this action relate to Defendant's right or license to use the trademarks at issue, but are not claims relating to Plaintiffs' ownership of those intellectual property rights.
In the alternative, even if the Court could not conclude that the arbitration clauses unambiguously apply to all of Plaintiffs' claims, then the Court would find that the arbitration clauses are ambiguous as to whether they apply to all of Plaintiffs' claims. Even Plaintiffs' counsel, at the February 24, 2003, hearing, conceded that it was possible to interpret the arbitration clauses as applying to all of the claims. In the face of such ambiguity, and in light of the federal policy favoring arbitration, the Court should compel arbitration of all of Plaintiffs' claims. E.g., Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 476, 109 S.Ct. 1248, 1254 (1989); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25, 103 S.Ct. 927, 941 (1983). This is particularly true because the parties presumably understood that if they did not clearly state that a claim was exempt from the arbitration requirement, then that claim would be subject to arbitration. Collins v. Int'l Dairy Queen, Inc., 2 F. Supp.2d 1473, 1477 (M.D. Ga. 1998). If the parties had intended to exclude the types of claims that Plaintiffs have asserted in this action, then they could have unambiguously done so. For example, they could have agreed to exclude from the arbitration requirement any controversy or claim "involving any intellectual property rights," or "relating to any intellectual property rights," instead of narrowing the arbitration clauses to exclude from the arbitration requirement only those claims and controversies "relating to the ownership by either party of any intellectual property rights." Because the parties' agreement does not clearly state that the types of claims that Plaintiffs have asserted in this action are excluded from the arbitration requirement, those claims are subject to mandatory arbitration. E.g., ATT Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 1419 (1986); Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1320 (11th Cir. 2002) ("[T]he FAA `creates a presumption in favor of arbitrability; so, parties must clearly express their intent to exclude categories of claims from their arbitration agreement.'") (quoting Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1057 (11th Cir. 1998)).
Therefore, the Court should compel arbitration of all of Plaintiffs' claims, and should stay this action pending completion of the arbitration process. 9 U.S.C. § 3; Bender v. A.G. Edwards Sons, Inc., 971 F.2d 698, 699 (11th Cir. 1992) ("The district court properly found that the state law claims were subject to arbitration, but erred in dismissing the claims rather than staying them. Upon finding that a claim is subject to an arbitration agreement, the court should order that the action be stayed pending arbitration.").
RECOMMENDATION
Based upon the foregoing, it is respectfully RECOMMENDED that the Court DENY AS MOOT Plaintiffs' Renewed Emergency Motion for Injunctive Relief (D.E. #11), GRANT Defendant's Motion and Application to Compel Arbitration and to Dismiss or Stay Proceedings (D.E. #18), compel arbitration of all of Plaintiffs' claims, and stay all claims pending arbitration.
The parties have ten (10) days from the date of receipt of this Report and Recommendation to file written objections, if any, with the Honorable Federico A. Moreno, United States District Judge. See 28 U.S.C. § 636. Failure to file timely objections may bar the parties from attacking on appeal the factual findings contained herein. See LoConte v. Dugger, 847 F.2d 745, 750 (11th Cir. 1988).
ORDER
THIS CAUSE is before the Court on Plaintiffs' Motion for Leave to File Supplemental Response Memorandum of Law in Opposition to Motion to Compel Arbitration and to Dismiss or Stay Proceeding (D.E. #32), and Defendant's Objection to and/or Motion to Strike Plaintiffs' Supplemental Memorandum of Law in Opposition to Motion to Compel Arbitration (D.E. #35).
After due consideration, it is
ORDERED that Plaintiffs' Motion for Leave to File Supplemental Response Memorandum of Law in Opposition to Motion to Compel Arbitration and to Dismiss or Stay Proceeding (D.E. #32) is GRANTED nunc pro tunc, and Defendant's Objection to and/or Motion to Strike Plaintiffs' Supplemental Memorandum of Law in Opposition to Motion to Compel Arbitration (D.E. #35) is DENIED.
DONE and ORDERED.