Opinion
2:21-CV-05808-VAP-RAO
11-10-2021
WILLIAM SILVERS, and WILLIAM SILVERS ART, INC, a Florida corporation, Petitioners, v. VERBATA, INC., d/b/a ACME ARCHIVES, a California corporation, SEAN MCLAIN, an individual, LISA MCLAIN, an individual, Respondents.
JUDGMENT IN FAVOR OF PETITIONERS AND AGAINST RESPONDENTS
Virginia A. Phillips United States District Judge
The court, having entered its order [CM/ECF Dkt. 56] on November 10, 2021, granting Petitioners WILLIAM SILVERS, and WILLIAM SILVERS ART, INC's Motion to Confirm Arbitration Award [CM/ECF Dkt. 1] and denying Respondents VERBATA, INC., d/b/a ACME ARCHIVES, SEAN MCLAIN, and LISA MCLAIN's Motion to Vacate or Modify Arbitration Award [CM/ECF Dkt. 33], enters the judgment as follows:
BASED ON THE ABOVE, IT HIS HEREBY ADJUDGED AND DECREED as follows:
1. The court confirms in its entirety the Final Award, entered by the Arbitrator Barbara A. Reeves on June 29, 2021, and attached and incorporated hereto as Exhibit A.
2. Pursuant to the Final Award:
a. William Silvers and William Silvers Art, Inc., a Florida corporation, hereinafter collectively “Silvers”), are the owners of the unpublished derivative work images created by William Silvers pursuant to a 2008 Artist Publishing Agreement executed by Silvers but not signed by Respondents.
b. Silvers are the owners of the previously published derivative work images created by Silvers pursuant to the 2008 Agreement.
c. Silvers' ownership extends to all images created by Silvers and commercialized or sold or offered for sale by or for Respondents in the United States or elsewhere.
d. Silvers own the derivative work copyrights in all such images, whether published or not, hereinafter called the “Silvers Images.”
e. The Copyrights in the Silvers Images are Derivative Works created by Silvers pursuant to the authority of Respondent, Verbata, Inc. d/b/a Acme Archives, a California Corporation (hereinafter “Acme”), to make such images, using the preexisting images, content, film, scenes, or characters of the Disney Companies, under one or more contracts with Disney Companies, including Disney Consumer Products. As such, Silvers' rights to exploit such images are subject to the Copyrights of Disney and shall not be commercialized or reproduced except pursuant to a license or contract or other express consent of an appropriate Disney Company.
f. Silvers are entitled to Artist Proofs: The Arbitrator accepts the calculations of Silvers' expert, Rebecca Lyles, that the lost profits per the Artist Proofs Settlement Agreement for the 285 Artist Proofs units that were not delivered to Mr. Silvers, in the amount of $57,395. Deducting avoided (shipping) costs of $45 per Artist Proof ($12,780) and adding interest at the legal rate from January 1, 2017 through September 30, 2020 ($10,795), the total lost profits to which Silvers are entitled from Respondent Acme per the Settlement Agreement are $51,910.
g. Silvers did not establish their right to damages for breach of contract for contract royalties under Count 3
h. Silvers are entitled to breach of consignment contract damages and conversion damages under Counts 4 and 5 for a total of $43,847.80, for both the breach of consignment contract damages and the same conversion damages.
i. Silvers established a fraud conspiracy among Respondents, and compensatory damages in the amount of $306,794.00.
j. Silvers did not meet their burden of proving that Respondents' conduct was a substantial factor in interfering with Silvers' advantageous business relationships with Disney under Count 7.
k. Respondents are sanctioned in the amount of $145,272.26 for spoliation, and that amount is added to the Award.
l. Silvers established their entitlement to punitive damages. The Arbitrator awards punitive damages in a 1x multiplier of the compensatory damages, $350,641.80.
m. Silvers are awarded attorney fees and costs in the amount of $546,525.00 (fees) and $73,808.07 in costs.
n. Cross-Respondents are awarded $171,275.46 in costs.
o. Respondents did not meet their burden of proof for attorney fees for breach of contract, Count 1 of the Counterclaim.
p. Respondents did not meet their burden of proof for interference with business relationships, Count 2 of the Counterclaim
q. Respondents did not meet their burden of proof for breach of confidentiality, Count 3 of the Counterclaim, and appear to have abandoned that claim.
r. Respondents shall take nothing on their Counterclaim.
3. Based on the above, the Court orders that Petitioners WILLIAM SILVERS, and WILLIAM SILVERS ART recover from the Respondents VERBATA, INC., d/b/a ACME ARCHIVES, SEAN MCLAIN, and LISA MCLAIN the amount of ONE MILLION SIX HUNDREED NINTY THOUSAND SEVENTY-FOUR and 39/100 dollars ($1,690,074.39), plus post judgment interest at the rate of ten (10) % per annum in accordance with Section 685.010 of the California Code of Civil Procedure. Respondents recover nothing on their Counterclaim.
EXHIBIT A
Order GRANTING Motion to Confirm Arbitration Award and DENYING Motion to Vacate or Modify Arbitration Award (Dkt. 1, 33)
Before the Court is Petitioners' William Silvers and William Silvers Art (“Petitioners”) Motion to Confirm Arbitration Award and Respondents' Verbata, Inc., d/b/a Acme Archives, Sean McLain, and Lisa McLain (“Respondents”) Motion to Vacate or Modify Arbitration Award.
After considering all the papers filed in support of, and in opposition to, the Motion, the Court deems this matter appropriate for resolution without a hearing pursuant to Local Rule 7-15. The Court GRANTS Petitioners' Motion to Confirm and DENIES Respondents' Motion to Vacate.
I. BACKGROUND
The parties are familiar with the background of this dispute. In short, Petitioner William Silvers is an artist who owns Williams Silvers Art, Inc., a Florida corporation which manages the artwork of Petitioner. (Dkt. 1, at 10). Petitioner once worked as an independent contractor with Respondent Verbata, Inc. under the 2008 Publishing Agreement, which was signed by Petitioner but not Respondent. (Id. at 8). The Publishing Agreement included an arbitration clause stating, in relevant part, that any “dispute, claim, demand, or controversy … shall be submitted by the parties to binding arbitration in Los Angeles, California.” (Id. at 9).
A dispute arose under the Publishing Agreement when Respondents claimed that Verbata, Inc. owned derivative work copyrights in art that Petitioner had created while working as an independent contractor. (Id. at 11). Respondents asserted ownership to the art under a supposed 2013 work for hire agreement, allegedly signed by Petitioner. (Id. at 12). As the Arbitrator found, however, Petitioner's signature on the agreement was a forgery, and the fictitious agreement was created as part of a conspiracy among Respondents and a third party. (Id. at 12-13).
Accordingly, Petitioners initiated a case against Respondents and the third party in 2017 (Case No. 5:17-cv-169-OC-34 PRL) (“Florida Action”). (Id. at 13). The suit was filed in the United States District Court, Middle District of Florida, Ocala Division, wherein Petitioner sought a declaratory judgment that the copyrights in certain works of authorship in dispute between the parties were owned by Petitioners. (Id. at 14). Petitioners also sued Respondents for damages for breach of contract relating to artist proofs, breach of contract for unpaid royalty, breach of consignment art contracts, conversion of art on consignment, conspiracy to commit fraud, and tortious interference with advantageous business with Disney and its affiliated companies. (Id. at 15).
After the court in the Florida Action determined it had jurisdiction over Respondents, it entered an order on April 27, 2018, compelling arbitration of the dispute as to the parties hereto only. (Id. at 16). The 2008 Publishing Agreement provided that arbitration would be conducted in Los Angeles, California. (Id.). The parties then submitted Petitioners' claims to Judicial Arbitration and Mediation Services, Inc. (“JAMS”) as the arbitration forum. (Id. at 17-18).
Petitioners' claims as to Respondents were those of the complaint in the Florida Action, as expressed in a JAMS demand for arbitration dated June 11, 2018. (Id. at 18). Respondents submitted a response and counterclaim for Breach of Contract, Interference with Business Relationships, and Breach of Confidentiality, against Petitioners on July 11, 2018. (Id. at 19). Petitioners responded to the Counterclaim on July 24, 2018, and a lengthy arbitration was subsequently conducted. (Id. at 20-21).
On June 29, 2021, the Arbitrator entered her Final Award. (Dkt. 1-1, Ex. 1). Among other things, the Arbitrator found the above-referenced 2008 Publishing Agreement containing an arbitration clause to be a valid and enforceable agreement. The Final Award, after providing the legal standard for each issue and making findings of fact, contained the following conclusions:
(1) Declaratory and Injunctive Relief: Petitioner was not entitled to injunctive relief because the contentions upon which Petitioner requested an injunction were based upon speculation, not evidence. (Id. at 14-15). Petitioner was entitled to a declaratory judgment limited to Petitioner's copyright interests in his derivative works vis-à-vis Acme/Verbata, Inc. (Id.).
(2) Breach of Contract Relating to Artist Proofs: Petitioner was entitled to damages for lost profits in the sum of $51,910 for the 285 Artist Proofs units that were not delivered to Petitioner. (Id. at 15-16).
(3) Breach of Contract (Unpaid Royalty and Damages): Petitioner was not entitled to damages because Petitioner did not meet his burden of proving that royalties were underpaid and by what amount. (Id. at 16-17).
(4) Breach of Consignment Art Contracts: Petitioner was entitled to both the breach of consignment contract damages and the same conversion damages in the amount of $43,847.80. (Id. at 17-18).
(5) Conversion of Art on Consignment: See above. (Id.).
(6) Conspiracy to Commit Fraud: Petitioner established a fraud conspiracy among Respondents and was entitled to compensatory damages in the amount of $306,794.00. (Id. at 18-23).
(7) Tortious Interference with Advantageous Business with Disney: Petitioner did not meet his burden of proving that Acme's conduct was a substantial factor in interfering with their advantageous business relationships with Disney. (Id. at 23-24).
II. LEGAL STANDARD
“Review of an arbitration award itself is ‘both limited and highly deferential.” DeMartini v. Johns, 693 Fed.Appx. 534, 436 (9th Cir. 2017) (quoting Sheet Metal Workers' Int'l Ass'n v. Madison Indus., Inc., 84 F.3d 1186, 1190 (9th Cir. 1996)). A district court will set aside an arbitrator's decision “only in very unusual circumstances.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995). “[C]onfirmation is required even in the face of ‘erroneous findings of fact or misinterpretations of law.'” French v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 784 F.2d 902, 906 (9th Cir. 1986) (quotation omitted).
Section 10 provides a district court may vacate an arbitration award under the following circumstances: (1) “where the award was procured by corruption, fraud, or undue means;” (2) “where there was evident partiality or corruption in the arbitrators, or either of them;” (3) “where the arbitrators were guilty of misconduct in refusing to postpone the hearing . . . or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced;” or (4) “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter was not made.” 9 U.S.C. § 10(a)(1)-(4).
The grounds for review provided by Section 10 are extremely limited and “designed to preserve due process but not to permit unnecessary public intrusion into private arbitration procedures.” Kyocera Corp v. Prudential-Bache Trade Serv. Inc., 341 F.3d 987, 998 (9th Cir. 2003). These grounds are “the exclusive means by which a court reviewing an arbitration award under the FAA may grant vacatur of a final arbitration award.” Biller v. Toyota Motor Corp., 668 F.3d 655, 664 (9th Cir. 2012) (citing Kyocera, 341 F.3d 987 (9th Cir. 2003) and Hall St. Assoc., LLC v. Mattel, Inc., 552 U.S. 576 (2008)). “The burden of establishing grounds for vacating an arbitration award is on the party seeking it.” U.S. Life Ins. Co. v. Superior Nat'l Ins. Co., 591 F.3d 1167, 1173 (9th Cir. 2010).
“Neither erroneous legal conclusions nor unsubstantiated factual findings justify federal court review of an arbitral award under the statute, which is unambiguous in this regard [and] a court must confirm an arbitration award unless it is vacated, modified, or corrected as prescribed in §§ 10 and 11.” Bosack v. Soward, 586 F.3d 1096, 1102 (9th Cir. 2009) (citations omitted). This standard provides “an extremely limited review authority.” Kyocera, 341 F.3d at 998.
III. DISCUSSION
A. Motion to Vacate
Respondents move to vacate the Award on the basis of arbitrator misconduct and bias in the proceedings, pursuant to Section 10(a)(3) of the Federal Arbitration Act (“FAA”). Section 10(a)(3) provides that a Court may vacate an award “where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.” 9 U.S.C.A. § 10 (West). Respondents allege three instances of bias and misconduct by the Arbitrator, which the Court addresses in turn.
1. Increase in Compensatory Damages Award
Respondents contend that the Arbitrator violated Section 10(a)(3) by increasing the Petitioners' compensatory damages award without first allowing Defendants an opportunity to respond. (Dkt. 33, at 10-14). Respondents also allege that there was insufficient evidence to warrant an increase in damages, and that the Arbitrator's reasoning for increasing the award was “contradictory” to her other rulings. (Id. at 13-15; see also Dkt. 52, at 5-7). Additionally, Respondents argue the Arbitrator exhibited bias by allowing Petitioners to present certain email evidence, while not allowing Respondents to present that same evidence. (Id. at 15-17). As to all of these allegations, Respondents fail to meet the burdens imposed by the FAA for vacating an award.
First, Respondents fail to demonstrate that the Arbitrator refused to hear pertinent evidence. In fact, the record shows that the Arbitrator did allow Respondents to file responsive briefing on the issue of compensatory damages before issuing the Final Award. As the record reveals, the Arbitrator issued her Interim Award on September 8, 2020. (Dkt. 33, at 10). Subsequently, Petitioners requested leave to submit a brief pointing the Arbitrator to evidence in the record that they believed she overlooked in determining compensatory damages. (Dkt. 42, at 9). Petitioners submitted this brief on October 5, 2020, and on October 22, 2020, the Arbitrator issued an Order specifically directing Respondents to respond to issues raised in Petitioners' brief. (Dkt. 33, at 12; Respondents' Ex. F, at 1-2). Respondents filed their Response brief on November 13, 2020. (Respondents' Ex. J). It is clear, then, that the Arbitrator collected and reviewed both parties' briefings on the issue of compensatory damages before the Final Award was issued on June 29, 2021.
Although Respondents argue there was insufficient evidence to increase the damages, and they contend the Arbitrator's reasoning was contradictory, these are not grounds to vacate the Award. “'Neither erroneous legal conclusions nor unsubstantiated factual findings justify federal court review' of an arbitral award under the FAA.” Aspic Eng'g & Constr. Co. v. ECC Centcom Constructors LLC, 913 F.3d 1162, 1166 (9th Cir. 2019) (citing Bosack, 586 F.3d at 1102). Even “[m]anifest disregard of the facts is not an independent ground for vacatur in this circuit.” Coutee v. Barington Capital Group, L.P., 336 F.3d 1128, 1133 (9th Cir. 2003). Respondents' briefing merely attempts to relitigate the matter based solely on a conclusion not to their liking.
Moreover, Respondents fail to demonstrate that the Arbitrator exhibited bias in her consideration of the email evidence. “Before a court can vacate an arbitration award because of ‘evident partiality' on the part of the arbitrator, the party alleging bias must establish facts that create ‘a reasonable impression of partiality.'” Toyota of Berkeley v. Auto. Salesman's Union, Loc. 1095, United Food & Com. Workers Union, 834 F.2d 751, 756 (9th Cir. 1987), amended, 856 F.2d 1572 (9th Cir. 1988) (citation omitted). Here, Respondents present no facts that suggest partiality; on the contrary, the Arbitrator explained that Petitioners were permitted to rely on the email evidence because they were using it for a very different purpose than Respondents (who were attempting to speculate about why the email was sent). (Respondents' Ex. C, at p. 832-835; Dkt. 33, at 16). The Arbitrator's decision on this matter is not evidence of bias under the FAA.
2. Burden on Punitive Damages
Respondents also allege their rights were violated because the Arbitrator imposed an unfair burden of proof with regard to punitive damages. (Dkt. 33, at 17). Specifically, they allege the Arbitrator erroneously required Respondents to “determine what documents they had or could obtain which would be sufficient evidence of financial condition, ” rather than placing the burden on Petitioners to request what financial discovery they needed, as California law requires. (Id. at 17-21).
The record does not support Respondents' version of events: instead, it shows that Respondents failed to produce sufficient documents related to their financial condition, even when the Arbitrator ordered them to do so. (Respondents' Ex. P, at 1; Ex. Ex. R, at 2). Nonetheless, even if the Arbitrator had misapplied California law and reversed the burden of proof on punitive damages, it would not be grounds to vacate the Award. Courts cannot vacate an award for “a mere error in the law or failure on the part of the arbitrators to understand and apply the law.” Collins, 505 F.3d at 879 (citation omitted); see Collins v. D.R. Horton, Inc., 361 F.Supp.2d 1085, 1100 (D. Ariz. 2005), aff'd, 505 F.3d 874 (9th Cir. 2007) (“Absent evidence . . . reliably demonstrating that the arbitrator actually misapplied the relevant law and did so with knowledge of the error of that action and/or the intention to nullify the law or an awareness that he was doing so, vacatur is not appropriate.”).
3. Refusal to Allow Amendment of Counterclaim
Finally, Respondents argue the Arbitrator refused to hear pertinent evidence by not allowing them to amend their counterclaim and introduce a related declaration.
Respondents do not meet their burden of showing the award should be vacated. The record shows that the Arbitrator fully considered Respondents' Motion to Amend Counterclaim, and ultimately denied it because Respondents were “on notice of the information necessary to bring this claim as early as July 2017 . . . “, yet they “wait[ed] until March 6, 2020, on the last day of the arbitration hearing . . . at a time when [Petitioners] had neither the information nor the opportunity to respond.” (Dkt. 42, at 20).
Similarly, the Arbitrator did not allow the evidence Respondents offered (a declaration) because it had not been disclosed in discovery or exchanged in advance, in violation of JAMS Rule 17. (Petitioners' Exhibit Y, TR 2280:13-16). The Arbitrator was well within her rights to exclude this evidence. “Arbitrators enjoy ‘wide discretion to require the exchange of evidence, and to admit or exclude evidence, how and when they see fit.'” U.S. Life Ins. Co., 591 F.3d at 1175 (citing Indus. Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1444 (11th Cir.1998)).
For the foregoing reasons, Respondents' Motion to Vacate the Arbitration Award is DENIED.
B. Motion to Modify
Respondents request, in the alternative, that the Court modify the Award “to return back to the Arbitrator's rulings and award of compensatory damages set forth in the September 8, 2020 Interim Award which was based on both sides' submissions and closing briefs. . . .” (Dkt. 52, at 12). Section 11(a) provides that an award may be modified or corrected “where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award.”
Respondents again fail to meet the applicable legal standard. Respondents fail to articulate how the Arbitrator made a mistake or miscalculation that would warrant correction of the Award aside from their general disagreements with the Arbitrator's final findings, as addressed above. There is no “technical error, ” Kyocera, 341 F.3d at 997-98, for the Court to correct. The Arbitrator's calculations were accurate, based on the reasoning she provided. See Merrill Lynch, Pierce, Fenner & Smith Inc. v. Burke, 741 F.Supp. 191, 193 (N.D. Cal. 1990) (holding that there was no evident material miscalculation even though evidence essential to the calculation was not admitted). Accordingly, the Court DENIES Respondents' request to modify the award.
C. Petitioners' Motion to Confirm
“Pursuant to the Federal Arbitration Act (FAA), we ‘must' confirm an arbitration award unless we vacate, modify, or correct the award as prescribed in 9 U.S.C. §§ 10 and 11.” Aspic Eng'g & Constr. Co, 913 F.3d at 1166 (citing Bosack, 586 F.3d at 1102). Accordingly, the Court GRANTS Petitioners' Motion to Confirm the Arbitration Award.
IV. CONCLUSION
The Court therefore GRANTS Petitioners' Motion to Confirm and DENIES Respondents' Motion to Vacate.
IT IS SO ORDERED.