Federal Arbitration Case Update | Cox and the Courtroom

Richard Birke

Richard Birke

By Richard Birke

Following is an interesting and recent federal court ruling related to arbitration.

Litigation Activity Results in Waiver of Right to Arbitrate
Healy v. Cox Communications
United States Court of Appeals, Tenth Circuit
June 24, 2015

In 2009, Cox’s cable service subscribers sued, arguing that Cox had illegally tied premium cable to its “set-box” rental. Cox moved to dismiss. While the motion was pending, Cox inserted mandatory arbitration clauses and a class waiver in all its contracts, including those of putative class members.

Class certification failed, but smaller sub-classes began to file many class actions – each of which was designed to overcome the objections the court had with the original, national attempt to certify a class.

Richard Healy became the lead plaintiff in an Oklahoma-based case. Cox moved to dismiss, and when that was unsuccessful, the parties agreed to stay other cases and use Oklahoma as a bellwether.

After substantial activity, including a grant of class certification, Cox moved again to compel arbitration. The district court denied the motion, ruling that Cox’s litigation activity amounted to a waiver. Cox appealed.

The Court of Appeals for the Tenth Circuit affirmed. It found that “the parties then engaged in extensive pre-trial discovery, issuing interrogatories, submitting declarations, exchanging 10s of thousands of documents, locating and hiring experts, and deposing witnesses. In September 2013, named plaintiff Healy moved to certify a class. Cox opposed the motion and moved to exclude the testimony of Healy’s experts in support of the motion. Nowhere in its answer did Cox inform the district court of its arbitration agreements or raise the presence of these agreements as an impediment to the alleged numerosity, typicality, and commonality of the class. During the pendency of the motion for class certification, the parties continued to engage in discovery. Cox also filed a surreply in opposition to the motion for certification, which again did not mention the arbitration provisions.”

The Court used a six-part test to determine waiver.  The factors are “(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.”

The Court analyzed each and found that they “strongly cut against Cox.”  The district court’s denial of the motion to compel arbitration was affirmed, and the case remanded for an increasingly rare class action trial on the merits.

Make the Most of Your Mediation: The Single-Family Construction Defect Case

Hon. Lynn Duryee (Ret.)

Hon. Lynn Duryee (Ret.)

By Hon. Lynn Duryee (Ret.)

How can you economically and effectively settle the single-family construction defect case?  In a recent mediation involving a homeowner, contractor and 15 subs, the participants used the following practices, which resulted in 16 signed settlements at the end of one day:

  1. Participate in a focused pre-mediation conference call. All counsel participated in a conference call before setting the mediation.  Each spoke knowledgably about what was needed to prepare the case to optimize resolution.  The homeowner needed to do an urgent repair.  The contractor needed his expert to finish a report.  The subs needed an allocation demand well in advance so that their clients could respond.  Some participants expressed a need to speak privately with the mediator.  A frank discussion was had about why the case had stalled and what was required to successfully move it forward.  It bears mentioning that while the attorneys had experienced a fair amount of frustration in the litigation up to that point, they all bent over backwards to be respectful and friendly in the call.  Following the call, a case management order was prepared setting forth all future dates and obligations.
  1. Visit the property. Even though the homeowner had permitted a property inspection early in the litigation, she allowed a second inspection so that the neutral could view the property and all participants could take a second look.  Her lawyer was thoroughly prepared for the inspection.  He created a bulleted list from his expert’s report, and he led the parties through the house, pointing out the defects while referencing the list.  Helpfully, he had included photos on the list along with expert’s estimate for the fix.  Seeing the property and remembering it with pictures was critical to having an informed discussion at the mediation.  The bulleted list became the basis for settlement discussions.
  1. Alert the neutral to obstacles in advance. In private pre-mediation calls, several lawyers identified specific obstacles to settlement:  lack of insurance, indignant parties, ridiculous demands, personality clashes and the like.  The lawyers gave the neutral suggestions as to how to best handle their issue.  For example, one uninsured sub was outraged that he’d been sued, because the owner had repeatedly told him how satisfied she was with his work.  Armed with this information, the neutral spoke with the sub in advance, diffusing the emotion and avoiding an emotional and lengthy talk during the mediation day.

To read on to section 4. Have decision-makers present and prepared and more, please read the full article, Make the Most of Your Mediation:  The Single-Family Construction Defect Case, from Law.com.

60s On 6; Sirius Trouble

Richard Posell, Esq.

By Richard Posell

SiriusXM Radio operates both satellite and internet radio, broadcasting many stations for every musical taste. Its Channel 6 features music from the 60s and called 60s on 6.  In September 2014, Judge Philip Gutierrez in the Central District of the U.S. District held that a 1982 California state statute gives copyright holders in pre-1972 sound recordings the exclusive right to publically perform their recordings.  This ruling challenges the common understanding of state copyrights since at least 1940, thus hearing some scrutiny.

Under the 1909 Copyright Act, there was no Federal copyright in sound recordings (the fixation of sounds, usually a performance, in a recording medium). This left ownership rights in such recordings to the common law of each state. By the 1930s, the sale and performance of phonograph records was a big business. One of the biggest artists recording at that time was Paul Whiteman recording for RCA.

In July 1940, RCA Mfg Co, Inc. v Whiteman came before the Second Circuit Court of Appeals in front of Learned Hand. Plaintiff, Whiteman (then RCA), both of whom claimed they owned Whiteman phonorecords, attacked the concept of royalty-free public performances of sound recordings, claiming a common law property right in such performances. The answer, according to Justice Hand, was that once the recordings embodying that performance were sold, “it would be very difficult to see how [plaintiff] could impose valid restrictions upon their resale….We think that the ‘common law property’ in these performances ended with the sale of the records.”

In 1972, the new Federal Copyright act took cognizance of phonorecords and granted a federal copyright in all sound recordings fixed after February 15, 1972. In 1995, Congress added a public performance right in sound recordings for digital transmission (internet or satellite radio), but exempted FCC-licensed broadcasts and providing for a compulsory license (to be set by the Copyright Royalty Board) for subscription services such as Sirius.  But none of this affected state copyright law.

Flo & Eddie, Inc., is the owner of many sound recordings, including the one at issue: the iconic 1960s Turtles hit “Happy Together.”  In 2013 Flo & Eddie challenged the pre-1972 public performance rights. The target of its lawsuit was the library of pre-1972 sound recordings which formed the mainstay of oldies radio.

The matter ended up in front of Judge Guerrero, who ruled favorably on Flo & Eddie’s motion for summary judgment despite the fact that at least since 1940 there has never been a general public performance right for sound recordings, even at the Federal level.

Judge Guerrero’s argument was simple:  The California statute on sound recordings gives “exclusive ownership” to authors of pre-1972 sound recordings.  In plain English, public performance rights are included in the concept of “exclusive ownership.” The only “exception” in the statute is for independently created imitations that do not actually recapture the sounds in the sound recordings (such as covers, e.g.).

Copyright pundits have observed that this decision is important to the sound recording community, because it will seriously impact the value of pre-1972 catalogues and the platforms on which they are exploited. Publishers and the broadcasters would be well-served by a mediation process that takes into account the network of financial issues and which could create a protocol that would reduce the risk for both sides.

Richard Posell, Esq., is a JAMS panelist in Santa Monica, Calif. He resolves high-profile, complex commercial disputes and has experience in entertainment, trade secrets, trademarks, trade dress, class actions, executive employment disputes and general business disputes.


Federal Arbitration Case Update | Compelling and Appealing

Richard Birke

Richard Birke

By Richard Birke

Following are two recent federal court rulings related to arbitration.

Acknowledgement of Dispute Resolution Policy Sufficient to Compel Arbitration of Retaliation Claim
Ashbey v. Archstone Property Management, Inc.
United States Court of Appeals, Ninth Circuit

Michael Ashbey worked as an at-will employee at Archstone since 1996. In 2009, he acknowledged in writing that he understood and accepted the company’s dispute resolution policy, which included a requirement that any unresolved disputes go to binding arbitration.

In 2006, Ashbey’s wife, also an Archstone employee, complained that a fellow employee was sexually harassing her. In 2010, Archstone terminated Ashbey’s wife’s employment. Shortly thereafter, Archstone terminated Ashbey as well.

In 2011, Ashbey filed a complaint in state court (quickly removed to federal court) alleging unlawful retaliation.  Archstone filed a motion to compel arbitration. The district court denied the motion on the ground that Ashbey did not knowingly waive his right to a jury trial for Title VII claims. Archstone appealed.

The United States Court of Appeal for the Ninth Circuit reversed. They reviewed the evidence of Ashbey’s acceptance of the arbitration clause and concluded that “Ashbey knowingly waived his right to a judicial forum for his Title VII claim and equivalent state-law claims.”

District Court Ordered to Review Its Determination that Party Failed to Prove Existence of Agreement to Arbitrate
Dillon v. BMO Harris Bank
United States Court of Appeals, Fourth Circuit

James Dillon took out an online payday loan in North Carolina. He later filed a putative class action lawsuit alleging that the interest rates violated North Carolina usury law. The banks involved in processing and administrating the local aspects of the loans were named as defendants, and they responded by moving to compel arbitration of the dispute pursuant to the arbitration agreements between Dillon and the online lenders.

The district court held that the banks had failed to demonstrate the existence of an agreement to arbitrate between themselves and Dillon, given that they presented no contract that both had signed containing such an agreement. The banks gathered evidence and submitted a renewed motion to compel arbitration. The court deemed this motion something to reconsider and denied it. The banks appealed.

The United States Court of Appeal for the Fourth Circuit vacated and remanded, finding that the lower court should have considered the evidence in the renewed motion. The Court found that the FAA contemplated more than one “bite at the apple” and that the renewed motion was not a motion to reconsider. “The court’s prior ruling—that the pleadings did not establish arbitrability—did not determine whether Dillon consented to arbitration. Accordingly, the district court should have resolved the Renewed Motions on the merits.”