McKenzie v. Brannan, 112221 FED1, 20-2170

Docket Nº20-2170
Opinion JudgeTHOMPSON, Circuit Judge.
Party NameMICHAEL MCKENZIE, individually and d/b/a American Image Art, Plaintiff, Appellant, v. JAMES W. BRANNAN, as personal representative of the Estate of Robert Indiana, Defendant, Appellee, AARON M. FREY, in his official capacity as Attorney General of the State of Maine, Defendant.
AttorneyJohn J.E. Markham, II, with whom Bridget A. Zerner and Markham & Read were on brief, for appellant. Seth W. Brewster, with whom Alfred J. Falzone, III and Eaton Peabody were on brief, for appellee.
Judge PanelBefore Thompson, Hawkins, and Barron, Circuit Judges.
Case DateNovember 22, 2021
CourtUnited States Courts of Appeals, United States Court of Appeals (1st Circuit)

MICHAEL MCKENZIE, individually and d/b/a American Image Art, Plaintiff, Appellant,


JAMES W. BRANNAN, as personal representative of the Estate of Robert Indiana, Defendant, Appellee,

AARON M. FREY, in his official capacity as Attorney General of the State of Maine, Defendant.

No. 20-2170

United States Court of Appeals, First Circuit

November 22, 2021


John J.E. Markham, II, with whom Bridget A. Zerner and Markham & Read were on brief, for appellant.

Seth W. Brewster, with whom Alfred J. Falzone, III and Eaton Peabody were on brief, for appellee.


Before Thompson, Hawkins, [*] and Barron, Circuit Judges.

THOMPSON, Circuit Judge.

Famous artwork, business relationships, and contract law collide in today's case. The matter lands here amidst a tangle of litigation involving an art publisher, the personal representative of the estate of a famous American artist, and the agreement(s) between them. The publisher says the parties' original contract, which included an arbitration provision, was terminated and supplanted by a superseding contract, which did not contain an agreement to arbitrate. According to the publisher, the arbitrability of the parties' dispute about this newer contract's enforceability and impact on the earlier agreement to arbitrate should be decided by the court, not arbitrators. So, in the publisher's telling, the district court erred when, in accordance with the original agreement's arbitration clause, it sidestepped the potential effect of the newer contract and concluded that the gateway question of arbitrability was for the arbitrators. The estate, of course, says the district court got its analysis just right.

After careful review of this nuanced matter, we vacate the grant of the motion to compel arbitration, the dismissal of the request for a preliminary injunction, and the dismissal of the complaint, and we remand for further proceedings.



A. Robert Indiana, Michael McKenzie, and the 2008 Agreement

During the American Pop Art Movement of the 1960s, artist Robert Indiana ("Indiana") conceived of an image of the word "love." His distinctive rendering of the word -- colorful, all-caps letters arranged in a square, with the L and a tilted O sitting atop the V and E -- became quite famous. Readily recognizable, Indiana's "LOVE" has been depicted in various artistic media, such as prints, silkscreens, and sculptures, and it was even featured on United States postage stamps. Originally from the Midwest, Indiana relocated from New York, where he had lived for a time, to Vinalhaven, an island off the coast of Maine. He lived there from 1976 until his death on August 9, 2018.

Michael McKenzie ("McKenzie"), an art publisher, began collaborating with Indiana in the mid-1970s. In 2008, in the course of this ongoing relationship, McKenzie (operating through American Image Art ("AIA")) created "HOPE" artwork -- images of the word "hope" laid out in the same format as Indiana's "LOVE" artwork -- and McKenzie wanted to work with Indiana to make color


variations of it. The ensuing HOPE collaboration between Indiana and McKenzie led to a 2008 publishing agreement between the two (sometimes called the "Agreement for Art Editions contract," sometimes the "HOPE agreement," but we'll refer to it here as "the 2008 Agreement"), and that contract is what allowed McKenzie and AIA to produce HOPE sculptures, paintings, objects, and prints. The 2008 Agreement lays out the responsibilities of AIA and Indiana in this collaboration and details the specifics of art production. Important to the debate before us today is the 2008 Agreement's arbitration provision, which provides: "Any disputes will be settled by arbitration through the American Arbitration Association [("AAA")], governed by the laws of the State of New York."

Indiana and McKenzie operated under the 2008 Agreement until Indiana died, at which point the rights and obligations of Indiana passed to his estate ("the Estate"), with James W. Brannan ("Brannan") serving as the Estate's personal representative.

Indiana's LOVE artwork, not to mention his many other highly acclaimed works of art, brought him significant financial success -- one need look no further than the $89, 738, 458.38 fortune borne out in his probate records to confirm as much. Indiana bequeathed that entire estate (minus any claims and debts) to The


Star of Hope, Inc. ("Star of Hope"), a nonprofit in Vinalhaven that aims to promote visual-arts education.2

B. The Initial Disputes and Resulting Proceedings

Right around the time of Indiana's death in 2018, various disagreements between a handful of different people and entities affiliated with the artist began to surface. The one with which we are concerned -- McKenzie and the Estate sparring over the 2008 Agreement's production-rights terms, i.e., the dispute from which the issue now on appeal stemmed -- actually began as crossclaims in a Manhattan-federal-court (S.D.N.Y.) action in which a company called Morgan Art Foundation (an offshore Bahamian entity) sued McKenzie (d/b/a AIA) and Indiana (naming the Estate after Indiana's passing) under a breach of contract theory.3 See Morgan Art Found. Ltd. v. McKenzie, No. 2018-cv-04438, 2020 WL 6135113, at *1 n.1


(S.D.N.Y. Oct. 18, 2020). In answering that suit, McKenzie cross-claimed against the Estate -- he alleged that the 2008 Agreement authorized McKenzie to produce and sell the subject artwork. The Estate's response was a motion to compel arbitration on McKenzie's claims, filed pursuant to the 2008 Agreement. Eventually, McKenzie and the Estate, though remaining parties to the Morgan case, "agree[d] [the 2008 Agreement] govern[ed] the claims between them," and therefore their crossclaims against each other should be sent to arbitration before an AAA panel in New York in accordance with the 2008 Agreement's arbitration clause (which, recall, provided that "[a]ny disputes will be settled by arbitration through the [AAA]"). The Estate's motion to compel that arbitration was granted.

And so, off they went to put the wheels of the arbitration scheduling machine in motion. We refer to the resulting arbitration as the "New York arbitration." As that got underway, though, a new dynamic sprouted in the north. Anticipating the significant expense of the New York arbitration and its associated proceedings, and concerned that those expenses (not to mention the cost of the ongoing S.D.N.Y. litigation) were cutting into funds that should be going to Star of Hope, Frey tapped in. In intervening from Maine, Frey parlayed an alternative dispute resolution discussion that was taking place in the Maine state court case probating Indiana's will, into an agreement


between McKenzie and the Estate (and others) to take their quarrels before a mediator.

C. The Mediation, Resulting Term Sheet, and Aftermath

In late November 2019, after a two-day mediation in Portland, Maine, McKenzie and the Estate left the proceeding with a signed document titled "Confidential and Binding Term Sheet" (we'll call this the "2019 Term Sheet").4 The 2019 Term Sheet tackled a number of topics, like rights to publish and sell certain artwork, collaborations involving Indiana artwork and art production, authenticity determinations, and so on. Pertinent to our mission today are these terms: • "AIA and the Estate will enter into a new [production] agreement that will permit AIA the exclusive right to publish and sell authorized HOPE prints and sculptures";

• "[T]he Original HOPE Agreement [(the 2008 Agreement)] is terminated";

"The [New York] arbitration between the Estate and AIA pending in the AAA will be dismissed with prejudice"; and

• "This term sheet is intended to be binding, and will be replaced by a more formal Settlement Agreement and Production Agreement. Payments, releases, dismissals and other consideration under this term sheet will be made after a more

7 formal Settlement Agreement and Releases and Production Agreement are executed."

The day after the parties left the mediation, counsel for the Estate emailed the New York arbitration panel: "We are pleased to report that the parties have signed a term sheet that resolves all claims and counterclaims in this action. The parties request a one-month adjournment . . . to allow time for the preparation and execution of the settlement agreement and related documentation."

Evidently, attempts to arrive at the contemplated "more formal" agreement didn't pan out, [5] so the Estate recommenced the New York arbitration. Operating from the position that the 2019 Term Sheet was the enforceable contract in place -- and, through it, the parties had agreed to terminate both the 2008 Agreement


and the New York arbitration -- McKenzie took action in the District of Maine to stop the arbitration from resuming.

D. Maine District Court and the New York Arbitration

Back in the Pine Tree State, McKenzie filed a complaint and, with that, triggered a flurry of motion practice. The complaint fired off a single shot -- one count seeking declaratory and injunctive relief. McKenzie wanted (and still seeks) a judgment declaring the 2019 Term Sheet "contractually binding" and "specifically enforceable," as well as an order staying and enjoining the parties from continuing the New York arbitration. The thrust of his pleading is: the 2019 Term Sheet is valid, binding, enforceable, and resolved all the parties' disputes about production; it provided that the pending New York arbitration was to be dismissed with prejudice, so the New York arbitration should not go forward; and any dispute about the 2019 Term Sheet's enforceability should be handled by the court. In response, the Estate moved pursuant to the Federal Arbitration Act ("FAA") to compel arbitration and also to stay proceedings in...

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