New Regency Productions v. Nippon Herald Films

• Citation: 501 F.3d 1101
• Decision Date: 04 September 2007
• Docket Number: No. 05-55224.,05-55224.
• Parties: NEW REGENCY PRODUCTIONS, INC., a California Corporation, Petitioner-Appellant, v. NIPPON HERALD FILMS, INC., a Japanese Corporation, Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

501 F.3d 1101

NEW REGENCY PRODUCTIONS, INC., a California Corporation, Petitioner-Appellant, v. NIPPON HERALD FILMS, INC., a Japanese Corporation, Respondent-Appellee.

No. 05-55224.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 13, 2007.

Filed September 4, 2007.

Howard L. Horwitz, Eric G. Stockel, Kibre & Horwitz, Beverly Hills, CA, for the appellant.

Charles N. Shephard, Greenberg, Glusker, Fields, Claman & Machtinger, Los Angeles, CA, for the appellee.

Appeal from the United States District Court for the Central District of California; A. Howard Matz, District Judge, Presiding. D.C. No. CV-04-09951-AHM.

Before: HARRY PREGERSON, W. FLETCHER, and MARSHA S. BERZON, Circuit Judges.

WILLIAM A. FLETCHER, Circuit Judge:

This case arises from the arbitration of a contract dispute between a film production company and a film distribution company. The district court vacated the arbitration award based on the neutral arbitrator's failure to disclose that during the arbitration, he began work as a senior executive with a company that was negotiating with a production executive of one of the parties to the arbitration to finance and co-produce an important motion picture.

We hold that vacatur by the district court for "evident partiality" of the arbitrator was proper under the Federal Arbitration Act. We conclude that the lack of evidence of the arbitrator's actual knowledge of the ongoing negotiation does not prevent a finding of evident partiality because, under the circumstances of this case, the arbitrator had a duty to investigate possible conflicts resulting from his new employment and to disclose that employment to the parties. We therefore affirm the decision of the district court.

I. Background

In May 1995, Appellant New Regency and Appellee Nippon Herald entered into an agreement for Nippon Herald to distribute in Japan five films produced by New Regency. In June 2003, Nippon Herald sued New Regency in a Japanese court, alleging that New Regency had violated the distribution agreement by failing to deliver one of the five films, "Crowded Room," and by refusing to pay Nippon Herald money it claimed it was owed under a cross-collateralization provision. Several months later, the parties agreed that Nippon Herald would withdraw its Japanese suit and instead arbitrate its claims through the American Film Marketing Association ("AFMA"), now the International Film and Television Alliance, a motion picture trade organization with its own arbitration rules and panel of arbitrators.

In November 2003, Nippon Herald and New Regency jointly selected William J. Immerman, then a Los Angeles attorney and executive for Crusader Entertainment, from a list of three potential arbitrators provided by the AFMA. During the selection process, Immerman disclosed that he had previously arbitrated a case where counsel for Nippon Herald, Charles Shephard, represented a party, and had also negotiated deals "with various executives of New Regency prior to their becoming executives at New Regency." On February 23, 2004, after his selection, Immerman further disclosed that an attorney at Shephard's firm had brought suit against Crusader Entertainment and that, although he was not representing Crusader, he would likely be called as a percipient witness.

The arbitration hearing took place on April 27, 28, and 29, and June 1, 2, and 3, 2004. In an order dated July 19, 2004, Immerman decided that Nippon Herald was entitled to return of the $440,000.00 fee it had paid for the undelivered film — a point not disputed by New Regency — plus interest. In addition, Immerman adopted New Regency's interpretation of the cross-collateralization provision and awarded to New Regency a portion of the proceeds of a recoupment pool plus interest, subsequently determined to amount to $2,341,257.00. Immerman's July 19 order was supplemented twice, on October 4, 2004, and November 30, 2004. Immerman's final order was served on the parties on December 3, 2004.

On December 7, 2004, New Regency moved in federal district court to confirm the final arbitration award and enter judgment pursuant to 9 U.S.C. § 9. Nippon Herald cross-moved to vacate the arbitration award on three grounds: (1) Immerman had erroneously applied California rather than Netherlands contract law, thus exceeding his authority as an arbitrator; (2) Immerman had failed to disclose a prior work relationship with New Regency General Counsel and arbitration witness Bill Weiner; and (3) Immerman had failed to disclose that in mid-July 2004, before entry of the July 19 Order, he began his new employment as Senior Vice President and Chief Administrative Officer of the Yari Film Group. When Immerman began work, Yari Film Group was negotiating to finance and co-produce "The Night Watchman," a motion picture developed by New Regency and produced by Alexandra Milchan ("Milchan"). Milchan is a production executive at New Regency. She is the daughter of New Regency's principal owner and Chief Executive Officer, Arnon Milchan.

The district court granted Nippon Herald's motion to vacate the arbitration award on January 14, 2005. It concluded that vacatur was proper because Immerman's failure to disclose his dealings with Yari Film Group created a reasonable impression of partiality. The district court concluded that Immerman's past relation with Weiner did not support vacatur. It declined to reach the question of whether Immerman had exceeded his authority. New Regency timely appealed. We have jurisdiction pursuant to 28 U.S.C. § 1291 and we affirm.

II. Choice of Law

Before proceeding to the merits of the vacatur question, we must first decide whether to apply California law or the Federal Arbitration Act ("FAA"). The district court applied California law without discussion, although it indicated that it would reach the same result under the FAA. In their initial briefing to this court, both New Regency and Nippon Herald argued that California law should apply, citing a single District of Hawaii case, Brown v. Hyatt Corp., 128 F.Supp.2d 697, 700-01 (D.Haw.2000), for the proposition that the FAA does not apply to postdispute arbitration agreements. However, in supplemental briefing we ordered on this issue the parties now agree that we should apply the FAA.

For three reasons, we agree with the parties that the FAA, not California law, governs this postdispute arbitration agreement. First, the plain language of the coverage provision of the FAA, 9 U.S.C. § 2, unambiguously encompasses both predispute and postdispute arbitration agreements. According to that provision, the FAA covers:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal. . . .

9 U.S.C. § 2 (emphasis added). Second, we are aware of no appellate or Supreme Court authority holding that postdispute arbitration agreements fall outside the scope of the FAA. Numerous courts have applied the act to such agreements. See, e.g., Asia Pac. Indus. Corp. v. Rainforest Cafe, Inc., 380 F.3d 383, 385 (8th Cir.2004); Al-Harbi v. Citibank, N.A., 85 F.3d 680, 681-82 (D.C.Cir.1996); Sverdrup Corp. v. WHC Constructors, Inc., 989 F.2d 148, 149-51 (4th Cir.1993). Third, we have previously recognized that "there is a strong default presumption that the Federal Arbitration Act, not state law, supplies the rules for arbitration." Fidelity Fed. Bank, FSB v. Durga Ma Corp., 386 F.3d 1306 1311 (9th Cir.2004) (internal quotation marks and alterations omitted); see also Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1269 (9th Cir.2002). No circumstance exists here that would overcome this presumption.

We therefore review the district court's vacatur decision under the FAA.

III. Merits

The FAA provides that a district court "may make an order vacating [an] [arbitration] award upon the application of any party to the arbitration":

(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, 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; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10(a) (emphasis added).

We review a district court's "decision to vacate or confirm an arbitration award" de novo. Poweragent Inc. v. Elec. Data Sys. Corp., 358 F.3d 1187, 1193 (9th Cir.2004). We review its findings of fact for clear error. Coutee v. Barington Capital Group, L.P., 336 F.3d 1128, 1132 (9th Cir.2003).

A. Failure to Disclose Employment

Nippon Herald contends that vacatur was proper because Immerman's failure to disclose the facts of his employment by Yari Film Group and its negotiations with Milchan to finance and co-produce "The Night Watchman" is sufficient to establish "evident partiality . . . in the arbitrator[ ]." 9 U.S.C. § 10(a)(2). New Regency argues that vacatur was improper because (1) these facts are insufficient to establish evident partiality, and (2) there is no evidence that Immerman had actual knowledge of Yari Film Group's dealings with Milchan.

1. Legal Standard

"Evident partiality" is distinct from actual bias. In Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145, 89 S.Ct. 337, 21 L.Ed.2d 301 (1968), the Supreme Court held that a party seeking to vacate an arbitration award for evident partiality need not...