Photographic Illustrators Corp. v. Osram Sylvania, Inc.

• Decision Date: 06 February 2019
• Docket Number: Civil Action No. 17-12425-PBS
• Citation: 366 F.Supp.3d 160
• Parties: PHOTOGRAPHIC ILLUSTRATORS CORPORATION, Petitioner, v. OSRAM SYLVANIA, INC., Respondent.
• Court: U.S. District Court — District of Massachusetts

366 F.Supp.3d 160

PHOTOGRAPHIC ILLUSTRATORS CORPORATION, Petitioner,

v.OSRAM SYLVANIA, INC., Respondent.

Civil Action No. 17-12425-PBS

United States District Court, D. Massachusetts.

Filed February 6, 2019

Craig R. Smith, Eric P. Carnevale, Lando & Anastasi, LLP, Cambridge, MA, Charles E. Fowler, Jr., Pro Hac Vice, McKool Smith, P.C., Austin, TX, Gary Cruciani, Pro Hac Vice, McKool Smith, P.C., Dallas, TX, Robert E. Allen, Pro Hac Vice, McKool Smith Hennigan, P.C., Los Angeles, CA, for Plaintiff.

Frederick L. Whitmer, Pro Hac Vice, Kilpatrick Townsend & Stockton LLP, New York, NY, Sabina A. Vayner, Pro Hac Vice, Kilpatrick Townsend & Stockton, Atlanta, GA, Joseph Petersen, Pro Hac Vice, David K. Caplan, Kilpatrick Townsend & Stockton, Beverly Hills, CA, for Defendant.

MEMORANDUM AND ORDER

Patti B. Saris, Chief United States District Judge

INTRODUCTION

Petitioner Photographic Illustrators Corporation ("PIC") initiated this action to confirm its arbitration award against Respondent OSRAM Sylvania, Inc. ("Sylvania"). As relevant here, the arbitrator ruled against PIC on its copyright infringement counterclaim and for PIC on its breach of contract counterclaim. He awarded PIC $ 9,591,049.99 in damages for the contract counterclaim. He then denied Sylvania's request for attorneys' fees and costs under the Copyright Act as the prevailing party on PIC's copyright counterclaim and awarded PIC $ 3,960,655.63 in attorneys' fees and $ 1,473,653.50 in costs pursuant to the contract that Sylvania breached. Sylvania seeks to vacate the award of fees and costs on the basis that the arbitrator manifestly disregarded the law in rejecting its request for fees and costs under the Copyright Act and essentially rewrote the contract by awarding PIC fees and costs for work exclusively on the copyright counterclaim.

After hearing, the Court DENIES Sylvania's motion to vacate the arbitration award (Docket No. 32) and ALLOWS PIC's first amended petition to confirm arbitration awards (Docket No. 40).

FACTUAL BACKGROUND

PIC is a Massachusetts corporation that provides commercial photography services. Sylvania is a Delaware corporation that manufactures and sells lighting products. In 2006, PIC and Sylvania executed a licensing agreement permitting Sylvania to use PIC's photographs of its products ("the Agreement").

In August and November 2015, PIC sued a number of companies that sold Sylvania products for allegedly using PIC's photographs without authorization. The lawsuits alleged copyright infringement and violations of the Digital Millennium Copyright Act (DMCA).

On January 26, 2016, pursuant to the Agreement's arbitration clause, Sylvania commenced an arbitration against PIC with the American Arbitration Association. Sylvania alleged that PIC breached the Agreement, engaged in unfair trade practices under Mass. Gen. Laws ch. 93A, tortiously interfered with Sylvania's business relationships, was unjustly enriched, and violated the federal RICO statute. PIC asserted a number of counterclaims against Sylvania, including breach of the Agreement, copyright infringement, violation of the DMCA, false designation of origin under the Lanham Act, and unfair trade practices under Mass. Gen. Laws ch. 93A. In October 2016, some of the companies PIC sued in 2015 agreed to consolidate those suits into the arbitration.

In May 2017, PIC and Sylvania agreed to bifurcate the arbitration into two phases, first addressing the merits and then attorneys' fees and costs. The arbitrator held an evidentiary hearing on the merits over twelve days in June 2017. On November 20, 2017, the arbitrator issued a Partial Final Award. He rejected all Sylvania's claims and all but one of PIC's counterclaims, including the copyright infringement counterclaim. He ruled for PIC on its breach of contract counterclaim and awarded it $ 9,591,049.99 in damages.

On January 18, 2018, the arbitrator issued a Final Award on attorneys' fees and costs. He first addressed PIC's request for fees and costs for prevailing on its contract counterclaim and recognized that it was governed by Paragraph 39 of the Agreement. In Paragraph 39, PIC and Sylvania agreed that "[i]f any legal action, arbitration, or other proceeding is brought for a breach of this Agreement or any of the warranties herein, the prevailing party shall be entitled to recover its reasonable attorneys' fees and other costs incurred in bringing such action or proceeding." Dkt. No. 34-1 at 20.

Turning to the enforceability of PIC's contingency fee arrangement, the arbitrator noted that PIC gave its attorneys 30% of the fee and cost award in addition to 30% of the contract damages; although this type of contingency fee is unusual, he found that PIC's attorneys sufficiently justified the arrangement in this case. He then determined that the attorneys properly and reasonably incurred the costs and expenses they itemized, the contingency fee was roughly equivalent to what the attorneys would have been paid had they charged on an hourly basis, and the fee amount was reasonable given the nature of the case and the attorneys' qualifications. With these findings, he concluded that the contingency fee arrangement was enforceable between PIC and its attorneys.

He then found that PIC's contingency fee was reasonable under Massachusetts law and thus enforceable against Sylvania under Paragraph 39 of the Agreement, which limited PIC to "reasonable" fees and costs. He rejected Sylvania's argument that the fee was unreasonable because PIC's attorneys spent more time and effort litigating the copyright counterclaim than the contract counterclaim; instead, he determined that the vast majority of the work was applicable to both. He read Paragraph 39 to allow only costs related to the contract counterclaim, so he reduced the consultant and expert witness fees based on the amount of their work that related only to the copyright counterclaim. Ultimately, he awarded PIC $ 1,473,653.50 in costs and, after running the formula in PIC's contingency fee agreement, $ 3,960,655.63 in attorneys' fees.

The arbitrator next addressed Sylvania's request for fees and costs under the Copyright Act for prevailing on PIC's copyright counterclaim:

PIC correctly cites to the recent unanimous Supreme Court decision Kirtsaeng v. John Wiley & Sons, Inc., ––– U.S. ––––, 136 S.Ct. 1979, 195 L.Ed.2d 368 (2016) as controlling authority on whether Sylvania and the Customer Defendants should recover any fees or costs. I ruled in the PFA that PIC's copyright claims were objectively reasonable and brought in good faith. This arbitration and the claims asserted were precipitated by Sylvania's clear breach of the attribution provisions of the Agreement and its litigation posture throughout the arbitration. The Supreme Court in Kirtsaeng repeated the principles and criteria for awarding fees set forth in Fogerty v. Fantasy, Inc., 510 U.S. 517, 533-34, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994).

In Fogerty, the Court emphasized that the trial court has discretion in awarding fees and should not award them as a matter of course. The Court identified some factors to consider, including frivolousness, motivation and objective unreasonableness. Id. In Kirtsaeng, the Court again relied on the objective reasonableness of the losing party's position. I have already found that PIC's position on its copyright claims was a reasonable one, albeit not a successful one. Nor do I find that the granting of fees to Sylvania and the Customer Defendants would further the Copyright Act's fundamental goal of "enriching the general public through access to creative works." Fogerty, supra at 527, 114 S.Ct. 1023 ; accord, Kirtsaeng, supra at 1986. Accordingly, exercising my informed discretion, I deny the applications of Sylvania and the Customer Defendants for attorneys' fees and costs.

Dkt No. 34-3 at 12-13.

PIC initiated this civil action on December 8, 2017. In its initial petition, PIC sought to confirm its $ 9,591,049.99 Partial Final Award for Sylvania's breach of contract. Sylvania does not object to the Partial Final Award. On March 29, 2018, PIC amended its petition to seek confirmation of its $ 3,960,655.63 in attorneys' fees and $ 1,473,653,50 in costs in the Final Award. Sylvania has moved to vacate the Final Award.

DISCUSSION

I. Standard of Review

Under the Federal Arbitration Act (FAA), a party to an arbitration may apply within one year for a judicial order confirming the award. 9 U.S.C. § 9. Upon receipt of such an application, unless the court vacates, modifies, or corrects the arbitration award pursuant to 9 U.S.C. §§ 10, 11, it must confirm the award. Ortiz-Espinosa v. BBVA Sec. of P.R., Inc., 852 F.3d 36, 42 (1st Cir. 2017).

Section 10 provides the "exclusive grounds" for vacating an arbitration award. Id. (quoting Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576, 584, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008) ). A "federal court's authority to defenestrate an arbitration award is extremely limited." First State Ins. Co. v. Nat'l Cas. Co., 781 F.3d 7, 11 (1st Cir. 2015). Courts do not "hear claims of factual or legal error by an arbitrator as an appellate court does in reviewing decisions of lower courts," even "where such error is painfully clear," nor do they "revisit the arbitrators' ultimate determination of whether or not to impose liability." Ortiz-Espinosa, 852 F.3d at 48 (quoting Advest, Inc. v. McCarthy, 914 F.2d 6, 8 (1st Cir. 1990) ). A party challenging an arbitration award therefore bears a "heavy burden." Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569, 133 S.Ct. 2064, 186 L.Ed.2d 113 (2013).

Sylvania argues that the Court should vacate the Final Award under § 10(a)(4), which permits vacatur "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)(4).¹ When arbitrators are tasked with contract interpretation, it is not enough for a party seeking to...