Vivid Video, Inc. v. Playboy Entertainment Group

• Decision Date: 01 February 2007
• Docket Number: No. B192186.,B192186.
• Citation: 147 Cal.App.4th 434,54 Cal.Rptr.3d 232
• Court: California Court of Appeals Court of Appeals
• Parties: VIVID VIDEO, INC., et al., Plaintiffs and Respondents, v. PLAYBOY ENTERTAINMENT GROUP, INC., et al., Defendants and Appellants.

54 Cal.Rptr.3d 232

147 Cal.App.4th 434

VIVID VIDEO, INC., et al., Plaintiffs and Respondents, v. PLAYBOY ENTERTAINMENT GROUP, INC., et al., Defendants and Appellants.

No. B192186.

Court of Appeal, Second District, Division 5.

February 1, 2007.

Sheppard, Mullin, Richter & Hampton, Louis M. Meisinger, Fred R. Puglisi and R. Anthony Young, Los Angeles, for Defendants and Appellants.

Bryan Cave, William I. Chertok, Ronald N. Jacobi and John W. Amberg, Santa Monica, for Plaintiffs and Respondents.

TURNER, P.J.

Defendants, Playboy Entertainment Group, Inc. (the group) and Playboy Enterprises, Inc., purport to appeal from a June 23, 2006 "Order on Motion to Compel Arbitration." Defendants expressly limited their motion to compel arbitration to the question whether it was for the court or the arbitrators to decide the arbitrability of the claims of plaintiffs, Vivid Video, Inc. and Vivid Video International, Inc. Defendants did not ask the trial court to decide whether any one or more of the causes of action in the complaint were subject to arbitration. Defendants argued the arbitrators, not the court, were to decide any question of arbitrability. In other words, defendants only sought an order compelling arbitration of the arbitrability question. The order under review does not resolve the issue of whether some or all of the claims in plaintiffs' complaint were to be arbitrated. We conclude that because the issue of whether any claims are to be arbitrated remains unresolved, no appealable final judgment within the meaning of Code of Civil Procedure section 1294, subdivision (c) has been entered. Hence, we dismiss the appeal.

On July 6, 2001, plaintiffs and the group entered into two written agreements. First, plaintiffs and the group entered into an "Amendment to Current Output Agreements and New Output Agreement" (the output agreement). Second, plaintiffs and the group entered into a "Trademark License Agreement" (the license agreement). The agreements concerned motion pictures, videos, and similar matter licensed to the group.

The output agreement includes an arbitration clause. Article 8 of the output agreement provides in pertinent part: "8.1 Alternate Dispute Resolution. Any dispute arising out of or relating to this Agreement will be resolved in accordance with the procedures specified in this Article 8, which will be the sole and exclusive procedures for the resolution of any such disputes, except this Article 8 will not apply to the following disputes, which will be litigated in a court of law: [¶] 8.1.1 any dispute concerning the validity, ownership or control of the Vivid Marks; [¶] ... [¶] 8.3 Arbitration. Except as otherwise expressly provided in Sections 8.1 and 8.10 [concerning the availability of equitable relief] of this Agreement, any controversy, dispute or claim under, arising out of, in connection with or in relation to this Agreement, including the negotiation, execution, interpretation, construction, coverage, scope, performance, non-performance, breach, termination, validity or enforceability of this Agreement will be settled, at the request of either party, by arbitration conducted in accordance with this Article 8 and the then existing rules for commercial arbitration of the American Arbitration Association.... The arbitration will be governed by the Federal Arbitration Act (9 U.S.C. §§ 1-16. The arbitration of such issues, including the determination of any amount of damages suffered by any party hereto by reason of the acts or omissions of either party, will be final and binding upon the parties to the maximum extent permitted by law." We refer to the foregoing arbitration provisions as "Article 8."

Similarly, Article 11 of the license agreement provides in relevant part: "11.1 Alternate Dispute Resolution. Any dispute arising out of or relating to this Agreement will be resolved in accordance with the procedures specified in this Article 11, which will be the sole and exclusive procedures for the resolution of any such disputes, except this Article 11 will not apply to the following disputes, which will be litigated in a court of law: [¶] (a) any dispute concerning the validity, ownership or control of the Vivid Marks; ...." The American Arbitration Association's Commercial Arbitration Rules, which are referenced in Article 8 above, include provisions governing an arbitrator's jurisdiction. Rule 7 states in part: "(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." (American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures, Rule 7, as amended and effective September 15, 2005 (http://www.adr. org/sp.asp?id=22440#R7).)

Section 4.6.5 of the output agreement, which plaintiffs assert is controlling in terms of the merits of this appeal, states: "Remedies. Upon the occurrence of an Event of Default, Vivid may, in its sole discretion] but upon delivering not less than 5 Business Days written notice to [the group], exercise any or all of the following rights: [¶] (a) Notwithstanding the provisions of Article 8, file suit and obtain judgment to collect all amounts owing from [the group]; [¶] ... [¶] (d) Terminate the Trademark License Agreement." Plaintiffs argue that the immediately foregoing provisions of Section 4.6.5 create an exception to the Article 8 arbitration provisions. "Event of Default" for purposes of Section 4.6.5 is defined as follows: "`Event of Default' means any of the following events that remain uncured at the time Vivid exercise remedies with respect to such events: (a) [the group] fails to make any cash payment due to Vivid under the terms of this Agreement within 90 days following the date the cash payment is due;...."

On April 21, 2006, Steven Hirsch, the president of Vivid Video, Inc., notified defendants as follows: "This letter is the exercise of certain rights under and pursuant to Section 4.6.5 of the [output agreement], based-upon the occurrence of an Event of Default that remains uncured, in that [the group] has failed to make cash payments due to Vivid under the terms of the [output agreement] within 90 days following the date the cash payments were due. This letter shall constitute the 5 Business Days written notice required under Section 4.6.5 and the certain rights hereby exercised shall become effective on April 28, 2006, or 5 Business Days from the delivery of this letter, whichever is later, [¶] The certain rights Vivid hereby exercises under and pursuant to Section 4.6.5 of the Agreement are the following: [¶] (a) To file suit and obtain judgment to collect all amounts owing from [the group]; [¶] ... [¶] (c) To terminate the Trademark License Agreement...."

On April 27, 2006, Louis M. Meisinger, on behalf of the group, responded to Mr. Hirsch's letter by filing a demand for arbitration with the American Arbitration Association. The group also mailed a letter to the various attorneys for plaintiffs stating, among other things, that the group denied an "Event of Default" had occurred. The group tendered a $1.8 million check "in satisfaction of any inadvertent deficiency ...." along with Mr. Meisinger's letter.

Four days later, on May 1, 2006, plaintiffs filed the present action. Plaintiffs allege the group breached the output agreement by failing to make payments due and breached a good faith and fair dealing implied covenant. Plaintiffs also seek an accounting and a declaration the license agreement has been terminated. Specifically, plaintiffs allege the group agreed in the output agreement to: make "certain performance-based cash payments to Vivid based upon `Gross Receipts' and `Retail Receipts' for `Video-on-Demand' sales ...."; keep an accurate set of books and records showing such gross receipts and retail receipts; allow plaintiffs to audit and inspect those books and records; pay interest on late payments; and, under certain circumstances, to "reimburse [plaintiffs] for [their] costs incurred to conduct the inspection and audit...." Further, the complaint alleges "[The group] failed to make [the performance-based payments], many of which are more than 90 days past due" and plaintiffs exercised their right to file suit to collect the amounts owed and to terminate the license agreement.

Defendants filed a motion to compel arbitration. Defendants argued that under Article 8 and Rule 7(a), arbitrability was for the arbitrators to determine. Documentary evidence of the controversy between the parties was submitted in support of the motion. Plaintiffs opposed the motion and relied on section 4.6.5 of the output agreement.

As noted above, defendants' motion to compel arbitration of the arbitrability issue only was denied. On June 23, 2006, the trial court ruled: "[Defendants have not sufficiently established the existence of an agreement to arbitrate the issues here in dispute. Plaintiffs have filed suit under the conditions set forth in Section 4.6.5 of the Output Agreement, and this right to file suit is unequivocally provided `[n]otwithstanding the provisions of Article 8.' Webster's Third New International Dictionary (1986) page 1545 defines `notwithstanding' as `without prevention or obstruction from or by,' and when applying this definition here, the plain language of the Output Agreement clearly circumscribes the arbitrator's otherwise broad authority to resolve disputes concerning `interpretation, construction, coverage, [and] scope' of the Agreement. [¶] ... [T]he Output Agreement expressly provides for the right to file suit under Section 4.6.5 without any obstruction from any provision articulated in Article 8, including the provision that consigns the arbitrator the authority to resolve disputes concerning the application and interpretation of the Agreement. If defendants' position were to be accepted, the court would be forced to effectively read Section 4.6.5 out...