Evergreen Media Holdings v. Warner Bros. Entm't

EVERGREEN MEDIA HOLDINGS, et al., Plaintiffs, v. WARNER BROTHERS ENTERTAINMENT, et al., Defendants.

CIVIL ACTION NO. H-14-0793

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

November 4, 2014

MEMORANDUM AND OPINION GRANTING DEFENDANTS' MOTION TO DISMISS IN FAVOR OF ARBITRATION

The facts of this case read like a Hollywood movie script, and for good reason. The parties dispute who has the rights for a horror movie franchise. Acting through Evergreen Media Holdings, LLC, Tony DeRosa-Grund¹ bought the exclusive "life rights" of two paranormal investigators and wrote a screenplay drawn from one of their case files. After emerging from bankruptcy with his rights to the screenplay intact, DeRosa-Grund negotiated to sell New Line Productions (New Line) the rights to the screenplay and to the life rights. The negotiations resulted in a Quitclaim Agreement to sell DeRosa-Grund's rights to both and a Producer Agreement entitling him to production credit on certain future productions based on them. The Agreements contained clauses requiring the parties to arbitrate any disputes "arising out of or related to" them under the JAMS Arbitration Rules and Procedures. The Agreements required the parties to arbitrate whether the arbitration clauses required the parties to arbitrate their disputes. The Agreements also included forum-selection clauses requiring the parties to litigate any nonarbitrable disputes in Los Angeles County.

DeRosa-Grund's screenplay became the basis for "The Conjuring," a New Line and Warner Brothers Entertainment movie that grossed over $300 million worldwide. The relationship between DeRosa-Grund and New Line deteriorated. In 2013, New Line and Warner Bros. initiated arbitration proceedings against DeRosa-Grund, asserting breach of contract and interference with their trademark and intellectual property rights. DeRosa-Grund answered the arbitration complaint and asserted counterclaims for breach of contract.

After obtaining a postponement of the arbitration hearing on health-related grounds, DeRosa-Grund sued New Line and Warner Bros. in the federal district court for the Southern District of Texas, asserting similar breach-of-contract claims and adding several other allegations. New Line and Warner Bros. have moved to stay DeRosa-Grund's lawsuit under the Federal Arbitration Act (FAA) or to dismiss it under Federal Rule of Civil Procedure 12(b)(3), arguing that the disputes must be resolved in arbitration, not federal court. (Docket Entry No. 8). New Line and Warner Bros. moved in the alternative to transfer any nonarbitrable claims to the Central District of California under 28 U.S.C. § 1404(a) and the forum-selection clauses in the parties' Agreements. The court heard oral argument on the motions.

Based on the pleadings, the motion, the briefs, the record, the arguments of counsel, and the applicable law, the court grants DeRosa-Grund's unopposed motion to amend his complaint, (Docket Entry No. 41), grants the defendants' motion to dismiss in order to permit the parties to arbitrate, (Docket Entry No. 8), and denies the remaining motions, (Docket Entry Nos. 32, 33, 34, 35, 36, 40), as moot. The reasons for these rulings are stated in detail below.

I. Background

A. Facts

In the 1990s, DeRosa-Grund became friends with paranormal investigators Ed and Lorraine Warren. (Docket Entry No. 15-1). The Warrens had over 8,000 case files and told DeRosa-Grund about many of their experiences. DeRosa-Grund decided to write a screenplay based on what he learned. In 2009, after working on the project for over 14 years, DeRosa-Grund bought the exclusive rights to the Warrens' "life rights" and their case files. DeRosa-Grund then pitched his screenplay to several motion-picture production companies. A tentative agreement ended over concerns about whether DeRosa-Grund's bankruptcy would cloud his title to the life rights. Despite these concerns, New Line was interested in the screenplay. New Line and DeRosa-Grund negotiated and drew up a "Deal Memo" outlining a possible agreement. Further negotiations led to two contracts.

In one contract, the Quitclaim Agreement, New Line bought all of DeRosa-Grund's rights, title, and interest in literary properties including the motion-picture screenplay for "The Conjuring," the "life rights" of Ed and Lorraine Warren, and the Warrens' case-file library. (Docket Entry No. Compl. ¶ 20). The Quitclaim Agreement stated that DeRosa-Grund:

hereby sells, grants, conveys and assigns to New Line exclusively . . . all right, title and interest in the Property (all of the foregoing being collectively referred to as the "Rights") in and to the Property . . . . With respect to works produced pursuant to the Rights, all copyrights, neighboring rights, trademarks and any and all other ownership and exploitation rights in the Property now or hereafter recognized . . . and the right to secure copyright and trademark registration and protection thereof . . . in New Line's own name . . .

(Docket Entry No. 8-2 at 11 ¶ 7).

DeRosa-Grund acknowledges that the parties negotiated the Quitclaim Agreement, but argues that New Line unilaterally imposed the arbitration clause. This clause stated:

21. GOVERNING LAW/DISPUTE RESOLUTION: All controversies, claims or disputes between the parties to this QuitclaimAgreement arising out of or related to this Quitclaim Agreement or the interpretation, performance or breach thereof, including, but not limited to, alleged violations of state or federal statutory or common law rights or duties, and the determination of the scope or applicability of this agreement to arbitrate ("Dispute"), except as set forth in Paragraphs 21(b), (c) and (d) below, shall be resolved according to the procedures set forth in Paragraph 21(a) below which shall constitute the sole dispute resolution mechanism hereunder:

(a) Arbitration: All Disputes shall be submitted to final and binding arbitration. The arbitration shall be initiated and conducted according to either the JAMS Streamlined

(for claims under $250,000) or the JAMS Comprehensive (for claims over $250,000) Arbitration Rules and Procedures, except as modified herein, including the Optional Appeal Procedure, at the Los Angeles office of JAMS, or its successor ("JAMS") in effect at the time the request for arbitration is made (the "Arbitration Rules"). The arbitration shall be conducted in Los Angeles County before a single neutral arbitrator appointed in accordance with the Arbitration Rules. The arbitrator shall follow California law and the Federal Rules of Evidence in adjudicating the Dispute. The parties waive the right to seek punitive damages and the arbitrator shall have no authority to award such damages. The arbitrator will provide a detailed written statement of decision, which will be part of the arbitration award and admissible in any judicial proceeding to confirm, correct or vacate the award. Unless the parties agree otherwise, the neutral arbitrator and the members of any appeal panel shall be former or retired judges or justices of any California state or federal court with experience in matters involving the entertainment industry. Judgment upon the award may be entered in any court of competent jurisdiction. The parties shall be responsible for payment of their own attorneys' fees in connection with any proceedings under this Paragraph 21(a).

(b) Injunctive Relief: Notwithstanding the foregoing, either party shall be entitled to seek injunctive relief (unless otherwise precluded by any other provision of this Quitclaim Agreement) in the state and federal courts of Los Angeles County.

(c) Other Matters: Any Dispute or part thereof, or any claim for a particular form of relief (not otherwise precluded by any

other provision of this Quitclaim Agreement), that may not be arbitrated pursuant to applicable law may be heard only in a court of competent jurisdiction in Los Angeles County.

. . . .

(Docket Entry No. 8-2 at 19-20 ¶ 21) (emphasis added).²

The parties' other contract was the "Producer Loanout Agreement." New Line agreed to pay DeRosa-Grund for serving as a producer on "The Conjuring" motion picture. The Producer Agreement contained an arbitration clause similar to that in the Quitclaim Agreement, stating:

25. GOVERNING LAW/DISPUTE RESOLUTION: The laws of the State of California applicable to contracts signed and to be fully performed within the State of California shall apply to this Agreement. Any and all controversies, claims or disputes arising out of or related to this Agreement or the interpretation, performance or breach thereof, including, but not limited to, alleged violations of state or federal statutory or common law rights or duties, ("Dispute"), except as set forth in subparagraphs 25(b) and 25(c) below, shall be resolved according to the procedures set forth in subparagraph 25(a) below, which shall constitute the sole dispute resolution mechanism hereunder:

(a) Arbitration: In the event that the Parties are unable to resolve any Dispute informally, then such Dispute shall be submitted to final and binding arbitration. The arbitration shall be initiated and conducted according to either the Streamlined (for claims under $250,000) or the Comprehensive (for claims over $250,000) Arbitration Rules and Procedures, except as modified herein, including the Optional Appeal Procedure, of the Los Angeles office of JAMS, or its successor ("JAMS") in effect at the time the request for arbitration is made (the "Arbitration Rules"). The arbitration shall be conducted in Los Angeles County before a single neutral arbitrator appointed in accordance with the Arbitration Rules. The arbitrator shall follow California law and the Federal Rules of Evidence in adjudicating the Dispute. There shall be no award of punitive damages. The arbitrator will provide a detailed written statement of decision, which will be part of the arbitration award andadmissible in any judicial proceeding to enforce or

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