Strategies for Using the IFTA Arbitration Process

IFTA arbitrations are designed to handle disputes involving international parties in the entertainment industry. IFTA arbitrators are active attorneys from around the world, who specialize ' and have extensive experience ' in the entertainment industry. As such, they are well-schooled in the types of issues that typically arise and familiar with industry standards. Also, because part of IFTA's focus is international arbitrations, the rules are geared toward accommodating parties located in different countries, allowing witnesses to testify by letter, affidavit and telephonically at hearings. (See, IFTA Rule 9.4. See also, generally, IFTA's Rules for International Arbitration at www.ifta-online.org/rules-international-arbitration.) IFTA rules also allow for prejudgment and equitable remedies from courts. (See, IFTA Rule 10.1.)

IFTA rules state that the guiding principle for IFTA arbitrations is ensuring the “just, expeditious, economical and final determination of all issues in dispute.” (IFTA Rule 8.1.) To accomplish these goals, IFTA rules provide for extremely limited discovery and require that absent good cause or agreement of the parties, all final hearings are to commence within 120 days of the last response to the petition to arbitrate. (See, IFTA Rule 9.1.) While this may be fine for run-of-the-mill contract disputes, such as whether “delivery” of the film occurred, what about more complex cases?

Scope of Arbitration

Parties and their counsel must also be aware that the scope of arbitration may be extremely broad. Case law holds that non-contractual disputes, such as tort claims and claims against non-contracting parties under alter ego, conspiracy and aiding and abetting theories, may be subject to arbitration even where an arbitration clause is not contained in the parties' central agreements. This can occur simply because an arbitration clause is contained in an ancillary document that is either “incorporated” into a central agreement or where a contract “guides the reader to an incorporated document.” Thus, for example, lenders have been required to arbitrate loan disputes merely because a related agreement between the borrower and the distributor contained an arbitration clause. Courts have even gone so far as to compel arbitration where the agreement containing the arbitration clause was itself a forgery.

To protect against such unanticipated circumstances, parties need to specify the types of disputes and the parties that will be subject to arbitration, as well as the types of discovery allowed, particularly in complex cases. To make these determinations, a party must assess what facts will be needed to prepare the case for trial, what discovery will be necessary to obtain the requisite evidence (i.e., will it likely come from the party itself or from other parties), and how to protect against being forced to arbitrate unanticipated disputes. As arbitration provisions in the entertainment industry are typically extremely broad, a party may also want to consider whether tort claims such as fraud should be handled the same way as contract disputes. These distinctions are particularly important given the tight time frames involved. The arbitration clause further needs to specify the parties' consent to IFTA jurisdiction in order to avoid protracted disputes regarding where all claims will be resolved.

Discovery

Care must be taken to provide for discovery, because under IFTA Rule 8.8, no formal discovery is allowed except by mutual agreement of the parties or “in the interest of justice.” Thus, absent a clear agreement providing for discovery, it is very likely that none will be allowed other than an exchange of documents. Moreover, an IFTA arbitrator may only order formal depositions “or other appropriate discovery of information” provided that they do not “delay the orderly and speedy processes of
the arbitration.” Therefore, there is no guarantee formal discovery will be allowed in a complex IFTA arbitration.

One way to mitigate this risk is to incorporate into the arbitration agreement the right to take discovery under Calif. Civ. Code ”1283.05 and 1283.1, which provide for depositions and other discovery allowed under state law. Incorporation of these provisions also provides a clear avenue to obtain discovery sanctions in the event of an abuse by opposing parties and their attorneys. See, Calif. Civ. Code ”1283.05(b)-(d). This is particularly important given the dearth of case law addressing an IFTA arbitrator's right to impose sanctions against parties or their counsel for discovery abuse. Because an arbitrator's authority is defined by the parties' written agreement, the best practice is to address these issues up front.

Sanctions

Many IFTA arbitrators have never been faced with the issue of their ability to sanction attorneys for improper and abusive behavior. Although IFTA Rule 8.2 provides that an IFTA arbitrator has “all powers granted to commercial arbitrators under California and federal law,” and IFTA Rule 11.1 authorizes issuance of “appropriate orders,” including interim awards, IFTA arbitrators are generally reluctant to award sanctions against attorneys. Their reluctance is generally based on jurisdictional arguments that while the parties are subject to an arbitrator's jurisdiction, the attorneys are not. Additionally, there is California case law holding that the remedies contemplated by arbitration agreements involve amounts due in connection with the underlying dispute, but do not include sanctions against parties or their counsel.

On the other hand, there is substantial California case law holding that counsel is subject to sanctions for abusive and dilatory conduct in arbitration, including Bak v. MCL Financial Group Inc., 170 Cal.App.4th 1118 (2009), which holds that because counsel acts as a party's agent in an arbitration, counsel voluntarily subject themselves to the jurisdiction of the arbitration panel and therefore may be personally sanctioned. However, the better practice is to incorporate California Code of Civil Procedure (C.C.P.) ”1283.05 and 1283.1 in arbitration clauses to make these requirements clear.

California Incorporated

The incorporation of California discovery procedures into arbitration agreements involving international parties is also important in order to take advantage of case law holding that California discovery procedures control over the laws of foreign jurisdictions in connection with arbitrations located in California. This is a significant issue because foreign parties often assert they are not required to comply with discovery orders issued by IFTA arbitrators unless procedures applicable in their home countries, such as the Hague Convention or similar foreign procedures, are satisfied. Compliance with such procedures substantially increases the time and expense associated with obtaining even the most basic discovery, and oftentimes requires the retention of foreign counsel to assist in getting such process issued.

Thus, even though California and U.S. Supreme Court case law provide that California law will govern procedural matters ' including such matters of pre-trial practice as taking and use of depositions, discovery and penalties for refusal to comply with proper requests for information ' by including the specific incorporation of California discovery procedures in the arbitration clause, a party can enhance the likelihood that the IFTA arbitrator will authorize the taking of discovery without having to first comply with an opposing party's foreign country procedures.

More film productions have become international affairs, with shooting in faraway exotic locations, post-production in still other foreign countries, production funding from international sources, and sales in both foreign and domestic markets. The question then is how best to resolve disputes arising among the vast cast of characters in an efficient and cost-effective manner.

Enter the Los Angeles-based Independent Film and Television Alliance (IFTA; www.ifta-online.org) stage right. The IFTA, formerly known as the American Film Marketing Association, has provided an arbitration forum for domestic and international film and television disputes for years. While IFTA is generally used to address contractual disputes involving the financing, production, distribution and marketing of film and TV projects, the reach of arbitration clauses in the film industry may be much broader than anticipated. IFTA arbitrations can result in quick and inexpensive dispute resolution, but there are pitfalls for the unwary. As such, parties need to be careful both in drafting arbitration clauses, and in spelling out which disputes will or will not be subject to arbitration. Parties also need to anticipate issues in establishing personal jurisdiction over all interested parties, the nature and extent of discovery, the types of disputes to be fast-tracked, and how to exercise control over obstreperous parties and their counsel.

Entertainment Experience

IFTA arbitrations are designed to handle disputes involving international parties in the entertainment industry. IFTA arbitrators are active attorneys from around the world, who specialize ' and have extensive experience ' in the entertainment industry. As such, they are well-schooled in the types of issues that typically arise and familiar with industry standards. Also, because part of IFTA's focus is international arbitrations, the rules are geared toward accommodating parties located in different countries, allowing witnesses to testify by letter, affidavit and telephonically at hearings. (See, IFTA Rule 9.4. See also, generally, IFTA's Rules for International Arbitration at www.ifta-online.org/rules-international-arbitration.) IFTA rules also allow for prejudgment and equitable remedies from courts. (See, IFTA Rule 10.1.)

IFTA rules state that the guiding principle for IFTA arbitrations is ensuring the “just, expeditious, economical and final determination of all issues in dispute.” (IFTA Rule 8.1.) To accomplish these goals, IFTA rules provide for extremely limited discovery and require that absent good cause or agreement of the parties, all final hearings are to commence within 120 days of the last response to the petition to arbitrate. (See, IFTA Rule 9.1.) While this may be fine for run-of-the-mill contract disputes, such as whether “delivery” of the film occurred, what about more complex cases?

Scope of Arbitration

Parties and their counsel must also be aware that the scope of arbitration may be extremely broad. Case law holds that non-contractual disputes, such as tort claims and claims against non-contracting parties under alter ego, conspiracy and aiding and abetting theories, may be subject to arbitration even where an arbitration clause is not contained in the parties' central agreements. This can occur simply because an arbitration clause is contained in an ancillary document that is either “incorporated” into a central agreement or where a contract “guides the reader to an incorporated document.” Thus, for example, lenders have been required to arbitrate loan disputes merely because a related agreement between the borrower and the distributor contained an arbitration clause. Courts have even gone so far as to compel arbitration where the agreement containing the arbitration clause was itself a forgery.

To protect against such unanticipated circumstances, parties need to specify the types of disputes and the parties that will be subject to arbitration, as well as the types of discovery allowed, particularly in complex cases. To make these determinations, a party must assess what facts will be needed to prepare the case for trial, what discovery will be necessary to obtain the requisite evidence (i.e., will it likely come from the party itself or from other parties), and how to protect against being forced to arbitrate unanticipated disputes. As arbitration provisions in the entertainment industry are typically extremely broad, a party may also want to consider whether tort claims such as fraud should be handled the same way as contract disputes. These distinctions are particularly important given the tight time frames involved. The arbitration clause further needs to specify the parties' consent to IFTA jurisdiction in order to avoid protracted disputes regarding where all claims will be resolved.

Discovery

Care must be taken to provide for discovery, because under IFTA Rule 8.8, no formal discovery is allowed except by mutual agreement of the parties or “in the interest of justice.” Thus, absent a clear agreement providing for discovery, it is very likely that none will be allowed other than an exchange of documents. Moreover, an IFTA arbitrator may only order formal depositions “or other appropriate discovery of information” provided that they do not “delay the orderly and speedy processes of
the arbitration.” Therefore, there is no guarantee formal discovery will be allowed in a complex IFTA arbitration.

One way to mitigate this risk is to incorporate into the arbitration agreement the right to take discovery under Calif. Civ. Code ”1283.05 and 1283.1, which provide for depositions and other discovery allowed under state law. Incorporation of these provisions also provides a clear avenue to obtain discovery sanctions in the event of an abuse by opposing parties and their attorneys. See, Calif. Civ. Code ”1283.05(b)-(d). This is particularly important given the dearth of case law addressing an IFTA arbitrator's right to impose sanctions against parties or their counsel for discovery abuse. Because an arbitrator's authority is defined by the parties' written agreement, the best practice is to address these issues up front.

Sanctions

Many IFTA arbitrators have never been faced with the issue of their ability to sanction attorneys for improper and abusive behavior. Although IFTA Rule 8.2 provides that an IFTA arbitrator has “all powers granted to commercial arbitrators under California and federal law,” and IFTA Rule 11.1 authorizes issuance of “appropriate orders,” including interim awards, IFTA arbitrators are generally reluctant to award sanctions against attorneys. Their reluctance is generally based on jurisdictional arguments that while the parties are subject to an arbitrator's jurisdiction, the attorneys are not. Additionally, there is California case law holding that the remedies contemplated by arbitration agreements involve amounts due in connection with the underlying dispute, but do not include sanctions against parties or their counsel.

On the other hand, there is substantial California case law holding that counsel is subject to sanctions for abusive and dilatory conduct in arbitration, including Bak v. MCL Financial Group Inc. , 170 Cal.App.4th 1118 (2009), which holds that because counsel acts as a party's agent in an arbitration, counsel voluntarily subject themselves to the jurisdiction of the arbitration panel and therefore may be personally sanctioned. However, the better practice is to incorporate California Code of Civil Procedure (C.C.P.) ”1283.05 and 1283.1 in arbitration clauses to make these requirements clear.

California Incorporated

The incorporation of California discovery procedures into arbitration agreements involving international parties is also important in order to take advantage of case law holding that California discovery procedures control over the laws of foreign jurisdictions in connection with arbitrations located in California. This is a significant issue because foreign parties often assert they are not required to comply with discovery orders issued by IFTA arbitrators unless procedures applicable in their home countries, such as the Hague Convention or similar foreign procedures, are satisfied. Compliance with such procedures substantially increases the time and expense associated with obtaining even the most basic discovery, and oftentimes requires the retention of foreign counsel to assist in getting such process issued.

Thus, even though California and U.S. Supreme Court case law provide that California law will govern procedural matters ' including such matters of pre-trial practice as taking and use of depositions, discovery and penalties for refusal to comply with proper requests for information ' by including the specific incorporation of California discovery procedures in the arbitration clause, a party can enhance the likelihood that the IFTA arbitrator will authorize the taking of discovery without having to first comply with an opposing party's foreign country procedures.