Arbitration Impact on Attorney Fees and Film Company Principal

The U.S. Court of Appeals for the First Circuit reversed a district court's award of attorney fees to Sony Corp. under §505 of the Copyright Act for winning a ruling that a lawsuit over a Sony Music songwriting contest should be sent to arbitration. Cortés-Ramos v. Sony Corp. of America, 16-2441.

Luis Adrián Cortés-Ramos filed suit in the U.S. District Court of the District of Puerto Rico alleging fraudulent inducement and copyright claims. He asserted that Ricky Martin's recording “Vida” was similar to a song Cortés-Ramos had submitted to the songwriting contest. But the district court found no fraudulent inducement and ruled the song dispute should be arbitrated under the contest agreement's mandatory arbitration clause.

When Cortés-Ramos' appealed the district court's §505 attorney fees award to Sony, the First Circuit concluded: “[T]he only material alteration in the parties' legal relationship concerning the Copyright Act arises from a ruling regarding the forum in which Cortés-Ramos' Copyright Act claims must be heard. But, the Copyright Act — unlike the Federal Arbitration Act, see 9 U.S.C. §2 — reflects no congressional policy favoring or disfavoring arbitration of claims. There thus has been no 'material alteration of the legal relationship of the parties in a manner which Congress sought to promote' when it enacted §505 of the Copyright Act.”

In different case, the California Court of Appeal, Second Appellate District, decided that an arbitrator lacked the authority to order a film production company principal into an arbitration brought under the production company's agreement with actor Bruce Willis. Willis pursued the arbitration claiming that Benaroya Pictures failed to properly pay him. The production company counterclaimed that Willis was in breach. The arbitrator ruled for Willis's company Westside, including by finding Benaroya Pictures principal Michael Benaroya, a non-signatory to the deal with Willis, was liable as his company's alter ego.

The court of appeal confirmed the $5,024,779 award, but dropped Michael Benaroya from arbitration liability by explaining: “Although a nonsignatory can be compelled to arbitrate, California case law is clear that 'an arbitrator has no power to determine the rights and obligations of one who is not a party to the arbitration agreement. The question of whether a nonsignatory is a party to an arbitration agreement is one for the trial court in the first instance.'” Benaroya v. Willis, B281761.

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Stan Soocher is Editor-in-Chief of Entertainment Law & Finance as well as an entertainment attorney and book author. He is also a tenured Associate Professor of Music & Entertainment Studies at the University of Colorado's Denver Campus. For more information: www.stansoocher.com.