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Case 6:16-cv-01351-CEM-DCI Document 24 Filed 01/18/17 Page 1 of 9 PageID 333

UNITED STATES DISTRICT COURT


MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
POSSIBILITY PICTURES II, LLC,
Plaintiff,
v.

Case No: 6:16-cv-1351-Orl-41DCI

SONY PICTURES WORLDWIDE


ACQUISITIONS, INC.,
Defendant.

REPORT AND RECOMMENDATION


This cause comes before the Court for consideration without oral argument on Defendants
Motion to Compel Arbitration and Stay Proceedings (Doc. 17). For the reasons that follow, the
undersigned recommends that the parties be compelled to arbitration for consideration by the
arbitrator of the gateway issue of arbitrability of the claim set forth in the Complaint (Doc. 1), and
that this case be stayed pending arbitration. Given the recommendation to allow the arbitrator to
determine the gateway issue, the undersigned makes no further recommendation concerning
whether the claim itself is subject to the arbitration agreement.
Factual and Procedural Background
On July 26, 2016, Plaintiff filed the Complaint (Doc. 1), in which Plaintiff, a company in
the business of producing feature-length films for international distribution, alleged a single count
against Defendant, Sony Pictures Worldwide Acquisitions, Inc., for Breach of Express Material
Terms of the Contract. Doc. 1 at 3, 25. In the Complaint, Plaintiff sought actual, compensatory
damages, interest, and attorney fees. Id. at 25. But Plaintiff did not seek injunctive, equitable, or
any other type of relief. The contract at issue is the Distribution Agreement, which governed the

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distribution of the motion picture To Write Love on Her Arms (referred to by the parties as the
Picture).
At base, Plaintiff alleged in the Complaint that Defendant breached the Anti-Piracy
Provision of the Distribution Agreement as a result of the entirely foreseeable and avoidable
failure of internal security to protect the Picture from theft in the wake of a cyber attack on the
corporate systems of SWPA and its parent, Sony Pictures Entertainment, Inc. . . . which occurred
on November 24, 2014 by a group calling itself Guardians of Peace. Doc. 1 at 1-2.1 Through
the Complaint, Plaintiff seeks monetary damages it alleges flow from the release of the Picture by
the hackers, which release, Plaintiff alleged, was ultimately a result of Defendants breach of the
Anti-Piracy Provision of the Distribution Agreement. In the Complaint, Plaintiff asserted that it
seeks to enforce its contractual rights under the [Distribution] Agreement by filing this action at
law for money damages as expressly authorized by Section 16.1 of the [Distribution] Agreement.
Doc. 1 at 3.
Section 16 of the Distribution Agreement, which is attached to the Complaint, is titled
Remedies/Governing Law/Legal Proceedings. Paragraph 16.1 reads as follows:
Licensors Remedies. If SWPA is in breach of any of the material provisions of
this Agreement, including failure to make any payment provided for herein at the
time and in the manner herein required, and SWPA shall fail to cure such material
breach within thirty (30) days after written notice from the other party (the Cure
Period) then Licensor shall be limited to bringing an action at law to recover
damages, and in no event shall Licensor or a party transferring rights or rendering
services in connection with the Picture, be entitled to terminate or rescind this
Agreement or SWPAs rights with respect to the Picture or enjoin or restrain or
otherwise interfere with SWPAs use, publication or dissemination of any
advertising issued in connection with the Picture.

Shortly after the cyber attacks, the Federal Bureau of Investigation conclude[d] that the North
Korean government [was] responsible for these actions. FBI Press Release dated December 19,
2014, Update on Sony Investigation, https://www.fbi.gov/news/pressrel/press-releases/updateon-sony-investigation (last visited January 13, 2017).

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Doc. 1-1.
Paragraph 16.5 of the Distribution Agreement, titled Arbitration, reads as follows:
Arbitration. The parties acknowledge and agree that all actions or proceedings
arising in connection with, touching upon or relating to this Agreement, the breach
thereof and/or scope of the provisions of this Paragraph 14.5 (a Proceeding)
(whether or not relating to the Picture or to any of the matters referred to in clauses
(i), (ii), and/or (iii) of Paragraph 14.4 above) shall be submitted to JAMS (JAMS)
for binding arbitration under its Comprehensive Arbitration Rules and Procedures
if the matter in dispute is over $250,000 or under its Streamlined Arbitration Rules
and Procedures if the matter in dispute is $250,000 or less (as applicable, the
Rules) to be held solely in Los Angeles, California, U.S.A., in the English
language in accordance with the provisions below.
Doc. 1-1.2

Rule 11 of the JAMS Comprehensive Arbitration Rules and Procedures, titled

Interpretation of Rules and Jurisdictional Challenges, reads as follows:


(a) Once appointed, the Arbitrator shall resolve disputes about the interpretation
and applicability of these Rules and conduct of the Arbitration Hearing. The
resolution of the issue by the Arbitrator shall be final.
(b) Jurisdictional and arbitrability disputes, including disputes over the formation,
existence, validity, interpretation or scope of the agreement under which
Arbitration is sought, and who are proper Parties to the Arbitration, shall be
submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to
determine jurisdiction and arbitrability issues as a preliminary matter.
(c) Disputes concerning the appointment of the Arbitrator shall be resolved by
JAMS.
(d) The Arbitrator may, upon a showing of good cause or sua sponte, when
necessary to facilitate the Arbitration, extend any deadlines established in these
2

The references to Paragraphs 14.4 and 14.5 appear to be typographical errors, as those paragraphs
do not exist in the Distribution Agreement. As is clear from a reading of the Distribution
Agreement, and Section 16 particularly, these are actually references to Paragraphs 16.4 and 16.5
the typographical error simply being the substitution of a 4 for a 6 in the paragraph
references. Further, Defendant has filed a sworn declaration from its employee who drafted the
Distribution Agreement, and that employee explained that the substance of Section 16 was in
Section 14 in a prior draft of the Distribution Agreement, and when the clauses were moved to
Section 16 the employee inadvertently failed to correct the internal paragraph references. See Doc.
18-1. While Plaintiff tries to make hay out of this error, the undersigned is not convinced that this
is anything more than a scriveners error, and the error does not detract from the internal
consistency of Section 16 of the Distribution Agreement.

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Rules, provided that the time for rendering the Award may be altered only in
accordance with Rules 22(i) or 24.
Doc. 17-1.
Defendant has moved to compel arbitration and stay this case in reliance upon Paragraph
16.5. Defendant argues that, based upon the agreement of the parties, the gateway issue of
arbitrability is reserved to the arbitrator, both due to the plain language of Paragraph 16.5 and due
to the incorporation of the JAMS Comprehensive Arbitration Rules and Procedures as a part of
the Distribution Agreement. Doc. 17 at 7-9. In the alternative, if the Court does not find that the
gateway issue of arbitrability is vested to the arbitrator, Defendant also addresses the merits of
arbitrability, and asks this Court to find that the claim set forth in the Complaint is subject to
arbitration pursuant to the Distribution Agreement and, in particular, the terms of Paragraph 16.5.
Id. at 10-14.
In response, Plaintiff asserts that a claim for monetary damages an action at law does
not fall within the terms of the arbitration agreement set forth in Paragraph 16.5, primarily
addressing the issue of arbitrability, as opposed to the gateway issue. Doc. 21 at 4-10. To be sure,
Plaintiff contests neither the validity of the Distribution Agreement, nor the validity of the
arbitration agreement contained within Paragraph 16.5. Id. at 10. But Plaintiff asserts that the
claim set forth in the Complaint does not fall within the terms of that arbitration agreement. Id. at
4-10. Plaintiff also argues that the gateway issue of arbitrability is for the Court. Id. at 10-12. In
making all of its arguments, Plaintiff primarily relies upon arguments concerning the location of
the provisions within the Distribution Agreement and the meaning of the phrase action at law.
Id.

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Analysis
The Federal Arbitration Act (FAA) governs the enforceability of arbitration provisions in
contracts involving transactions in interstate commerce. Marriott Ownership Resorts, Inc. v.
Sterman, Case No. 6:14-cv-1400-Orl-41TBS, 2015 WL 11251946 at *2 (M.D. Fla. Jan. 16, 2015)
(citing Hill v. Rent-A-Center, Inc., 398 F.3d 1286, 1288 (11th Cir. 2005)). As this Court has
observed:
A written provision in ... a contract evidencing a transaction involving commerce
to settle by arbitration a controversy thereafter arising out of such contract ... shall
be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract. 9 U.S.C. 2. The FAA embodies a
liberal federal policy favoring arbitration agreements. Hill, 398 F.3d at 1288
(quoting Moses H. Cone Meml Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25
(1983)). However, it is well-settled that arbitration is a matter of contract and a
party cannot be required to submit to arbitration any dispute which he has not
agreed so to submit. AT & T Techs., Inc. v. Commcns Workers of Am., 475 U.S.
643, 648 (1986) (quotation omitted).
Marriott Ownership Resorts, 2015 WL 11251946, at *2.
Despite the broad federal policy favoring arbitration, courts assume that the parties
intended the court, not the arbitrator, to decide certain gateway matters, such as whether the
parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause
applies to a certain type of controversy. Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452
(2003) (citing AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649 (1986);
John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546-47 (1964)). Indeed, arbitration is a
matter of contract and a party cannot be required to submit to arbitration any dispute which he has
not agreed so to submit. Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960).
Thus, the Supreme Court has held that: The question whether the parties have submitted a
particular dispute to arbitration, i.e., the question of arbitrability, is an issue for judicial
determination [u]nless the parties clearly and unmistakably provide otherwise. Howsam v. Dean

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Witter Reynolds, Inc., 537 U.S. 79, 83-84 (2002) (quoting AT & T Techs., Inc., 475 U.S. at 649))
(emphasis in original).
Thus, regardless of the presumption that the court will decide the gateway issue of
arbitrability, the parties may draft their contract in such a way that the arbitrator determines that
gateway issue as a preliminary matter. And when the parties incorporate the rules of the [relevant
arbitration organization] into their contract, they clearly and unmistakably agree[ ] that the
arbitrator should decide whether the arbitration clause [applies]. U.S. Nutraceuticals, LLC v.
Cyanotech Corp., 769 F.3d 1308, 1310-11 (11th Cir. 2014) (quoting Terminix Intl Co., LP v.
Palmer Ranch Ltd. Pship, 432 F.3d 1327, 1332-33 (11th Cir. 2005)).
Here, as in Terminix and U.S. Nutraceuticals, the parties have contracted around that
default rule [that the court determines the gateway issue of arbitrability], and it is, therefore,
unnecessary for [the court] to reach the issue of arbitrability. Terminix Intl Co., 432 F.3d at
1333. In its response, Plaintiff agrees to the validity of the Distribution Agreement, and also
agrees that there is a binding arbitration agreement under Section 16.5 for certain types of disputes
between the parties. . . . Doc. 21 at 10. But Plaintiff asserts that the present dispute that is set
forth in the Complaint is not within the scope of the binding arbitration agreement. Id.
In Paragraph 16.5 of the Distribution Agreement, the parties incorporated the JAMS
Comprehensive Arbitration Rules and Procedures, which state that:
arbitrability disputes, including disputes over the . . . interpretation or scope of the
agreement under which Arbitration is sought . . . shall be submitted to and ruled on
by the Arbitrator. The Arbitrator has the authority to determine jurisdiction and
arbitrability issues as a preliminary matter.
Rule 11(b) of the JAMS Comprehensive Arbitration Rules and Procedures. As in Terminix, by
incorporating the JAMS Comprehensive Arbitration Rules and Procedures into their agreement,
the parties clearly and unmistakably agreed that the arbitrator should decide whether the arbitration

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clause is valid. 432 F.3d at 1333 (citing as examples Contec Corp. v. Remote Solution, Co., 398
F.3d 205, 208 (2d Cir. 2005) (when ... parties explicitly incorporate rules that empower an
arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable
evidence of the parties intent to delegate such issues to an arbitrator); Apollo Computer, Inc. v.
Berg, 886 F.2d 469, 473 (1st Cir. 1989) (By contracting to have all disputes resolved according
to the Rules of the ICC ..., Apollo agreed to be bound by Articles 8.3 and 8.4. These provisions
clearly and unmistakably allow the arbitrator to determine her own jurisdiction when, as here, there
exists a prima facie agreement to arbitrate whose continued existence and validity is being
questioned.); Bayer CropScience, Inc. v. Limagrain Genetics Corp. Inc., 2004 WL 2931284, at
*4 (N.D. Ill. Dec. 9, 2004) (The inclusion of the phrase [t]he arbitration shall be conducted ... in
accordance with the prevailing commercial arbitration rules of [AAA] ... is clear and unmistakable
evidence that the issue of arbitrability is to be submitted to the arbitrator.)).
While Plaintiff makes a creative, but ultimately unavailing, linguistic argument that the
present dispute is completely outside the scope of Paragraph 16.5, the undersigned notes that
Paragraph 16.5 applies on its face to all actions or proceedings arising in connection with,
touching upon or relating to this Agreement, [and] the breach thereof . . . shall be submitted to
JAMS (JAMS) for binding arbitration under its Comprehensive Arbitration Rules and
Procedures. (emphasis added). The Eleventh Circuit has addressed similar language in its
reasoning that is instructive here:
The agreement could not have been broader. Any disputes means all disputes,
because any means all. Merritt v. Dillard Paper Co., 120 F.3d 1181, 1186 (11th
Cir. 1997) (citing United States v. Gonzales, 520 U.S. 1, 5, 117 S.Ct. 1032, 1035,
137 L.Ed.2d 132 (1997)). And so, of course, does the word all itself. The
agreement reaches this dispute because the agreement reaches any and all disputes.
Anders v. Hometown Mortg. Servs., Inc., 346 F.3d 1024, 1028 (11th Cir. 2003). Moreover,
Plaintiff, in its response, never addresses the controlling case law in Terminix and U.S.

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Nutraceuticals. See Doc. 21. Instead, Plaintiff made the tautological assertion that Paragraph
16.5s incorporation of the JAMS Comprehensive Arbitration Rules and Procedures only applies
to disputes that fall within the scope of Paragraph 16.5.3 That argument misses the point and is
contrary to the plain language of the controlling case law and the Distribution Agreement itself.
Accordingly, the undersigned recommends that the District Court find that the gateway
issue of arbitrability is for the arbitrator under the terms of the Distribution Agreement, which
incorporates the JAMS Comprehensive Arbitration Rules and Procedures. If that recommendation
is accepted, it is further recommended that this matter be stayed pending arbitration. Based upon
the foregoing recommendations, the undersigned has not addressed the underlying issue of
arbitrability.
For the foregoing reasons, it is RECOMMENDED that:
1. Defendants Motion to Compel Arbitration and Stay Proceedings (Doc. 17) be
GRANTED in part, in that this matter be compelled to arbitration, and be DENIED
without prejudice in all other respects; and
2. That this matter be STAYED pending arbitration, that the parties be required to file
a status report on or before August 1, 2017, and every 180 days thereafter as to the
status of the arbitration proceeding, and that the parties be ordered to notify the Court
within 14 days of the final resolution of the arbitration proceeding.

The undersigned notes that substantive California state law controls the interpretation of the
Distribution Agreement itself. That being said, the undersigned does not find that Paragraphs 16.1
and 16.5 are repugnant in relation to the determination of who decides the gateway issue of
arbitrability the court or the arbitrator. See, e.g., Burns v. Peters, 55 P.2d 1182, 1184 (Cal. 1936)
(relied upon by Plaintiff on the issue of repugnancy). The undersigned makes no further
determination concerning that issue, because the repugnancy argument is raised primarily in
Plaintiffs substantive challenge to the arbitrability of the claim in the Complaint, not the issue of
what body determines arbitrability.

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NOTICE TO PARTIES
A party has fourteen days from this date to file written objections to the Report and
Recommendations factual findings and legal conclusions. A partys failure to file written
objections waives that partys right to challenge on appeal any unobjected-to factual finding or
legal conclusion the district judge adopts from the Report and Recommendation. See 11th Cir. R.
3-1.
Recommended in Orlando, Florida on January 17, 2017.

Copies furnished to:


Presiding District Judge
Counsel of Record
Unrepresented Party
Courtroom Deputy

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