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Digital Software Services, Inc. v. Entertainment Programs

February 26, 2010

DIGITAL SOFTWARE SERVICES, INC., PLAINTIFF,
v.
ENTERTAINMENT PROGRAMS, INC., A CALIFORNIA CORPORATION; JOSEPH A. PERSHES, INDIVIDUALLY AND AS OWNER OF ENTERTAINMENT PROGRAMS, INC.; KOCH ENTERTAINMENT DISTRIBUTION; LLC, A DELAWARE LIMITED LIABILITY COMPANY; INGRAM ENTERTAINMENT, INC., A TENNESSEE CORPORATION; CD VIDEO MANUFACTURING, INC. A CALIFORNIA CORPORATIONS; AND L&M OPTICAL DISC WEST, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge

AMENDED MEMORANDUM AND ORDER*fn1

Defendants Entertainment Programs, Inc., Joseph A. Pershes, and Koch Entertainment Distribution, LLC (collectively "Defendants") petition this Court to compel arbitration and move to stay proceedings pending arbitration.*fn2 For the reasons set forth below, Defendants' Petition will be granted and the instant action will be stayed.

BACKGROUND*fn3

In the early 1990s, Teleteam, Inc. produced a series of ten aviation-themed videos about World War II era warplanes titled "Roaring Glory." Teleteam entered into an exclusive worldwide marketing and distribution agreement with Program Power Entertainment, Inc. ("Program Power") in which Program Power obtained exclusive control over the rights of the videos. In 2002, Program Power entered into a distribution agreement ("Distribution Agreement" or "Agreement") with Defendant Joseph Pershes' company, Defendant Entertainment Programs, Inc. ("EPI"). Under the Agreement, EPI became the exclusive distributors in the United States and Canada of the Roaring Glory videos. However, the contract did not grant EPI the right to copy or replicate the videos and Program Power retained the right to sell the videos.

In late 2003, Program Power assigned the copyrights of the Roaring Glory videos to Plaintiff Digital Software Services, Inc. ("DSS" or "Plaintiff"). Pursuant to that assignment, Plaintiff owns all rights and controls the distribution of the videos through either self-marketing or by way of tightly controlled distribution agreements, like the agreement with Defendant EPI.

Plaintiff alleges that Pershes and EPI failed to pay the required royalties for sale of the videos. As a result, on January 7, 2004, Program Power terminated the distribution agreement with EPI.

Plaintiff further alleges that Pershes did not stop distributing the videos after the Agreement was terminated. Plaintiff believes that Pershes contracted with Defendant Koch Entertainment, Inc. ("Koch"), Defendant CD Video Manufacturing, Inc. ("CD Video"), and L & M Optical Disc West ("L&M West") to replicate and sell counterfeit Roaring Glory videos.

On October 5, 2009, Plaintiff brought suit against Defendants alleging copyright infringement, trafficking in counterfeit labels, trademark infringement, civil RICO, and conspiracy to violate RICO. Defendants seek to enforce the Distribution Agreement's arbitration clause which broadly provides that "[a]ny and all disputes arising in connection with this agreement shall be resolved by binding arbitration, pursuant to the California Arbitration Law." Distribution Agreement, Ex. B to the Decl. Of Joseph A. Pershes, Section 14.01.

STANDARD

When a contract contains an arbitration clause, there is a presumption that the matter will be submitted to arbitration. AT&T Techs. Inc. v. Comm's. Workers of Am., 475 U.S. 643, 650 (1986). Under the Federal Arbitration Act (FAA), arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.

"An order to arbitrate...should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960). Any doubts should be resolved in favor of arbitration. Id. at 583. In making this determination, a court looks only at whether the parties agreed to arbitrate the claim, not to the merits of the claim itself. AT&T Techs. Inc., 475 U.S. at 649-50.

In determining the existence of an agreement to arbitrate, the district court looks to "general state-law principles of contract interpretation, while giving due regard to the federal policy in favor of arbitration." Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046, 1049 (9th Cir. 1996). Specifically, "although the FAA governs the interpretation of arbitration clauses, California law governs whether an arbitration agreement has been formed in the first instance, and whether an arbitration agreement exists is an issue for judicial determination."

Baker v. Osborne Development Corp., 159 Cal. App. 4th 884, 893 (Ct. App. 2008). California law also reflects a "strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution. Moncharsh v. Heily & Blase, 3 Cal. 4th 1, 9 (1992).

"On petition of a party to an arbitration agreement...the court shall order the [parties] to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists." Cal. Civ. Proc. Code § 1281.2. The right to arbitration depends on the existence of an agreement to arbitrate, and a party cannot be forced to arbitrate in the absence of such an agreement. Fredrick v. First Union Secs., Inc., 100 Cal. App. 4th 694, 697 (Ct. App. 2002). "The strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement, and a party cannot be compelled to arbitrate a dispute that he has not agreed to resolve by arbitration." Lee v. S. Cal. Univ. For Prof'l ...


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