Review of Court Decisions

Dispute Resolution Journal, November-January 2007 | Go to article overview

Review of Court Decisions


TRADEMARK

Enjoining Non-Signatories

The 9th Circuit recently held held that a trademark agreement allowing the parties to seek equitable remedies in addition to arbitration was ambiguous and that the arbitrator exceeded the scope of his authority by ordering a permanent injunction against non-signatories who did not actively participate with any of the parties.

CCI and Improv West were parties to a nationwide trademark agreement. The agreement contained an arbitration clause covering "all disputes" arising out of the parties' agreement. It also authorized the parties to seek equitable remedies "in addition to" arbitration." CCI filed an action in federal court seeking a declaration of its rights under the agreement and equitable relief. The court compelled arbitration and subsequently confirmed the award, which ordered a permanent injunction enjoining CCI and its affiliates, which was defined to include 'family members, family members of shareholders, all collateral relatives, former spouses, and all collateral relatives of former spouses," from opening any other comedy clubs in 48 states for the duration of the contract.

On appeal, CCI challenged the arbitrator's authority to arbitrate the equitable relief claim.

On appeal, the 9th Circuit, among other things, modified the nationwide injunction to apply only to CCI, not its non-signatory affiliates.

The court found that the arbitration clause was ambiguous because it was subject to multiple interpretations. However, in view of the federal presumption in favor of arbitration, it found that the arbitrator did not exceed his authority by arbitrating equitable claims.

CCI argued that the arbitrator exceeded his powers by enjoining non-signatory relatives from operating clubs. Improv West countered that the Federal Rules of Civil Procedure authorize courts to issue injunctions not only against parties but also "their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them."

However, the court pointed out that generally arbitration agreements do not bind non-parties absent extraordinary relationships. Thus, the court held that the inclusion in the injunction of people who were not in participation with CCI went too far.

In addition, the court found that the enjoining of non-signatory relatives and spouses violated California's Business and Professions Code (BPC) § 16600, which codifies the general rule that covenants not to compete in a lawful profession in the state of California are void.

The court also held that the award enjoining CCI from engaging in its business nationwide until the end of the contract was in manifest disregard of BPC § 16600 and the ruling in Dayton Time Lock Service, Inc. v. Silent Watchman Corp. (52 Cal. App. 3d 1, 1975). That case held that non-compete covenants are unenforceable when they would "foreclose competition." Therefore, the 9th Circuit directed the district court to vacate the injunctive relief to the extent it applied to counties where CCI did not currently operate a comedy club. The court held that the remaining part of the award was not completely irrational.

Comedy Club, Inc. v. Improv West Associates, 502 F.3d 1100 (9th Cir. 2007).

LABOR

Arbitrability

The 8th Circuit ruled that when faced with deciding whether a dispute is subject to arbitration under a collective bargaining agreement, when necessary a court to decide the arbitrability issue, it could consider the underlying merits of the claims.

Crown acquired a division of Continental Can Co. and its Master Agreement with the International Association of Machinists and Aerospace Workers. The Master Agreement committed Crown to providing health benefits to eligible retirees. It also contained an arbitration clause. In 2003, Crown unilaterally modified the retiree health plan for those who retired before April 1, 2002. …

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