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Comedy Club, Inc. v. Improv West Associates

January 29, 2009

COMEDY CLUB, INC., A LOUISIANA CORPORATION; AL COPELAND INVESTMENTS, INC., A LOUISIANA CORPORATION, PLAINTIFFS-APPELLANTS,
v.
IMPROV WEST ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP; CALIFORNIA COMEDY, INC., A CALIFORNIA CORPORATION, DEFENDANTS-APPELLEES.
COMEDY CLUB, INC., A LOUISIANA CORPORATION; AL COPELAND INVESTMENTS, INC., A LOUISIANA CORPORATION, PLAINTIFFS-APPELLANTS,
v.
IMPROV WEST ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP; CALIFORNIA COMEDY, INC., A CALIFORNIA CORPORATION, DEFENDANTS-APPELLEES.



On Remand From The United States Supreme Court D.C. CV-03-08134-WMB D.C. No. CV-03-08134-WMB.

The opinion of the court was delivered by: Gould, Circuit Judge

FOR PUBLICATION

Before: Jerome Farris and Ronald M. Gould, Circuit Judges, and Kevin Thomas Duffy,*fn1District Judge.

OPINION

On June 13, 1999, Comedy Club, Inc. and Al Copeland Investments, Inc. (collectively "CCI") executed a Trademark License Agreement ("Trademark Agreement") with Improv West Associates ("Improv West") that granted CCI an exclusive nationwide license to use Improv West's trademarks. A few years later, CCI breached the agreement and sought to protect its interests in the trademarks in federal district court by filing a declaratory judgment action. After a complex procedural history, the parties were left with an arbitration award and two district court orders, one order compelling the parties to arbitrate, and another order confirming the arbitration award. CCI appealed both district court orders. We have jurisdiction under 28 U.S.C. § 1291.

In a prior opinion, published at 514 F.3d 883, we determined that we lacked jurisdiction to review the district court's order compelling arbitration. We affirmed in part and vacated in part the district court's order confirming the arbitration award. The Supreme Court vacated that opinion and remanded this case to us for reconsideration in light of Hall Street Associates L.L.C. v. Matel, Inc., 128 S.Ct. 1396 (2008). We determine that Hall Street Associates does not undermine our prior precedent, Kyocera Corp. v. Prudential-Bache T. Servs., 341 F.3d 987 (9th Cir. 2003) (en banc). As a result, in this circuit, an arbitrator's manifest disregard of the law remains a valid ground for vacatur of an arbitration award under § 10(a)(4) of the Federal Arbitration Act. Therefore, we adhere to the outcome in our prior decision.

I.

Improv West is the founder of the Improv Comedy Club and the creator and owner of the "Improv" and "Improvisation" trademarks ("Improv marks"). CCI owns and operates restaurants and comedy clubs nationwide. On June 13, 1999, CCI and Improv West entered a Trademark Agreement*fn2 that provided, inter alia: (1) that Improv West granted CCI an exclusive nationwide license to use the Improv marks in connection with the opening of new comedy clubs; (2) that, according to a development schedule, CCI was to open four Improv clubs a year in 2001 through 2003;*fn3 and (3) that CCI was prohibited from opening any non-Improv comedy clubs during the term of the Trademark Agreement.*fn4 The Trademark Agreement also had an arbitration clause:

All disputes relating to or arising under this Agreement or the Asset Purchase Agreement shall be resolved by arbitration in Los Angeles, California in accordance with the commercial arbitration rules of the American Arbitration Association. In any such arbitration, the parties shall be entitled to discovery in the same manner as if the dispute was being litigated in Los Angeles Superior Court. Notwithstanding this agreement to arbitrate, the parties, in addition to arbitration, shall be entitled to pursue equitable remedies and agree that the state and federal courts shall have exclusive jurisdiction for such purpose and for the purpose of compelling arbitration and/or enforcing any arbitration award. The parties agree to submit to the jurisdiction of such courts and agree that service of process in any such action may be made by certified mail. The prevailing party in any arbitration or action to enforce this Agreement or the Asset Purchase Agreement shall be entitled to its costs, including reasonable attorneys fees.

CCI concedes that it failed to open eight Improv clubs by 2002,*fn5 and that it was in default of amended § 12.a. of the Trademark Agreement. Consistent with Improv West's sole remedy, as stated in § 13.b.,*fn6 Improv West sent CCI a letter asserting that CCI was in default of the Trademark Agreement, withdrawing CCI's license to use the Improv marks and rights to open more Improv clubs, and informing CCI that Improv West intended to begin opening its own Improv clubs.

In response to Improv West's letter, CCI filed a complaint in federal district court seeking declaratory relief. CCI's com- plaint sought a declaration that the covenant that CCI could not open any non-Improv comedy clubs was void under California Business and Professions Code ("CBPC") § 16600, and that CCI's failure to meet the development schedule did not revoke CCI's license to the Improv marks or right to open Improv clubs. Improv West then filed a demand for arbitration seeking damages.*fn7

On August 2, 2004, the district court ordered the parties to arbitrate their dispute. CCI did not appeal that order until May 16, 2005.

On February 28, 2005, the arbitrator entered a Partial Final Arbitration Award that stated: (1) that CCI defaulted on the Trademark Agreement by failing to adhere to the development schedule listed in amended § 12.a.; (2) that CCI forfeited its rights to open Improv clubs and its use of the Improv marks license in connection with any clubs not open or under construction as of October 15, 2002; (3) that Improv West could open or license to third parties new Improv clubs; (4) that § 9.j. of the Trademark Agreement was "a valid and enforceable in-term covenant not to compete" and remained valid "for the remaining term of the Agreement"*fn8 ; (5) that CCI and its "Affiliates"*fn9 were enjoined from opening or oper- ating any other comedy clubs other than those open or under construction as of October 15, 2002 for the duration of the Trademark Agreement; (6) that neither CCI nor its Affiliates could change the name on any of its current clubs; and (7) that Improv West was entitled to attorneys fees and costs. On April 14, 2005, the district court confirmed the Partial Award. CCI timely appealed, tendering to us the issues addressed in this opinion.*fn10

In an opinion filed on September 7, 2007 and amended on January 23, 2008, we held that we did not have jurisdiction to review the district court's order compelling the parties to arbitrate; that the arbitrator did not exceed his authority by arbitrating the equitable claims; that the arbitrator did exceed his authority by issuing permanent injunctions that enjoined relatives who were not parties to the agreement; that the arbitrator's award was not completely irrational; and that the arbitrator's enforcement of the covenant not to compete was a manifest disregard for the law. The Supreme Court granted a petition for a writ of certiorari, vacated our prior opinion, and remanded this case to us to reconsider our decision in light of Hall Street Associates v. Matel.

Both parties agree that this remand only affects the portion of the prior opinion in which we found the arbitrator acted with a "manifest disregard of the law." Therefore, we continue to hold that we do not have jurisdiction over the district court's order compelling arbitration. We also determine that the arbitrator did not exceed his authority when he arbitrated the equitable claims, but that he exceeded his authority regarding the permanent injunction that enjoined non-parties to the agreement. We also decide that the arbitrator's award was not completely irrational. Finally, addressing the issue raised by the Supreme Court's remand, we conclude that Hall Street Associates did not undermine the manifest disregard of law ground for vacatur, as understood in this circuit to be a violation of § 10(a)(4) of the Federal Arbitration Act, and that the arbitrator manifestly disregarded the law.

II.

CCI first argues that the district court erred when it issued its order compelling the parties to arbitrate. Improv West in turn contends that we lack jurisdiction over this issue because CCI's appeal of the district court's order compelling arbitration is untimely.

[1] The district court's order compelling the parties to arbitrate dismissed CCI's claims when it sent the parties to arbitration. Because the district court's order dismissed CCI's claims, it is a final order. See Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 86 (2000) (holding that a district court's order dismissing the plaintiffs claims and compelling arbitration was a final decision because the order "end[ed] the litigation on the merits and le[ft] nothing more for the court to do but execute the judgment" (internal quotation marks omitted)); see also 9 U.S.C. § 16(a)(3) (2006) ("An appeal may be taken from . . . a final decision with respect to an arbitration that is subject to this title."); 9 U.S.C. § 16(a)(3) prac. cmt. (instructing that subdivision (a)(3) makes appealable a district court's determination compelling arbitration that is a final decision); Bushley v. Credit Suisse First Boston, 360 F.3d 1149, 1153 n.1 (9th Cir. 2004) (adopting the principle that "a dismissal renders an order appealable under § 16(a)(3)" (citation omitted)).

[2] 28 U.S.C. § 2107(a) and Federal Rule of Appellate Procedure 4(a)(1) require that a notice of appeal be filed in a civil case "within 30 days after the judgment or order appealed from is entered." Fed. R. App. P. 4(a)(1)(A). Because the district court did not enter judgment on the order to compel arbitration, CCI had 180 days to appeal the order. See Fed. R. App. P. 4(a)(7)(A)(ii); see also Bowles v. Russell, ___ U.S. ___, 127 S.Ct. 2360, 2363 (2007) (stating that "the taking of an appeal within the prescribed time is mandatory and jurisdictional" (internal quotation marks omitted)).

[3] CCI filed its first notice of appeal of the district court's order compelling arbitration on May 16, 2005, 287 days after the order was entered on August 2, 2004. This is well beyond the 180 days allowed by Federal Rule of Appellate Procedure 4(a)(7)(A)(ii). CCI's appeal of the district court's order compelling ...


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