Hobbs & Shaw: Fast Arbitration, or a Furious Court?

Hobbs & Shaw: Fast Arbitration, or a Furious Court?

Valeska Rebello

When parties draft an arbitration clause, one of the key considerations is the scope of potential future disputes that will be submitted to arbitration. What happens when the question arises of whether the actual dispute that arose falls within the scope of the arbitration agreement? In the US, this is referred to as arbitrability, although that term has a different meaning in Canada. A related question is: when may arbitrators decide these issues themselves and when may courts may step in? Although this question of arbitral competence-competence is one of the most basic in arbitration law, it continues to be litigated. An interesting recent example is Neal Moritz v Universal City Studios LLC et al.[1]

The Dispute Between Moritz & Universal Studios

Moritz was a long-time producer on the Fast and Furious (“FF”) films. He had been producing these films for Universal for over 16 years when the dispute arose over the 2019 film, Fast and Furious Presents: Hobbs & Shaw (“Hobbs & Shaw”). Moritz had separate producer contracts for each of the first six FF films. The FF6 and FF7 agreements contained the same arbitration clause, which stipulated:

“[a]ny controversy, claim, or dispute arising out of or relating to this agreement or this agreement to arbitrate…shall be fully and finally adjudicated by binding arbitration…”[2] [Emphasis added]

This clause was also included in a subsequent contract applied to FF 8, 9, and 10, as well as any movie that constituted a “sequel” or “remake” of the films in the franchise. Notably, this contract was less than two pages long.

In Moritz and Universal’s discussions regarding Hobbs & Shaw, they repeatedly characterized it as a “spin-off” film. Since it was neither a remake nor sequel, it was not subject to the terms of the FF8-10 contract. Although drafts of a new producer contract for Hobbs & Shaw were exchanged, the agreement was not finalized in writing. Later, Universal refused to compensate Moritz for his work and instructed him to not render any services in connection with the project. In response, Moritz brought a suit against Universal for breach of what he described as a binding oral producer contract. Universal moved to compel arbitration based on the arbitration clauses in the FF contracts.

At trial, Universal first argued that the threshold question of arbitrability was one to be decided by an arbitrator, per the arbitration clause in the FF8-10 contract. The court rejected this argument, holding that “[u]nless the parties clearly and unmistakably provide otherwise,”[3] the question of arbitrability must be decided by the court. The FF8-10 contract was “hardly a model of clarity”.[4] Even if it was, it did not apply to the Hobbs & Shaw dispute because it was neither a remake nor a sequel. It is important to note that US law differs from Canada in this area. In Canada, a determination of the applicability of the arbitration agreement would be sent to the arbitrator, unless the arbitration agreement was invalid on its face.

Second, Universal argued that though the court had jurisdiction to decide arbitrability, it should compel arbitration of the dispute. This was because the dispute fell within the scope of the arbitration agreements in the FF contracts. However, the court concluded that the dispute was not arbitrable and denied Universal’s motion to compel arbitration.

The Court of Appeal’s Decision

On appeal, Moritz and Universal agreed that the United State’s Federal Arbitration Act[5] (“FAA”) applied to the arbitration clauses at issue. Section 2 of the FAA provides that:

“A written provision in . . . a contract . . . 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.”[6] [Emphasis added]

Universal argued that the written arbitration clause included in the FF6 and FF7 contracts governed the threshold question of arbitrability. This clause stipulated that any dispute “arising out of or relating to … this agreement to arbitrate”[7] should be arbitrated. The Court of Appeal rejected Universal’s argument, explaining this dispute did not arise from, or relate to, the FF6 or FF7 agreements. Although Moritz had mentioned the contracts in his complaint, “the mere mention of a contract does not mean the dispute relates to it in any substantive sense.”[8] In addition, the court cited the US Supreme Court decision Henry Schein. Inc. v Archer & White Sales, Inc.,[9] where it was held that “parties may delegate threshold arbitrability questions to the arbitrator, so long as the parties’ agreement does so by “clear and unmistakable” evidence.”[10] However, the Court of Appeal agreed with the lower court that it was not clear and unmistakable that the parties had agreed to arbitrate the question of arbitrability with regard to Hobbs & Shaw.

Universal argued Schein stood for the proposition that “only an arbitrator can determine whether the arbitration clause should be enforced, and to what extent.”[11] The court disagreed with this interpretation. While Schein established that, per the FAA, arbitration clauses are “valid, irrevocable, and enforceable”,[12] this only applied to disputes which “thereafter…[arise] out of such contract.”[13] The court distinguished Moritz’s dispute from Schein, as any purported producer contract relating to Hobbs & Shaw was separate from the previous FF contracts. Since the dispute did not arise out of the contract containing the arbitration clause, the dispute was not within the scope of any valid arbitration agreement. Universal’s argument that the arbitration clause “creates a perpetual obligation to arbitrate any conceivable claim”[14] was therefore inconsistent with Schein and the FAA’s explicit relatedness requirement.

The Court of Appeal affirmed the decision to deny Universal’s motion to arbitrate. Later, in September 2020, Universal and Moritz both issued public statements explaining the dispute had been settled.

The Road Ahead…

This dispute could likely have been avoided if a more expansive arbitration clause had been drafted. Plain and clear language in the FF8-10 contract would have bolstered Universal’s case to enforce the arbitration clause. This case is evidence that even the most cordial, long-standing business relationships can sour over time, and emphasizes the importance of clear arbitration provisions to avoid (fast and furious) court proceedings.

CJCA blog posts represent the individual opinions and perspectives of their authors. The Canadian Journal of Commercial Arbitration does not maintain or publish a collective or institutional view on any legal or political issue.