Original Appalachian Artworks, Inc. v. Jakks Pacific, Inc.
17-11513
| 11th Cir. | Nov 17, 2017Background
- Original Appalachian Artworks (Plaintiff) licensed Cabbage Patch Kids rights to JAKKS (Defendant) under exclusive international (2012) and domestic (2013) licenses that expired Dec. 31, 2014.
- Licenses reserved Plaintiff the right, during the 365 days before expiration, to “engage…in the negotiation” of successor licenses effective upon expiration; JAKKS claimed this reservation allowed only preliminary discussions, not concluding a successor deal or preparatory work.
- In May–August 2014 Plaintiff selected Wicked Cool Toys as successor and permitted it to perform design/development and trade-show promotion in 2014 to prepare for a 2015 launch; JAKKS alleged breach and stopped paying royalties.
- Plaintiff sought and obtained arbitration; arbitrator found Plaintiff did not materially breach (or, alternatively, any breach was not material) and awarded $1,117,559 in unpaid royalties to Plaintiff.
- District court confirmed the award; JAKKS moved to partially vacate the award raising: manifest disregard of Georgia law (parol evidence rule), arbitrator exceeded authority, and FAA §10(a)(4) excess-of-powers; the Eleventh Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitrator manifestly disregarded Georgia parol-evidence rule by relying on extrinsic evidence to interpret the negotiation clause | Arbitrator permissibly considered commercial context to ascertain parties' intent | Arbitrator should have enforced literal license language and not consider extrinsic evidence | No manifest disregard; defendant failed to show arbitrator knowingly and intentionally ignored controlling law |
| Whether arbitrator overstepped authority by construing the negotiation clause to permit Plaintiff to reach a successor deal and take preparatory steps in 2014 | Arbitrator decided a dispute about contract construction submitted to him | Construction added rights beyond the contract’s plain language | Did not overstep; arbitrator’s interpretation drew its essence from the contract and was within scope of submission |
| Whether arbitrator exceeded powers under FAA §10(a)(4) by modifying clear contract terms rather than interpreting them | Arbitrator’s award was an interpretation of ambiguous language based on extrinsic evidence | The negotiation provision unambiguously limited Plaintiff to mere negotiation in 2014 | Arbitration award stands: provision was sufficiently ambiguous; arbitrator arguably interpreted it, so FAA vacatur is not warranted |
| Whether the award lacked evidentiary support (insufficiency of evidence) | Arbitrator’s alternative finding that any breach was not material was supported by the record | There was no evidence to support nonmateriality finding | Court cannot review sufficiency of evidence in arbitration; award not vacated on this ground |
Key Cases Cited
- Frazier v. CitiFinancial Corp., LLC, 604 F.3d 1313 (11th Cir.) (standard of review for arbitration confirmation/vacatur)
- AIG Baker Sterling Heights, LLC v. Am. Multi–Cinema, Inc., 508 F.3d 995 (11th Cir.) (judicial review of arbitration is narrowly cabined)
- Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (U.S. 2013) (grave error by arbitrator insufficient to vacate; courts must enforce arbitral contract constructions even if arguably wrong)
- Wiregrass Metal Trades Council v. Shaw Envtl. & Infrastructure, Inc., 837 F.3d 1083 (11th Cir.) (deference to arbitrator: interpretation vs. modification analysis under FAA §10(a)(4))
- ABCO Builders, Inc. v. Progressive Plumbing, Inc., 647 S.E.2d 574 (Ga.) (manifest disregard requires evidence the arbitrator consciously knew and intentionally ignored controlling law)
- Sweatt v. Int’l Dev. Corp., 531 S.E.2d 192 (Ga. Ct. App.) (example where arbitrator exceeded authority by awarding damages inconsistent with contract’s liquidated-damages clause)
- Southwire Co. v. Am. Arbitration Ass’n, 545 S.E.2d 681 (Ga. Ct. App.) (arbitrator may not ignore plain contract language; award must draw its essence from contract)