Bruce Willis has starred in more than 60 films, ranging from Moonlighting and the Die Hard series to Pulp Fiction and Looper. But few had more plot twists and cliffhanger moments than a movie in which he was supposed to star, but that quickly moved from a sound stage to a courtroom.
Benaroya Pictures, led by producer Michael Benaroya, signed Willis in 2014 to star in “Wake,” an action thriller about a sociopath (Willis) who travels to a remote island for his brother’s wake. Chaos was then supposed to erupt on-screen, but it did so instead on the set.
The production company agreed to put $8 million in trust for Willis, payable in stages to his lendout corporation, Westside Corp. The agreement said any dispute over funds had to be resolved through arbitration.
Filming began on Feb. 16, 2015. But production shut down just six days later, reportedly because of a lack of funds.
Willis, who had been paid only $3 million, went to court a few months later and in arbitration demanded payment of the rest of the agreed-on fee. The production company countered that Willis had breached the contract.
In September of that year, attorneys for Willis asked the arbitrator to name Michael Benaroya individually as a party to the arbitration, in addition to his company. They pointed out that he is “the founder, principal, managing member, sole officer and Chief Executive Officer of Benaroya Pictures.”
The production company objected, saying Mr. Benaroya was not a party to the escrow agreement or arbitration clause, and that only the trial court, not an arbitrator, could decide whether a nonsignatory can be compelled to arbitrate.
The arbitrator determined that the producer was the production company’s alter ego, since he controlled it and funded it, and that he had “personally made the misrepresentations to Willis’ agents on behalf of” the production company.
Although it was “a close call,” he decided, “an inequity would result” if Mr. Benaroya was not treated as his company’s alter ego.
The arbitrator then awarded Willis over $5 million in damages, plus prejudgment interest, attorneys fees and costs, for a total of about $5.8 million.
Mr. Benaroya and his company asked the trial court to void the arbitration award, or to remove him as a party to it. They argued that the arbitrator exceeded his authority, both in his alter ego ruling and by exercising jurisdiction over the producer even though he was not a party to the agreement.
The trial court denied the motion, entering a judgment in favor of Mr. Willis.
Mr. Benaroya then appealed. He argued that the issue of whether someone who has not signed an arbitration agreement can be compelled to arbitrate can only be decided by a trial court, not by an arbitrator.
The appellate court agreed, overturning the award to Willis.
While one of the rules governing the arbitration between Willis and the company “permits an arbitrator to determine whom among signatories to an arbitration agreement are proper parties for the dispute to be arbitrated, the rule cannot (and does not) permit the arbitrator to determine whether a nonsignatory to the arbitration agreement can be compelled to arbitrate,” the appellate court ruled.
“The authority to decide that question resides, by law, solely with the trial court.”
The escrow agreement stated that it was “between Benaroya Pictures (‘Producer’) and Westside Corp . . . (‘Lender’) [for the services of] Bruce Willis (‘Artist’),” the ruling noted. It did not include Mr. Benaroya.
The agreement “cannot bind nonsignatories, absent a judicial determination that the nonsignatory falls within the limited class of third-parties who can be compelled to arbitrate.”
“To presume arbitrability without first establishing, independently, consent to arbitration is to place the proverbial cart before the horse,” the appellate ruling stated.
California’s legal system “has a strong policy favoring arbitration,” the appellate judges noted. But “the right to pursue claims in a judicial forum is a substantial right and one not lightly to be deemed waived,” they added.
“Because the parties to an arbitration clause surrender this substantial right, the general policy favoring arbitration cannot replace an agreement to arbitrate.”
The appellate judges ordered the trial court to vacate the award against Mr. Benaroya and confirm it only against the production company. It also awarded the producer his costs.
The takeaway from this case is clear; if you expect a person or entity to be bound by an arbitration clause, make sure they actually sign the agreement.
By Laurie Murphy