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MAT Movies & Television Productions GmbH & Co. Project IV KG v. RHI Entertainment Distribution

November 2, 2010


The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.


Plaintiff MAT Movies & Television Productions GmbH & Co. Project IV KG ("MAT") brings this action against RHI Entertainment Distribution, LLC ("RHI") for breach of contract arising from RHI‟s failure to pay amounts owed to MAT pursuant to a Settlement Agreement entered into between those two entities. Defendant has moved to dismiss the complaint, or, in the alternative, stay the action pending arbitration, on the ground that the parties have obligated themselves to arbitrate their dispute. Because the parties have not agreed to arbitrate this dispute, RHI‟s motion is denied.


MAT is a limited partnership domiciled in Germany whose partners are all citizens of foreign countries. (Compl. ¶ 2.) RHI is a Delaware limited liability company whose principal place of business is in New York and whose members are citizens of Delaware. Because the parties are diverse and the amount in controversy exceeds $75,000, this Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a)(2).

MAT and RHI are parties to an agreement dated June 24, 2002, for RHI to distribute certain made-for-television movies produced by MAT ("Distribution Agreement"). (Decl. of Henry S. Hoberman dated Apr. 15, 2010, Ex. A.) In exchange for the right to distribute the movies, RHI agreed to pay MAT certain payments, including minimum guarantee payments and a specified portion of RHI‟s gross receipts from the MAT movies. (Id. ¶ 4.) MAT and RHI also agreed to arbitrate "any dispute between the parties hereto with respect to this Agreement," except for disputes over minimum guarantee payments. (Id. ¶ 36.)

During the course of their contractual relationship, disputes arose over the amount due MAT under their contract. On September 25, 2009, the parties entered a Settlement Agreement to resolve their disputes over how much RHI owed MAT pursuant to the Distribution Agreement for license fees during the 2008 calendar year. (Settlement Agreement and Release ("Settlement Agreement"), Hoberman Decl., Ex. B.) In addition to a mutual, general release concerning disputes through December 31, 2008, this Settlement Agreement provides for RHI to pay MAT $6,036,983, (id. ¶ 1), an amount subject to revision after PricewaterhouseCoopers conducted an audit of the records, (id. ¶ 2). The revised amount was known as the Audit Amount. (Id.). RHI agreed to pay MAT the $6,036,983-or if different, the Audit Amount-plus interest-in various installments. (Id. ¶ 4.) The Settlement Agreement specifically provides that "in the event that either Party disputes the Audit Amount, such Party may commence an arbitration proceeding in accordance with Section 36(a) of the Distribution Agreement." (Id. ¶ 2.) The Settlement Agreement did not provide for arbitration of any issue except to the extent that "either party disputes the Audit Amount." (Id.)

MAT now brings this action for breach of the Settlement Agreement, alleging that RHI failed to make various installment payments due on the Audit Amount. (Compl. ¶¶ 15-20.)

Following each missed payment, MAT notified RHI that the failure to pay constituted an "Event of Default" under the Settlement Agreement. (Id. ¶¶ 21-23.) MAT is not disputing the Audit Amount itself. Because RHI allegedly has not cured its default, (id. ¶24), nor allegedly made any payments for that matter, (id. ¶¶ 27-28), MAT contends that the principal amount-which equals the Audit Amount of $6,991,914-should be accelerated pursuant to Paragraph 5(b) of the Settlement Agreement, (id. ¶¶ 10, 25). Accordingly, plaintiff seeks damages of $6,991,914, plus interest, fees, and costs.

Defendant has moved to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction and Fed. R. Civ. P. 12(b)(6) for failure to state a claim, or, in the alternative, to stay the action pursuant to section 3 of the Federal Arbitration Act, all on the ground that the Distribution Agreement‟s broad arbitration clause mandates arbitration. Plaintiff responds that this dispute is brought for breach of the Settlement Agreement and therefore is governed by the Settlement Agreement, not the Distribution Agreement; only disputes concerning the Audit Amount are arbitrable under the Settlement Agreement; and this is not a dispute concerning the Audit Amount. Plaintiff has the better argument.


A. Legal Standard

The Federal Arbitration Act ("FAA") provides that a federal court "shall" stay an action pending arbitration in any suit involving "any issue referable to arbitration" pursuant to a written arbitration agreement. 9 U.S.C. § 3.*fn1 In determining whether a dispute is subject to arbitration, a court must first decide "(1) whether there exists a valid agreement to arbitrate at all under the contract in question . . . and if so, (2) whether the particular dispute sought to be arbitrated falls within the scope of the arbitration agreement." Hartford Accident & Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 226 (2d Cir. 2001) (quoting National Union Fire Ins. Co. v. Belco Petroleum Corp., 88 F.3d 129, 135 (2d Cir. 1996)); see also Oldroyd v. Elmira Sav. Bank, 134 F.3d 72, 75 (2d Cir. 1998). To determine whether the parties in fact have agreed to arbitrate, courts generally look to state contract law. See Mehler v. Terminix Int'l Co., 205 F.3d 44, 48 (2d Cir. 2000). Because the Distribution Agreement is governed by New York law, (see Distribution Agreement ¶ 35), and the parties‟ briefs rely on New York law, see Tehran-Berkeley Civil & Envtl. Eng'rs v. Tippetts-Abbett-McCarthy-Stratton, 888 F.2d 239, 242 (2d Cir. 1989), this Court will apply New York law.

In deciding RHI‟s motion to dismiss the complaint or to stay the action pending arbitration, this Court is also guided by a "federal policy [that] strongly favors arbitration as an alternative dispute resolution process." David L. Threlkeld & Co. v. Metallgesellschaft, Ltd., 923 F.2d 245, 248 (2d Cir. 1991) (citing Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989) and Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir. 1987)). Where there is a question as to whether claims are arbitrable, federal arbitration policy requires that "any doubts . . . be resolved in favor of arbitration." Moses H. Cone ...

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