FCP Entertainment Partners, LLC v. Hal Luftig Company, Inc.

Background

The court considered two related actions: FCP Entertainment Partners, LLC’s motion to confirm an arbitration award and Hal Luftig’s petition to vacate that award. In 2001, FCP entered into an agreement with Hal Luftig Company, Inc., described as Mr. Luftig’s loan-out company, under which the company would provide Mr. Luftig’s full-time, exclusive services to FCP. The parties amended that agreement in 2007.

The 2007 Agreement required FCP to receive a percentage of certain income from projects, including producer fees, profits, office charges, and producer royalties. It also provided that income from a “Vested Project” would remain subject to the agreement’s distribution provisions after the agreement ended. The agreement formally ended on January 1, 2015.

The dispute included income from the stage production Kinky Boots. FCP claimed that Mr. Luftig and his company failed to report and improperly received revenues that should have been divided under the 2007 Agreement. The arbitrator found that Kinky Boots was a “Vested Project” and that Mr. Luftig and Hal Luftig Company breached the agreement by failing to pay FCP its 55% share of specified Kinky Boots income.

Arbitration award

The arbitrator found liability on three of FCP’s eleven counts involving Kinky Boots income: West End and European tour income, later United States non-equity tour income, and world tour income. The Final Award required Mr. Luftig and Hal Luftig Company to pay $2,638,925.78 in compensatory damages, with both defendants jointly and separately responsible for the amount. The arbitrator denied the claims that were analyzed as breaches of fiduciary duty.

After the Final Award, Mr. Luftig asked the arbitrator to clarify whether both defendants were liable. The arbitrator stated that both Hal Luftig individually and Hal Luftig Company were jointly and separately liable for the damages.

Arguments about vacating the award

Mr. Luftig raised five principal arguments: that the award could not be confirmed against him because he was not a party to the 2007 Agreement; that the arbitrator improperly treated him and the company as jointly and separately liable; that the agreement had not been modified by the parties’ conduct; that Kinky Boots was not a “Vested Project”; and that the arbitrator should have invalidated the agreement under California limits on post-employment noncompetition agreements.

The court explained that the Federal Arbitration Act, or FAA, allows only very limited judicial review of an arbitration award. A court generally must confirm an award if there is a “barely colorable justification” for the arbitrator’s result, even if the court would interpret the contract differently. A party seeking vacatur bears a heavy burden and must show more than a legal or factual mistake.

The court rejected the challenges concerning modification of the agreement, the status of Kinky Boots as a “Vested Project,” and California’s noncompetition rules. It found no showing that the arbitrator ignored a clearly applicable legal principle or made clearly erroneous factual findings.

The court also rejected the challenge to Mr. Luftig’s personal liability. It stated that the agreement’s language allowed FCP, under certain conditions, to substitute Mr. Luftig for Hal Luftig Company. Although the court noted that the Final Award did not clearly establish that more than two parties were parties to the agreement at any one time, it concluded that the award and related documents provided a sufficient legal basis for holding both Mr. Luftig and the company liable. The court also stated that Mr. Luftig’s responsibility for the breach could support liability sounding in tort or under other theories.

Disposition

The court held that the Final Award was clear and supported by a legally permissible basis. It noted that there was no allegation of corruption, fraud, partiality, misconduct, or failure by the arbitrator to issue a definite award. The court therefore concluded that the FAA required confirmation.

Judge Kaplan granted FCP’s amended petition to confirm the arbitration award and denied Mr. Luftig’s amended petition to vacate. The Clerk was directed to close both cases.