Ex.Co Technologies Ltd. v. Empire Media Group Inc.

Background

In November 2021, Ex.Co Technologies Ltd. and Empire Media Group Inc. entered an agreement under which Ex.Co would provide video streams with advertisements to two websites controlled by Empire. Empire agreed that the websites would use Ex.Co’s video stream exclusively for twelve months, and the parties would divide advertising revenue according to its source.

Ex.Co made a $300,000 prepayment for Empire’s expected share of advertising revenue. In February 2022, the parties extended the agreement to twenty-four months, and Ex.Co made an additional $800,000 prepayment. Ex.Co alleged that Empire then removed Ex.Co’s video player, replaced it with a third-party player, and refused to return an outstanding balance totaling $860,000. Ex.Co treated that conduct as a breach of contract.

The agreement incorporated Terms of Service requiring the parties first to contact each other and try to resolve disputes informally. If Ex.Co could not resolve the dispute informally, the parties agreed to binding individual arbitration in New York County, New York. The agreement did not identify an arbitrator or provide a method for selecting one.

Arguments and Issues

Ex.Co petitioned under Sections 4 and 5 of the Federal Arbitration Act, a federal law governing enforcement of arbitration agreements, to compel arbitration of its contract claim and appoint an arbitrator. Ex.Co asked that the arbitration proceed before JAMS in New York County.

Empire argued that Ex.Co had not made a good-faith effort—or any effort—to resolve the dispute informally, which Empire contended was a required condition before arbitration could begin. Empire did not oppose Ex.Co’s specific request concerning selection of an arbitrator.

The court considered whether it should decide if the informal-resolution condition had been satisfied, whether it should appoint an arbitrator, and whether to stay the court case while arbitration proceeded.

Court’s Analysis

The court stated that the parties did not dispute the existence of a valid agreement containing an arbitration clause, or that Ex.Co’s breach-of-contract claim fell within that clause. The parties disputed only whether the informal-resolution condition had been satisfied.

The court held that this was a procedural question for the arbitrator, not the court. The court relied on precedent stating that arbitrators generally decide whether procedural preconditions to arbitration—including conditions requiring notice or informal negotiations—have been met. Because Empire’s objection concerned only that precondition, the court granted the motion to compel arbitration.

Because the arbitration provision did not specify an arbitrator or a selection method, the Federal Arbitration Act authorized the court to appoint one. The court treated Empire’s failure to oppose Ex.Co’s request as leaving the selection issue undisputed and ordered the arbitration to proceed before JAMS in New York County.

The court also decided to stay the action pending arbitration. The opinion discussed whether a stay is mandatory when no party has requested one, but concluded that a stay was appropriate here. The order did not decide whether Empire breached the contract or whether Ex.Co was entitled to recover the disputed funds.

Disposition

The court granted Ex.Co’s motion to compel arbitration. It ordered Empire to participate in arbitration before JAMS in New York County, New York, and stayed the action pending arbitration. The parties were directed to notify the court about the arbitration’s outcome within three days after it was completed.