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The Shipman Agency, Inc. v. Theblaze, Inc.

United States District Court, S.D. Texas, Houston Division

June 22, 2018

THE SHIPMAN AGENCY, INC., Plaintiff,
v.
THEBLAZE INC. and TYLER CARDON, Defendants.

          MEMORANDUM OPINION AND ORDER

          SIM LAKE UNITED STATES DISTRICT JUDGE

         Plaintiff The Shipman Agency, Inc. ("Plaintiff," "Shipman" or "Licensor") brings six causes of action against defendants TheBlaze, Inc. ("TheBlaze") and Tyler Cardon ("Cardon") (collectively, "Defendants") for: (1) violation of the Lanham Act, 15 U.S.C. § 1114(a)(1), (2) violation of the Lanham Act, 15 U.S.C. § 1125(a), (3) violation of the Texas Business and Commerce Code § 16.102, (4) unfair competition, (5) promissory estoppel, and (6) tortious interference with prospective business relations.[1]Pending before the court is Defendants TheBlaze Inc. and Tyler Cardon's Amended Motion to Stay and Compel Arbitration and Brief in Support ("Defendants' Motion to Compel") (Docket Entry No. 18). For the reasons stated below, the court will grant Defendants' Motion to Compel.

         I. Background [2]

         Plaintiff is an advertising agency and a television creation and production company owned and operated by Stephanie Shipman. TheBlaze is a digital network that licenses television and radio content from producers to provide to its subscribers. Cardon is the president of TheBlaze and its parent company, Mercury Radio Arts, Inc.[3] For the last five years Plaintiff and TheBlaze have entered into successive license agreements in which Plaintiff licensed its content to TheBlaze to air on television. On May 22, 2017, the parties executed their most recent licensing agreement ("2017 License Agreement" or "the Agreement") for TheBlaze to air Plaintiff's programs. The 2017 License Agreement governs the relationship between Plaintiff and TheBlaze, provides details about airing Plaintiff's programs and advertising, and contains a mandatory arbitration provision.[4]

         Plaintiff alleges that in 2018 Cardon aimed to destroy the relationship between Shipman and TheBlaze, rejected advertisements from Plaintiff's sponsors, and refused to provide Shipman two minutes of commercial airtime. Plaintiff alleges that contrary to its promises TheBlaze never ran banner ads on its website or promoted Plaintiff's shows on television, radio, or social media. Plaintiff and TheBlaze began negotiating a license agreement for 2018, but on February 21, 2018, TheBlaze informed Plaintiff that it would not enter into a 2018 license agreement. On March 5, 2018, Plaintiff sent TheBlaze a notice of termination of the 2017 License Agreement. Plaintiff alleges that "[d] espite the fact that its license has been terminated, the Blaze is continuing to air Shipman's shows and willfully infringe The Registered Trademarks on television and on digital media."[5] Plaintiff also alleges that Cardon has defamed Plaintiff to its sponsors, causing the companies to cancel their sponsorships of Plaintiff's programs.

         Plaintiff filed this action on March 12, 2018, and filed its First Amended Complaint on April 13, 2018, seeking damages, permanent injunctive relief, and other appropriate costs and relief as the court deems appropriate.[6] Defendants have moved to stay this action and to require Plaintiff to arbitrate its claims with Defendants pursuant to the Federal Arbitration Act and the Texas General Arbitration Act.[7]

         II. Analysis

         Defendants argue that because the 2 017 License Agreement contained a valid arbitration provision and that because Plaintiff's claims fall within the scope of that provision, the court should stay the action and compel arbitration.[8] Plaintiff responds that no arbitration agreement exists as to the unexecuted 2018 License Agreement, that the arbitration provision in the 2017 License Agreement is illusory and unconscionable, and that Plaintiff's claims fall outside the scope of the arbitration provision.[9]

         A. Applicable Law

         Under the Federal Arbitration Act ("FAA") an arbitration agreement in a contract evidencing a transaction involving interstate commerce is "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Underlying the FAA is "the fundamental principle that arbitration is a matter of contract." AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1745 (2011) (internal quotation marks omitted); see Washington Mutual Finance Group, LLC v. Bailey, 364 F.3d 260, 264 (5th Cir. 2004) ("The purpose of the FAA is to give arbitration agreements the same force and effect as other contracts --no more and no less.").

         In determining whether to enforce an arbitration agreement "[f]irst, the court asks whether there is a valid agreement to arbitrate and, second, whether the current dispute falls within the scope of a valid agreement." Edwards v. Doordash, Inc., Civil Action No. 17-20082, 2018 WL 1954090, at *3 (5th Cir. April 25, 2018) (citing Klein v. Nabors Drilling USA L.P., 710 F.3d 234, 236 (5th Cir. 2013)) . If the parties have entered into a binding agreement to arbitrate, the court must determine whether any-federal statute or policy renders the claims nonarbitrable. JP Morgan Chase & Co. v. Conegie ex rel. Lee, 492 F.3d 596, 598 (5th Cir. 2007). The party seeking to invalidate an arbitration agreement bears the burden of establishing its invalidity. Carter v. Countrywide Credit Industries, Inc., 362 F.3d 294, 297 (5th Cir. 2004). A court should resolve all doubts concerning the arbitra-bility of claims in favor of arbitration. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 105 S.Ct. 3346, 3353-54 (1985) .

         B. There is a Valid Agreement to Arbitrate

         The court must first decide whether an agreement to arbitrate was formed. Paragraph 12 of the Agreement states:

12. Governing Law/Dispute Resolution: This Agreement shall be construed in accordance with, and shall in all respects be governed by, the laws of the State of Texas. Any and all disputes, claims and controversies arising out of or relating to any provision of this Agreement, or breach or alleged breach thereof, shall be settled by confidential arbitration in Dallas, Texas, before a single arbitrator, with experience in the entertainment industry, in accordance with the commercial arbitration rules of the American Arbitration Association, and any award rendered in such proceeding shall be final and binding upon the parties hereto. Judgment on the award may be entered in any court having jurisdiction thereof. In the event of any dispute relating to the subject matter hereof, Licensor's sole remedy shall be to pursue an action at law for money damages, and Licensor agrees the Licensor shall not seek to or be entitled to enjoin the distribution, advertising or exploitation of the Programs or the exercise of any of the rights granted herein or terminate or rescind this Agreement. ... No. failure on the part of Licensor or TBI to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive or in limitation of any other right or remedy provided at law or in equity as otherwise provided herein.[10] (hereinafter the "Arbitration Provision")

         1. The Arbitration Provision is Not Illusory

         Plaintiff argues that the Arbitration Provision is illusory because it "restricts the power of Shipman to terminate the contract but unilaterally retains that power for Blaze."[11]Plaintiff also argues that the Arbitration Provision is illusory because it does not include a savings clause similar to the one at issue in In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002).[12]Defendant responds that the Arbitration Provision is not illusory because Paragraph 15 of the 2017 License Agreement states that the arbitration provision survives the termination of the contract.[13]

         Since arbitration agreements are matters of contract, the validity and scope of such agreements are governed by state contract law. Morrison v. Amway Corp., 517 F.3d 248, 254 (5th Cir. 2008) . An arbitration agreement is illusory under Texas law "where one party has the unrestrained unilateral authority to terminate its obligation to arbitrate." Nelson v. Watch House International, L.L.C., 815 F.3d 190, 193 (5th Cir. 2016) (quotations and citations omitted). In Halliburton the Texas Supreme Court held that because of two "savings clauses," the employer could not "avoid its promise to arbitrate by amending the provision or terminating it altogether."[14] Halliburton, 80 S.W.3d at 570.

         Because Paragraph 15 of the 2017 License Agreement states that the Arbitration Provision "will survive any expiration or termination of this Agreement, "[15] no party has unilateral authority to "avoid its promise to arbitrate by amending the provision or terminating it altogether." Carey v. 24 Hour Fitness, USA, Inc., 669 F.3d 202, 205 (5th Cir. 2012) (quoting In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010)). Because Defendants do not have the power to avoid arbitration under the 2017 License Agreement by unilaterally ...


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