Arbitration – not boilerplate, and not necessarily quick, easy, or inexpensive!

If you have basic familiarity with contracts, you’ve likely heard the term “boilerplate,” which is often used to mean standard language that the contract writer uses in many of its contracts or even that you may find in contracts across the board.  Of course, just because language might be “standard,” that does not mean that it is innocuous or that you can safely ignore it!

So-called boilerplate language, it it exists, is often found near the end of the contract.  Some contracts stipulate that if a dispute arises from the contract the parties agree to submit the dispute to binding arbitration.  While this clause may be brief and, coming at the end of a contract, may appear almost like an afterthought, it is important to understand that agreeing to arbitrate has very real consequences.

Arbitration clauses are most often seen by consumers in credit card agreements and service agreements with large companies (e.g., “Any dispute in connection with this Agreement shall be subject to binding arbitration in Chicago, Illinois”), but they are also sometimes poorly understood features of contracts between small businesses who somehow heard from an uncle that arbitration was easier or cheaper than going to court.

In  November 2013, a long and expensive arbitration proceeding concerning a Gwinnett County software company came to a conclusion.  The process took three (3) years and cost $3.5 million in legal fees in addition to approximately $150,000 in arbitration costs.

The victors, Kenneth Shumard and Kenneth Shumard Jr. won the right to control the use of medical billing software that is anticipated to be highly valuable.  The Shumards also won $800,000 in attorneys’ fees.  Initially, the Shumards sought a restraining order from the Gwinnett County Superior Court preventing their other partners from making certain use of the software.  Judge Ronnie Batchelor referred the dispute to arbitration, because the partnership agreement between the Shumards and their partners required that disputes go to arbitration.

As such, the Shumards did not have the option to seek judicial process, but instead, were forced to go to arbitration.

Arbitration is conducted under its own standards and is a creature of state law.  In some ways arbitration resembles court proceedings.  For example, in the above-mentioned dispute, the arbitrator received briefs on the matter and received testimony from witnesses.  The arbitrator then required post-trial briefs and issued a written decision.

In other ways, however, arbitration is an animal unto itself.  Arbitrators are not bound the same rules as judges and their decisions are often final.  Their decisions are not subject to normal appellate court review, and only subject to attack in specific instances, such as when the arbitrator is not impartial, failed to make a final determination of the issues, or manifestly disregarded the law.  Basically, arbitration is like “private court.”

A court rarely finds that an arbitrator has committed such failings, and thus, it is best to plan on any arbitration award being the final word.  Case in point, in the above-referenced dispute, the Shumards’ partners, who were unsuccessful in arbitration, went back to Gwinnett County Superior Court Judge Batchelor seeking to have the arbitration award vacated.  Judge Batchelor denied those motions and confirmed the arbitration award.

In Georgia, Chapter 9 of Title 9 of Georgia Statutes sets out the standards for arbitration (the “Georgia Arbitration Code,” O.C.G.A. § 9-9-1 et seq.).  In Georgia, the contract controls.  If a contract that requires disputes be arbitrated is enforceable, the dispute cannot be heard by the courts and must be submitted to arbitration.  The courts do have power, however, to determine whether the contract with the arbitration clause is valid, to compel arbitration, and to validate and enforce an arbitration award.

From partnership agreements and operating agreements to construction deals and a variety of other contracts, a seemingly innocuous arbitration clause can be but a brief paragraph nestled neatly in the final pages of the contract, but nonetheless has great importance.  Before entering into a contract, seek the counsel of a contract attorney to ensure you understand the implications of every section of the agreement.

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New Facebook Message: You’ve Been Sued!

Does service of a civil lawsuit count if the defendant is personally handed the legal papers? Absolutely, as long as the person serving the papers is permitted to do so (different courts have different rules).

Does service count if the legal papers are handed to the defendant’s 27 year-old brother who lives with the defendant? Maybe.

But what about legal papers served on the defendant through the defendant’s personal Facebook account?

The answer is some countries is yes, a defendant can be served through a personal Facebook page.

Until quite recently, courts in the United States have refused to allow service through Facebook, citing concerns that doing so would deny defendants due process and actual notice of the lawsuit, which is required by the Constitution and related federal and state laws.

But in March 2013, a court in the Southern District of New York addressed the Federal Trade Commission’s request to serve non-U.S. defendants through email and Facebook after struggling to serve the foreign defendants personally. The judge ultimately granted the request, noting that while service through email alone satisfied the due process and notice requirements, service only through Facebook may not.

The U.S. is not the first country to tiptoe into the land of service via social media. In 2008, Australia allowed service on defendant debtors through Facebook when the attorneys were able to match the defendants’ birth dates, friends, and email addresses on the Facebook pages to their loan applications.

A year later a Canadian court allowed service on the defendant through the HR department of the defendant’s former employer and through the defendant’s private Facebook page. A New Zealand court also approved this method. The United Kingdom’s High Court has allowed service of an injunction on an anonymous blogger through a Twitter account, and Australia has allowed service through text message. All of these countries have similar due process and notice requirements as the United States.

Service of process can be tricky.  It can vary not only from country to country, but from state to state, county to county, and even court to court.  However, just because some courts have shown a willingness to move the law in new directions with the proliferation of social media, this does not mean that they have yet come to anything like a clear consensus.  Since service of process is one of the initial steps in asserting your rights in court, be sure you get it right.  Talk to a litigation attorney at Briskin, Cross and Sanford if you are in any doubt.

Pinterest wins $7.2M in legal battle with cybersquatter

Chinese cybersquatter Qian Jin, in one of the most brazen cybersquatting cases to come to court in months if not years, has been ordered by the US District Court for the Northern District of California to pay Pinterest $7.2 million in damages and legal fees and turn over to Pinterest the domains (e.g. pintesrest.com, pinterests.com, etc.) he had set up to divert inadvertent searchers to his own slew of money-making websites.  Hat tip to Dara Kerr of CNET: Pinterest wins $7.2M in legal battle with cybersquatter | Internet & Media – CNET News.

Alleging Cyberpiracy, Trademark Infringement, Dilution, and a series of California state law claims, the complaint charges that Pinterest was not Jin’s only target: the serial cybersquatter registered “domains that appear to infringe upon the marks of popular companies, especially online companies, across the globe, including Google, Facebook, Twitter, Etsy, Eventbrite, Foursquare, Hotmail, Hulu, Lotus, Spotify, Blekko, Dwolla, Volunia, Skillshare, Jumio, Scribd, Zazzle, and Zynga.” (read the full complaint here).

Not only did Qian Jin register domains that were clearly intended to cause confusion with and dilute a wide variety of famous brands, he even tried to register Twitter, Foursquare, Instagram, Quora, and Pinterest  as trademarks in China… did he think that this would stop other Chinese cyberpirates from moving in on his territory?

Action in the case was suspended for some time while Pinterest achieved service on Jin in China, which it eventually managed to do in January, 2013. Qian Jin (perhaps not surprisingly) failed to file an answer in the case, and the Court finally awarded a default judgment to Pinterest, pulling the plug on Jin’s operation for good.

While the Court’s order may help Pinterest gain control of the infringing domains, Pinterest’s chances of collecting a single Yuan of the $7.2 million judgment from Qian Jin are probably as remote as, well, China.  For our purposes, however, the judgment is not just a shot across the bows of would-be domain squatters, cyberpirates, and trademark infringers across the globe but a salutary warning to small-time hucksters and wannabe cyberpirates trying to shake down local businesses in exactly the same way.

Natasha vs. Nikita: Elton John finally vindicated in case of copyright claim brought by unlucky lover and lonely lyricist

Back in 1982, Guy Hobbs, a photographer working on a Russian cruise ship, enjoyed a brief, shipboard courtship with a Russian waitress.  Alas, it was not to be for Hobbs, and, as artists often do, Hobbs wrote a song about the sad romance.  He named it “Natasha,” registered the copyright in the U.K., and sent it to several music publishers, hoping, no doubt, to turn the experience to some profit, at least.

Unlucky in love, unlucky in life, Hobbs could apparently find no takers for his wistful song.  However, the publishing company Big Pig Music, Ltd., one of the companies that had earlier declined Hobbs’ song, several years later registered a copyright for the Elton John and Bernie Taupin song “Nikita,” which went on to become a huge hit for Elton John in 1985 (See Elton John singing Nikita here).  Hobbs claims he first saw the written lyrics of “Nikita” in 2001.  He contacted John and Taupin to demand payment for what he alleged was copyright infringement; but again, not surprisingly, he was rebuffed.

Hobbs sued Sir Elton Hercules John, et. al in District Court, lost, and, apparently undaunted, appealed to the Seventh Circuit.  Interestingly, even though the action was brought 27 years after the alleged infringement, John did not raise the three-year statute of limitations for copyright infringement as part of his defense.  Perhaps it was a matter of artistic pride for John to show outright that “Nikita” did not infringe on Hobbs’ “Natasha” rather than to win on what some might think of as a legal technicality.

The United States Court of Appeals for the Seventh Circuit, in its July 17, 2013 opinion (you can read the full opinion here), looked at the lyrics in detail.  Hobbs had argued that the two songs shared a unique combination of the following elements:

  1. A theme of impossible love between a Western man and a Communist woman during the Cold War;
  2. References to events that never happened;
  3. Descriptions of the beloved’s light eyes;
  4. References to written correspondence to the beloved;
  5. Repetition of the beloved’s name, the word “never,” the phrase “I need you,” and some form of the phrase “you will never know;” and
  6. A title which is a one-word, phonetically-similar title consisting of a three-syllable female Russian name, both beginning with the letter “N” and ending with the letter “A.”

The Court, however, pointed out that the Copyright Act does not protect general ideas but only the particular expression of an idea; and even at the level of the particular expression, the Copyright Act does not protect “incidents, characters or settings which are as a practical matter indispensable, or at least standard, in the treatment of a given topic.”  In other words, while a writer can certainly copyright a specific expression of a particular story, nobody can be allowed a monopoly on all stories about impossible romances, where the lovers are separated by the Cold War, and the Russian woman has pale eyes and a name beginning with “N” and ending with “A.”

In fact, the court found that the two stories in this case were substantially different in many other ways, one telling the story of two lovers forced to part ways, the other a story of a man who briefly sees and desires a woman he can never meet as they are separated by “guns and gates.”  And because the two stories were substantially different, Hobbs’ copyright infringement claim failed as a matter of law.

“Oh, Nikita you will never know….”