FILED: NEW YORK COUNTY CLERK 12/23/2013

NYSCEF DOC. NO. 5

INDEX NO. 161383/2013 RECEIVED NYSCEF: 12/23/2013

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK MIRAMAX, LLC; HARVEY WEINSTEIN; and ROBERT WEINSTEIN; Plaintiffs, v. NEW LINE CINEMA CORPORATION; and WARNER BROS. ENTERTAINMENT INC. Defendants. STATE OF NEW YORK COUNTY OF WESTCHESTER ) ss.: ) Affirmation of Motty Shulman in Support of Miramaxs CPLR 7503(b) Motion to Stay Arbitration Index No. 161383/2013

MOTTY SHULMAN, an attorney admitted to practice in the Courts of the State of New York, affirms, pursuant to CPLR 2106, under the penalty of perjury as follows. 1. This action for declaratory, contractual and equitable relief was commenced on

December 10, 2013, because Defendants have repudiated and refused to acknowledge their obligation to pay Plaintiffs their rightful contingent compensation for the second and third installments of The Hobbit motion picture as required by an August 21, 1998 written agreement between Miramax, LLC (Miramax) and New Line Cinema Corporation (New Line) (the Sharing Agreement). 2. The limited question raised by this action is whether the second and third

installments of the three-part motion picture telling the story of J.R.R. Tolkiens The Hobbit are included within the contingent compensation obligations of the Sharing Agreement or, as Defendants maintain, are effectively remakes, which are excluded from the Sharing Agreements contingent compensation obligation.

3.

This affirmation is submitted in support of Miramaxs CPLR 7503(b) motion to

stay a JAMS arbitration initiated by New Line on December 3, 2013 (the Arbitration). The Arbitration should be stayed because: (i) the parties never agreed to arbitrate the dispute that is the subject of this action; (ii) the parties specifically agreed that this Court and not an arbitrator would have jurisdiction over the subject matter of this action; and (iii) it is well settled New York law that the question of whether a valid agreement to arbitrate exists is for the Court, not an arbitrator, to decide. BACKGROUND A. The Sharing Agreement 4. Pursuant to the Sharing Agreement, Miramax agreed to sell New Line the motion

picture and television rights to J.R.R. Tolkiens literary works The Hobbit and The Lord of the Rings trilogy. In exchange for these rights, New Line agreed to pay Miramax (and its assignees): (i) a Purchase Price of approximately $11.7 million to reimburse Miramax for its direct costs and overhead relating to its investment in The Hobbit (the Purchase Price); and (ii) 5% of the gross receipts of the theatrical and television exploitation of The Hobbit and The Lord of the Rings (the Contingent Compensation). 5. The Purchase Price to be paid by New Line is set forth in Section 4(b) of the

Sharing Agreement and allowed New Line to audit Miramaxs direct costs and to seek reimbursement from Miramax if, within 60 days, it determined that Miramaxs costs were not expended in connection with the Picture (as defined in the Sharing Agreement). 6. Miramaxs Contingent Compensation rights are set forth in two different sections

of the Sharing Agreement. First, Section 4(c)(1) identifies the motion pictures, referenced in the Sharing Agreement as Original Pictures, for which Miramax will receive Contingent

Compensation. Thereafter, Sections 4(c)(2) and 4(c)(4) set forth how Miramaxs Contingent Compensation for the Original Pictures will be defined, calculated, accounted for and paid for. 7. Specifically, Section 4(c)(1) provides that New Line must pay Contingent

Compensation for any Original Pictures, which are identified as the first motion picture, if any, based in whole or in part upon The Hobbit and The Lord of the Rings but excluding remakes. 8. Section 4(c)(1) does not explain what it means to be a motion picture based on

The Lord of the Rings, but does explain with respect to The Hobbit as follows: A motion picture shall be deemed to be a picture based on The Hobbit: Or There and Back Again if either (a) the main story line of the book is substantially the main story line of the picture, or (b) the events or incidents in the picture are primarily the events or incidents from the book and picture has both the characters Smaug The Dragon and Thorin The Dwarf (or other characters which would satisfy their story functions) or Bilbo Baggins as the lead character, or (c) the title or subtitle of the picture is the Hobbit or Hobbit is any part of the title or subtitle of the picture. 9. Having explained which motion pictures are considered Original Pictures and thus

subject to Contingent Compensation payments, the Sharing Agreement then explains how Miramaxs Contingent Compensation for the Original Pictures will be defined, calculated, accounted for and paid for depending on whether the motion picture is theatrically released. Section 4(c)(2) provides that [a]s to each of the Original Pictures which is produced for intended theatrical release, Miramaxs participation shall be defined, calculated, accounted for and paid for in accordance with the provisions of Exhibit C (emphasis added). Section 4(c)(4) then provides that [w]ith respect to each Original Picture which is not produced for initial theatrical release, Miramaxs participation shall be defined, calculated, accounted for

and paid in accordance with the provisions of Exhibit C-1 and shall be 5% of TV-AGR (emphasis added).1 10. The referenced Exhibits C and C-1 (the Exhibits) set forth in detail the

definition for, among other things, the terms gross receipts and adjusted gross receipts and provide the computational formulas, audit rights, earning statement requirements and calculations for how the Contingent Compensation will be paid. B. The Forum Selection and Arbitration Provisions 11. The Sharing Agreement (also known as a Quitclaim Agreement) contains a clear

forum selection clause to deal with any claims between the parties arising under the agreement or any disputes on how to interpret the agreement. Specifically, Section 10 of the agreement provides that the parties agree that the Federal and State and City courts located in New York County, State of New York, shall have sole and exclusive jurisdiction of any claims arising hereunder and of any action to enforce or interpret this Quitclaim Agreement (emphasis added). 12. This broad forum selection clause contains a limited carve-out for disputes

regarding mathematical calculations of specific monies owed under the Sharing Agreement to be determined in a confidential arbitration proceeding. This arbitration carve-out is specifically limited to disputes regarding either: (i) the calculation and accounting for the Purchase Price; or (ii) the definition, computation, accounting for or payment of the Contingent Compensation. Sharing Agreement 4(c)(7) (emphasis added). 13. The limited nature of these two arbitration carve-outs is reflected in the language

of the arbitration provision itself which provides that:

Section 4(c)(3) of the Sharing Agreement also provides that Miramaxs participation shall be no less favorable than what is afforded to film director Peter Jackson, with certain specific details more fully set forth within Exhibit C. 4

All disputes arising with respect to the calculation and accounting for the Purchase Price and with respect to the definition, computation, accounting for or payment of the contingent consideration provided for in this paragraph 4.c (but no others) shall be submitted exclusively to confidential and binding arbitration in the County and State of New York. (emphasis added). 14. Thus, the arbitration carve-out is limited to disputes relating to the definition,

computation, accounting for or payment of the Contingent Compensation not to disputes regarding whether a particular installment of a motion picture is covered by the term Original Pictures or whether a particular motion picture is deemed to be a picture based on The Hobbit. Additionally, the arbitration provisions inclusion of the words but no others specifically excludes all disputes not relating to either the Purchase Price or the definition, computation, accounting for or payment of the Contingent Compensation from the arbitration provision. Such disputes, and any action to enforce or interpret this Quitclaim Agreement, are to be brought in this Court as provided for in the forum selection clause in Section 10 of the Sharing Agreement. C. The Nature of This Action 15. Under the Sharing Agreement, Plaintiffs are entitled to receive, and have

received, Contingent Compensation from the three films based on the three books in The Lord of the Rings trilogy, which films were distributed by Warner from 2001 through 2003. Each film in the trilogy was based on the corresponding book in the series. 16. Plaintiffs are also entitled to Contingent Compensation with respect to The

Hobbit. However, unlike its previous practice with respect to The Lord of the Rings, Warner decided to divide the single Hobbit story into three installments, planning to release these installments over three consecutive years.

17.

As noted by the director of The Hobbit, Peter Jackson, [w]e wrote these all at the

same time and we shot them all at the same time. All three installments have the same title The Hobbit with only the subtitle for each installment being different. Collectively, the three installments comprise a work based on The Hobbit in which Plaintiffs are to share under the Sharing Agreement. 18. The three installments of The Hobbit within the meaning of Original Pictures

because each installment satisfies the three alternative tests provided in Section 4(c)(1) of the Sharing Agreement. Each installment is based on the main story line of the book and the event in the motion picture are based on events from the book and contain the characters Smaug The Dragon, Thorin The Dwarf and Bilbo Baggins. 19. Additionally, the title or subtitle of the picture is the Hobbit or Hobbit is any

part of the title or subtitle of the picture. Sharing Agreement 4(c)(1). Warner released the first installment titled The Hobbit: An Unexpected Journey in December 2012 and the second such installment, The Hobbit: The Desolation of Smaug on December 13, 2013. The third installment, which carries the actual name of J.R.R. Tolkiens The Hobbit: Or There and Back Again is scheduled to be released in December 2014. 20. Having elected to split The Hobbit into three installments, Warner claims that

Plaintiffs may share only in revenue from the first installment of the film (released in 2012 as The Hobbit: An Unexpected Journey) and refuses to pay Plaintiffs any compensation derived from the second or third installments of The Hobbit. Warner has thus effectively taken the position that the second and third installments of the film are remakes, and that Plaintiffs are therefore not entitled to Contingent Compensation.

21.

Warners current position that Plaintiffs are not entitled to share in the revenues

from the second and third installments of The Hobbit is also inconsistent with Warners projections, budgeting and negotiations with regard to The Hobbit, which expressly recognized Plaintiffs contractual right to Contingent Compensation from all installments of The Hobbit. 22. Plaintiffs lawsuit is specifically limited to the question of whether Plaintiffs are

entitled to Contingent Compensation for the second and third installments of The Hobbit and does not include any claim for monies owed or disputes relating to the definition, computation, accounting for or payment of Contingent Compensation in connection with The Lord of the Rings motion picture or the first installment of The Hobbit. D. The Arbitration 23. On December 3, 2013, New Line served Miramax with a Statement Claim and

Demand for Arbitration Before JAMS (the Arbitration Demand). A copy of the Arbitration Demand is attached hereto as Exhibit 1. 24. New Lines Arbitration Demand does not relate to any dispute between the parties

regarding the definition, computation, accounting for or payment of Contingent Compensation owed to Miramax. Rather, as stated in New Lines Arbitration Demand, New Line seeks a declaration that: (i) Contingent Compensation is payable under the Agreement only with respect to Original Pictures as defined in paragraph 4.c of the Agreement; and (ii) the second and third installment of The Hobbit does not constitute an Original Picture. Arbitration Demand at p. 7. 25. On December 6, 2003, Miramaxs California counsel received a notice of

Commencement of Arbitration from JAMS. A copy of the Commencement of Arbitration is attached hereto as Exhibit 2.

26.

On December 10, 2013, the instant action was filed. A copy of the Complaint

filed in this Action is attached hereto as Exhibit 3. 27. Shortly after filing the instant action, I informed both JAMS and New Lines

counsel about the filing of this lawsuit and that Miramax disputes the jurisdiction of JAMS to arbitrate this matter as well as the arbitrability of New Line Cinema, LLCs claim, insofar as the claim is not covered by the arbitration provision contained in the parties agreement. A copy of the December 10, 2013 letter to JAMS is attached as Exhibit 4. 28. New Line was served with the Summons and Complaint in this action on

December 11, 2013. 29. Miramax has not participated in the Arbitration and, to my knowledge, has not

made or been served with an application to compel arbitration. ARGUMENT A. Arbitration Provisions Must Clearly and Unequivocally Cover the Dispute at Issue 30. An arbitration agreement will only be enforceable if it clearly and unequivocally

covers the dispute at issue. TMP Worldwide Inc. v. Franzino, 269 A.D.2d 332, 332 (1st Dept 2000) (It is well settled that a party will not be compelled to arbitrate and, thereby, to surrender the right to resort to the courts, absent a clear, explicit and unequivocal agreement to arbitrate.). The level of clarity required for an agreement to arbitrate is greater than with respect to other contractual terms and must not depend upon implication or subtlety. Howard v. Greenbriar Equity Group, LLC, 872 N.Y.S.2d 691 (N.Y. Sup. Ct. 2008). 31. Parties to a contract are free to draft arbitration clauses as broadly or as narrowly

as they choose and the fact that a party signifies a willingness to arbitrate on certain limited issues does not bind it to arbitrate all other disputes. Id. (An agreement to arbitrate some issues

between the parties will not be construed as an agreement to arbitrate all issues between the parties.). In fact, if the parties have only elected to resolve certain specific disputes by arbitration, rather than all disputes, then the arbitration clause must be read conservatively if it is subject to more than one interpretation. Trump v. Refco Properties, Inc., 194 A.D.2d 70, 74 (1st Dept. 1993) (reversing lower courts denial of motion to stay arbitration), lv denied, 83 N.Y.2d 754 (1994). 32. When a dispute arises as to the scope of an arbitration clause, the burden is on the

party seeking arbitration to show that a clear and unequivocal agreement to arbitrate exists. See Gerling Global Reinsurance Corp. v. Home Ins. Co., 302 A.D.2d 118, 123 (1st Dept. 2002) (holding that the party seeking arbitration had failed to demonstrate that the dispute was within the scope of the arbitration clause), lv denied 99 N.Y.2d 511 (2003). To the extent there is any ambiguity whether a particular dispute is covered by an arbitration provision, it is not subject to arbitration. See Prote Contracting Co., Ltd. v. Bd of Educ. of City of New York, 135 A.D.2d 523, 524-25 (2d Dept 1987) (holding that the parties arbitration clause was ambiguous and, thus, unenforceable because another provision of the relevant contract arguably reserved the dispute for the courts); Robert Stigwood Organization, Ltd. v. Atlantic Recording Corp., 83 A.D.2d 123, 126 (1st Dept 1981) (holding that, where the arbitration clause at issue arguably could be read as applying only to accounting procedures, methods of computation and payments, the parties would not be compelled to arbitrate a dispute regarding whether a recording company maintained continuing rights to royalties from the exploitation of a musical composition).

B.

This Action is Not Covered by the Limited Arbitration Carve-Out 33. This action is covered by the Sharing Agreements forum selection clause and is

specifically excluded from the limited arbitration provision relied upon by New Line. 34. The forum selection clause broadly covers any claims arising under the Sharing

Agreement and any action to enforce or interpret the Sharing Agreement. Sharing Agreement at 10. By contrast, the arbitration carve-out that New Line relies upon is specifically limited to disputes regarding either: (i) the calculation and accounting for the Purchase Price; or (ii) the definition, computation, accounting for or payment of the Contingent Compensation. Sharing Agreement at 4(c)(7) (emphasis added). This action does not relate to either of these disputes. 35. The only issue presented in this action and in the Arbitration Demand is whether

the second and third installments of The Hobbit are Original Pictures. This is distinct from and unrelated to any dispute between the parties regarding the definition, computation, accounting for or payment of the Contingent Compensation owed to Plaintiffs on the first installment of The Hobbit or The Lord of the Rings films. 36. This distinction is made clear by the fact that the arbitration carve-out uses the

very same words the definition, computation, accounting for or payment of as used in Sections 4(c)(2) and 4(c)(4) of the Sharing Agreement. Thus any disputes relating to the computation of the Contingent Compensation as provided in Sections 4(c)(2) and 4(c)(4) are covered by the arbitration carve-out but disputes relating to what is an Original Picture under Section 4(c)(1) and not covered by the arbitration carve out. Indeed, the arbitration carve-outs use of the words but no other specifically excludes such disputes. 37. The forum selection clause and the arbitration clause complement each other.

Whereas all legal disputes to enforce or interpret the language of the Sharing Agreement

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itself are properly submitted to New York courts, substantive disputes regarding calculation of the Purchase Price and Contingent Compensation are properly submitted to arbitration. Although the arbitration clause mentions that it will apply to disputes over the definition, computation, accounting for or payment of the contingent consideration, this does not require the arbitrator to interpret the Sharing Agreement; rather it requires the arbitrator to apply the provisions (including the defined terms) from the Exhibits. 38. Even if there were an arguable conflict between the forum selection clause and

the arbitration clause, such a conflict would only indicate that there is no clear and unequivocal agreement to arbitrate. On this point, the Stigwood case is illustrative. Id. The Stigwood case related to a partys right to share in the royalties to the Bee Gees commercially successful song Jive Talkin. Id. at 124. The song was featured prominently in the soundtrack to the film Saturday Night Fever, and Stigwood initially shared the royalties from the soundtrack with Atlantic Recording Corporation. Id. After this commercial success, Stigwood then re-released the soundtrack, this time replacing the studio version of the Bee Gees song with a live version and claiming that no further royalties were owed to Atlantic. Id. Stigwood further invoked the parties arbitration clause, which required arbitration over paragraph 18 and any other provisions of this agreement relating to accounting procedures, methods of computation and payments. This provision was actually broader than Section 4(c)(7) of the Sharing Agreement, because paragraph 18 of the Stigwood agreement broadly covered the parties continuing rights to royalties. Id. at 125. Nonetheless, the court rejected this argument due to the qualifying language in the arbitration clause, limiting it to disputes regarding computation of payments owed under the agreement. Id. at 126 (It is manifest that the controversy between the parties only incidentally relates to accounting procedures, methods of computation and

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payments. In essence the dispute is rather over whether Atlantic has continuing rights to royalties realized from Stigwood's exploitation of the album containing the substituted rendition of The Bee Gees' composition.). Moreover, the court found that the limiting language prevented it from broadly interpreting the reference to paragraph 18. Id. Therefore, the court held that the broadly worded arbitration clause was not sufficient to clearly and unequivocally establish a right to arbitrate. Id. Similarly here, if the arbitration clause in Section 4(c)(7) were read broadly so as to draw a conflict with the forum selection clause, this would still not suffice to clearly and unequivocally establish a right to arbitrate, in light of the limiting language. C. The Arbitability of this Dispute is for This Court Not the Arbitrator to Decide 39. Under New York law, [t]he threshold issue of whether a valid agreement to

arbitrate exists is for the court and not an arbitrator to decide. O'Donnell v. Arrow Electronics, Inc., 294 A.D.2d 581, 581-82 (2d Dept 2002). Courts will not leave the issue of arbitrability itself to an arbitrator to decide, unless there is a clear and unmistakable agreement to do so. In re Sherwood, 108 A.D.3d 979, 970 N.Y.S.2d 124, 125 (3d Dept 2013) (reject[ing] respondents' contention that an arbitrator, rather than a court, should decide whether the parties' dispute is arbitrable because the parties did not have a clear and unmistakable agreement to arbitrate arbitrability). In the present action, there is no such clear and unmistakable agreement. The issue of arbitrability is never mentioned in the agreement, which only sets forth two very narrow instances where arbitration is to occur. By its express terms, no other[] issues are to be submitted to arbitration. Sharing Agreement at 4(c)(7). 40. Moreover, New Line agreed in the Sharing Agreement for all disputes relating to

the interpretation of the Sharing or Quitclaim Agreement to be decided by this Court. Sharing Agreement at 10 ([T]he Federal and State and City courts located in New York County, State

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of New York, shall have sole and exclusive jurisdiction of any claims arising hereunder and of any action to enforce or interpret this Quitclaim Agreement). 41. No previous application has been made for the relief requested herein. Dated: December 23, 2013 Armonk, NY

By:

/s/ Motty Shulman Motty Shulman 333 Main Street Armonk, NY 10504 P: 914-749-8200 F: 914-749-8300 mshulman@bsfllp.com Counsel for Plaintiff Miramax, LLC

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