Matthau v. Superior Court

Opinion

SUMMARY

A talent agency represented an actor for 40 years, receiving a commission of 10 percent of all compensation received by the actor under motion picture employment contracts negotiated or procured by the agency. After the actor’s death, his son, who succeeded to the actor’s rights under his motion picture

FACTUAL AND PROCEDURAL BACKGROUND

Real party in interest William Morris Agency, LLC, is a talent agency which represented actor Walter Matthau from 1960 until his death in 2000. During the early years, their relationship was governed by written contracts, the last of which expired in 1970. Thereafter, the agency relationship continued as before, albeit without a written contract, with William Morris receiving commissions equal to 10 percent of the gross compensation received by Matthau under contracts of employment entered into during the agency relationship.

Matthau was a member of the Screen Actors Guild (SAG), and William Morris was and is a member of the Association of Talent Agents (ATA) and its predecessors. The relationship between Matthau and William Morris was governed by a collective bargaining agreement between SAG and ATA. The codification of the collective bargaining agreement is known as SAG’s “Rule 16(g)” or “Agency Regulations.”

Rule 16(g) includes the basic contract between SAG and ATA, and governs all aspects of the relationship between an actor and the actor’s agent, including the form and content of any written contract between actor and agent covering representation in theatrical and television motion pictures. Deviations require the written approval of SAG. The regulations are extensive, and include provisions on compensation to the agent (a percentage of “all moneys or other consideration received by the Actor, directly or indirectly, under contracts of employment. .. entered into during the term” of the agency contract, with a cap of 10 percent), and many other matters. Rule 16(g), for example, requires all contracts to be in writing, and provides that

Rule 16(g) also contains an arbitration clause, providing in pertinent part as follows: “All disputes and controversies of every kind and nature whatsoever between an agent and his client arising but of or in connection with or under any agency contract between the agent and his client ... as to the existence of such contract, its execution, validity, the right of either party to avoid the same on any grounds, its construction, performance, non-performance, operation, breach, continuance, or termination, shall be submitted to arbitration regardless of whether either party has terminated or purported to terminate the same.”

Although Matthau and William Morris had no written agency contract after 1970, Matthau routinely paid William Morris 10 percent of his earnings under employment contracts procured and negotiated by William Morris for the next 30 years. Matthau also received compensation through certain “loan out” companies through which he rendered his acting services, and these companies likewise paid William Morris commissions on monies they received for Matthau’s acting services. After Walter Matthau’s death in 2000, his surviving spouse, Carol Matthau, continued to pay William Morris its 10 percent commission on profit participation payments and residual interests received by Matthau’s heirs or loan out companies in connection with Matthau’s employment contracts. The loan out companies were combined after Matthau’s death to form one company, called The Matthau Company (TMC), whose president was the Matthaus’ son, Charles Matthau.

In July 2003, Carol Matthau died, and Charles Matthau (Charles) succeeded to her rights in the profit participation payments under Walter Matthau’s employment contracts. Charles continued to send William Morris commissions on compensation received under Matthau’s employment contracts until January 2004. Thereafter, Charles stopped paying the commissions to William Morris.

In December 2005, William Morris submitted a statement of claim and demand for arbitration to SAG’s arbitration tribunal, naming as respondents Charles Matthau, executor of Walter Matthau’s estate, and one of the loan out companies. Charles took the position no valid contract existed under which William Morris could make a claim and declined the arbitration demand.

One court has stated the principle informing nonsignatory arbitration cases as follows: “The common thread ... is the existence of an agency or similar, relationship between the nonsignatory and one of the parties to the arbitration agreement. In the absence of such a relationship, courts have refused to hold nonsignatories to arbitration agreements.” (NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64 , 76 [ 100 Cal.Rptr.2d 683 ] (Norcal); see also County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237 , 243 [ 54 Cal.Rptr.2d 628 ] (Contra Costa) [“[a]ll nonsignatory arbitration cases are grounded in the authority of the signatory to contract for medical services on behalf of the nonsignatory—to bind the nonsignatory in some manner”],) Contra Costa found two categories of cases binding nonsignatories to arbitrate their claims: those where a benefit

None of the circumstances summarized in Norcal or Contra Costa exists in this case, as to either TMC or Charles. Neither Charles nor TMC was a third party beneficiary of any agreement between Walter Matthau and William Morris. Nor was there any agency or similar relationship between Charles "or TMC, on the one hand, and Walter Matthau, on the other, giving Matthau the implied authority to bind Charles and TMC to Matthau’s agreement: Absent some form of implied authority, there is simply no basis upon which to bind Charles and TMC to Matthau’s agreement to arbitrate disputes with William Morris. We address William Morris’s contentions as to TMC and Charles in turn.

B. No legitimate basis is proffered for subjecting TMC to Walter Matthau’s arbitration agreement.

William Morris presents several arguments in its attempt to avoid the conclusion that no agreement to arbitrate exists between TMC and William Morris. None has merit.

1. The loan out argument.

TMC may be compelled to arbitrate this dispute with William Morris only if it is a party to the arbitration agreement or if an alternative basis exists to bind it to an agreement it did not sign. William Morris asserts that because Walter Matthau would be obligated under Rule 16(g) to arbitrate this dispute with William Morris if he were alive today, TMC is likewise obligated to arbitrate “[a]s Walter Matthau’s loanout during his lifetime . . . .” William Morris states, without citation to legal or contractual authority, that “[b]e-cause TMC and its predecessors were directly involved in loaning out Walter

It is undisputed that Walter Matthau periodically utilized loan out companies, so that some payments for his services were made to the companies. However, nothing in Rule 16(g) itself imposes any obligations on loan out companies. Indeed, the only reference cited by William Morris in Rule 16(g) to loan out companies is the definition of the term. A loan out company is defined as “a corporate or other entity which has the right to the actor’s personal services in the motion picture industry and actor’s services' are performed through loanouts to employers.” The definition further states that “agency services” include “the representation of the actor for engagements through a loan out company, if one exists or is created during the period of actor representation by the agent.” On its face, this provision imposes no obligations upon or to loan out companies.

William Morris maintains, again without citation to any authority, that Rule 16(g) governs an agency’s services “in representing an actor’s loanout company.” But Rule 16(g) does not state or suggest that the agency “representes] an actor’s loanout company.” It expressly states the agency represents the actor, and does so “for engagements through a loan out company,” if one exists. When loan out companies are used by actors, the loan out company, rather than the actor, receives the compensation due from the studio or other employer for the actor’s services. Rule 16(g)’s definition merely insures that the agency’s services—and compensation for those services—include representing the actor for engagements the actor decides to structure through a loan out company. But it is clearly the actor, not any loan out company he may use, who is a member of SAG, is represented by the agency, and is obligated to pay commissions on compensation “received by the Actor, directly or indirectly

Of course, it is theoretically possible that Walter Matthau structured his loan out companies so that they were obligated to pay commissions directly to William Morris, or that Waiter Matthau otherwise created an agency or other similar relationship with his loan out companies under which they could be bound by his agreements with William Morris. However, no evidence in the record establishes any such relationship or connection. In short, there is a complete lack of proof of any basis for binding TMC to Walter Matthau’s agreement to arbitrate disputes with William Morris: no evidence of an agency relationship between Matthau and TMC, and no evidence of any other form of implied authority on Matthau’s part to bind TMC to his agreement to arbitrate. (Norcal, supra, 84 Cal.App.4th at p. 76.)

2. The third party beneficiary argument.

William Morris also asserts TMC is a third party beneficiary of the agency agreements between Walter. Matthau and William Morris, and is therefore bound by their agreement to arbitrate disputes. Again, no legal, or contractual support exists for this proposition. Third party beneficiary theory has no application to the circumstances of this case. A third party beneficiary is someone who may enforce a contract because the contract is made expressly for his benefit. (See Civ. Code, § 1559 [“[a] contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it”].) The mere fact that a contract results in benefits to a third party does not render that party a “third party beneficiary.” (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516 , 524 [ 117 Cal.Rptr.2d 220 , 41 P.3d 46 ] [a third party’s rights under a contract are predicated upon the contracting parties’ intent to benefit the third party; “ ‘[t]he circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement.’ . . .” (citation omitted)].) TMC is obviously not a third party beneficiary that could have enforced Walter Matthau’s agreement with William Morris. Conversely, there is no basis for enforcing Walter Matthau’s agreement to arbitrate with William Morris against TMC.

C. William Morris proffers no legitimate basis for subjecting Charles (or TMC) to Walter Matthau’s arbitration agreement.

William Morris offers several other reasons for subjecting both Charles and TMC to an arbitration agreement to which they are not parties.

1. The “successor-in-interest” and Civil Code section 1589 arguments.

William Morris contends that Charles and TMC are bound to the arbitration agreement in Rule 16(g) because they are the “successors-in-interest” to Walter Matthau’s agency contracts with William Morris and the resulting

In a related argument, William Morris contends that, because Charles and TMC have “accepted the benefits” of William Morris’s work for Walter Matthau—in that they now receive any funds due Walter Matthau under employment contracts with third parties that William Morris negotiated for Matthau—Charles and TMC “are bound to arbitrate these disputes.” We do not agree. William Morris relies on Civil Code section 1589 (section 1589), which provides that “[a] voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations, arising from it, so far as the facts are known, or ought to be known, to the person accepting.” The maxim of section 1589, however, has no application to this case. It is a part of the Civil Code on contracts, and specifically of the chapter governing consent. Its principal application is to the parties to the original transaction, and to cases of assignment where the assignee’s assumption of liability may be implied from his acceptance of rights and privileges under the contract. (Recorded Picture Company [Productions] Ltd. v. Nelson Entertainment, Inc. (1997) 53 Cal.App.4th 350 , 362 & fn. 6 [ 61 Cal.Rptr.2d 742 ] (Recorded Picture Co.) [§ 1589 may apply to a party to the original contract, to an assignee of the contract, to a person who accepts all of the benefits of the contract, or to a person who expressly assumes the obligations of the contract]; see 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 740, pp. 824-827.)

Charles and TMC do not come within any reasonable application of section 1589. They were not parties to the contract between Walter Matthau and William Morris, in which the benefit Matthau received was William Morris’s agency services. Charles and TMC did not receive or accept agency services from William Morris. Similarly, Charles and TMC are not assignees of the

2. The 1967 agency contract argument.

Finally, William Morris argues Charles and TMC are bound by the arbitration agreement in the 1967 agency contract between Walter Matthau and William Morris that expired in 1970. It theorizes that a written agreement to arbitrate can be extended or renewed by an oral or implied contract (Code Civ. Proc., § 1280, subd. (f)), and that the question whether the 1967 contract was extended or renewed is an issue for the arbitrator. We do not disagree with either point. The question before this court, however, is not whether the 1967 agreement between Walter Matthau and William Morris was extended by an oral or implied agreement. It is whether Charles and TMC are bound by an arbitration agreement they did not sign. “Whether or not an arbitration agreement is operative against a person who has not signed it involves a question of ‘substantive arbitrability’ which is to be determined by the court. . . .” (Boys Club, supra, 6 Cal.App.4th at p. 1271, citation omitted.) As we have seen, the point has been determined adversely to William Morris.

CONCLUSION

In sum, neither TMC nor Charles signed any agreement with William Morris. No evidence has been presented of any agency or similar relationship between TMC and Walter Matthau under which Walter Matthau had the implied authority to bind TMC to his agreements to arbitrate disputes with William Morris. TMC was not a third party beneficiary of Walter Matthau’s agency agreements. Walter Matthau’s agreements did not even purport to bind his successors and assigns. Under these circumstances, neither TMC nor Charles can be compelled to arbitrate William Morris’s claim for commissions, and the trial court erred in ruling otherwise.

The writ petition is granted. Let a peremptory writ of mandate issue directing the trial court to vacate its order of August 31, 2006, granting the petition of William Morris Agency to compel arbitration and to enter a new and different order denying the petition. Costs are awarded to petitioners.

Cooper, P. J., and Flier, J., concurred.

A petition for a rehearing was denied June 26, 2007, and the petition of real party in interest for review by the Supreme Court was denied August 15, 2007, S154167.