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A federal court in California held that a party does not waive its arbitration rights when it brings claims that do not arise out of the contract containing the arbitration agreement in court, and the opposing party's counterclaims may be compelled to arbitration if the counterclaims arise out of the contract containing the arbitration agreement.
In Nova Wines, Inc. v. Adler Fels Winery, Inc., No. C 06-6149 MHP, 2007 WL 216777 (N.D. Cal. Jan. 25, 2007), Nova had entered into a license agreement with Tom Kelly Studios (TKS), whereby TKS granted Nova an exclusive license for the use of a Marilyn Monroe photograph. This agreement contained a broad arbitration clause.
When the relationship between the parties soured, Nova commenced arbitration proceedings, asserting fraud and concealment claims. TKS counterclaimed with breach of contract and copyright infringement claims.
Then, Nova brought an action in court against Adler and TKS, alleging trademark infringement, false designation, unfair competition, trademark dilution and intentional interference with economic advantage, relating to the alleged use of the photograph. TKS brought counterclaims against Nova, alleging copyright infringement, trademark infringement, unfair competition, and various other claims.
When Nova asked the court to compel arbitration of TKS's counterclaims, TKS argued that Nova waived its right to arbitration by bringing the court action. However, the Court disagreed, and compelled arbitration of TKS's counterclaims.
The Court noted that Nova could not have brought its claims against Adler in arbitration because there was no arbitration agreement between Nova and Adler. Additionally, the rights that Nova was asserting in the court action were not rights arising under the License Agreement with TKS, and therefore not subject to the arbitration agreement. Finally, Nova's actions in initiating the arbitration proceeding against TKS indicated that Nova did not intend to waive its arbitration rights.
On the other hand, the counterclaims brought by TKS had originally been asserted in arbitration and were clearly arising out of the parties' rights under the License Agreement.
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