July 30, 2003

Via Federal Express

Erin MacEneaney, Arbitration Specialist
JAMS
Two Embarcadero Center, Suite 1100
San Francisco, CA 94111

Re: Gooch v. Anderson, et al., Reference No. 1100039012

Dear Ms. MacEneaney:

Our firm represents Bruce Anderson of 11211 Portside Drive, Jacksonville, Florida. We are submitting this letter in response to your July 18, 2003 correspondence. Hal Gooch’s dispute with Bruce Anderson is not subject to arbitration before JAMS. The scope of JAMS authority to arbitrate disputes between Quixtar Independent Business Owners (IBOs) is limited to issues that concern the operation of Quixtar Independent Businesses (IBs) or the Quixtar Rules of Conduct. The present dispute concerns neither. Rather, the instant dispute between Bruce Anderson and Hal Gooch arose out of proceedings that have been pending in various Florida courts since 1996. As a result of litigation with Mahaleel Lee Luster and others in the Florida court system over many years, Hal Gooch has become responsible for paying a substantial money judgment. That judgment is now held by Bruce Anderson, who happens to be a Quixtar IBO. Hal Gooch’s present arbitration demand is simply an attempt to re-litigate what has already been conclusively decided against him by Florida courts.

Bruce Anderson has never entered into any agreement with Hal Gooch or Quixtar that would require him to arbitrate the present dispute before JAMS. Bruce Anderson, of course, is a Quixtar Independent Business Operator ("IBO") who has operated a Quixtar Independent Business ("IB") for many years with his wife, Wendy Anderson. As an IBO, Bruce Anderson readily acknowledges he is bound by the Quixtar Rules of Conduct and its dispute resolution provisions. Michigan law determines whether the Quixtar Rules of Conduct’s alternative dispute resolution provisions afford JAMS with jurisdiction over the present dispute. See Section 11.5.21. For your convenience, we have included the Quixtar Rules of Conduct herewith as Exhibit "A" in the accompanying Appendix.

While arbitration clauses under Michigan law are liberally construed, it is well-settled that arbitration is a matter of contract. Omega Constr. Co. v. Altman, 147 Mich. App. 649, 655, 382 N.W.2d 839, 841 (1986). A party cannot be required to arbitrate an issue which he has not agreed to submit to arbitration. Id.; see also City of Grand Rapids v. Grand Rapids Lodge No. 97, 415 Mich. 628, 635, 330 N.W.2d 52, 54 (1982) ("Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed to submit. The preference for arbitration in Michigan and federal labor law is triggered only if the parties agree to arbitrate. That preference does not operate to override the intent of the parties.") (citations omitted).

The only contractual undertaking to which both Gooch and Anderson are parties is the Quixtar Rules of Conduct. The Quixtar Rules of Conduct afford JAMS with jurisdiction over an arbitration only if a twoprong test is met. First, the dispute must involve Quixtar IBOs. Second, the dispute must pertain to the operation of an IB, an IBO Plan, or a Quixtar Rule of Conduct. Section 11.5 ("Arbitration") of the Quixtar Rules of Conduct provides in relevant part that:

IBOs shall give notice in writing of any claim or dispute arising out of or relating to the IB, or the IBO Plan or Rules of Conduct . . . . In the event that the parties are unable to resolve their disputes within 90 days . . . the parties are required to submit any remaining claim(s) arising out or relating to their IB, the IBO Plan, or the Rules of Conduct . . . to binding arbitration in accordance with the Arbitration Rules as stated below."

Those Arbitration Rules specify JAMS as the arbitration forum.

Hal Gooch and Bruce Anderson are both Quixtar IBOs. However, their present dispute is in no way one "arising out of or relating to the IB, the IBO Plan or Rules of Conduct." See Section 11.5. Gooch and Anderson have never done any business with each other in the Quixtar system. They belong to different Quixtar sponsorship lines. The mode of operation of neither’s IB is at issue. The IBO Plan is not, nor has it ever been, in any way involved in their present dispute. Sales of Quixtar products play no role. The dispute arose outside of the Quixtar system. The parties’ dispute is purely incidental to their status as Quixtar IBOs.  Gooch and Anderson are effectively strangers within the Quixtar system.

The present dispute also does not arise out of or relate to any Quixtar Rule of Conduct. The Quixtar Rules of Conduct only govern Bruce Anderson’s actions in connection with developing, managing, and owning his Quixtar IB. Section 1 of the Quixtar Rules of Conduct provide that they "define and establish; (1) certain principles to be followed in the development and maintenance of an Independent Business ("IB"); and (2) the rights, duties, and responsibilities of each Independent Business Owner ("IBO")." Only those business dealings pertaining to aspects of an IB are implicated. There has been no claim that Bruce Anderson operated his IB contrary to any provision of the Quixtar Rules of Conduct. No rule has been cited, nor could it be, that was allegedly violated by Bruce Anderson.

The only provision of the Quixtar Rules of Conduct that on its face is not otherwise limited to an IB is Section 4.9. Section 4.9 generally prohibits any IBO from engaging in any "Deceptive and Unlawful Trade Practices" as that term has been defined under Federal or state laws by Quixtar. Whatever wrongdoing Hal Gooch claims Bruce Anderson has undertaken could never be properly characterized as being a "deceptive or unfair trade practice," as those terms have been defined by applicable law. Federal and state laws pertaining to Deceptive and Unfair Trade Practices regulate the manner of operating a business and that business’ dealings with the consuming public. The instant case is a private dispute between Bruce Anderson and Hal Gooch. Neither the manner of operation of either of their Quixtar IB’s, nor the consuming public, are implicated in the instant dispute.

Bruce Anderson’s present dispute with Hal Gooch has its roots in litigation that was brought in Broward County Florida state court by Gooch against Mahaleel Lee Luster, commencing many years ago.  Subsequent to the initiation of that litigation, a copyright infringement lawsuit was filed in the United States District Court for the Middle District of Florida in 1996 ("the "Arista litigation"). Bruce Anderson, Hal Gooch, and dozens of others were sued for copyright infringement in the Arista litigation. That action was brought by nine record companies under the auspices of the Recording Industry Association of America.  They claimed dozens of Quixtar IBOs and others had violated Federal copyright laws by making, using, and  selling videotapes to promote their businesses that featured copyrighted music to which none had a license to use.

Before being named as defendants in the Arista litigation, Hal Gooch and Bruce Anderson barely knew each other. They belong to different Quixtar sponsorship lines and had had no prior dealings in connection with operating their respective IBs. All they had in common was that both were included as defendants with many others in the Arista litigation. As part of the Arista case, Gooch, Anderson, and a host of other Quixtar IBOs brought cross-claims for indemnification against another co-defendant, Mahaleel Lee Luster. Coincidentally, Luster had been previously engaged in the on-going litigation by Gooch in the Circuit Court for Broward County, Florida (the "Florida State Court"). Luster had produced many of the infringing videos at issue in the Arista litigation, including the couple of videos involving Bruce Anderson.  At the time Luster made the videos for Anderson, Luster had represented to Anderson that he possessed all the required copyright licenses. Unbeknownst to Anderson, Luster had separately assisted other Quixtar IBOs in making various videotapes. The cross-claimants, including Hal Gooch, sought payment from Luster for whatever funds they had had to expend to defend the Federal copyright infringement lawsuit.

The Federal copyright claims brought by the record companies were eventually settled in a global fashion. Thereafter, most of the Quixtar IBOs elected to drop their cross-claims against Luster and not continue to seek recovery of whatever costs they had incurred to defend the case. Bruce Anderson was nevertheless intent upon not dropping his individual cross-claims against Luster. Another IBO, Randy Haugen, who is Anderson’s Quixtar sponsor, agreed to proceed jointly with Anderson. Both retained our law firm to do so.

Hal Gooch and three other IBOs ultimately chose to move forward against Luster as well. Hal Gooch agreed with Anderson to pay a portion of the attorneys’ fees incurred by Bruce Anderson and Randy Haugen for pre-trial submissions, trial preparation, trial, and post-trial proceedings. This firm, as counsel jointly for Bruce Anderson and Randy Haugen, prepared the bulk of the written submissions required in federal court. Hal Gooch arranged with Anderson for Gooch’s counsel to adopt and otherwise to "tag along" with these submissions. Ultimately, the case went to trial before a jury in April, 1999, and Bruce Anderson, Randy Haugen, and another Quixtar IBO prevailed against Luster. Collectively, Anderson and Haugen obtained judgments against Luster for approximately $250,000.00 (the "Federal Judgments"). The Federal Judgments are in the Appendix submitted herewith as Exhibit "B."1 Hal Gooch and Tim Foley, another Quixtar IBO in Gooch’s downline, lost their claims against Luster in the same jury trial. The judgments entered against them in favor of Luster are attached to the Appendix as Exhibit "B."

As noted above, well before the Arista federal copyright action was brought, Hal Gooch had embroiled himself in separate litigation with Luster in the Florida State Court proceedings. That lawsuit was actively litigated before, during, and after the Arista litigation was commenced and settled, and after the May, 1999 federal trial against Luster for indemnification. The issues involved in the Florida State Court action arose out of a complex series of business and personal relationships between Luster and Gooch. The value of Gooch’s claims against Luster in the Florida State Court proceedings turned out to be nominal when compared to the millions of dollars sought from Hal Gooch in Luster’s counterclaims. Even though Gooch had initiated the Florida State Court action, it quickly became a quagmire for him. In continuing to pursue his cross-claims against Luster in federal court, Hal Gooch had hoped to use whatever judgments that might be obtained against Luster in the federal action to force Luster to settle the claims in the Florida State Court action. Bruce Anderson ultimately agreed to assist Hal Gooch in this effort, in conjunction with Anderson’s attempts to obtain recovery on the Federal Judgments against Luster resulting from the Arista indemnity trial.

In an effort to obtain payment on his Federal Judgments, and also to assist Hal Gooch in settling the Florida State Court litigation with Luster, Bruce Anderson moved to intervene in the Florida State Court in an attempt to seize Luster’s causes of action against Gooch. A copy of the order providing for seizure of some of those choses of action, and vesting ownership of them in Bruce Anderson, is set forth in the Appendix as Exhibit "C." Hal Gooch paid nothing to Bruce Anderson for seizing Luster’s counterclaims.  Due in part to Bruce Anderson’s actions in attempting to collect from Luster on the Federal Judgments, Luster eventually agreed to settle the Florida State Court matter with Hal Gooch. The settlement Gooch independently entered into with Luster required Gooch to pay off the Federal Judgments outstanding against Luster that remained due and owing to Bruce Anderson and Randy Haugen. Additionally, Gooch agreed to pay Luster a nominal cash amount. A written Settlement Agreement was entered into between Hal Gooch and Luster in November, 2000. Bruce Anderson had no involvement whatsoever in Gooch’s settlement with Luster.

Bruce Anderson had previously informed Hal Gooch, when he first learned Gooch was in settlement discussions with Luster, months before the November, 2000 execution of the Settlement Agreement, that Anderson might be willing to discount the face value of the Federal Judgments as a good will gesture to Hal Gooch. However, Bruce Anderson insisted that Hal Gooch must pay a significant amount to Bruce Anderson nonetheless, in order to obtain satisfaction of those judgments. A copy of August 24, 2000 correspondence between me and counsel for Gooch, evidencing Anderson’s position in this regard, is in the Appendix as Exhibit "D." If Gooch had any doubt before, he was certainly fully aware by the end of August, 2000 that Bruce Anderson would not agree to satisfy the Federal Judgments absent receipt of a substantial payment from Gooch or Luster. In September, 2000, Luster got cold feet and sought to withdraw from his settlement with Gooch. Gooch and his counsel nevertheless went to court, and had the judge enforce the settlement against Luster. The actual written agreement was then executed afterwards, in November, 2000.

Despite having full knowledge that Bruce Anderson expected at least partial payment on the Federal Judgments, Hal Gooch nevertheless entered into his settlement agreement with Luster, that required Gooch to pay off Luster’s judgments to Bruce Anderson and Randy Haugen. On January 25, 2001, counsel for Hal Gooch sent a letter to counsel for Bruce Anderson, again requesting that Anderson satisfy those Federal Judgments on Gooch’s behalf for free. This letter is Exhibit "E" in the Appendix. Anderson declined. Additional discussions continued between the parties from January of 2001 through May of 2001 over how much it would take for Anderson to satisfy the Federal Judgments. Correspondence evidencing these discussions is in the Appendix as Exhibit "F." Hal Gooch refused to pay either Luster or Bruce Anderson anything, other than once offering the nominal sum of $5,000.00 per judgment. As time passed, however, Hal Gooch remained in default under his Settlement Agreement with Luster.

When no satisfactions of the Federal Judgments were forthcoming from Gooch, Luster moved to compel Gooch to perform. The Florida State Court found that Hal Gooch had breached his Settlement Agreement with Luster. Accordingly, on May 21, 2001, the Florida State Court entered a money judgment in the amount of $240,808.71 against Hal Gooch in favor of Luster. A copy of this May 21, 2001 Final Judgment is in the Appendix as Exhibit "G." The amount of that judgment mirrored the amounts outstanding at the time against Luster on the Federal Judgments held by Anderson and Haugen. Hal Gooch did not timely appeal entry of the $240,808.71 judgment, and it has long ago became final and enforceable.  Hal Gooch nevertheless refused to pay either Luster or Bruce Anderson, despite his undertaking in the settlement agreement and despite the Florida State Court’s resulting unconditional money judgment in favor of Luster.

Upon learning of the May 21, 2001 Judgment, Anderson immediately put Gooch on notice of his intent to obtain satisfaction of the outstanding Federal Judgments against Luster by seeking, in turn, enforcement of Luster’s May 21, 2001 Judgment against Gooch. See my facsimile, dated May 22, 2001 to Stephen McDonald, included in Appendix Exhibit "F." Still seeking recovery of the Federal Judgments from Luster, Bruce Anderson requested payment from Hal Gooch, since Gooch had now been found by the Florida State Court to be liable to Luster for those amounts. Gooch never paid. In late 2001, Bruce Anderson therefore financed collection efforts in Luster’s name against Hal Gooch in North Carolina to try to recover payment on the May 21, 2001 Judgment, so that Luster, in turn, could apply the proceeds of that recovery toward satisfaction of the Federal Judgments that remained unsatisfied against Luster. At that time, Hal Gooch still refused to pay. He successfully blocked execution in North Carolina by posting a supersedeas bond in Florida in March, 2002, in connection with his appeals of the trial court’s denial of post judgment motions that had sought vacation of the May 21, 2001 Judgment. Hal Gooch then initiated conciliation proceedings before Quixtar for the first time. Bruce Anderson cooperated in the nonbinding conciliation under protest, without prejudice to contest the legitimacy of those proceedings, as the matter had nothing to do with Quixtar.

Despite the pendency of the conciliation process, Hal Gooch continued active litigation with Luster and Bruce Anderson before the Florida State Court. Hal Gooch never filed a motion to stay those proceedings. Hal Gooch never made a claim to the Florida State Court that Quixtar should somehow arbitrate the dispute. Instead, Hal Gooch spent the better part of 2001 and 2002 seeking to set aside, vacate, or otherwise render unenforceable the May 21, 2001 Final Judgment. The Florida State Court denied all such requests. These orders are Exhibit "H" to the Appendix. All those rulings have been summarily affirmed by the Florida Appellate Courts. These orders are Exhibit "I" to the Appendix. After losing the first two appeals, Hal Gooch finally requested the Florida State Court to stay all proceedings in May of 2003. For the first time in almost two years, Hal Gooch argued that his dispute with Bruce Anderson was somehow a Quixtar-related matter that was subject to binding arbitration, and that the Florida State Court should decline to hear any further matters in the case.

To date, the Florida State Court has not afforded Hal Gooch that relief. Indeed, despite his recent claims that Quixtar ought to resolve his dispute with Bruce Anderson, Hal Gooch has to this day continued active litigation in the Florida State Court in his ongoing efforts to try to vacate, set aside, or otherwise avoid payment of the May 21, 2001 Final Judgment. Presently, Hal Gooch’s third post judgment motion is pending before the Florida State Court. A full day evidentiary hearing was recently held in June.   In the meantime, at the beginning of 2003, Bruce Anderson obtained an assignment of Luster’s judgment, and has since been attempting collection efforts directly against Hal Gooch. In January, 2003, Luster assigned the May 21, 2001 Judgment he held against Gooch to Anderson, in return for Anderson’s satisfaction of the outstanding Federal Judgments Anderson held against Luster. A copy of the assignment is in the Appendix as Exhibit "J." After Bruce Anderson took the assignment of the May 21, 2001 Judgment from Luster, Anderson then proceeded to obtain a final judgment against the surety on the supersedeas bond posted by Gooch. A copy of this final judgment against Gooch’s surety is in the Appendix as Exhibit "K."

Hal Gooch’s time is now drawing short in the Florida State Courts. The surety for the supersedeas bond Hal Gooch posted has been ordered to pay Bruce Anderson. Thus, two Florida State Court money judgments now exist in Mr. Anderson’s favor, one against Gooch, and one against his surety. Gooch has filed an appeal of the judgment against the surety. After these repeated losses in the Florida State Court system, Hal Gooch seeks to convince JAMS that his present dispute is subject to Quixtar arbitration. By this ploy, Gooch hopes to misuse the arbitration as a belated post judgment device to further delay collection of the May 21, 2001 Judgment that Gooch has failed to satisfy. The Florida State Court system has labored over Hal Gooch’s dispute with Luster, in which Bruce Anderson now is the judgment holder, since Luster and Gooch settled it in the summer of 2000. What Hal Gooch hopes now to do is, in effect, nullify all of these money judgments, orders, and appeals through resort to JAMS. JAMS has no authority, however, over Bruce Anderson that would allow Hal Gooch to do so.

Though Hal Gooch has made his dispute with Bruce Anderson appear complicated, it is abundantly clear that none of these proceedings involve either’s Quixtar IB. The instant dispute certainly is not one "arising out of or relating to the IB, [or] the IBO . . . ." See Section 11.5. No Quixtar-business or related activities of either Gooch’s or Anderson’s IBs are involved in any way. This is simply an unrelated court dispute between two parties. Gooch claims Anderson promised to satisfy the Federal Judgments for nothing. Anderson denies it. Gooch lacks any written proof of such an agreement. The correspondence between counsel for Gooch and Anderson in Appendix Exhibits "D" and "F" belie the existence of any such agreement.

One party owes money on a validly-entered Florida State Court judgment that has long since become final. The other has now acquired that judgment and wishes to obtain payment. The parties happen to be Quixtar IBOs. No basis for commencing an arbitration exists regarding this dispute, unless a Quixtar Rule of Conduct has been violated. No Quixtar Rule of Conduct can possibly apply to non-Quixtar related business or dealings. Bruce Anderson’s attempts to collect a money judgment against Gooch in no way qualifies as a "Deceptive or Unfair Trade Practice" as those terms have been defined by Federal or state law.

The Quixtar Rules of Conduct only confer authority upon JAMS to conduct binding arbitration if the dispute is one "arising out of" or "relating to" Messrs. Gooch’s and Anderson’s IBs, IBO Plans, or the Quixtar Rules of Conduct. Their dispute is outside the scope of that authority, being entirely unrelated to the Quixtar Rules of Conduct, their IBs, or their IBO Plans. Gooch and Anderson are virtual strangers within the Quixtar system, who both happened to become involved in litigation with a non-Quixtar entity. As it has ended up, Hal Gooch now owes Bruce Anderson substantial sums. The Florida State Court has made this determination several times through a series of orders and final judgments. Hal Gooch merely seeks to circumvent more than three years of valid Florida State Court orders, findings, judgments, appellate rulings, and other judicial labor, because he disagrees with the result the courts have given him based on his litigation choices. Even if JAMS had authority to hear this dispute, Gooch’s request for arbitration would create a tremendous waste of judicial resources. The dispute is well-known to the Florida State Courts, and it must remain there. JAMS has no authority to second guess the federal and state courts of Florida years after the fact.

For all of the foregoing reasons, JAMS must decline Hal Gooch’s request for arbitration.

Sincerely yours,

Donald E. Christopher

DEC/cmp

Enclosures