Variable Annuity Life Insurance Company, The, Valic Financial Advisors Inc. v. Brett Laferrera ( 2017 )

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 16-14519
Non-Argument Calendar
________________________
D.C. Docket No. 7:15-cv-02350-LSC
VARIABLE ANNUITY LIFE INSURANCE
COMPANY, THE,
VALIC FINANCIAL ADVISORS INC.,
Plaintiffs-Appellees,
versus
BRETT LAFERRERA,
JESSICA LAFERRERA,
CRIMSON CAPITAL GROUP LLC.,
Defendants-Appellants.
________________________
Appeal from the United States District Court
for the Northern District of Alabama
________________________
(February 27, 2017)
Before TJOFLAT, WILLIAM PRYOR, and ROSENBAUM, Circuit Judges.
PER CURIAM:
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Defendants-Appellants Brett Laferrera and Jessica Laferrera (the
“Laferreras”) and Crimson Capital Group LLC (“CCG”) (collectively,
“Defendants”) appeal the denial of their motion to compel arbitration and stay
proceedings, pursuant to 9 U.S.C. §§ 2–4, in this lawsuit brought by the Laferreras’
former employers, The Variable Annuity Life Insurance Company (“VALIC”) and
VALIC Financial Advisors, Inc. (“VFA”) (collectively, “Plaintiffs”). The district
court denied Defendants’ motion as moot as to the Laferreras because the claims
against them had been submitted to arbitration. With regard to the claims against
CCG, the court refused to compel arbitration, because the agreement did not allow
non-signatories to the agreement to force arbitration, and denied Defendants’
alternative request for a discretionary stay of the non-arbitrable claims.
After careful review, we affirm in part and vacate and remand in part. We
affirm the district court’s rulings on the Laferreras’ request for a stay and CCG’s
request to compel arbitration. However, we conclude that the court abused its
discretion by refusing to stay litigation of the claims against CCG, and we vacate
and remand with instructions to enter a stay.
I.
Plaintiffs VALIC and VFA provide retirement plans and other financial
products and services to clients. Until mid-December 2015, Plaintiffs employed
the Laferreras as financial advisors. At the time they were working for Plaintiffs,
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the Laferreras also owned and operated CCG, a property and casualty insurance
company. For various reasons, Plaintiffs came to believe that the Laferreras were
using confidential trade secrets and client information to contact and “poach”
Plaintiffs’ clients and provide competing services through CCG.
During their employment with Plaintiffs, the Laferreras each signed identical
Registered Representative Agreements (“RRAs”) with VFA agreeing to submit
disputes to arbitration before the National Association of Securities Dealers, which
is now the Financial Industry Regulatory Authority (“FINRA”). Section 11(a) of
the RRAs stated that disputes between “Registered Representative[s]” (the
Laferreras) and “Broker-Dealer” (VFA) “shall be resolved in accordance with
[FINRA’s] Code of Arbitration Procedures.” All other disputes, according to
§ 11(b), “shall be resolved in a court of competent jurisdiction.”
The Laferreras both left Plaintiffs’ employment in December 2015. Soon
after, Plaintiffs filed this lawsuit alleging breach of contract (against the
Laferreras) and violations of Alabama’s Trade Secret Act, Ala. Code § 8-27-3, and
the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (against all Defendants). As
to the Laferreras, Plaintiffs sought “only temporary and preliminary injunctive
relief, as the merits must be resolved in arbitration.” Plaintiffs requested both
injunctive relief and damages as against CCG.
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By agreement of the parties, the district court entered a preliminary
injunction on January 11, 2016. The court entered an agreed-upon expanded
preliminary injunction on April 19, 2016.
Plaintiffs submitted their claims against the Laferreras to FINRA in March
2016. Soon after, Defendants moved to compel arbitration of the entire dispute
and stay litigation in federal court, pursuant to 9 U.S.C. §§ 2–4. Defendants asked
the court to compel arbitration of the claims against CCG, which Defendants
claimed were entirely interwined with the arbitrable claims. In the event the
doctrine of interwining did not apply, Defendants continued, the court should grant
a stay pending arbitration, since there were no separate allegations against CCG
and the resolution of the claims against the Laferreras would likely have preclusive
effect on the claims against CCG.
The district court denied the motion to compel and stay as moot as to the
claims against the Laferreras, which were already in arbitration. As for the claims
against CCG, the court refused to compel arbitration, concluding that the doctrine
of intertwining did not apply because the RRAs limited arbitration to the signing
parties, which CCG was not. The court also denied Defendants’ alternative request
for a discretionary stay of these claims, reasoning that “CCG’s role in Plaintiffs’
allegations [was] unlikely to be resolved in the FINRA proceedings.” Defendants
now appeal.
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II.
Defendants argue that the district court erred in refusing to compel
arbitration of the claims against CCG. “We review de novo the district court’s
denial of a motion to compel arbitration.” Lawson v. Life of the S. Ins. Co., 648
F.3d 1166, 1170 (11th Cir. 2011); see 9 U.S.C. § 16(a)(1).
The Federal Arbitration Act (“FAA”) “establishes a liberal federal policy
favoring arbitration agreements.” CompuCredit Corp. v. Greenwood, 132 S. Ct.
665, 669 (2012) (internal quotation marks omitted); see 9 U.S.C. § 2. Under this
policy, courts must “rigorously enforce agreements to arbitrate.” Klay v. All
Defendants, 389 F.3d 1191, 1200 (11th Cir. 2004 (quoting Dean Witter Reynolds,
Inc. v. Byrd, 470 U.S. 213, 221 (1985)).
Because arbitration is a matter of contract, however, a court cannot compel
arbitration of a dispute in the absence of an agreement to arbitrate, Lawson, 648
F.3d at 1170, “even if the result is ‘piecemeal’ litigation,” Dean Witter, 470 U.S. at
221. “An exception to that rule is that a nonparty may force arbitration if the
relevant state contract law allows him to enforce the agreement to arbitrate.”
Lawson, 648 F.3d at 1170.
CCG is not a party to the arbitration agreements between the Laferreras and
VFA. So it cannot compel arbitration unless Alabama state contract law allows it
to enforce the agreements. Defendants argue that the Alabama doctrine of
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“intertwining,” a variation of the theory of equitable estoppel, permits CCG to
enforce the agreements to arbitrate.
Under Alabama law, “[a]rbitration may be compelled under the doctrine of
‘intertwining,’ where arbitrable and nonarbitrable claims are so closely related that
the party to a controversy subject to arbitration is equitably estopped to deny the
arbitrability of the related claim.” Jenkins v. Atelier Homes, Inc., 62 So. 3d 504,
510 (Ala. 2010) (internal quotation marks omitted). But “if the language of the
arbitration provision is party specific and the description of the parties does not
include the nonsignatory, [the] inquiry is at an end,” and the claims against the
non-signatory cannot be submitted to arbitration. Smith v. Mark Dodge, Inc., 934
So. 2d 375, 381 (Ala. 2006); see Ex parte Stamey, 776 So. 2d 85, 89 (Ala. 2000)
(holding that a non-signatory cannot enforce an arbitration agreement if “the
description of the parties subject to the arbitration agreement [is] so restrictive as to
preclude arbitration by the party seeking it”).
Here, CCG cannot enforce the agreements to arbitrate because the
description of the parties subject to the agreements is “so restrictive as to preclude
arbitration” by non-parties. See Ex parte Stamey, 776 So. 2d at 89. The language
of section 11(a) of the RRAs, regarding arbitration, is specific to disputes between
“Registered Representative[s]” (the Laferreras) and “Broker-Dealer” (VFA).
Section 11(b) then expressly states that all other disputes “shall be resolved in a
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court of competent jurisdiction.” Because the language of the agreements to
arbitrate is party specific, does not include CCG, and expressly states that all other
disputes are not subject to arbitration, the “inquiry is at an end,” Smith, 934 So. 2d
at 381, even if the non-arbitrable claims are “intimately founded in and interwined
with” the arbitrable claims, see Ex parte Stamey, 776 So. 2d at 89.
Accordingly, we affirm the district court’s ruling that, under Alabama
contract law, CCG could not compel arbitration of the claims against it because the
language of the agreements limited arbitration to the signing parties.
III.
In the alternative, Defendants argue that the district court should have stayed
the non-arbitrable claims against CCG pending arbitration of the claims against the
Laferreras. 1 A stay was warranted, Defendants contend, because CCG’s liability is
predicated entirely on the Laferreras’ conduct, so “[r]esolution of the claims
against CCG . . . necessarily requires resolution of the overlapping claims against
the Laferreras, and identical evidence, witnesses and legal issues do not merely
predominate but are all there is.” Appellant’s Br. at 30.
1
Plaintiffs question our jurisdiction to review the district court’s discretionary refusal to
stay proceedings, which we agree is not an independently appealable interlocutory order.
Nevertheless, the district court’s order denying Defendants’ motion for a stay of all claims under
9 U.S.C. § 3 is immediately appealable under 9 U.S.C. § 16, Arthur Andersen LLP v. Carlisle,
556 U.S. 624, 627–28 (2009), and we may exercise pendent appellate jurisdiction over the
closely intertwined issue of the denial of a discretionary stay, see King v. Cessna Aircraft Co.,
562 F.3d 1374, 1379–80 (11th Cir. 2009). See also Klay, 389 F.3d at 1203–04 (reviewing the
court’s refusal to grant a discretionary stay of non-arbitrable claims).
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We review the denial of a motion to stay litigation of non-arbitrable claims
for an abuse of discretion. Klay, 389 F.3d at 1203. The abuse-of-discretion
standard gives the district court a range of choice, so long as that choice does not
constitute a clear error of judgment. See, e.g., McMahan v. Toto, 256 F.3d 1120,
1128 (11th Cir. 2001).
A district court is required to stay a pending suit when it is satisfied that only
arbitrable issues remain. Klay, 389 F.3d at 1203–04; see 9 U.S.C. § 3. When a
court is presented with both arbitrable and non-arbitrable claims, however, the
decision to stay the non-arbitrable claims is within the court’s discretion. Klay,
389 F.3d at 1204. Generally, courts may refuse to stay proceedings when it is
feasible to proceed with litigation. See id. “Crucial to this determination is
whether arbitrable claims predominate or whether the outcome of the nonarbitrable
claims will depend upon the arbitrator’s decision.” Id.Here, we conclude that the district court abused its discretion in refusing to
grant a stay of the claims against CCG. The claims against CCG and the
Laferreras are based on the exact same factual allegations, the vast majority of
which relate to the Laferreras only. These allegations show that CCG took no
action except through, or at the direction of, the Laferreras, and could not be held
liable unless the Laferreras are also liable. For instance, Plaintiffs’ trade-secrets
claim against CCG is based on the Laferreras having “breach[ed] the confidence
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reposed in them by the VALIC Companies and caus[ed] such secrets to be
transmitted to a non-VALIC device,” which CCG now possesses. See Amended
Compl. ¶¶ 68–70 (Doc. 30 at 22). The fact that CCG and the Laferreras are
technically different defendants is of no practical importance because CCG’s
liability is predicated on the Laferreras’ misconduct.
Permitting the claims against CCG to go forward in federal court while the
same claims against the Laferreras proceed in arbitration would require the
Laferreras to defend identical claims in two separate forums. It also would give
rise to the possibility of inconsistent results. In these circumstances, we find that
the record compels a conclusion that a discretionary stay should have been granted
because “arbitrable claims predominate . . . [and] the outcome of the nonarbitrable
claims will depend upon the arbitrator’s decision.” See Klay, 389 F.3d at 1204.
Accordingly, we vacate the court’s ruling on this issue and remand with
instructions to grant a stay as to the claims against CCG. 2
IV.
Finally, Defendants argue that the district court erred in denying their
motion for a stay of proceedings against the Laferreras under 9 U.S.C. § 3. In
Defendants’ view, the district court should have granted their motion for a stay
under § 3 once the claims against the Laferreras were submitted to arbitration.
2
We note in passing that the district court’s docket reflects that litigation of these claims
has not progressed since the court’s denial of a stay.
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Defendant suggest that a stay under § 3 would have stayed litigation on issues of
injunctive relief in federal court. Without a stay, Defendants assert, they have been
forced to continue to litigate issues of injunctive relief in federal district court,
notwithstanding the FINRA panel’s hearing on injunctive relief and subsequent
denial of permanent injunctive relief in early August 2016. Defendants
specifically question whether the court can address Plaintiffs’ pending motions for
(1) sanctions for Defendants’ alleged violations of the terms of the preliminary
injunctions and (2) modification of the preliminary injunctions so that they no
longer applied directly to the Laferreras. 3 The motion for modification followed
the FINRA panel’s decision denying permanent injunctive relief and directing the
parties to jointly move the district court to modify or dissolve the preliminary
injunctions as to the Laferreras.
Here, the district court did not err in denying as moot the Laferreras’ motion
to stay. “Section 3 applies to only ‘any suit or proceeding . . . brought . . . upon
any issue referable to arbitration.’” United Steel, Paper & Forestry, Rubber,
Mfg., Energy, Allied Indus. & Serv. Workers Int’l Union AFL-CIO-CLC v. Wise
Alloys, LLC, 807 F.3d 1258, 1268 (11th Cir. 2015) (quoting 9 U.S.C. § 3)
(emphasis added). Plaintiffs’ lawsuit sought “only temporary and preliminary
3
Defendants present their arguments in jurisdictional terms, repeatedly and incorrectly
asserting that the basis of the district court’s subject-matter jurisdiction was the FINRA rules of
arbitration. Rather, the court’s jurisdiction over the action was based on 28 U.S.C. §§ 1331(federal question), 1332 (diversity of citizenship), and 1367 (supplemental jurisdiction).
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injunctive relief” as against the Laferreras. And as Defendants concede, the
agreements to arbitrate, which incorporate the FINRA rules, provide that the
parties “may seek a temporary injunctive order from a court of competent
jurisdiction.” 4 Appellant’s Br. at 17 (quoting FINRA Rule 13804(a)(1)). So while
the issue of permanent injunctive relief was a question for the FINRA arbitration
panel, the issue of temporary injunctive relief was not “a substantive issue
referable to arbitration.” See United Steel, 807 F.3d at 1268 (holding that a suit to
compel arbitration was not a suit upon a substantive issue referable to arbitration).
More generally, stays under § 3 do not preclude courts from granting the
injunctive relief provided for in an agreement to arbitrate. In American Express
Financial Advisors, Inc. v. Makarewicz, 122 F.3d 936, 939–40 (11th Cir. 1997),
for example, we held that a district court, after granting a stay under § 3, erred in
refusing to grant injunctive relief where the parties intended for a court of
competent jurisdiction to grant injunctive relief pending the arbitration. See also
Merrill Lynch, Piece, Fenner & Smith, Inc. v. Bradley, 756 F.2d 1048, 1052 (4th
Cir. 1985) (“[T]he language of § 3 does not preclude a district court from granting
one party a preliminary injunction to preserve the status quo pending arbitration.”).
Here, as in Makarewicz, the parties agreed to allow a court of competent
4
Because Defendants agreed to the preliminary injunctions entered by the district court,
we do not consider Defendants’ assertion that “Plaintiffs did not properly apply for temporary
injunctive relief in aid of arbitration.”
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jurisdiction to grant temporary injunctive relief pending arbitration. Defendants
offer no persuasive reason to conclude that § 3 affects the issue of temporary
injunctive relief.
On the whole, Defendants’ arguments relate to the preliminary injunctions
themselves and how “temporary” they should have been under the FINRA rules.
Defendants focus particularly on the effect of the FINRA panel’s actions on both
the injunctions and Plaintiffs’ requests for sanctions and modification of the
preliminary injunctions. The district court held a telephone conference call about
these matters but, as far we can tell from the docket, reached no clear resolution.
Indeed, as of the date of this opinion, the court has not entered an order modifying
or dissolving the preliminary injunctions or granting or denying Plaintiffs’ motion
for sanctions. In short, the district court has yet to pass on these matters. And “[i]t
is the general rule, of course, that a federal appellate court does not consider an
issue not passed upon below.” Singleton v. Wulff, 428 U.S. 106, 120 (1976).
Our jurisdiction, moreover, is limited to the “order . . . refusing a stay of any
action under [§] 3.” 9 U.S.C. § 16(a)(1)(A). The preliminary injunctions are not
before this court for review. And Defendants do not explain how we have
jurisdiction to address issues relating to the injunctions about which no order has
been entered. In any case, these matters are better resolved by the district court in
the first instance.
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V.
For the reasons stated, we affirm the district court’s refusal to compel
arbitration of the claims against CCG, but we conclude that a stay should have
been granted as to these claims, and therefore vacate the court’s ruling on this
ground and remand with instructions to grant a stay. We affirm the court’s denial
of a stay under § 3 as to the Laferreras.
AFFIRMED IN PART; VACATED AND REMANDED IN PART.
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