Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc. , 845 F.3d 1351 ( 2017 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-15060
________________________
D.C. Docket No. 6:14-cv-01551-PGB-GJK
KROMA MAKEUP EU, LLC,
a United Kingdom Limited Liability Company,
Plaintiff-Appellee,
versus
BOLDFACE LICENSING + BRANDING, INC.,
a Nevada Corporation, et al.,
Defendants,
KIMBERLY KARDASHIAN,
a California resident,
KOURTNEY KARDASHIAN,
a California Resident,
KHLOE KARDASHIAN,
a California Resident,
Defendants-Appellants.
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________________________
Appeal from the United States District Court
for the Middle District of Florida
________________________
(January 18, 2017)
Before ED CARNES, Chief Judge, ANDERSON, Circuit Judge, and
ROSENBERG, * District Judge.
ED CARNES, Chief Judge:
Kimberly, Kourtney, and Khloe Kardashian appeal the district court’s denial
of their motion to compel arbitration of Kroma Makeup, EU’s claims against them
for cosmetics trademark infringement. At first blush, the issue appears to require
application of Florida’s doctrine of equitable estoppel under which a party to an
agreement who relies on it in a dispute with a non-party can be required by that
non-party to comply with other terms of the agreement, including the arbitration
clause. But there is a wrinkle in this case: the arbitration clause which the non-
party to the agreement is seeking to enforce is explicitly limited to disputes
between the parties. What then?
I.
By Lee Tillett, Inc. developed and registered a trademark for a line of
cosmetics products known as Kroma cosmetics beginning in 2004. In 2010 Tillett
contracted with Jay Willey Ltd. giving Willey the exclusive right to sell Kroma
*
Honorable Robin L. Rosenberg, United States District Judge for the Southern District of
Florida, sitting by designation.
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cosmetics in the United Kingdom and European Union. That agreement expired in
October 2012 and Tillett entered into a new one with Kroma EU, which contained
similar terms giving Kroma EU the exclusive rights to sell and distribute Kroma
products in the United Kingdom and European Union. It also gave Kroma EU the
right to use the Kroma trademark. The new agreement contained an arbitration
clause, which stated:
If it is impossible to settle the disputes peacefully, the Parties
agree that the disputes arising between them concerning the validity,
interpretation, termination or performance of the present Contract,
should be considered [in] independent arbitration in the State of
Florida, United States.
(emphasis added).
While that contract was in effect and with Kroma makeup being sold in the
United States and Europe, the Kardashians entered into a licensing agreement with
Boldface Licensing + Branding, Inc. to create a Kardashian makeup line called
“Khroma.” After the Khroma product line was released, Boldface filed a lawsuit
against Tillett seeking declaratory judgment that the Khroma name did not infringe
on Tillett’s Kroma trademark. Tillet filed trademark infringement counterclaims
against Boldface and added the Kardashians as counterclaim defendants. Tillett,
Boldface, and the Kardashians settled that lawsuit in April 2014. Despite Tillett’s
representations to Kroma EU that it was protecting Kroma EU’s interests and
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recovering damages on its behalf, Tillett later refused to share any of its settlement
recovery.
As a result, Kroma EU filed this lawsuit asserting trademark infringement
and tortious interference claims against Boldface, vicarious liability for trademark
infringement claims against the Kardashians, and a promissory estoppel claim
against Tillett. Tillett and the Kardashians both filed motions to compel
arbitration. The district court granted Tillett’s motion to compel Kroma EU to
arbitrate, and neither that ruling nor Tillett is in this appeal. The court, however,
denied the Kardashians’ motion to compel Kroma EU to arbitrate its claims against
them, and this is their appeal from that denial. See 9 U.S.C. § 16(a)(1)(B) (“An
appeal may be taken from . . . an order . . . denying a petition under [the Federal
Arbitration Act] to order arbitration to proceed . . . .”).
II.
We review de novo a 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). In doing so, “we apply the federal substantive law of arbitrability, which is
applicable to any arbitration agreement within the coverage of the FAA,” keeping
in mind the “healthy regard for the federal policy favoring arbitration.” Id.
(quotation marks omitted). Arbitration is, however, a matter of contract, and “the
FAA’s strong proarbitration policy only applies to disputes that the parties have
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agreed to arbitrate.” Klay v. All Defendants, 389 F.3d 1191, 1200 (11th Cir.
2004). The issue of whether a non-signatory to an agreement can use an arbitration
clause in that agreement to force a signatory to arbitrate a dispute between them is
controlled by state law. See Lawson, 648 F.3d at 1170–71. The Kardashians and
Kroma EU agree that Florida law controls on that issue.
While the Kardashians are not signatories to the agreement between Kroma
EU and Tillett, they contend that they can compel arbitration of Kroma EU’s
claims against them by using Florida’s doctrine of equitable estoppel. Under that
doctrine, a defendant who is a non-signatory to an agreement containing an
arbitration clause can force arbitration of a signatory’s claims when “the
signatory . . . must rely on the terms of the written agreement in asserting its claims
against the nonsignatory . . . .” Allscripts Healthcare Sols., Inc. v. Pain Clinic of
Nw. Fla., Inc., 158 So. 3d 644, 646 (Fla. 3d DCA 2014). A non-signatory,
however, cannot invoke the doctrine to compel arbitration of claims that are not
within the scope of the arbitration clause. Equitable estoppel does not allow a non-
signatory to an agreement to alter and expand an arbitration clause that would not
otherwise cover the claims asserted. What this means is that in order to establish
that they are entitled to compel arbitration under Florida’s doctrine of equitable
estoppel, the Kardashians must show both that Kroma EU is relying on the
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agreement to assert its claims against them and that the scope of the arbitration
clause covers the dispute.
That two-step framework comes from the Florida District Court of Appeal’s
decision in Koechli v. BIP International, Inc., 870 So. 2d 940 (Fla. 1st DCA 2004).
There the court first concluded that because the signatory plaintiff was claiming
rights under the agreement, the non-signatory defendants could invoke equitable
estoppel to estop the plaintiff from denying the defendants access to the arbitration
provision in the agreement between the plaintiff and the other signatory to it. Id. at
941–42, 944–45. The court’s analysis, however, did not end there. Instead, the
court felt it necessary to determine whether the arbitration clause, which covered
“any dispute between the parties as to any matter arising out of or relating to this
contract,” id. at 944 n.1, was broad enough to cover the dispute between the
plaintiff who was a party to the agreement and the defendants who were not, id. at
945–46. Even though they technically were non-parties, the defendants were
agents of a party to the agreement, had received rights and obligations under the
contract, and were being sued for their actions taken as a signatory’s agents
pursuant to the contract. Id. That was enough. The Koechli court concluded that,
“in the context of the unique facts of this case,” the non-signatories were in the
relevant sense parties to the contract because they had received rights and
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obligations under it and because the claims arose from their actions taken as a
signatory’s agents. Id.
What the Koechli court’s analysis means is that under Florida law even if a
non-signatory to an agreement containing an arbitration clause can invoke the
doctrine of equitable estoppel to access that clause, she can compel arbitration
under it only if her dispute with the signatory falls within the scope of the
arbitration clause.1 Here, the arbitration clause states that “the Parties agree that
the disputes arising between them concerning the validity, interpretation,
termination or performance” of the Agreement will be arbitrated. If the
Kardashians are not considered “parties” to the agreement within the scope of the
arbitration clause, they cannot use equitable estoppel to compel arbitration of the
claims, even if the doctrine were otherwise applicable in this case.
The Kardashians point to no Florida decisions indicating that a Florida court
would deem them parties to the agreement for arbitration clause purposes. While
Florida courts have on some occasions concluded that a non-signatory defendant
can invoke an arbitration clause that limits arbitration to disputes between “the
1
The Kardashians argue that World Rentals & Sales, LLC v. Volvo Construction
Equipment Rents, Inc., 517 F.3d 1240 (11th Cir. 2008), indicates that equitable estoppel can be
used to compel arbitration even when the arbitration clause itself does not cover the dispute. The
World Rentals decision cited and applied federal case law when analyzing the doctrine of
equitable estoppel. Id. at 1248. That, we have since learned, was error. See Arthur Andersen
LLP v. Carlisle, 556 U.S. 624, 630–31, 129 S. Ct. 1896, 1902 (2009). State law, not federal law,
applies. For that reason, World Rentals is not controlling on the equitable estoppel issues in this
case.
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parties,” in those cases the non-signatory defendants were officers and agents of a
signatory, and they had themselves received rights and taken on obligations under
the agreement. See Koechli, 870 So. 2d at 946; Ocwen Fin. Corp. v. Holman, 769
So. 2d 481, 483 (Fla. 4th DCA 2000) (concluding that an arbitration clause
mandating arbitration of disputes between the parties included defendants who
received rights and obligations under the agreement and who were sued for actions
taken as officers and directors of a signatory). And the Florida Third District Court
of Appeal has noted that this agent, officer, or director relationship “is critical to
the exception” in decisions including Koechli and Ocwen for concluding that a
non-signatory is a party under a contract’s terms. Turner Constr. Co. v. Advanced
Roofing, Inc., 904 So. 2d 466, 470 (Fla. 3d DCA 2005).
The Kardashians contend that our conclusion — that equitable estoppel is
limited to compelling arbitration only if the plaintiff’s claims are covered by the
arbitration clause — is inconsistent with the doctrine’s equitable nature.2 They
argue that the doctrine, based on notions of fairness, should operate to permit a
non-signatory who is not bound to an agreement to enforce it notwithstanding the
fact that the claim is outside of the arbitration clause’s scope. Such a holding
2
The Kardashians also contend that we are bound by our decision in MS Dealer Service
Corp. v. Franklin, 177 F.3d 942, 944, 947–48 (11th Cir. 1999), which applied federal equitable
estoppel to compel arbitration under an arbitration clause covering disputes “between the parties
hereto.” That decision, however, is inapplicable, because here we are applying Florida’s
doctrine of equitable estoppel, not federal equitable estoppel law. Not only that, but the question
of whether the clause covered disputes involving non-signatory parties was neither raised nor
decided in MS Dealer.
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would be, well, inequitable. Under it, we would effectively be rewriting the
agreement between the signatories about which disputes they would arbitrate to
require one of them to arbitrate disputes that they had not agreed to. That would
violate the basic principle that parties can be forced to arbitrate only disputes that
they have agreed to arbitrate. See Klay, 389 F.3d at 1200 (“In the absence of an
agreement to arbitrate, a court cannot compel the parties to settle their dispute in an
arbitral forum.”); see also Advanced Bodycare Sols., LLC v. Thione Int’l, Inc., 524
F.3d 1235, 1238 (11th Cir. 2008) (“[A] party may not be compelled to arbitrate if
he did not agree to do so.”). Kroma EU never consented to arbitrate any disputes
between it and the Kardashians or any other non-signatory. All it consented to
arbitrate were disputes between it and the other party, which was Tillett.
Consider this hypothetical. Parties A and B enter an agreement with five
parts. They include a provision that obligates them to arbitrate disputes arising
under Part I but not any other parts. Party B gets into a dispute with C, who was
not a party to the agreement, involving the proper interpretation of Part V. Even
though Party B relies on the agreement for his claim against outsider C, no court
would conclude that C could use the doctrine of equitable estoppel to force Party B
to arbitrate their dispute. The reason is that the arbitration provision in the
hypothetical does not cover that dispute, regardless of who the dispute is between.
To hold otherwise would require more than giving the outsider access to the
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arbitration provision; it would also require rewriting that provision. The same
reasoning applies in this case where the arbitration provision covers only “disputes
arising between” the parties to the agreement, regardless of which part of the
agreement is in dispute. Allowing the Kardashians to force Kroma EU to arbitrate
their dispute would also require rewriting the arbitration provision in the agreement
between Kroma EU and Tillett.
This does not mean that equitable estoppel can never be used by a non-
signatory to force a signatory to the agreement to arbitrate a dispute involving the
agreement. If the parties had consented in the arbitration clause to arbitrate any
disputes concerning the validity, interpretation, etc., of the contract, instead of
consenting to arbitrate only “disputes arising between them” (emphasis added)
concerning the validity, interpretation, etc., of the contract, the Kardashians may
have been able to use equitable estoppel to require Kroma EU to arbitrate the
dispute between it and them. But, as the “between them” language shows, that is
not what the parties to the agreement consented to do in the arbitration provision.
Our holding is that Florida’s doctrine of equitable estoppel permits a non-
signatory to an agreement to avail herself of an arbitration clause only when the
claims asserted against her fall within the scope of the clause that the signatories
had agreed upon. This is consistent with the reasoning behind the doctrine, which
is that “[o]ne cannot both take advantage of contract provisions to seek to impose
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liability . . . and at the same time avoid another contract term or provision for
which it has no use.” Giller v. Cafeteria of S. Beach Ltd., LLP, 967 So. 2d 240,
242 (Fla. 3d DCA 2007). One does not avoid or violate an arbitration clause by
refusing to arbitrate a dispute that is not covered by the clause.
Like makeup, Florida’s doctrine of equitable estoppel can only cover so
much. It does not provide a non-signatory with a scalpel to re-sculpt what appears
on the face of a contract. The district court correctly denied the Kardashians’
motion to compel Kroma EU to arbitrate the dispute between them.
AFFIRMED.
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