U.S. Small Business Administration v. Chimicles ( 2006 )

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
5-10-2006
US Small Bus Admn v. Chimicles
Precedential or Non-Precedential: Precedential
Docket No. 04-4083
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-4083
THE U.S. SMALL BUSINESS ADMINISTRATION,
as Receiver for Acorn Technology Fund, L.P.
v.
PETER E. CHIMICLES,
Appellant
(D.C. Civil No. 03-cv-05987)
No. 05-1330
THE U.S. SMALL BUSINESS ADMINISTRATION,
as Receiver for Acorn Technology Fund, L.P.
v.
LEONARD BARRACK;
LYNNE BARRACK,
Appellants
(D.C. Civil No. 03-cv-05992)
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
District Judge: Hon. James T. Giles
1
Argued April 18, 2006
Before: SLOVITER, AMBRO and MICHEL*, Circuit Judges
(Filed: May 10, 2006)
Michael D. Gottsch (Argued)
M. Katherine Meermans
Chimicles & Tikellis LLP
One Haverford Centre
361 West Lancaster Avenue
Haverford, PA 19041
Counsel for Appellant Peter E. Chimicles
Eric Kraeutler
G. Jeffrey Boujoukos (Argued)
Catharine E. Gillespie
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Counsel for Appellants Leonard and Lynne Barrack
Patrick L. Meehan
United States Attorney
Virginia A. Gibson
Assistant United States Attorney
Paul G. Shapiro (Argued)
Assistant United States Attorney
Office of the United States Attorney
615 Chestnut Street
Philadelphia, PA 19106
*
Hon. Paul R. Michel, Chief Judge of the United States
Court of Appeals for the Federal Circuit, sitting by designation.
2
Patrick K. McCoyd, Esq.
Tracey r. Seraydarian, Esq.
Post & Schell
1600 John F. Kennedy Boulevard
Four Penn Center, 13th Floor
Philadelphia, PA 19103
Thomas W. Rigby, Esq.
Small Business Administration
Office of General Counsel/Litigation
409 3rd Street, SW
7th Floor
Washington, DC 20416
Counsel for Appellee United States Small Business
Administration
OPINION OF THE COURT
MICHEL, Circuit Judge.
In these consolidated cases, Peter E. Chimicles appeals
from an order of the United States District Court for the Eastern
District of Pennsylvania, denying his motion to stay proceedings
pending mandatory arbitration; Leonard and Lynn Barrack
appeal a similar order. Because we agree that these contractual
disputes, each concerning an agreement without an arbitration
provision, were not subject to an arbitration provision contained
in a separate (but related) agreement, we affirm the district
court’s orders in both cases.
I. Background
This appeal concerns only two of the myriad of cases that
revolve around Acorn Technology Fund, LP (“Acorn”), a New
Jersey limited partnership founded in 1997. Acorn’s general
partner was Acorn Technology Partners, LLC, a New Jersey
limited liability corporation run by John B. Torkelsen.
3
Appellants Chimicles and the Barracks were private limited
partners in this venture. They both executed (1) a partnership
agreement with Torkelsen acting on behalf of the general partner
and (2) a subscription agreement with Acorn. In the latter, each
agreed to make capital contributions to the partnership in
exchange for a limited partnership interest.
Acorn was licensed by the United States Small Business
Administration (“SBA”) as a Small Business Investment
Company (“SBIC”) pursuant to the Small Business Investment
Act of 1958 (“SBIA”), 15 U.S.C. §§ 661-697g. Once licensed,
an SBIC can receive as much as $2 in federal matching funds for
each private dollar it invests in qualified small businesses. 15
U.S.C. § 683. It must, however, conduct its activities according
to the SBIA and its accompanying regulations. 13 C.F.R. §
107.500.
On January 7, 2003, the United States filed an action
against Acorn, alleging various violations of the SBIA and
seeking appointment of a receiver. On January 17, 2003, the
SBA was appointed as receiver and, as such, was authorized to
defend and pursue all “claims and causes of action available to
Acorn, as warranted.” The district court also stayed all civil
litigation “involving Acorn, the Receiver, or any of Acorn’s past
or present officers, directors, managers, agents or general or
limited partners,” unless specifically permitted by the court.
Order for Operating Receivership, United States v. Acorn
Technology Fund, L.P., No. 03-cv-0070 (E.D. Pa. Jan. 17,
2003). The instant cases, which were allowed to proceed despite
the stay, involve the SBA’s attempts to marshal Acorn’s assets
by making demands upon the limited partners for outstanding
amounts owed on their investor subscription agreements.
A. Chimicles
Pursuant to an earlier agreement not relevant to this
dispute, Chimicles subscribed to a $250,000 commitment as a
private limited partner. On September 15, 2000, he agreed to an
additional $65,000, bringing his total commitment to $315,000.
It is undisputed that Chimicles fulfilled his $250,000 obligation
but did not pay the additional $65,000, although he asserts that
Torkelsen released him from this latter commitment.
4
By letter dated June 12, 2003, the SBA made a written
demand upon Chimicles for the unpaid balance. When he
refused to honor his subscription commitment, the SBA filed a
complaint against him, alleging breach of his subscription
agreement with Acorn. On January16, 2004, Chimicles filed a
motion to dismiss for lack of personal jurisdiction or, in the
alternative, to stay the case pending mandatory arbitration. On
September 21, 2004, the motion was denied in its entirety. A
timely appeal followed.1
B. The Barracks
On April 7, 1998, the Barracks executed a subscription
agreement for a $1 million limited partnership interest in Acorn.
They agreed to make an initial payment of $250,000 and three
further payments of $250,000 over the next three years. On
September 15, 2000, the Barracks agreed to two additional
payments of $250,000. The Barracks have paid only $750,000
of their $1.5 million commitment, but they assert that Torkelsen
encouraged them to invest by waiving in advance any penalties
for failing to fulfill their subscription agreements.
By letter dated June 5, 2003, the SBA made a written
demand upon the Barracks for the remaining $750,000. When
they refused, the SBA sued the Barracks, alleging a breach of
their subscription agreement. On September 22, 2004, the
Barracks filed a motion to dismiss, or, in the alternative, to stay
the case pending mandatory arbitration. Their motion was
denied on January 5, 2005. Like Chimicles, the Barracks
appealed.
* * *
These appeals were consolidated by order dated February
7, 2005.
II. Jurisdiction and Standard of Review
1
Chimicles does not appeal the portion of the district
court’s order denying his motion to dismiss for lack of personal
jurisdiction.
5
We have subject matter jurisdiction pursuant to 9 U.S.C.
§ 16(a). We exercise plenary review over legal questions
concerning the applicability and scope of an arbitration
agreement. CTF Hotel Holdings, Inc. v. Marriott Int’l, Inc., 381
F.3d 131, 137 n.10 (3d Cir. 2004); Harris v. Green Tree Fin.
Corp., 183 F.3d 173, 176 (3d Cir. 1999). Despite the liberal
policy in favor of enforcing arbitration agreements under the
Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., a party
cannot be forced to arbitrate unless “that party has entered into a
written agreement to arbitrate that covers the dispute.” Bel Ray
Co., Inc. v. Chemrite Ltd., 181 F.3d 435, 440 (3d Cir. 1999); 9
U.S.C. § 2.
III. Discussion
The limited question before us is whether SBA’s attempts
to enforce the subscription agreements are subject to mandatory
arbitration. Appellants make similar arguments. Essentially,
both concede that the subscription agreements do not themselves
provide for mandatory arbitration, but argue that the partnership
agreements contain a valid (and broad) arbitration provision
which applies to these disputes because the two agreements are
sufficiently related. Specifically, section 1.1 of the subscription
agreement requires that investors agree to make capital
contributions “in accordance with the terms and conditions
described herein and in the Partnership Agreement, and to be
bound by all of the terms and conditions of the Partnership
Agreement.”
If arbitration is required here, it must be imported from
section 13.10 of the partnership agreement. This provision
states:
The General Partner and the Private Limited
Partners, their successors, assigns, and/or their officers,
directors, attorneys, shareholders, members or agents
hereby agree that any and all controversies, claims or
disputes arising out of or relating to this Agreement, the
breach thereof, or the operation of the Partnership shall be
settled by arbitration in Princeton, New Jersey, in
accordance with the then prevailing commercial
6
arbitration rules of the American Arbitration Association.
The Parties agree to abide by all decisions and awards
rendered by the arbitrator, and such decisions and awards
shall be final and conclusive and may be entered in any
court having jurisdiction thereof as a basis of judgment.
The choice of venue clause in section 13.7 further provides that
an “Action to enforce any provision of this Agreement or any
action brought by the Partners against the General Partner or the
Partnership shall be brought through arbitration in New Jersey,
pursuant to Section 13.10 of this Agreement.”
These arbitration provisions are noteworthy in two
respects. First, the agreement to arbitrate was made between the
general partner and the private limited partners — i.e., the
signatories to the partnership agreement. Second, section 13.7
emphasizes that the arbitration clause was intended to apply to
(1) actions to enforce provisions of the partnership agreement
and (2) actions brought by the private limited partners.
Acorn, however, was not a private limited partner, nor is
the SBA as receiver acting as a private limited partner. Even
assuming arguendo that section 1.1 of the subscription
agreement incorporates by reference the terms and conditions of
the partnership agreement, the arbitration provision does not
apply to an action brought by Acorn (or SBA as receiver).
Indeed, section 1.1 merely required the investors to agree “to be
bound by all of the terms and conditions of the Partnership
Agreement.”
Regardless, the district court correctly found that the
subscription agreements and the partnership agreements are
separate, fully-integrated contracts. Section 3.5 of the
subscription agreements provides that “[t]his instrument contains
the entire agreement of the parties, and there are no
representations, covenants or other agreements except as stated
or referred to herein.” Likewise, section 13.6 of the partnership
agreements provides that “[t]his Agreement constitutes the
complete and exclusive statement of the agreement between the
Partners.”
7
To support their argument for importing an arbitration
clause from a related agreement, appellants rely heavily upon
Brayman Construction Corporation v. Home Insurance
Company, 319 F.3d 622 (3d Cir. 2003). This case is
distinguishable. In Brayman, a workers’ compensation
insurance policy was later supplemented by a retrospective
premium agreement containing an arbitration clause that applied
to any dispute that arose “between the Company and Insured.”
Id. at 623. Both contracts were signed by the same two parties.
Neither attempted to enforce the arbitration provision against a
third party.
Likewise, the decisions cited by appellants from other
circuits enforced the arbitration clause against a party that had
signed the agreement. See Nat’l Am. Ins. Co. v. Score
Reinsurance Co., 362 F.3d 1288, 1289 (10th Cir. 2004); Pers.
Sec. & Safety Sys. Inc. v. Motorola, Inc., 297 F.3d 388, 392 (5th
Cir. 2002). In other words, the issue in those cases was the
scope of arbitrable subject matter covered by the agreement, not
whether both parties had agreed to arbitrate.
Finally, we note that even if we were to assume that
disputes arising under the subscription agreement were
otherwise subject to mandatory arbitration, appellants were
unable to explain at oral argument why section 5.1.2 of the
partnership agreement does not negate any obligation to
arbitrate. Nor did Chimicles’ post-argument memorandum
provide a satisfactory response. Section 5.1.2 provides as
follows:
Notwithstanding any provision in the Agreement to the
contrary (except as expressly provided in this Section
5.1.2), in the event that the Partnership is subject to
restricted operations (as such term is used in the SBIC
Act)2 and prior to the liquidation of the Partnership the
2
The term “Restricted Operation Conditions” is defined at
13 C.F.R. § 107.1820(e) and applies when, inter alia, the “SBA
determines that you have failed to comply with one or more of the
substantive provisions of the Act.” 13 C.F.R. § 107.1820(e)(7).
The occurrence of one of the enumerated “Restricted Operation
8
SBA requires the General Partner and the Private Limited
Partners to contribute any amount of their respective
Commitments not previously contributed to the
Partnership, the obligation to make such contributions
shall not be subject to any conditions set forth in the
Agreement other than limitations on the amount of capital
which a Partner is obligated to contribute (a) within any
specified time period or (b) prior to any specified date.
Now that the SBA has been appointed as receiver and is
attempting to marshal Acorn’s assets, appellants’ obligations to
make contributions are no longer “subject to any conditions set
forth in the Agreement,” which we hold includes the arbitration
provision set forth in section 13.10. Thus, even if imported into
the subscription agreements, the arbitration provision of the
partnership agreements would not apply to these disputes over
unpaid investor commitments.
IV. Conclusion
For the aforementioned reasons, we affirm the district
court’s rulings that these disputes were not subject to mandatory
arbitration.
______________________
Conditions” authorizes the SBA to avail itself of any of the
remedies listed at 13 C.F.R. § 107.1820(f).
9