Lincoln Griswold v. Coventry First LLC , 762 F.3d 264 ( 2014 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 13-1879
___________
LINCOLN T. GRISWOLD; LINCOLN T. GRISWOLD
FAMILY LLP
v.
COVENTRY FIRST LLC; THE COVENTRY GROUP,
INC.; MONTGOMERY CAPITAL, INC.; COVENTRY
FINANCIAL LLC; REID S. BUERGER,
Appellants
__________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 10-cv-05964)
District Judge: Honorable C. Darnell Jones, II
___________
Argued January 14, 2014
Before: AMBRO, HARDIMAN
and GREENAWAY, JR., Circuit Judges.
(Opinion Filed: August 11, 2014)
Ronald J. Mann [ARGUED]
Gerard M. McCabe
Mitts Law
1822 Spruce Street
Philadelphia, PA 19103
Daniel P. Goetz
R. Eric Kennedy
Weisman, Kennedy & Berris
1600 Midland Building
101 West Prospect Avenue
Cleveland, OH 44115
Mark D. Griffin
Thorman Petrov Griffin
3100 Terminal Tower
50 Public Square
Cleveland, OH 44113
Peter Hardin Levine
J. Matthew Linehan
Daniel P. Petrov
Christopher P. Thorman
Thorman & Hardin-Levine
1220 West Sixth Street
Cleveland, OH 44113
Attorneys for Lincoln T. Griswold and Lincoln
Griswold Family LLP, Plaintiffs-Appellees
Kannon K. Shanmugam [ARGUED]
Stephen D. Andrews
Kenneth J. Brown
Sarah K. Campbell
2
David Forkner
Marcie R. Ziegler
Williams & Connolly
725 12th Street, N.W.
Washington, DC 20005
F. Warren Jacoby
Jennifer M. McHugh
Cozen O'Connor
1900 Market Street
Philadelphia, PA 19103
Attorneys for Coventry First, LLC, Coventry Group,
Inc., Montgomery Capital, Inc., Coventry Financial
LLC, and Reid S. Buerger, Defendants - Appellants
____________
OPINION
____________
HARDIMAN, Circuit Judge.
Appellee Lincoln T. Griswold purchased a life
insurance policy that was later sold to Appellant Coventry
First LLC (Coventry) for an allegedly inflated price that
included undisclosed kickbacks to the broker. Griswold sued,
and Coventry moved to dismiss the case for lack of standing
or, in the alternative, to compel arbitration. The District Court
denied the motion and Coventry appealed. Two questions are
presented: (1) whether we have appellate jurisdiction to
review the District Court’s denial of a motion to dismiss for
lack of standing; and (2) whether the District Court erred
when it denied a motion to compel arbitration.
3
I
This appeal arises from an alleged fraud in connection
with a “life settlement,” which involves the sale of a life
insurance policy for more than its cash-surrender value but
less than the net death benefit. The purchaser of the policy
pays the premiums until the original policy owner’s death, at
which time the purchaser collects the death benefit.
In January 2006, Griswold purchased an $8.4 million
life insurance policy. He then established the Lincoln T.
Griswold Irrevocable Trust (the Trust) under Georgia law for
the “sole and exclusive purpose” of owning the policy and he
disclaimed any personal “right, title or interest in or power,
privilege or incident of ownership” in the trust property. He
appointed Wells Fargo Bank to serve as Trustee.
Two weeks after the Trust was formed, Griswold
named Griswold LLP 1 as its sole beneficiary. 2 According to
the terms of the partnership agreement, Griswold LLP would
1
The partners in the LLP were Griswold, who owned
99% of the shares, and his son, Kirk Griswold, who owned
the remainder.
2
The partnership also served as the borrower under a
financing agreement made with Bedrock Financing, in which
the partnership received funds and then transmitted them to
the Trust to pay the premiums on the life insurance policy.
The partnership agreement specifically prohibited the
partnership from “engag[ing] in any business or activity
whatsoever except as specifically authorized” in the
partnership agreement or the financing agreement with
Bedrock. JA 370 (§ 2.7).
4
dissolve once it fulfilled its limited purpose of receiving the
proceeds of the life insurance policy. At that point, it would
enter into a “winding-up period,” during which the trustee
was tasked with “liquidating its property, satisfying the
claims of its creditors, and distributing any remaining
property or the proceeds therefrom to the Partners.” JA 382 (§
9.3). Upon completion of the winding up period, the
liquidating trustee would file a “Cancellation of the Election
to Become a Limited Liability Partnership” to terminate the
partnership. JA 384 (§ 9.8).
In January 2006, the Trust appointed Mid-Atlantic
Financial as its exclusive agent to “identify, select and
appoint” a life-settlement broker who would help the Trust
sell Griswold’s life insurance policy. JA 326 (§ 1.1). Mid-
Atlantic selected Kevin McGarrey, who had previously
assisted Griswold in procuring the policy, to be the settlement
broker. In March 2008, McGarrey reached out to Appellant
Coventry First LLC (Coventry), a Pennsylvania-based insurer
and significant player in the life settlement industry,
indicating that Griswold’s life insurance policy was for sale
and that Mid-Atlantic had authorized him to broker a life
settlement for a commission of $84,000. In his complaint,
Griswold alleges that Coventry rigged the bidding process by
having McGarrey sign a written producer agreement—the
“Secret McGarrey Agreement”—promising to refrain from
seeking any further bids and to report any competing offers
and their material terms to Coventry. In exchange, Coventry
allegedly allowed McGarrey to “self-determine” his
commission to the tune of $145,000, which was $61,000
more than what he was entitled to. Accordingly, McGarrey
did not put the policy on the competitive market and did not
pursue any other potential buyers.
5
Coventry offered $1.675 million for the Griswold
policy—$1.53 million for the policy and $145,000 for
McGarrey’s commission. Coventry and McGarrey did not
disclose the amount of broker compensation to the Trust or to
Griswold. 3 On March 31, 2008, the Trust sold its policy to
Coventry without having received a competing offer. The
written purchase agreement contained the following
arbitration clause:
All disputes and controversies of every kind and nature
between the Parties arising out of or in connection with
this Agreement including, but not limited to, its
existence, construction, validity, interpretation or
meaning, performance, non-performance, enforcement,
operation, breach, continuance, or termination thereof
shall be submitted and settled by arbitration in
accordance with the rules of the American Arbitration
Association.
JA 648 (§ 8.8). Once Coventry acquired the life insurance
policy, the Trust dissolved, having fulfilled its sole purpose.
The Trustee, Wells Fargo, then transferred the proceeds of the
sale to Griswold LLP, the sole beneficiary. In December
2008, the partners of Griswold LLP filed a “Cancellation of
3
At the time, neither Pennsylvania nor Georgia state
law required the policy purchaser to disclose the broker
compensation to the policy owner. However, Pennsylvania
law imposed a fiduciary duty on the broker to disclose the
amount of compensation, 40 Pa. Stat. Ann. § 626.7(d). Thus
Griswold argues that Coventry is liable for aiding and
abetting McGarrey’s deliberate breach of fiduciary duty. 40
Pa. Stat. Ann. § 626.2.
6
Limited Liability Partnership Election” in Georgia state court
pursuant to the LLP’s partnership agreement.
In September 2010, after learning of Coventry’s alleged
fraud, Griswold sued Coventry, Coventry Group,
Montgomery Capital, Coventry Financial, and Reid S.
Buerger, Coventry’s Executive Vice President, in
Pennsylvania state court on behalf of himself—both in his
individual capacity and as the former majority partner of
Griswold LLP—and on behalf of a class of persons who had
sold their life insurance policies to these Defendants.
Griswold alleged that Coventry’s collusion with McGarrey to
conceal his self-determined commission and rig the bidding
process constituted common law fraud, fraudulent
concealment, conversion, aiding and abetting the breach of
fiduciary duties, unjust enrichment, and also violated state life
settlement acts, the Sherman Act, and the Racketeer
Influenced and Corrupt Organizations Act (RICO).
Because the class action sought over $5 million in
damages, Coventry removed the case to the United States
District Court for the Eastern District of Pennsylvania. In
recognition of the fact that Griswold had not signed the
purchase agreement, Coventry filed a motion to dismiss for
lack of standing, or in the alternative, to compel arbitration
pursuant to the purchase agreement. 4 In response, Griswold
filed an “Election to Revive and Reinstate and Otherwise
4
Only the Griswold Trust, which has since dissolved,
signed the purchase agreement; neither of the Appellees—
Griswold and Griswold LLP—were signatories. Thus,
Coventry is the only party to this litigation to have signed the
purchase agreement.
7
Become a Limited Liability Partnership,” followed by an
Amended Complaint adding Griswold LLP as a Plaintiff. JA
480. Coventry moved to dismiss the Amended Complaint.
The District Court denied Coventry’s motion to dismiss,
finding that because “Griswold possesses a proprietary
interest in the property of Griswold LLP that was injured,
both Lincoln T. Griswold and the LLP have Article III
standing.” JA 4. The District Court then denied Coventry’s
alternative motion to compel arbitration, holding that the
arbitration clause was “unenforceable as to Plaintiffs who are
non-signatories.” Id. Coventry timely appealed.
II
The District Court had jurisdiction pursuant to 28
U.S.C. § 1332(d). We have appellate jurisdiction over the
District Court’s denial of defendants’ motion to compel
arbitration pursuant to 28 U.S.C. § 1291 and the Federal
Arbitration Act (FAA), 9 U.S.C. § 16(a)(1)(B), which
provides that “[a]n appeal may be taken” from an order
denying a petition to compel arbitration. See E.I. Dupont de
Nemours & Co. v. Rhone Poulenc Fiber and Resin
Intermediates S.A.S., 269 F.3d 187, 204 (3d Cir. 2001).
The parties dispute whether we have appellate
jurisdiction to review the District Court’s denial of
Coventry’s motion to dismiss for lack of standing. Coventry
argues that we have not only the authority but the obligation
to determine whether Appellees possess standing because it is
a “threshold jurisdictional requirement” both in the district
court and on appeal. Coventry Br. at 18-19 (citing Majestic
Star Casino, LLC v. Barden Development, Inc., 716 F.3d 736,
747-49 (3d Cir. 2013) (“As a threshold matter of
8
justiciability, we must decide whether the Debtors have
standing . . . .”); Interfaith Community Org. v. Honeywell
Int’l, Inc., 399 F.3d 248, 254 (3d Cir. 2005).); see also Steel
Co. v. Citizens for a Better Env’t, 523 U.S. 83, 95 (1998)
(“[E]very federal appellate court has a special obligation to
‘satisfy itself not only of its own jurisdiction, but also that of
the lower courts in a cause under review.’”) (internal citation
omitted).
Though Coventry insists that our decision in Majestic
Star should guide our analysis, that case bears little similarity
to this appeal. There, the standing issue was raised for the
first time on appeal and was inextricably intertwined with the
merits of the case. Majestic Star, 716 F.3d at 749 (“We thus
find ourselves in a circumstance where what is ordinarily the
preliminary question of standing cannot be answered without
delving into whether the entity tax status of [the debtor
subsidiary] is ‘property’ and, if so, whether it belongs to [the
subsidiary or the corporate parent].”). Thus, we had no choice
but to decide the standing question in Majestic Star.
Here, however, we must decide whether we are
required to adjudicate the standing issue after it has already
been decided by the District Court. As we stated in Petroleos
Mexicanos Refinacion v. M/T King A (Ex-Tbilisi), 377 F.3d
329 (3d Cir. 2004), “[t]here are countless cases where a
district court rejects a defendant’s challenge to the plaintiff's
standing; in that posture, defendants simply may not seek
immediate review in the court of appeals.” Id. at 335. In other
words, although standing is always a threshold issue, standing
to appeal should not be confused with standing to sue. Once a
district court has determined that a plaintiff has standing to
sue, our power to adjudicate that issue on an interlocutory
basis is limited.
9
Coventry argues that we can and should exercise
pendent appellate jurisdiction over the District Court’s ruling
on the standing question. Pendent appellate jurisdiction exists
where an appealable issue is so “inextricably intertwined”
with a nonappealable issue that one cannot resolve the former
without addressing the latter. DuPont, 269 F.3d at 203.
Because we have jurisdiction to review the order of the
District Court compelling arbitration, Coventry argues, we
should assert jurisdiction over the order denying Coventry’s
motion to dismiss for lack of standing. We disagree.
The doctrine of pendent jurisdiction is indisputably
“narrow” and should be used “‘sparingly’ and only where
there is a sufficient overlap in the facts relevant to both the
appealable and nonappealable issues to warrant plenary
review.” Id. (emphasis in original); In re Montgomery
County, 215 F.3d 367, 375-76 (3d Cir. 2000) (“Pendent
appellate jurisdiction over an otherwise unappealable order is
available only to the extent necessary to ensure meaningful
review of an appealable order.”) (internal quotation marks
and citation omitted); Swint v. Chambers Cnty. Comm’n, 514
U.S. 35, 49-50 (1995) (warning that “loosely allowing
pendent appellate jurisdiction would encourage parties to
parlay Cohen-type collateral orders into multi-issue
interlocutory appeal tickets.”).
In DuPont, we considered whether we could review
the denial of a motion to dismiss for lack of personal
jurisdiction (an otherwise nonappealable order) pendent to
our review of a denial of a motion to compel arbitration (an
appealable order). We held that the jurisdictional question
was not sufficiently intertwined with the merits of the
appealable order, requiring us to “exercise restraint and
forego review until the unrelated issue is appealable in its
10
own right.” DuPont, 269 F.3d at 204 (citing United States
Fidelity & Guaranty Co. v. Braspetro Oil Serv. Co., 199 F.3d
94, 97 (2d Cir. 1999)).
As personal jurisdiction and standing are both
threshold jurisdictional questions, our reasoning in DuPont
applies here. Moreover, as Coventry has acknowledged,
Coventry Reply Br. at n.1, two of our sister courts have
declined to extend pendent appellate jurisdiction to adjudicate
district court orders on standing. Summit Medical Assoc., P.C.
v. Pryor, 180 F.3d 1326, 1334 (11th Cir. 1999) (finding that
the appealable dismissal on Eleventh Amendment immunity
grounds was not inextricably entwined with the non-
appealable standing issue); Triad Assoc., Inc. v. Robinson, 10
F.3d 492, 496 n.2 (7th Cir. 1993) (“To further beat the
jurisdictional dead horse, we do not find that [the non-
appealable collateral standing issue is] ‘inextricably
entwined’ with the appealable qualified immunity inquiry nor
that there are ‘compelling reasons’ . . . that would justify
invoking our rarely appropriate pendent appellate
jurisdiction.”) (internal citation omitted).
Like the Eleventh Circuit in Summit Medical and the
Seventh Circuit in Triad Associates, the issues before us now
are not sufficiently intertwined to support the exercise of
pendent appellate jurisdiction. Regardless of how we
adjudicate the standing question, we may still reach the
arbitration question. Moreover, the factual underpinnings of
the issues are distinct: the standing issue involves an inquiry
into whether Griswold LLP remains in existence and can
bring claims on behalf of the Trust as its sole beneficiary. In
contrast, the question of arbitrability requires us to decide
whether Griswold LLP, a non-signatory to the purchase
agreement, can be bound to its arbitration clause because it
11
reaped the benefits of the contract. The two considerations are
discrete and neither issue’s determination is dependent upon
the other.
In sum, we decline to exercise pendent appellate
jurisdiction over the District Court’s denial of Coventry’s
motion to dismiss because it is not inextricably intertwined
with the denial of the motion to compel arbitration, nor is its
review necessary to adjudicate the arbitrability issue.
III
We turn next to the District Court’s order denying
Coventry’s motion to compel arbitration, which the parties
and the Court agree is now subject to our review. FAA, 9
U.S.C. § 16(a)(1)(B) (providing that an appeal may be taken
from an order denying a petition to compel arbitration); 28
U.S.C. § 1291.
We review decisions regarding the applicability and
scope of arbitration agreements de novo, applying the same
standard the District Court applied. SBRMCOA, LLC v.
Bayside Resort Inc., 707 F.3d 267, 270-71 (3d Cir. 2013)
(citing Kaneff v. Del. Title Loans, 587 F.3d 616, 620 (3d Cir.
2009)). “A district court decides a motion to compel
arbitration under the same standard it applies to a motion for
summary judgment.” Kaneff, 587 F.3d at 620. “The party
opposing arbitration is given the benefit of all reasonable
doubts and inferences that may arise.” Id. (internal quotation
marks and citation omitted).
In this appeal, it is undisputed that the purchase
agreement contained a broad arbitration clause requiring the
12
parties to arbitrate any disputes arising out of the contract. 5
Courts generally apply a presumption in favor of enforcing
arbitration clauses. Preston v. Ferrer, 552 U.S. 346, 349
(2008) (stating that the FAA established “a national policy
favoring arbitration when the parties contract for that mode of
dispute resolution”); Dupont, 269 F.3d at 194 (citing Sandvik
AB v. Advent Int’l Corp., 220 F.3d 99, 104-05 (3d Cir. 2004)
(“The FAA establishes a strong federal policy in favor of
compelling arbitration over litigation.”) (internal quotation
marks omitted)). Coventry argues that because Griswold’s
claims “touch matters covered by [an arbitration clause in a
contract] . . . ‘those claims must be arbitrated.’” Coventry Br.
at 39-40 (quoting Brayman Construction Corp. v. Home
Insurance Co., 319 F.3d 622, 626 (3d Cir. 2003) (internal
quotation marks and citation omitted)).
The presumption in favor of arbitration does not
extend, however, to non-signatories to an agreement; it
applies only when both parties have consented to and are
bound by the arbitration clause. See United Steelworkers of
America v. Warrior & Gulf Navigation Co., 363 U.S. 574,
582 (1960) (“[A] party cannot be required to submit to
5
The arbitration clause encompassed “[a]ll disputes
and controversies of every kind and nature between the
Parties arising out of or in connection with this Agreement.”
JA 648 (emphasis added). By all accounts, the language in the
arbitration provision is fairly standard and interpreted to
apply broadly. See Battaglia v. McKendry, 233 F.3d 720, 727
(3d Cir. 2000) (“[W]hen phrases such as . . . ‘arising out of’
appear in arbitration provisions, they are normally given
broad construction.”).
13
arbitration any dispute which he has not agreed so to
submit.”); Bel-Ray Co., Inc. v. Chemrite (Pty) Ltd., 181 F.3d
435, 444 (3d Cir. 1999) (“If a party has not agreed to
arbitrate, the courts have no authority to mandate that he do
so.”). Still, a non-signatory may be bound by an arbitration
agreement if “‘traditional principles’ of state law allow a
contract to be enforced by or against nonparties to the
contract.” Arthur Andersen LLP v. Carlisle, 556 U.S. 624,
631 (2009); see also Dupont, 269 F.3d at 194 (a non-
signatory may be bound to an arbitration agreement if “under
traditional principles of contract . . . [the party is] akin to a
signatory of the underlying agreement”) (internal quotation
marks and citation omitted).
Coventry seeks to compel Appellees to arbitrate under
one such traditional contract principle: equitable estoppel.
Both Georgia and Pennsylvania law allow non-signatories to
be bound to an arbitration agreement. See, e.g., Price v. Ernst
& Young, LLP, 617 S.E.2d 156, 159 (Ga. Ct. App. 2005)
(finding that “equitable estoppel applies when the signatory to
a written agreement containing an arbitration clause must rely
on the terms of the written agreement in asserting its claims
against the nonsignatory.”) (quoting MS Dealer Svc. Corp. v.
Franklin, 177 F.3d 942, 947 (11th Cir. 1999)); LaSonde v.
CitiFinancial Mortgage Co., Inc., 614 S.E.2d 224, 226 (Ga.
Ct. App. 2005) (“Federal law provides guidance for
determining the circumstances under which a nonsignatory
may be bound by such agreements. And as found by both
Georgia and federal courts, the theory of equitable estoppel
provides one basis for bringing a nonsignatory within an
arbitration agreement.”) (internal quotation marks and citation
omitted); Dodds v. Pulte Home Corp., 909 A.2d 348, 351 (Pa.
Super. Ct. 2006) (holding that non-signatories to a contract
14
may be compelled to arbitrate “when there is an obvious and
close nexus between the non-signatories and the contract or
the contracting parties.”). 6
Estoppel “can bind a non-signatory to an arbitration
clause when that non-signatory has reaped the benefits of a
contract containing an arbitration clause.” Invista S.A.R.L. v.
Rhodia, S.A., 625 F.3d 75, 85 (3d Cir. 2010) (internal citation
omitted). Equitable estoppel may apply under one of two
theories, which we outlined in Dupont:
6
Neither party relied on Georgia or Pennsylvania law
either in the District Court, see Griswold's Memorandum in
Opposition to Motion to Dismiss, D.E. 34 at 55-61;
Coventry's Memorandum in Reply to Response to Motion to
Dismiss, D.E. 38 at 68-75, or on appeal, see Coventry Br. at
45-55; Griswold Br. at 26-28. In a brief footnote in its reply
brief, Coventry acknowledges that state law may be
applicable. See Coventry Reply at 24 n.8. That belated and
undeveloped argument is insufficient to raise a choice-of-law
issue on appeal. See Neely v. Club Med Mgmt. Servs., Inc.,
63 F.3d 166, 180 (3d Cir. 1995) (en banc) (observing that
"choice of law issues may be waived").
Because we are satisfied that the Supreme Court’s
decision in Arthur Andersen did not overrule Third Circuit
decisions consistent with relevant state law contract
principles, we may rely on our prior decisions so long as they
do not conflict with these Georgia and Pennsylvania state law
principles. See Kramer v. Toyota Motor Corp., 705 F.3d
1122, 1130 n.5 (9th Cir. 2013) (holding that pre-Arthur
Andersen federal decisions consistent with relevant state
contract principles remain good law).
15
First, courts have held non-signatories to an
arbitration clause when the non-signatory
knowingly exploits the agreement containing
the arbitration clause despite having never
signed the agreement. . . .
Second, courts have bound a signatory to
arbitrate with a non-signatory “at the non-
signatory’s insistence because of ‘the close
relationship between the entities involved, as
well as the relationship of the alleged wrongs to
the non[-]signatory’s obligations and duties in
the contract ... and [the fact that] the claims
were intimately founded in and intertwined with
the underlying contract obligations.’”
269 F.3d at 199 (internal quotation and citation omitted).
Here, the latter theory is inapplicable because our case
involves a signatory (Coventry) attempting to bind a non-
signatory (Griswold) to the arbitration clause, rather than the
inverse. 7 See id. at 202 (“Appellants recognize that these
cases bind a signatory not a non-signatory to arbitration, but
argue that this is a distinction without a difference. They are
wrong.”) (emphasis in original).
7
The other Appellants—Coventry Group,
Montgomery Capital, Coventry Financial, and Reid S.
Buerger—were non-signatories to the purchase agreement,
and therefore cannot bind other non-signatories. Invista, 625
F.3d at 85 (stating that the party seeking to compel arbitration
had “offer[ed] no authority for its contention that a non-
signatory to an arbitration agreement can compel another
non-signatory to arbitrate certain claims, and we have found
none”).
16
Coventry asserts that under the first theory of equitable
estoppel—the “knowingly exploits” theory—a non-signatory
may be bound by an arbitration clause if it “embraces the
agreement and directly benefits from it.” Bouriez v. Carnegie
Mellon Univ., 359 F.3d 292, 295 (3d Cir. 2004). “A non-
signatory can ‘embrace’ a contract in two ways: (1) by
knowingly seeking and obtaining direct benefits from that
contract; or (2) by seeking to enforce terms of that contract or
asserting claims [based on the contract’s other provisions].”
Haskins v. First Am. Title Ins. Co., 866 F. Supp. 2d 343, 350
(D.N.J. 2012) (quoting Noble Drilling Services, Inc. v. Certex
USA, Inc., 620 F.3d 469, 473 (5th Cir. 2010) (internal
quotation marks and citation omitted).
Equitable estoppel thus prevents a non-signatory from
“‘cherry-picking’ the provisions of a contract that it will
benefit from and ignoring other provisions that don’t benefit
it or that it would prefer not to be governed by (such as an
arbitration clause).” Invista, 625 F.3d at 85 (internal citation
omitted); see also DuPont, 269 F.3d at 200 (“To allow [a
non-signatory] to claim the benefit of the contract and
simultaneously avoid its burdens would both disregard equity
and contravene the purposes underlying enactment of the
Arbitration Act.”) (internal citation omitted). A non-signatory
cannot knowingly embrace the contract only to later “turn its
back” on other provisions in the contract, such as an
arbitration clause. Dupont, 269 F.3d at 199.
In DuPont, plaintiff was the parent company to a
subsidiary that had signed a joint venture agreement with two
other companies. The agreement provided that DuPont, a
non-signatory, would “assist . . . in the balancing of foreign
exchange during the [joint venture's] initial years” and “not
take action detrimental to the interest or well-being of the
17
[joint venture].” 269 F.3d at 191, 192 (internal quotation
marks omitted). DuPont and Rhodia, a signatory to the joint
venture agreement, entered into three agreements related to
the joint venture: a supply agreement, a license contract and
an export sales agreement. Id. at 192.
When the joint venture failed, DuPont sued the parties,
including Rhodia, alleging breach of an oral contract to fully
perform the joint venture agreement. Rhodia sought to bind
DuPont, a non-signatory, to the agreement’s arbitration
clause. We held that DuPont had not “embraced the
Agreement itself during the lifetime of the Agreement,” and
that it had not “received any direct benefit under the
Agreement.” Id. at 200 (emphasis in original). Nevertheless,
we expressed concern that DuPont’s claim against Rhodia
seemed to “(a) embrace[ ] the underlying Agreement and (b)
require[ ] proof that Rhodia . . . ultimately breached the
underlying Agreement.” Id. at 201.
What gives us some pause . . . is that a close
examination of the Amended Complaint reveals
that, at bottom, DuPont’s claims arise, at least
in part, from the underlying Agreement. . . . On
the one hand, we must be careful about
disregarding the corporate form and treating a
non-signatory like a signatory. On the other
hand, by alleging, albeit by virtue of a separate
oral agreement, that Rhodia Fiber failed to
secure loan guarantees, DuPont’s claim against
Rhodia Fiber implicates, at least in part, the
very Agreement which DuPont repudiates to
avoid arbitration. It is, however, that separate
oral agreement that saves the day for DuPont
because, wholly apart from whether Rhodia
18
Fiber breached the Agreement, what is at the
core of this case is the conduct and the
statements of the appellants’ representative [in
making the oral promise].
Id. at 200-01. We thus held that DuPont was not bound to the
arbitration clause because its claim did not hinge on whether
Rhodia breached the joint venture agreement itself, but rather
on an oral promise made outside of, albeit related to, the
agreement.
In this sense, our case bears substantial similarity to
DuPont. Here, what “saves the day” for Griswold is the fact
that the alleged “Secret McGarrey Agreement” took place
prior to and apart from the execution of the purchase
agreement. Of course, that alleged fraud was related to the
purchase agreement—it set the purchase price and, allegedly,
the inflated, undisclosed broker’s commission. But that alone
is not sufficient to compel arbitration under the equitable
estoppel doctrine: the claims must be based directly on the
agreement. Id. Here, Appellees’ Amended Complaint
sufficiently alleged their injury without mention of the
purchase agreement. Put simply, Appellees do not allege
breach of the purchase agreement; they allege fraud
antecedent to the purchase agreement.
Our relatively narrow application of the equitable
estoppel exception is further reinforced by Bouriez, 359 F.3d
at 294-96. Bouriez sued Carnegie Mellon University (CMU)
for fraudulent inducement to enter a shareholders’ agreement
with Governors Technologies to fund projects at CMU. CMU
then sought to compel arbitration against Bouriez based on a
contract between CMU and Governors Technologies. The
District Court ordered arbitration and we reversed, holding
19
that equitable estoppel did not support binding Bouriez, a
non-signatory, to the arbitration clause as there was no
evidence in the record to indicate that Bouriez had directly
benefited from the contract. At most, the facts showed that
Bouriez became a minority shareholder in Governors
Technologies for the sole purpose of funding a CMU project;
no evidence indicated that benefits from that project would
flow to Bouriez directly. Id. at 295.
In Bouriez, we relied heavily on Industrial Electronics
Corp. of Wisconsin v. iPower Distribution Group, 215 F.3d
677 (7th Cir. 2000), whose facts we declared “nearly
identical” to those in Bouriez. 359 F.3d at 295. In Industrial
Electronics, plaintiffs alleged that iPower fraudulently
induced Industrial Electronics to enter into an association of
other companies. Industrial Electronics sued, and iPower
sought to compel arbitration pursuant to an arbitration clause
in the franchise agreement between iPower and the
association. Id. (citing Industrial Electronics, 215 F.3d at
679). The Seventh Circuit held that Industrial Electronics’
claims were not based on the franchise agreement, nor had the
corporation directly benefited from the agreement; therefore,
it could not be bound by its arbitration clause. Id. (quoting
Industrial Electronics, 215 F.3d at 681) (“A dispute that
arises under one agreement may be litigated notwithstanding
a mandatory arbitration clause in a second agreement, even
where the two agreements are closely intertwined.”).
As in DuPont, Bouriez, and Industrial Electronics, the
fraudulent conduct alleged in this case—the “Secret
McGarrey Agreement”—took place prior to and apart from
the purchase agreement. Accordingly, the District Court
properly found that Griswold’s claims “would exist even if
the contract containing the arbitration clause were void,” and
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are “independent of the Purchase Agreement at issue.” JA4-5.
In other words, because the “Secret McGarrey Agreement”
was not incorporated into the purchase agreement, Appellees’
claims do not allege a breach of that agreement and they are
not bound by its terms. Therefore, Coventry cannot compel
arbitration against Appellees, who never consented to the
purchase agreement. 8
8
Because we find that Coventry cannot compel
arbitration, we need not reach the question of whether
Appellees would be required to arbitrate their claims on an
individual rather than a class basis. However, because the
parties request that we specify the answer to that question in
this appeal, we will note that Appellees waived their class
action claim on appeal, having neglected to properly brief the
issue and having conceded as much at oral argument. Only in
the very last footnote of their brief do Appellees discuss the
issue of class status, and only abstractly:
[T]he class plaintiff’s individual standing, linked to his
or her asserted claim, becomes automatically linked to
the class claim. Having standing which a class
representative shares with the members of a class is
another way of saying that the class representative is a
proper party to raise a particular issue common to the
class . . . .
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* * *
For the reasons stated, we hold that we lack appellate
jurisdiction to review the District Court’s denial of
Coventry’s motion to dismiss. And we will affirm the District
Court’s denial of the motion to compel arbitration against
Griswold and Griswold LLP.
Griswold Br. at 58. Aside from this footnote, Appellees make
no attempt to reassert class status. Because they failed to brief
the issue on appeal and conceded as much at oral argument,
they have forfeited the argument. See John Wyeth & Bro. Ltd.
v. CIGNA Int’l Corp., 119 F.3d 1070, 1076 n.6 (3d Cir. 1997)
(“[A]rguments raised in passing (such as, in a footnote), but
not squarely argued, are considered waived.”).
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