Humphrey, P. v. GlaxoSmithKline PLC ( 2021 )

J-A01025-21
2021 PA Super 180PETER HUMPHREY, YU YINGZENG, : IN THE SUPERIOR COURT OF
AND CHINA WHYS COMPANY LTD : PENNSYLVANIA
:
:
v. :
:
:
GLAXOSMITHKLINE PLC AND :
GLAXOSMITHKLINE LLC : No. 1145 EDA 2020
:
Appellant :
Appeal from the Order Entered February 12, 2020
In the Court of Common Pleas of Philadelphia County Civil Division at
No(s): No. 181003237
BEFORE: BENDER, P.J.E., OLSON, J., and STRASSBURGER, J.*
OPINION BY OLSON, J.: FILED SEPTEMBER 3, 2021
Appellants, GlaxoSmithKline PLC (“GSK PLC”) and GlaxoSmithKline LLC
(“GSK LLC”), appeal from the order entered on February 12, 2020, which
overruled their preliminary objection to compel arbitration. We affirm.
Peter Humphrey, Yu Yingzeng, and ChinaWhys Co. Ltd. (collectively
“Plaintiffs”) filed this action against Appellants. Within their amended
complaint, Plaintiffs alleged and averred the following.
Humphrey and Yu are a married couple and are co-founders of
ChinaWhys Co. Ltd. (“ChinaWhys Co.”). ChinaWhys Co. provides “risk
management advice and consulting services [in China], primarily focused on
the prevention and exposure of internal corruption and fraud within
multinational companies.” Plaintiffs’ Amended Complaint, 12/17/18, at
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* Retired Senior Judge assigned to the Superior Court.
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¶¶ 6-8. GSK PLC is a global pharmaceutical company. GSK LLC is a wholly
owned subsidiary of GSK PLC and has its principal place of business in
Philadelphia. Id. at ¶ 9. Non-party GlaxoSmithKline (China) Investment Co.,
Ltd (“GSK China”) is a wholly owned subsidiary of GSK PLC and operates in
China. See id. at ¶ 9. “At all relevant times, [GSK PLC] had the right to and
did exercise control over the actions of its wholly-owned subsidiaries [GSK
China] and GSK LLC.” Id.
“[F]rom at least 2010, [Appellants participated] in widespread bribery
in China,” with the intention of increasing their pharmaceutical sales. Id. at
¶ 21. In December 2011, an anonymous whistleblower who worked for
Appellants began sending information to Chinese regulators, “describing the
widespread fraud and corruption within” Appellants’ organization. Id. at ¶ 25.
Appellants came to believe that the whistleblower was an individual named
Vivian Shi, who was the head of government affairs for GSK China. Id. at
¶ 49. As a result, Appellants fired Shi for a pretextual reason. Id. at ¶ 50.
In April 2013, Appellants approached Humphrey and asked that
ChinaWhys Co. “conduct a background investigation on Shi.” See id. at ¶¶ 9,
48, and 59. To convince Humphrey to investigate Shi, Appellants told
Humphrey that Shi’s whistleblower accusations were false. Id. at ¶ 50.
According to Plaintiffs’ amended complaint, however, Appellants knew that the
whistleblower accusations were not false, as Appellants knew that they
“orchestrated and condoned the illegal conduct that was the subject of the
allegations.” Id. at ¶ 122. Plaintiffs claimed that Appellants secretly wanted
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ChinaWhys Co. to conduct the background investigation on Shi “to bolster the
false assertion that she was an extortionist making false claims[, so that
Appellants could] hide the truth about the [whistleblower] allegations.” Id.
at ¶ 123. Appellants also failed to inform Plaintiffs that “Shi had powerful
unidentified allies within the [Chinese] Communist Party elite in Shanghai and
that it was therefore extremely dangerous to investigate her.” Id. at ¶ 51.
Based upon Appellants’ alleged misrepresentations and omissions,
Plaintiffs agreed to “conduct an information search on Shi and assess the risk
she could pose to [Appellants] through her supposed smear campaign.” Id.
at ¶ 60. Plaintiffs investigated Shi’s background and, on June 6, 2013,
Plaintiffs submitted their investigative report to Appellants. Id. at ¶ 68.
On July 1, 2013, the Chief Executive Officer (“CEO”) of GSK China
informed Humphrey that Shi had “read your report and she will be coming
after you.” Id. at ¶ 85. On July 10, 2013, Shanghai police raided both
ChinaWhys Co.’s office and the Beijing home shared by Humphrey and Yu.
Id. at ¶ 89. The Shanghai police detained Humphrey and Yu and, following
their formal arrests, Humphrey and Yu were tried in China and convicted of
crimes related to their investigation into Shi. See id. at ¶ 95.
On August 8, 2014, Humphrey was sentenced to serve two-and-one-half
years in prison; Yu was sentenced to serve two years in prison. Id. Humphrey
and Yu were then transferred to separate prisons in Shanghai, where they
“suffered from a wide range of maltreatment ranging from passive denial and
ignorance of requests for basic needs, to active and aggressive cruelty at the
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hands of prison guards.” Id. at ¶ 96. Further, while Humphrey and Yu were
in prison, Appellants made misleading statements that “prolonged Humphrey
and Yu’s incarceration.” Id. at ¶ 112.
Plaintiffs pleaded four causes of action in their amended complaint:
fraud, intentional infliction of emotional distress, negligent infliction of
emotional distress, and civil conspiracy. Plaintiffs sought damages related to
the arrest and imprisonment of Humphrey and Yu and the destruction of their
ChinaWhys Co. business. See id. at ¶¶ 120-143.
On September 10, 2019, Appellants filed preliminary objections in the
nature of a petition to compel arbitration. Within their preliminary objections,
Appellants claimed that Plaintiffs contractually agreed to arbitrate all of their
claims against Appellants. In support of their preliminary objections,
Appellants averred that, in April 2013, GSK China officials requested that
non-party ChinaWhys (Shanghai) Consulting Co. Ltd. (hereinafter “ChinaWhys
Consulting Co.”) conduct a background investigation on Shi. See Appellants’
Preliminary Objections, 9/10/19, at ¶ 3. According to Appellants, Plaintiffs
“agreed to be retained by GSK China, and Humphrey signed a formal retention
agreement, titled a Consultancy Agreement, on behalf of” ChinaWhys
Consulting Co. Id. at ¶ 6. The Consultancy Agreement between GSK China
and ChinaWhys Consulting Co. contains an arbitration clause, which provides:
This Agreement shall be governed in all respects by the laws
of the People’s Republic of China. All disputes arising out of
or in connection with this Agreement shall be settled through
friendly consultation between both parties. In case no
settlement can be reached, either Party may submit the
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dispute to the China International Economic and Trade
Arbitration Commission (“CIETAC”) in Beijing for arbitration
in accordance with the CIETAC rules of arbitration then in
effect. The arbitration award shall be final and binding on the
Parties.
Consultancy Agreement, dated 4/26/13, at ¶ 11.
Appellants claimed that, even though Plaintiffs strategically chose not to
name GSK China as a defendant or ChinaWhys Consulting Co. as a plaintiff,
the arbitration clause in the Consultancy Agreement was still enforceable
against Plaintiffs, as Plaintiffs’ claims constituted a “dispute[] arising out of or
in connection with” the Consultancy Agreement. See Appellants’
Memorandum of Law in Support of Preliminary Objections, 9/10/19, at 3.
Plaintiffs responded to the preliminary objections and claimed that they
were not bound by the arbitration agreement because neither Plaintiffs nor
Appellants were signatories to the agreement. See Plaintiffs’ Memorandum
in Opposition to Preliminary Objections, 10/25/19, at 12. Further, Plaintiffs
argued that the trial court should overrule the preliminary objections, as their
claims did not fall within the scope of the arbitration clause. See id. at 21.
On February 12, 2020, the trial court overruled Appellants’ preliminary
objection seeking to compel arbitration. Trial Court Order, 2/12/20, at 1. As
the trial court explained, it overruled the preliminary objection because
“[n]one of the parties to this suit are signatories to the agreement under which
[Appellants] seek to compel arbitration” and because the dispute is not within
the scope of the arbitration agreement. Trial Court Opinion, 2/12/20, at 5
and 12 n.7.
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Appellants filed a timely notice of appeal.1 They raise two claims to this
Court:
1. May [Appellants], affiliates of one contracting party,
compel arbitration against Plaintiffs, an affiliate and two
agents of the other contracting party, where Plaintiffs’ claims
arise from, and would not exist but for, the contract
containing the arbitration agreement?
2. Does an agreement to arbitrate “all disputes arising out of
or in connection with” a contract cover Plaintiffs’ claims based
on alleged misrepresentations that induced them to agree to
the contract and other alleged misrepresentations about the
work they performed because of the contract, and where the
parties would not have had the relationship described in the
complaint but for the contract?
Appellants’ Brief at 2-3.
We have explained:
Our review of a claim that the trial court improperly
[overruled] the appellant's preliminary objections in the
nature of a petition to compel arbitration is limited to
determining whether the trial court's findings are supported
by substantial evidence and whether the trial court abused
its discretion in [overruling the preliminary objections]. In
doing so, we employ a two-part test to determine whether
the trial court should have compelled arbitration. First, we
examine whether a valid agreement to arbitrate exists.
Second, we must determine whether the dispute is within the
scope of the agreement. . . . If the two-part test results in
affirmative answers, then the controversy must be submitted
to arbitration. . . .
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1 “An order overruling preliminary objections seeking to compel arbitration is
immediately appealable as an interlocutory appeal as of right pursuant to 42
Pa.C.S.A. § 7320(a) and Pa.R.A.P. 311(a)(8).” Cardinal v. Kindred
Healthcare, Inc., 155 A.3d 46, 49 n.1 (Pa. Super. 2017).
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Whether a claim is within the scope of an arbitration provision
is a matter of contract, and as with all questions of law, our
[standard of review is de novo and our scope of review is
plenary]. In making these determinations, courts must bear
in mind: (1) arbitration agreements are to be strictly
construed and not extended by implication; and (2) when
parties have agreed to arbitrate in a clear and unmistakable
manner, every reasonable effort should be made to favor the
agreement unless it may be said with positive assurance that
the arbitration clause involved is not susceptible to an
interpretation that covers the asserted dispute. To resolve
this tension, courts should apply the rules of contractual
construction, adopting an interpretation that gives
paramount importance to the intent of the parties and
ascribes the most reasonable, probable, and natural conduct
to the parties. In interpreting a contract, the ultimate goal is
to ascertain and give effect to the intent of the parties as
reasonably manifested by the language of their written
agreement.
TTSP Corp. v. Rose Corp., 217 A.3d 1269, 1280 (Pa. Super. 2019)
(quotations and citations omitted).
“Pennsylvania has a well-established public policy that favors
arbitration, and this policy aligns with the federal approach expressed in the
Federal Arbitration Act, 9 U.S.C. §§ 1–16 (FAA).” Pisano v. Extendicare
Homes, Inc., 77 A.3d 651, 660 (Pa. Super. 2013). “This policy applies
equally to all arbitration agreements.” MacPherson v. Magee Mem’l Hosp.
for Convalescence, 128 A.3d 1209, 1219 (Pa. Super. 2015) (en banc).
Nevertheless, the policy favoring arbitration “was not intended to render
arbitration agreements more enforceable than other contracts, and the FAA
[was not] designed to preempt all state law related to arbitration.” Pisano,
77 A.3d at 661 (quotations and citations omitted). “Thus, when addressing
the specific issue of whether there is a valid agreement to arbitrate, courts
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generally should apply ordinary state-law principles that govern the formation
of contracts, but in doing so, must give due regard to the federal policy
favoring arbitration.” Id. (quotations and citations omitted).
The trial court initially overruled Appellants’ preliminary objection
seeking to compel arbitration because, the trial court concluded, “[n]one of
the parties to this suit are signatories to the agreement under which
[Appellants] seek to compel arbitration.” Trial Court Opinion, 2/12/20, at 5.
On appeal, Appellants acknowledge the fact that no party to this litigation is a
signatory to the Consultancy Agreement, which contains the arbitration
clause. See, e.g., Appellants’ Brief at 8-9. Nevertheless, Appellants claim
that the trial court erred when it refused to enforce the arbitration clause
because, Appellants argue, there is an “obvious and close nexus” between
each party and “either the contract itself or the contracting parties.” Id. at
18-19 (quotations and citations omitted).
Regarding the non-signatory Appellants (who seek to enforce the
arbitration clause), Appellants claim that an “obvious and close nexus” exists
between themselves and GSK China (the signatory to the Consultancy
Agreement) because Appellants and GSK China are “members of the same
corporate family” and because Plaintiffs’ claims “attribute GSK China’s alleged
conduct to” Appellants. Id. at 19-23. Regarding the non-signatory Plaintiffs
(who seek to avoid the arbitration clause), Appellants argue that the same
“obvious and close nexus” test must be applied to determine whether Plaintiffs
are bound by the arbitration clause. See Appellants’ Brief at 23-24.
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Appellants argue that an “obvious and close nexus” exists between plaintiff
ChinaWhys Co. and ChinaWhys Consulting Co. (the signatory to the
Consultancy Agreement) because: “[plaintiff] ChinaWhys Co. and ChinaWhys
Consulting [Co.] are affiliated entities;” “ChinaWhys Co. proposed to do and
actually did all the investigation work called for by the Consultancy
Agreement, and it now sues over injuries it allegedly sustained as a result of
that engagement;” and, “the claims asserted are based on or inextricably
entwined with [the] contract.” Id. at 26-28. Further, Appellants claim that
Humphrey and Yu are bound by the arbitration clause, as Humphrey and Yu
are the agents of ChinaWhys Co. and ChinaWhys Consulting Co. and their
claims are “based on or inextricably entwined with” the Consultancy
Agreement. Id. at 29-32.
The FAA “creates substantive federal law regarding the enforceability of
arbitration agreements.” Arthur Anderson LLP v. Carlisle, 556 U.S. 624,
629-630 (2009). State contract law, however, governs “the scope of
agreements (including the question of who is bound by them).” 2 Id. at 630.
Thus, “traditional principles of state law” govern the issue of whether a
contract may “be enforced by or against nonparties to the contract through
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2 “Unless the parties clearly and unmistakably provide otherwise, the question
of whether the parties agreed to arbitrate is to be decided by the court, not
the arbitrator.” AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S.
643, 649 (1986).
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‘assumption, piercing the corporate veil, alter ego, incorporation by reference,
third-party beneficiary theories, waiver and estoppel.’” Id.“Arbitration is a matter of contract and a party cannot be required to
submit to arbitration any dispute which he has not agreed so to submit.”
Opalinski v. Robert Half Int’l Inc., 761 F.3d 326, 331 (3rd Cir. 2014). “In
general, only parties to an arbitration agreement are subject to arbitration.”
Elwyn v. DeLuca, 48 A.3d 457, 461 (Pa. Super. 2012) (quotations and
citations omitted). Nevertheless, a party “can be compelled to arbitrate under
an agreement, even if he or she did not sign that agreement, if common law
principles of agency and contract support such an obligation on his or her
part.” Bouriez v. Carnegie Mellon Univ., 359 F.3d 292, 294 (3rd Cir. 2004).
Within their brief, Appellants argue that Pennsylvania recognizes an
“‘obvious and close nexus’ doctrine,” which “blends various traditional
doctrines for binding nonsignatories to contracts, including equitable estoppel,
agency, and third-party beneficiary.” Appellants’ Brief at 10. According to
Appellants, the non-signatory Plaintiffs in this case must be compelled to
arbitrate their claims because there exists an “obvious and close nexus”
between each plaintiff and ChinaWhys Consulting Co., the signatory to the
Consultancy Agreement, and between the Plaintiffs’ claims and the contract.
See id. at 11-12. Further, Appellants claim that – regardless of whether a
party seeks to enforce or avoid an arbitration clause – the same “obvious and
close nexus” test and principles apply. See id. at 23-24.
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Plaintiffs, on the other hand, argue that Pennsylvania does not recognize
an independent “‘obvious and close nexus’ doctrine.” Plaintiffs’ Brief at 37.
Rather, Plaintiffs contend, the phrase “obvious and close nexus” is used
merely “as short-hand for traditional principles of contract and agency law.”
Id. at 38-39 and 43. Further, Plaintiffs argue that, under traditional principles
of contract and agency law, Appellants cannot compel them to arbitration, as
they are non-signatories to the agreement. Id. at 58-66.
In the Pennsylvania state courts, the phrase “obvious and close nexus”
first appears in the court of common pleas opinion of Weiner v. Pritzker,
___ A.2d ___, 2001 WL 1807929 (Pa.Com.Pl. 2001). There, the court of
common pleas cited an opinion from the Third Circuit Court of Appeals as
support for the principle that “non-signatories to an arbitration agreement can
enforce such an agreement where there is an obvious and close nexus
between the non-signatories and the contract or the contracting parties.” Id.
at *2, citing Dayhoff Inc. v. H.J. Heinz Inc., 86 F.3d 1287 (3rd Cir. 1996).3
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3 Curiously, Dayhoff did not use the phrase “obvious and close nexus.”
Nevertheless, prior to Weiner, three opinions from the United States District
Court for the Eastern District of Pennsylvania cited Dayhoff for the proposition
that “non-parties to an arbitration agreement can enforce such an agreement
only where there is an obvious and close nexus between the non-parties and
the contract or the contracting parties.” Reibstein v. CEDU/Rocky
Mountain Acad., ___ F.Supp.2d ___, 2000 WL 1858718 (E.D.Pa. 2000)
(unpublished memorandum); see also In re Mushroom Transp. Co., 247
B.R. 395, 398 (E.D.Pa. 2000); Jairett v. First Montauk Sec. Corp., 153
F.Supp.2d 562, 581 (E.D.Pa. 2001).
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The Weiner Court went on to declare that “[o]ne obvious and close nexus is
the relationship created between a principal and an agent.” Id.This Court first utilized the phrase “obvious and close nexus” in Dodds
v. Pulte Home Corp., 909 A.2d 348 (Pa. Super. 2006). In that case, the
Dodds sued Pulte Home Corporation of the Delaware Valley (“PHCDV”) and its
parent corporation, Pulte Home Corporation (“PHC”), for, essentially, breach
of contract. Id. at 350-351. The Dodds expressly contracted with PHCDV and
the contract between the parties contained a broad arbitration clause. Id. at
350.
Even though PHC was not a signatory to the underlying contract, both
defendants (PHCDV and PHC) moved to compel arbitration and argued that
“non-signatories to an arbitration agreement can enforce such an agreement
where there is an obvious and close nexus between the non-signatories and
the contract or the contracting parties.” Id. at 351. The Dodds, on the other
hand, argued that, despite their signatory status, they were “not bound by
the terms of the arbitration agreement” because they sued PHC, a
non-signatory to the underlying contract. Id.We agreed with the contention advanced by PHCDV and PHC and
clarified that “non-signatories to a contract, such as third-party beneficiaries,
may fall within the scope of an arbitration clause if that is the signing parties’
intent.” Id. We further held that the Dodds’ claim on appeal failed because:
In no event could the arbitration clause of PHCDV be defeated
by adding PHC to the complaint, and because PHC wishes to
enforce the arbitration agreement rather than avoid it, [the
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Dodds], as signatories to the arbitration agreement, should
not be able to avoid the requirement to arbitrate by a
non-signatory when the non-signatory wants to arbitrate.
Id. at 352 (emphasis in original).
We next utilized the phrase “obvious and close nexus” in Provenzano
v. Ohio Valley General Hospital, 121 A.3d 1085 (Pa. Super. 2015). In
Provenzano, the plaintiff doctor and the defendant hospital entered into an
employment agreement, which contained an arbitration clause. Id. at 1089.
After the hospital and the hospital’s board of directors decided not to renew
the doctor’s employment, the doctor filed a complaint claiming breach of
contract against the hospital and violation of Pennsylvania’s Wage Payment
and Collection Law (“WPCL”) against the hospital and the board members. Id.
at 1092.
Although the board members were not signatories to the employment
agreement, the hospital and the board members filed a petition to compel
arbitration. Id. at 1093. On appeal, we declared that “non-signatories to an
arbitration agreement can enforce the agreement when there is an obvious
and close nexus between the non-signatories and the contract or the
contracting parties.” Id. at 1097. We further declared that “[o]ne ‘obvious
and close nexus’ between the non-signatories and the contract or the
contracting parties arises from the relationship between a signatory principal
and a non-signatory agent; if the principal is bound by an arbitration
agreement, its agents, employees and representatives are generally likewise
bound and can enforce the arbitration agreement, even as non-signatories to
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the agreement.” Id. We then held that the board members were agents of
the hospital and, as such, the board members were entitled to “enforce the
arbitration clause, even as non-signatories to the employment agreement.”
Id. at 1103.
Our final, published reference to the phrase “obvious and close nexus”
occurred in Saltzman v. Thomas Jefferson University Hospitals, 166 A.3d
465 (Pa. Super. 2017).4 In that case, the plaintiff doctor signed an
employment agreement with Jefferson Medical Care (“JMC”). The
employment agreement contained an arbitration clause. After the plaintiff
doctor’s employment was terminated, the doctor filed a complaint against
defendants JMC and Thomas Jefferson University Hospitals (“TJUH”), claiming
retaliation in violation of the Pennsylvania Whistleblower Law. Although TJUH
was not a party to the employment contract between the doctor and JMC, both
TJUH and JMC filed a petition to compel arbitration. Id. at 468-469.
On appeal, we declared that “a non-signatory to an arbitration
agreement can enforce the agreement if there is an ‘obvious and close nexus’
between the non-signatory and either the contract itself or the contracting
parties.” Id. at 469 n.2. We noted the plaintiff doctor conceded that “TJUH
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4 Any remaining references to the phrase “obvious and close nexus” in our
Court occurred in unpublished memoranda that were filed prior to May 1,
2019. “Because [] these decisions were filed prior to May 1, 2019, none of
them may be cited for their persuasive value. See Pa.R.A.P. 126(b) (providing
that unpublished non-precedential memorandum decisions of the Superior
Court filed after May 1, 2019 may be cited for their persuasive value).”
Commonwealth v. Finnecy, 249 A.3d 903, 910 n.9 (Pa. 2021).
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has an obvious and close nexus to JMC and would be bound by the arbitration
provision were it deemed valid and enforceable.” Id.The above summary demonstrates that Pennsylvania courts do not
utilize the phrase “obvious and close nexus” to connote some sort of
independent doctrine. Instead, our courts have always used the phrase to
refer to “common law principles of agency and contract,” such as “assumption,
piercing the corporate veil, alter ego, incorporation by reference, third-party
beneficiary theories, waiver and estoppel.” See Weiner, 2001 WL 1807929at *2 (“[o]ne obvious and close nexus is the relationship created between a
principal and an agent”) (emphasis added); Dodds, 909 A.2d at 351(“non-signatories to a contract, such as third-party beneficiaries, may fall
within the scope of an arbitration clause if that is the signing parties' intent”)
(emphasis added); Provenzano, 121 A.3d at 1097 (“[o]ne ‘obvious and close
nexus’ between the non-signatories and the contract or the contracting parties
arises from the relationship between a signatory principal and a
non-signatory agent”) (emphasis added).
Moreover, we have only ever used the phrase in the context of a
non-signatory who seeks to compel arbitration against a signatory. See
Weiner, 2001 WL 1807929 at *2 (“non-signatories to an arbitration
agreement can enforce such an agreement where there is an obvious and
close nexus between the non-signatories and the contract or the contracting
parties”) (emphasis added); Dodds, 909 A.2d at 351 (“because PHC wishes
to enforce the arbitration agreement rather than avoid it, [p]laintiffs, as
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signatories to the arbitration agreement, should not be able to avoid the
requirement to arbitrate by a non-signatory when the non-signatory wants
to arbitrate”) (emphasis in original); Provenzano, 121 A.3d at 1097(“non-signatories to an arbitration agreement can enforce the agreement
when there is an ‘obvious and close nexus’ between the non-signatories and
the contract or the contracting parties”) (emphasis added); Saltzman, 166
A.3d at 469 n.2 (same).
Within Appellants’ brief, Appellants fail to distinguish between
non-signatories who seek to compel arbitration with those who seek to avoid
arbitration. Thus, Appellants claim that Humphrey and Yu must be compelled
to arbitrate their claims simply because Humphrey and Yu are agents of
ChinaWhys Co. and ChinaWhys Consulting Co. Appellants’ Brief at 29. It is
true we have held “that non-signatories to an arbitration agreement can
enforce the agreement when there is an ‘obvious and close nexus’ between
the non-signatories and the contract or the contracting parties.” To be sure,
in Provenzano, we explained:
Pennsylvania law has held that non-signatories to an
arbitration agreement can enforce the agreement when
there is an “obvious and close nexus” between the
non-signatories and the contract or the contracting parties. .
. . One “obvious and close nexus” between the
non-signatories and the contract or the contracting parties
arises from the relationship between a signatory principal and
a non-signatory agent; if the principal is bound by an
arbitration agreement, its agents, employees and
representatives are generally likewise bound and can
enforce the arbitration agreement, even as non-signatories
to the agreement.
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Provenzano, 121 A.3d at 1097 (citations omitted) (emphasis added).
However, as explained in Dodds, Provenzano resulted from the fact
that the non-signatory “wishe[d] to enforce the arbitration agreement rather
than avoid it” and, further, from the fact that the “signator[y] to the arbitration
agreement[] should not be able to avoid the requirement to arbitrate by a
non-signatory when the non-signatory wants to arbitrate.” See Dodds, 909
A.2d at 352 (emphasis in original). We have never held that the mere
relationship of principal and agent, standing alone, may be used to compel
the non-signatory agent of a disclosed principal to arbitrate his or her claims.
Indeed, this would be contrary to “a basic tenet of agency law” that “an
individual acting as an agent for a disclosed [principal] is not personally liable
on a contract between the [principal] and a third party unless the agent
specifically agrees to assume liability” and the related tenet that “a corporate
officer cannot be held personally liable on contracts entered into while acting
in his corporate capacity.” Scungio Borst & Assocs. v. 410 Shurs Lane
Developers, LLC, 146 A.3d 232, 240 (Pa. 2016) (corrections omitted),
quoting Vernon D. Cox & Co. v. Giles, 406 A.2d 1107, 1110 & n.4 (Pa.
Super. 1979); see also Restatement (Second) of Agency § 320 (“[u]nless
otherwise agreed, a person making or purporting to make a contract with
another as agent for a disclosed principal does not become a party to the
contract”).
In this case, Humphrey signed the Consultancy Agreement on behalf of
ChinaWhys Consulting Co. See Consultancy Agreement, dated April 26, 2013,
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at 11 (Humphrey signed the agreement “For ChinaWhys (Shanghai)
Consulting Co Ltd”). Yu did not sign the agreement at all. Further, Appellants
do not argue – and we do not perceive – anything in the agreement where
Humphrey or Yu “specifically agree[d] to assume liability” under the
Consultancy Agreement. Scungio Borst & Assocs., 146 A.3d at 240
(quotations and citations omitted). Therefore, under “traditional principles of
state law,” Humphrey and Yu cannot be compelled to arbitration simply
because they are an agent of ChinaWhys Co. or ChinaWhys Consulting Co.
See Arthur Anderson, 556 U.S. at 630. Appellants’ claim to the contrary
thus fails.
Next, Appellants claim that plaintiff ChinaWhys Co. must be compelled
to arbitrate because ChinaWhys Co. and ChinaWhys Consulting Co. “are
affiliated entities, a relationship the trial court described as a
‘parent-subsidiary corporate relationship,’” and because plaintiff ChinaWhys
Co.’s claims are “inextricably entwined with” the Consultancy Agreement.
Appellants’ Brief at 26-32. This argument, partially rooted in equitable
estoppel, again fails to appreciate the fact that plaintiff ChinaWhys Co., a
non-signatory, seeks to avoid arbitration, not enforce arbitration. As the
United States Court of Appeals for the Third Circuit thoroughly explained, this
distinction is important:
appellants rely on a series of cases in which signatories were
held to arbitrate related claims against parent companies who
were not signatories to the arbitration clause. In each of
these cases, a signatory was bound to arbitrate claims
brought by a non-signatory because of the close relationship
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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
intertwined with the underlying contractual obligations. In
essence, a non-signatory voluntarily pierces its own veil to
arbitrate claims against a signatory that are derivative of its
corporate-subsidiary's claims against the same signatory.
Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524,
527 (5th Cir. 2000) (non-signatory able to compel signatory
to arbitrate claims related to the contract which contained an
arbitration clause); Sunkist Soft Drinks, Inc. v. Sunkist
Growers, Inc., 10 F.3d 753, 757 (11th Cir. 1993)
(compelling signatory to arbitrate claims against
non-signatory that were intertwined with claims arising from
contract governed by arbitration clause); Hughes Masonry
Co., Inc. v. Greater Clark County Sch. Bldg. Corp., 659
F.2d 836, 840–841 (7th Cir. 1981) (same); McBro Planning
and Dev. Co. v. Triangle Elec. Const. Co., Inc., 741 F.2d
342, 344 (11th Cir. 1984) (non-signatory to contract
containing arbitration clause was bound by signatory to
arbitrate dispute where claims were inextricably intertwined
with duties created in underlying contract and non-signatory
signed a related contract which contained an arbitration
clause). 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.
Indeed, the Second Circuit recently rejected the same
“distinction without a difference” argument:
As these cases indicate, the circuits have been willing to
estop a signatory from avoiding arbitration with a
nonsignatory when the issues the nonsignatory is seeking
to resolve in arbitration are intertwined with the
agreement that the estopped party has signed. As the
district court pointed out, however, “[t]he situation here
is inverse: E & S, as signatory, seeks to compel Thomson,
a non-signatory.” While E & S suggests that this is a
non-distinction, the nature of arbitration makes it
important. Arbitration is strictly a matter of contract; if
the parties have not agreed to arbitrate, the courts have
no authority to mandate that they do so. In the line of
cases discussed above, the courts held that the parties
were estopped from avoiding arbitration because they
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had entered into written arbitration agreements, albeit
with the affiliates of those parties asserting the arbitration
and not the parties themselves. Thomson, however,
cannot be estopped from denying the existence of an
arbitration clause to which it is a signatory because no
such clause exists. At no point did Thomson indicate a
willingness to arbitrate with E & S. Therefore, the district
court properly determined these estoppel cases to be
inapposite and insufficient justification for binding
Thomson to an agreement that it never signed.
[Thomson–CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d
773, 779 (2nd Cir.) (internal citations omitted)]. The
distinction between signatories and non-signatories is
important to ensure that short of piercing the corporate veil,
a court does not ignore the corporate form of a non-signatory
based solely on the interrelatedness of the claims alleged.
The District Court recognized that this was so, holding that
the corporate form cannot be discarded and a non-signatory
required to arbitrate unless its conduct falls within one of the
accepted principles of agency or contract law that permit
doing so.
E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin
Intermediates, S.A.S, 269 F.3d 187, 201-202 (3rd Cir. 2001) (some citations
omitted).
We agree with the Third Circuit’s analysis and, since Appellants have not
claimed or argued that “accepted principles of agency or contract law” compel
ChinaWhys Co. to arbitrate under the agreement, Appellants’ efforts to compel
ChinaWhys Co. to submit to arbitration fail.5 See, e.g., O’Hanlon v. Uber
Techs., Inc., 990 F.3d 757, 767 (3rd Cir. 2021) (“equitable estoppel is
inapposite where there is no evidence that the nonparties availed themselves
____________________________________________
5 Appellants broach, but then abandon, a claim that ChinaWhys Co. and
ChinaWhys Consulting Co. are alter egos. See Appellants’ Brief at 28 n.7.
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of the agreement or received any benefit under that agreement”)
(quotations, citations, and corrections omitted) (emphasis added); see also
Commonwealth v. Miller, 721 A.2d 1121, 1124 (Pa. Super. 1998) (holding
that this Court may not act as counsel for an appellant and develop arguments
on his or her behalf).
Finally, Appellants claim that Humphrey and Yu have an “obvious and
close nexus” with the Consultancy Agreement because their claims “are based
on or ‘inextricably entwined with’ [the] contract.” Appellants’ Brief at 29. As
with Appellants’ other claims, this claim fails because Humphrey and Yu seek
to avoid arbitration. Again, the United States Court of Appeals for the Third
Circuit explained:
equitable estoppel is inapposite where there is no evidence
that the nonparties availed themselves of the agreement or
received any benefit under that agreement. . . . This
standard is distinct from that governing enforcement of an
arbitration agreement by a non-signatory against a
signatory. There, the question is whether “there is an
obvious and close nexus between the non-signatories and the
contract or the contracting parties,” Elwyn v. DeLuca, 48
A.3d 457, 463 (Pa. Super. 2012), often measured in terms of
“inextricabl[e] entwine[ment]” of the claims with the
contract, id. We have previously emphasized the importance
of this distinction and reaffirm it today. See DuPont, 269
F.3d at 202.
O’Hanlon v. Uber Techs., Inc., 990 F.3d 757, 767 & 767 n.6 (3rd Cir. 2021)
(some quotations, citations, and corrections omitted) (emphasis in original).
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Appellants do not claim that Humphrey or Yu “received any benefit
under” the Consultancy Agreement. As such, Appellants’ claim on appeal
necessarily fails.6, 7
Order affirmed. Jurisdiction relinquished.
Judge Strassburger did not participate in the consideration or decision
of this matter.
____________________________________________
6 Prior to this case arriving in the Pennsylvania state courts, the parties
litigated certain issues in the federal courts. See Humphrey v.
GlaxoSmithKline, PLC, 2017 WL 4347587 (E.D.Pa. 2017); Humphrey v.
GlaxoSmithKline, PLC, 905 F.3d 694 (3rd Cir. 2018). During that litigation,
Plaintiffs claimed that the federal courts had jurisdiction over the case because
they raised federal claims for racketeering and conspiracy related racketeering
under 18 U.S.C. § 1962(c) and (d) (“RICO”) and because there was diversity
between the parties. However, the district court concluded that Plaintiffs did
not have standing to assert their RICO claims and that diversity jurisdiction
did not exist over Plaintiffs’ state law claims. The district court thus dismissed
Plaintiffs’ complaint and the Third Circuit affirmed.
Within the current appeal, Appellants claim that, during the federal litigation,
“[b]oth the Eastern District of Pennsylvania and the Third Circuit expressly
held that ‘[Plaintiffs’] claims are based on the Consultancy Agreement.’”
Appellants’ Brief at 30 (corrections omitted). Because of this, Appellants claim
that “[t]he law-of-the-case doctrine conclusively establishes” the fact that an
“obvious and close nexus” exists between Plaintiffs, the dispute, and the
contract. Id. Again, this argument fails because it does not recognize the
distinction between a non-signatory who seeks to enforce an arbitration clause
against a signatory and the non-signatory Plaintiffs, who seek to avoid
arbitration. See supra at **16-21. Further, Appellants’ argument fails, as it
is not rooted in “common law principles of agency and contract.” Bouriez,
359 F.3d at 294.
7 Given our disposition, we do not reach Appellants’ claims that the trial court
erred when it concluded that there was no “obvious and close nexus” between
Appellants and GSK China and that the arbitration clause did not encompass
Plaintiffs’ claims.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/3/2021
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