Bellman v. I3Carbon, LLC

FILED
United States Court of Appeals
Tenth Circuit
May 29, 2014
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
JEFFREY BELLMAN, an individual;
THOMAS R. SAMUELSON, an
individual,
Plaintiffs - Appellees,
v.
No. 12-1275
(D.C. No. 1:12-CV-00655-RBJ)
I3CARBON, LLC, a Colorado limited
(D. Colo.)
liability company; PATRIC GALVIN,
an individual; ROBERT HANFLING,
an individual; FAISAL SYED, an
individual; CHRISTOPHER GALVIN,
an individual; REBECCA GALVIN,
an individual; DAVID SUNSHINE, an
individual,
Defendants - Appellants.
ORDER AND JUDGMENT *
Before TYMKOVICH, GORSUCH, and HOLMES, Circuit Judges.
Defendants-Appellants i3Carbon, LLC, Patric Galvin, Robert Hanfling,
Faisal Syed, Christopher Galvin, Rebecca Galvin, and David Sunshine
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Federal Rule of Appellate
Procedure 32.1 and Tenth Circuit Rule 32.1.
(collectively, “Defendants”) appeal from the denial of their motion to compel
arbitration of Plaintiffs-Appellees Jeffrey Bellman’s and Thomas R. Samuelson’s
(together, “Plaintiffs”) claims for securities fraud. Defendants assert that the
district court erred by failing to find that the parties had entered into an
enforceable arbitration agreement and by refusing to apply the doctrine of
equitable estoppel. Exercising our jurisdiction under 9 U.S.C. § 16(a)(1)(C),
which provides that an appeal may be taken from an order denying an application
to compel arbitration, we affirm.
I
A
Plaintiffs brought this securities fraud case based upon alleged
misstatements and omissions made at the time of their investment in i3Carbon, a
Colorado limited liability company (“LLC”) that acquires, develops, and sells
coal and similar commodity resources. Patric Galvin, an officer of i3Carbon,
approached Mr. Samuelson and Mr. Bellman in, respectively, the late summer and
early fall of 2010, regarding a possible investment in i3Carbon. It is undisputed
that Mr. Galvin provided each of the Plaintiffs with a binder of materials (the
“Investment Binder(s)”) relating to their possible investment. The Investment
Binders contained approximately 200 pages of documents, including an unsigned
Operating Agreement and two unsigned Subscription Agreements. Plaintiffs
submitted declarations stating that neither of them signed, nor were asked to sign,
-2-
the Operating Agreement. 1 Mr. Samuelson invested $350,000 in i3Carbon in
August and September 2010, and Mr. Bellman invested $250,000 in i3Carbon in
November 2010 and January 2011.
B
The Operating Agreement provided to Plaintiffs in the Investment Binders
states that it is an agreement dated “the ___ day of July, 2010” between
Defendants and “the Persons whose names are set forth on Exhibit A attached
hereto.” Aplt. App. at 48 (Operating Agreement, filed May 1, 2012) (formatting
altered). Plaintiffs claim that the Investment Binders did not contain an Exhibit A
to the Operating Agreement. The signature page to the Operating Agreement lists
i3Carbon and GSC Holdings, LLC, as the only signatories to the agreement,
although Plaintiffs contend that neither of those parties actually signed the copy
of the agreement included in the Investment Binder.
The Operating Agreement contains an arbitration provision, stating, in
pertinent part:
Any suit, . . . claim, controversy, action or
proceeding arising out of or relating to this
Agreement or the breach, enforcement, termination
or validity thereof, shall be brought exclusively in
1
Defendants have implied in their briefing on appeal that a signed
copy of the Operating Agreement may exist, but it cannot be located. However,
in their earlier briefing, Defendants admitted that “neither Bellman, nor
Samuelson signed either Operating Agreement.” Aplt. App. at 28 (Mot. to
Compel Arbitration, filed May 1, 2012).
-3-
either (a) the state courts located in the City and
County of Denver, Colorado, or (b) before one (1)
arbitrator located in the City and County of Denver,
Colorado, such arbitration to be administered by
JAMS pursuant to its Comprehensive Arbitration
Rules and Procedures (an “Arbitration”). In
addition to the foregoing, any party that becomes a
party to a state court proceeding pursuant to (a) of
this Section 11.7 may, upon written notice delivered
to all other parties to the proceeding (as set forth in
the complaint or other pleadings) to [sic] be
transferred and determined solely pursuant to an
Arbitration; provided that such party provides notice
of its election to have such proceeding be
determined by Arbitration within thirty (30) days
following its initial receipt of the original complaint
filed with a state court pursuant to (a) of this
Section 11.7.
Id. at 78 (formatting altered).
In addition to the Operating Agreement, the Investment Binders contained a
Subscription Agreement. The Subscription Agreement states that it is an
agreement “executed by the undersigned in connection with the private placement
of Class A Units” and provides a space for the “undersigned Purchaser” to include
his name and address. Id. at 162 (Subscription Agreement, dated Aug. 27, 2010).
The Subscription Agreement includes a forum selection provision, stating that:
Any disputes arising out of, in connection with, or
with respect to this Subscription, the subject matter
hereof, the performance or non-performance of any
obligation hereunder, or any of the transactions
contemplated hereby shall be adjudicated by a court
of competent civil jurisdiction sitting in Denver,
Colorado and nowhere else.
-4-
Id. at 171 (emphasis added).
Mr. Samuelson signed and returned a copy of the Subscription
Agreement in August 2010. In September 2010, i3Carbon sent Mr. Samuelson
a signed letter agreement confirming his investment and stating, in part, “This
letter agreement is intended to clarify the relationship between you and
i3Carbon, LLC, and does not supersede the subscription agreement or the other
materials you have been provided.” Id. at 39 (Letter Agreement, dated Sept.
23, 2010) (emphasis added). Mr. Samuelson signed and returned the letter
agreement to i3Carbon.
Defendants allege that sometime after Plaintiffs received the Investment
Binders, but before they made their investments, Plaintiffs had a telephone
conversation with Mr. Galvin during which Mr. Bellman “stated . . . that in
connection with his investment he required changes in the overall agreement
which included specific ‘Early Investor’ distribution terms that would
significantly benefit both Bellman and Samuelson.” Id. at 186 (Supp. Decl. of
Patric Galvin, filed June 1, 2012). According to Mr. Galvin’s declaration, Mr.
Galvin obtained approval for the requested changes and informed Plaintiffs that
he “would have an amended operating agreement prepared to reflect them.” Id.
at 187. Mr. Galvin stated that he “directed the preparation of the First
Amended and Restated Operating Agreement” and “directed that copies be sent
to [Plaintiffs].” Id. Mr. Galvin further declared that he had a subsequent
-5-
telephone conversation with Mr. Bellman in which Mr. Bellman claimed to
have misplaced the Operating Agreement “and requested that i3Carbon send
him another copy which he would then sign and return.” Id. Mr. Galvin claims
that he did this.
Plaintiffs dispute Mr. Galvin’s version of events and have submitted
declarations stating that they (1) “did not at any time request any revisions or
modifications to the Operating Agreement,” (2) did not receive a copy of the
Amended Operating Agreement prior to this lawsuit, (3) never signed an
Amended Operating Agreement, and (4) never discussed the Operating
Agreement or Amended Operating Agreement with anyone at i3Carbon. See id.
at 157 (Decl. of Jeffrey Bellman, filed May 25, 2012); id. at 160–61 (Decl. of
Thomas R. Samuelson, filed May 25, 2012).
The Amended Operating Agreement that Defendants claim to have sent
to Plaintiffs is dated October 5, 2010. It includes an Exhibit A, which lists the
shareholders in i3Carbon as GCS Holding, LLC and Mr. Samuelson. Mr.
Bellman is not listed on the agreement. The Amended Operating Agreement
was signed by i3Carbon and GCS Holdings, LLC, but was not signed by either
Mr. Samuelson or Mr. Bellman. The Amended Operating Agreement contains
an arbitration provision identical to the arbitration provision in the earlier
Operating Agreement.
In September 2011, Mr. Samuelson emailed Mr. Galvin seeking an
-6-
update regarding potential dividends to “round A shareholders.” Id. at 190
(Email from T. Samuelson to P. Galvin, dated Sept. 15, 2011). Mr. Galvin
alleges that these dividends were consistent with the “requested and agreed
upon ‘Early Investor’ provisions” included in the Amended Operating
Agreement. Id. at 187. The email does not reference either the Operating
Agreement or the Amended Operating Agreement.
C
Plaintiffs filed an amended complaint against Defendants on April 17,
2012, alleging various securities-fraud violations. Defendants filed a motion to
compel arbitration on May 1, 2012. Following full briefing on the issue, the
district court held a hearing on June 6, 2012. At the conclusion of the hearing,
the district court denied Defendants’ motion on the grounds that Defendants
had “presented no evidence that creates a genuine issue of material fact as to
whether or not there was a meeting of the minds and an agreement binding on
the parties to arbitrate the disputes that have arisen between them with respect
to their dealings . . . [with] i3 Carbon.” Id. at 298 (Tr. of Hr’g on Mot. to
Compel Arbitration, dated June 6, 2012); see also id. at 191–92 (Minute Order,
dated June 6, 2012). Defendants subsequently filed a timely notice of appeal.
-7-
II
A
We review a district court’s denial of a motion to compel arbitration de
novo, applying the same legal standard employed by the district court. Avedon
Eng’g, Inc. v. Seatex, 126 F.3d 1279, 1283 (10th Cir. 1997). Although “[t]he
Supreme Court has ‘long recognized and enforced a liberal federal policy
favoring arbitration agreements,’” Nat’l Am. Ins. Co. v. SCOR Reinsurance Co.,
362 F.3d 1288, 1290 (10th Cir. 2004) (quoting Howsam v. Dean Witter
Reynolds, Inc., 537 U.S. 79, 83 (2002)) (internal quotation marks omitted), the
question “whether parties have a valid arbitration agreement at all” is a
“gateway matter[]” that is “presumptively for courts to decide,” Oxford Health
Plans LLC v. Sutter, --- U.S. ----, 133 S. Ct. 2064, 2068 n.2 (2013) (quoting
Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003)) (internal quotation
marks omitted). Courts thus review this question “de novo absent ‘clear[] and
unmistakabl[e]’ evidence that the parties wanted an arbitrator to resolve the
dispute.” Id. (alterations in original) (quoting AT & T Techs. v. Commc’ns
Workers, 475 U.S. 643, 649 (1986)). Whether an agreement to arbitrate exists
“is simply a matter of contract between the parties.” Walker v.
BuildDirect.com Techs., Inc., 733 F.3d 1001, 1004 (10th Cir. 2013) (quoting
Avedon Eng’g, 126 F.3d at 1283) (internal quotation marks omitted). As such,
we “apply ordinary state-law principles that govern the formation of contracts
-8-
to determine whether a party has agreed to arbitrate a dispute.” Id. (quoting
Hardin v. First Cash Fin. Servs., Inc., 465 F.3d 470, 475 (10th Cir. 2006))
(internal quotation marks omitted); Avedon Eng’g, 126 F.3d at 1287.
“When parties dispute the making of an agreement to arbitrate, a jury
trial on the existence of the agreement is warranted unless there are no genuine
issues of material fact regarding the parties’ agreement.” Hardin, 465 F.3d at
475 (quoting Avedon Eng’g, 126 F.3d at 1283) (internal quotation marks
omitted). That is, “when factual disputes [seem likely to] determine whether
the parties agreed to arbitrate, the way to resolve them isn’t by round after
round of discovery and motions practice. It is by proceeding summarily to
trial.” Howard v. Ferrellgas Partners, L.P., --- F.3d ----, 2014 WL 1363963, at
*7 (10th Cir. 2014). By contrast, “[w]hen it’s apparent . . . that no material
disputes of fact exist it may be permissible and efficient for a district court to
decide the arbitration question as a matter of law through motions practice and
viewing the facts in the light most favorable to the party opposing arbitration.”
Id. at *1; see, e.g., Hancock v. Am. Tel. & Tel. Co., 701 F.3d 1248, 1261 (10th
Cir. 2012), cert. denied, --- U.S. ----, 133 S. Ct. 2009 (2013); Hardin, 465 F.3d
at 474–75.
In ascertaining whether questions of material fact remain, we give the
nonmoving party—here, Plaintiffs—“the benefit of all reasonable doubts and
inferences that may arise.” Hancock, 701 F.3d at 1261 (quoting Par-Knit Mills,
-9-
Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir. 1980)) (internal
quotation marks omitted). We have previously explained that the framework
for analyzing this issue “is similar to summary judgment practice”: the party
moving to compel arbitration bears the initial burden of presenting evidence
sufficient to demonstrate the existence of an enforceable agreement; if it does
so, the burden shifts to the nonmoving party to raise a genuine dispute of
material fact regarding the existence of an agreement. Id. As noted above, if a
genuine dispute of material fact exists, the Federal Arbitration Act (“FAA”)
calls for a summary trial. See Howard, 2014 WL 1363963, at *7. Only “when
it’s clear no material disputes of fact exist and only legal questions remain”
may a court resolve the arbitration question by ruling on a motion to compel,
rather than conducting a summary trial. Id.
Defendants have also argued that the district court erred in rejecting their
equitable estoppel argument. We have not yet decided whether the de novo
standard that generally applies to our review of a denial of a motion to compel
arbitration also applies to a denial of such a motion based on equitable
estoppel, or whether some other standard of review applies. See Lenox
MacLaren Surgical Corp. v. Medtronic, Inc., 449 F. App’x 704, 707 (10th Cir.
2011). Other circuits are split on this issue, with some courts reviewing such
decisions de novo, and others for an abuse of discretion. See id. (noting that
the Fourth and Fifth Circuits review for abuse of discretion, while the Third,
-10-
Eighth, Ninth, and Eleventh Circuits review de novo). It is unnecessary for us
to decide here which standard applies because Defendants’ equitable estoppel
argument fails regardless.
We turn now to Defendants’ arguments on appeal.
B
Defendants principally challenge the district court’s determination that,
as a matter of law, an agreement to arbitrate between the parties does not exist.
Alternatively, Defendants argue that the district court erred by refusing to find
that Plaintiffs were equitably estopped from denying the enforceability of the
arbitration provision in the Operating Agreement because, according to
Defendants, Plaintiffs have benefitted from and attempted to enforce other
provisions of the Operating Agreement. We begin by addressing whether an
enforceable agreement exists between the parties and then turn to Defendants’
equitable estoppel argument.
As noted above, “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.” Spahr v. Secco, 330 F.3d 1266, 1269 (10th Cir. 2003) (quoting
AT & T Techs., 475 U.S. at 648) (internal quotation marks omitted). And,
although the presence of an arbitration clause generally creates a presumption
in favor of arbitration, see ARW Exploration Corp. v. Aguirre, 45 F.3d 1455,
1462 (10th Cir. 1995) (“If a contract contains an arbitration clause, a
-11-
presumption of arbitrability arises, particularly if the clause in question
contains . . . broad and sweeping language.”), “this presumption disappears
when the parties dispute the existence of a valid arbitration agreement,”
Dumais v. Am. Golf Corp., 299 F.3d 1216, 1220 (10th Cir. 2002); see also Riley
Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d 775, 779 (10th Cir. 1998)
(“[W]hen the dispute is whether there is a valid and enforceable arbitration
agreement in the first place, the presumption of arbitrability falls away.”).
We “‘apply ordinary state-law principles that govern the formation of
contracts’ to determine whether a party has agreed to arbitrate a dispute.”
Hardin, 465 F.3d at 475 (quoting First Options of Chi., Inc. v. Kaplan, 514
U.S. 938, 944 (1995)). Here, the parties agree that Colorado law governs this
question. Under Colorado law, a contract requires a “meeting of the minds.”
See Schulz v. City of Longmont, Colo., 465 F.3d 433, 438 n.8 (10th Cir. 2006)
(quoting Agritrack, Inc. v. DeJohn Housemoving, Inc., 25 P.3d 1187, 1192
(Colo. 2001)) (internal quotation marks omitted). This is true for both express
contracts and contracts that are implied in fact based on the conduct of the
parties. See id.; see also N.Y. Life Ins. Co. v. K N Energy, Inc., 80 F.3d 405,
412 (10th Cir. 1996) (“Although implied in fact contracts can be based on the
conduct of the parties, ‘there must be a meeting of the minds before any
contract will be implied.’” (quoting A.R.A. Mfg. Co. v. Cohen, 654 P.2d 857,
859 (Colo. App. 1982))).
-12-
Here, the district court concluded that “the defendant has presented no
evidence that creates a genuine issue of material fact as to whether or not there
was a meeting of the minds and an agreement binding on the parties to arbitrate
the disputes that have arisen between them.” Aplt. App. at 298. We agree.
Specifically, we conclude that Defendants have failed to show that the “conduct
of the parties . . . evidences a mutual intention to contract with each other,”
N.Y. Life Ins., 80 F.3d at 412 (quoting Tuttle v. ANR Freight Sys., Inc., 797
P.2d 825, 829 (Colo. App. 1990)) (internal quotation marks omitted), or that
there was a “meeting of the minds,” id. (quoting A.R.A. Mfg., 654 P.2d at 859)
(internal quotation marks omitted).
Defendants argue that Plaintiffs manifested their acceptance of the
Operating Agreement, and specifically the arbitration provision, when they
invested in i3Carbon following receipt of the approximately 200-page
Investment Binder. However, the Operating Agreement included in the
Investment Binder did not have Plaintiffs’ names on it and did not indicate that
Plaintiffs were expected to sign it. Moreover, Plaintiffs have submitted
uncontroverted evidence that (1) i3Carbon never requested that they sign the
Operating Agreement or agree to its provisions, and (2) Plaintiffs, in fact, did
not sign the Operating Agreement.
Defendants attempt to minimize the importance of the parties’ failure to
sign the Operating Agreement by arguing that an arbitration agreement does not
-13-
need to be signed to be enforceable. Specifically, Defendants correctly note
that “[w]hile the [FAA] requires a writing evidencing an agreement to arbitrate
disputes, it is well-established that the FAA does not require signatures of the
parties to be enforceable.” Aplt. Opening Br. at 19; see, e.g., Med. Dev. Corp.
v. Indus. Molding Corp., 479 F.2d 345, 348 (10th Cir. 1973) (noting that it is
“not necessary . . . that a party sign the writing containing the arbitration
clause”). However, while a signature is not always required, the parties must
still have entered into a valid arbitration agreement under state law. See E-21
Eng’g, Inc. v. Steve Stock & Assocs., Inc., 252 P.3d 36, 39 (Colo. App. 2010)
(“[T]he lack of signature in and of itself does not invalidate an otherwise
enforceable agreement to arbitrate.”). Thus, while Defendants are correct in
asserting that the parties’ failure to sign the Operating Agreement is not
dispositive, this does not relieve Defendants of their burden to establish the
existence of an enforceable agreement in the first place.
Here, Defendants have failed to carry their burden of showing that an
enforceable arbitration agreement exists. First, it is undisputed that the
Investment Binder contained conflicting provisions regarding arbitration.
While the Operating Agreement provided for arbitration, the Subscription
Agreement did not. In our view, the documents in the Investment Binder do
-14-
not demonstrate a meeting of the minds regarding arbitration. 2
Furthermore, we underscore that the only signed documents in the record
are Mr. Samuelson’s August 27, 2010 Subscription Agreement and the
September 22, 2010 letter from i3Carbon to Mr. Samuelson. Neither of these
documents evinces an agreement by Plaintiffs to arbitrate their claims. To the
contrary, the Subscription Agreement explicitly provides that any disputes shall
be heard by “a court of competent civil jurisdiction sitting in Denver, Colorado
and nowhere else.” Aplt. App. at 171. The September 22, 2010 letter reiterates
that it was intended to clarify the relationship of the parties, but “does not
supersede the subscription agreement or the other materials you have been
provided.” Id. at 39. While the September 22 letter specifically references the
Subscription Agreement (which explicitly provides that disputes will be
resolved by the courts) it does not do the same with regard to the Operating
Agreement, or otherwise identify any arbitration provision.
Defendants have failed to articulate why the Operating Agreement
2
This is consistent with the approach taken by other courts. See, e.g.,
In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, &
Prods. Liab. Litig., 838 F. Supp. 2d 967, 992 (C.D. Cal. 2012) (refusing to
compel arbitration where two documents contained conflicting arbitration
provisions that were “not only ambiguous” but also “fundamentally
incompatible”); Rockel v. Cherry Hill Dodge, 847 A.2d 621, 623–24 (N.J. Super.
Ct. App. Div. 2004) (holding that where “parties executed two documents which
contain separate and somewhat disparate arbitration clauses[, t]his ambiguity . . .
is fatal to the compelling of the arbitration of plaintiffs’ . . . claims”).
-15-
(including its arbitration provision)—which neither of the parties
signed—should be binding, but the Subscription Agreement—which was
contained in the same binder and actually signed by Mr. Samuelson—should
not be enforced. 3 Defendants’ argument essentially boils down to their
assertion that Plaintiffs’ mere investment in i3Carbon following their receipt of
a binder containing an unsigned Operating Agreement somehow establishes that
Plaintiffs agreed to, and accepted, the terms of the Operating Agreement,
including its arbitration provision. However, in light of the conflicting
provisions contained in the Investment Binder, this argument is unpersuasive.
Based on the foregoing, the district court correctly concluded that no
genuine dispute of material fact exists regarding whether the parties entered
into an agreement to arbitrate. Accordingly, the district court properly denied
Defendants’ motion to compel arbitration on this basis.
3
Any attempt by Defendants to give the unsigned Operating
Agreement particular weight or significance is unpersuasive. The validity of the
Operating Agreement, including whether the parties agreed to its terms, whether
those terms are ambiguous, and whether its terms conflict with the Subscription
Agreement, must be determined under ordinary state contract law. See, e.g.,
Condo v. Conners, 266 P.3d 1110, 1115 (Colo. 2011) (rejecting argument that
operating agreement functioned as a “super-contract” and finding instead that an
operating agreement should be interpreted “in light of prevailing principles of
contract law”); In re DB Capital Holdings, LLC, 463 B.R. 142, 2010 WL
4925811, at *3 n.21 (B.A.P. 10th Cir. 2010) (unpublished disposition) (“Absent a
contrary statutory provision, Colorado courts consider a limited liability
company’s operating agreement according to the general principles of contract
law.”).
-16-
C
We turn now to Defendants’ argument that “Plaintiffs are equitably
estopped from asserting their lack of signature on the Operating Agreements as
a basis [for] avoiding arbitration.” Aplt. Opening Br. at 23. In support of their
argument, Defendants cite International Paper Co. v. Schwabedissen
Maschinen & Anlagen GMBH, 206 F.3d 411 (4th Cir. 2000), which states:
In the arbitration context, the [equitable estoppel]
doctrine recognizes that a party may be estopped
from asserting that the lack of his signature on a
written contract precludes enforcement of the
contract’s arbitration clause when he has
consistently maintained that other provisions of the
same contract should be enforced to benefit him.
Id. at 418; see also Pikes Peak Nephrology Assocs., P.C. v. Total Renal Care,
Inc., No. 09-CV-00928-CMA-MEH, 2010 WL 1348326, at *8 (D. Colo. March
20, 2010) (finding that plaintiff was bound by unsigned arbitration agreement
where plaintiff received benefits from the contract and sought to enforce his
rights under the terms of the contract). However, both International Paper and
Pikes Peak involved situations where the non-signing party sought to take
advantage of beneficial terms of the agreement while simultaneously
disavowing the enforceability of the agreement’s arbitration clause. See Int’l
Paper, 206 F.3d at 418 (“International Paper’s entire case hinges on its asserted
rights under the . . . contract; it cannot seek to enforce those contractual rights
and avoid the contract’s requirement that ‘any dispute arising out of’ the
-17-
contract be arbitrated.”); Pikes Peak, 2010 WL 1348326, at *8 (“[B]ecause
[plaintiff] seeks adjudication of his rights and remedies under the [agreement],
and because he . . . seeks the benefits of the [agreement], it follows that he
would at least be bound by the contractual procedures for resolving disputes
arising therefrom.”). Here, in contrast, Plaintiffs did not receive direct benefits
from or seek to enforce their rights under the Operating Agreement. For this
reason, the present case is distinguishable from the factual situations present in
International Paper and Pikes Peak.
Defendants disagree with this conclusion, arguing that Plaintiffs did in
fact benefit from and seek to enforce their rights under the Operating
Agreement. Specifically, Defendants point to a telephone conversation
between Plaintiffs and Mr. Galvin, in which Mr. Bellman allegedly requested
that the “overall agreement” be changed to include distribution terms for early
investors. See Aplt. App. at 186. Defendants then made changes reflecting
Plaintiffs’ request in an Amended Operating Agreement. In his declaration,
Mr. Galvin asserts that he directed a copy of the Amended Operating
Agreement to be sent to Plaintiffs. However, Plaintiffs have submitted
declarations swearing that they never received the Amended Operating
Agreement, and that neither of them ever signed or agreed to the terms of the
Amended Operating Agreement. Several months later, Mr. Samuelson sent an
email to i3Carbon requesting early investor distributions. The email did not
-18-
reference the Operating Agreement or the Amended Operating Agreement in
any way. 4
Based on these facts, Defendants cannot establish that Plaintiffs sought a
change to the Operating Agreement and thereafter sought to benefit from or
enforce rights under the original or amended agreement. For one, Plaintiffs
merely sought a change to the “overall agreement.” See id. at 157, 160,
186–87. They never requested that the change be made to the Operating
Agreement (which contains the arbitration provision) or that the change be
reflected in an Amended Operating Agreement. Thus, the fact that Defendants
chose to reflect the change in the Amended Operating Agreement does not
somehow elevate that document above the other documents sent to Plaintiffs in
the Investment Binder, such as the Subscription Agreement (which explicitly
provides that courts will resolve the disputes).
Moreover, as Plaintiffs note, they “never agreed that their entire
agreement was governed by and reflected in either Operating Agreement, and
[they] did not receive or sign the Amended Operating Agreement.” Aplee. Br.
at 28. Defendants have not established otherwise. Thus, contrary to
4
With regard to the email, the district court noted: “You can read that
e-mail exchange until you’re blue in the face, and you will not find any express
or, in my view, implied indication in there that either Mr. Bellman or Mr.
Samuelson were agreeable to the terms of either version of the operating
agreement.” Aplt. App. at 294.
-19-
Defendants’ assertion, there is no evidence that Plaintiffs “sought to rely on
provisions in the Amended Operating Agreement to request early investor
distributions.” Aplt. Reply Br. at 16. In fact, Defendants cannot even establish
that Plaintiffs received the Amended Operating Agreement, 5 much less that
they agreed to its terms. And it is undisputed that Plaintiffs never received an
early investor distribution, and they have not made a claim for such a
distribution in their pending lawsuit. Furthermore, the present case is
distinguishable from International Paper and Pikes Peak in that Plaintiffs’
“amended complaint states no claim for any relief or indication that the
plaintiffs are seeking any benefit under the terms of the operating agreement in
either form.” Aplt. App. at 295–96. Indeed, the Operating Agreement is not
mentioned anywhere in the amended complaint.
Defendants acknowledge that Plaintiffs have not alleged a breach-of-
contract claim, but nonetheless argue that equitable estoppel should apply
because Plaintiffs have included claims “that relate in various ways to the
5
Mr. Galvin declares in his supplemental affidavit that he had a
telephone conversation with Mr. Bellman in which Mr. Bellman “stated that he
had misplaced the Operating Agreement and requested that i3Carbon send him
another copy which he would then sign and return.” Aplt. App. at 187. However,
as noted by the district court, even “[t]aking that as true, it does not mean that
[Mr. Bellman] received or certainly signed . . . the amended version of the
operating agreement.” Id. at 294.
-20-
Operating Agreement.” 6 Aplt. Opening Br. at 15. However, in Lenox, a case
arising under Colorado law, a panel of our court held that the doctrine of
equitable estoppel does not apply merely because plaintiffs have asserted
claims that relate to or are “factually significant” to the agreement at issue
embodying the arbitration provision. 449 F. App’x at 709–10. More
specifically, “[f]or a plaintiff’s claims to rely on the contract containing the
arbitration provision, the contract must form the legal basis of those claims; it
is not enough that the contract is factually significant to the plaintiff’s claims
or has a ‘but-for’ relationship with them.” Id. at 709. In other words, “[t]he
claims must be ‘so intertwined with the agreement’ that ‘it would be unfair to
allow the signatory [7] to rely on the agreement in formulating its claims but to
disavow availability of the arbitration clause of that same agreement.’” Id. at
710 (quoting PRM Energy Sys., Inc. v. Primenergy, L.L.C., 592 F.3d 830, 835
6
Plaintiffs allege numerous securities-fraud violations based on
alleged misrepresentations and omissions made by Defendants. Specifically,
Plaintiffs claim that Defendants knowingly made false representations and
omissions of material fact relating to the health and sales capacity of i3Carbon in
order to secure funding, thereby violating section 10(b) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78j(b), section 20(a) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78t(a), and various sections of the Colorado
Securities Act. Plaintiffs also state claims for negligent misrepresentation,
common law fraud, and civil theft pursuant to Colo. Rev. Stat. § 18-4-405.
7
In Lenox, a non-signatory sought to enforce an arbitration provision
against a signatory to the agreement. See 449 F. App’x at 705–07. Here, none of
the parties signed the Operating Agreement. Moreover, only the Defendants
signed the Amended Operating Agreement; neither of the Plaintiffs did.
-21-
(8th Cir. 2010)).
In Lenox, the defendants contended that the plaintiff’s claims “rely on
the Agreement because they are significantly related to, make reference to, or
presume the existence of the Agreement.” Id. at 709. The panel rejected this
argument, finding that while the agreement was “factually significant to [the
plaintiff’s] claims,” it did not “form the legal basis for [those] claims” because
“[the plaintiff was] not attempting to hold the non-signatory liable pursuant to
duties imposed by the agreement, and its claims [did] not depend on whether
[the defendants’] conduct was proper under the Agreement.” Id. at 710
(citation omitted) (quoting Grigson v. Creative Artists Agency, L.L.C., 210 F.3d
524, 528 (5th Cir. 2000)) (internal quotation marks omitted). As such, the
panel concluded that the plaintiff did “not rely on the terms of the Agreement
in a manner that would make it unfair for [the plaintiff] to avoid arbitrating
those claims.” Id.
Applying the reasoning of Lenox here leads ineluctably to a similar
outcome. Specifically, Plaintiffs do not assert a claim for breach of the
Operating Agreement or seek to enforce any rights or recover any remedies
under the Operating Agreement. While Plaintiffs’ complaint relies on materials
other than the Operating Agreement provided in the Investment Binder, along
with alleged statements made by Defendants, the Operating Agreement does not
“form the legal basis” of Plaintiffs’ claims. See id. at 709–10. Rather,
-22-
Plaintiffs’ claims are based on allegedly fraudulent misrepresentations and
omissions of material fact made by Defendants in order to secure funding.
None of these claims relate to statements or omissions made in the Operating
Agreement. In fact, as noted above, Plaintiffs’ complaint does not even
reference the Operating Agreement. It follows perforce that Plaintiffs’ claims
cannot be deemed to have relied on the Operating Agreement in a manner that
would make it unfair for Plaintiffs to avoid arbitrating their claims. See id. at
710. For these reasons, the district court properly concluded that Plaintiffs are
not equitably estopped from disavowing the enforceability of the Operating
Agreement’s arbitration provision.
III
For the foregoing reasons, we affirm the district court’s denial of
Defendants’ motion to compel arbitration.
Entered for the Court
JEROME A. HOLMES
Circuit Judge
-23-