Scott Baldwin, Jr. v. Clifford Cavett, et a

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
November 6, 2012
No. 11-41199
Lyle W. Cayce
Clerk
SCOTT BALDWIN, JR.; SJBR ENTERPRISES, INC.; JOHN B. BALDWIN,
Plaintiffs - Appellees,
v.
CLIFFORD W. CAVETT; CAVETT, TURNER AND WYBLE, L.L.P.,
Defendants - Appellants.
Consolidated with 12-40289
SCOTT BALDWIN, JR.; SJBR ENTERPRISES, INCORPORATED; JOHN B.
BALDWIN,
Plaintiffs - Appellees,
v.
LARRY A. TURNER; ROBERT J. WYBLE,
Defendants - Appellants.
Appeals from the United States District Court
for the Eastern District of Texas
USDC No. 2:10-CV-401
Before HIGGINBOTHAM, ELROD, and HAYNES, Circuit Judges.
PER CURIAM:*
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 11-41199
In this case we must decide whether the defendants may rely on an
arbitration agreement they did not sign to compel the plaintiffs’ claims against
them to arbitration. The defendants’ motions to compel arbitration were denied
in the district court based on the conclusion that there is no agreement to
arbitrate the plaintiffs’ claims. For the reasons that follow, we find no reversible
error and, therefore, AFFIRM the orders denying the motions to compel
arbitration.
I.
Clifford W. Cavett (“Cavett”), Larry A. Turner (“Turner”), and Robert J.
Wyble (“Wyble”) are partners in the accounting firm Cavett, Turner & Wyble
L.L.P. (“CTW”). According to the Second Amended Complaint, Cavett and CTW
began providing accounting services to Scott and John Baldwin, their law firm,
and several Baldwin family entities (collectively, “the Baldwins”) in the
mid-1990s. In 2000 and 2001, the Baldwins allege that Cavett, in his role as the
representative of CTW, conducted quarterly meetings with Scott Baldwin to
discuss the Baldwins’ tax returns, business records, and the accounting details
of the Baldwins’ investment accounts. During these meetings, Cavett allegedly
told Scott Baldwin that his current investment advisor was charging excessive
fees and encouraged the Baldwins to transfer their investment accounts to
Ronald J. Legnion (“Legnion”), a registered securities broker with Raymond
James Financial Services (“RJFS”).
Eventually, in December 2004, the Baldwins opened their first account
with RJFS. When opening the account, Scott Baldwin signed two documents.
First, he signed a “Disclosure of Receipt of Other Compensation From Referral
of Clients to Raymond James Financial Services by Partners and Staff of Cavett,
Turner & Wyble, L.L.P.” (the “Disclosure Form”), which explained that Cavett,
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No. 11-41199
Turner, and Wyble are also partners with Legnion in LTC Financial Services,
Ltd. (“LTC”). The Disclosure Form specified that Legnion assigns to LTC all of
the compensation he receives from servicing RJFS accounts, and that a portion
of those earnings are allocated to Cavett, Turner, and Wyble based on their
interest in LTC. The Disclosure Form did not contain an arbitration clause.
Second, Scott Baldwin signed an RJFS New Account Form, which Legnion
also signed as “Financial Advisor” and “Branch Manager.” Cavett did not sign
the New Account Form and was merely listed as the “CPA” designated to receive
duplicate copies of RJFS statements. Above Scott Baldwin’s signature on the
New Account Form is the following statement: “By signing below, I acknowledge
that I have received, read, understand, and agree to abide by all the terms and
conditions set forth in the Client Agreement incorporated herein by this
reference.”
The Client Agreement is a two-page, unsigned document that contains the
following arbitration clause:
Any dispute or controversy, either arising in the future or in
existence now, between me and you (including your officers,
directors, employees or agents and the introducing broker, if
applicable) will be resolved by arbitration conducted before the New
York Stock Exchange, Inc., the National Association of Securities
Dealers, Inc., the American Stock Exchange, Inc., or other
self-regulatory organizations (SRO) subject to the jurisdiction of the
Securities and Exchange Commission (SEC) pursuant to the
arbitration rules of the applicable SRO.
This clause applies to each of the accounts that the Baldwins opened with RJFS.
Cavett and CTW continued to provide accounting services to the Baldwins
after they opened the RJFS accounts, and the Baldwins signed additional
documents clarifying the accounting services that they were receiving.
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No. 11-41199
Specifically, in November 2005, Scott Baldwin signed an “Outside Activity
Disclosure Letter” (the “Activity Letter”), which states: “I understand that the
below noted product/service is being offered to me by my CPA in his/her
individual capacity and not in the capacity as a registered representative of
[RJFS].” The “product/service” listed in the Activity Letter was “Cavett Turner
& Wyble (Certified Public Accountants).” Soon after Scott Baldwin signed the
Activity Letter, Cavett executed and delivered to him another letter (the
“Engagement Letter”), which was “to confirm [their] understanding of the terms
and objectives of [their] engagement and the nature and limitations of the
services [CTW] will provide.” The Engagement Letter described three
accounting services: (1) compiling interim and annual statements of assets,
liabilities, and capital; (2) preparing quarterly and year-end payroll returns and
information reports; and (3) preparing federal income-tax returns.
The Baldwins allege that by May 2006 they had moved all of their
investments to RJFS because Cavett told them that doing so would be good from
a tax perspective. They further allege that Cavett continued to provide them
with tax advice regarding their investments. The parties sharply dispute
whether the Baldwins knew that Cavett was working not only with Legnion, but
also as a RJFS securities broker himself.
As the financial markets plummeted in 2007 and 2008, the Baldwins told
Cavett that they wanted to get out of the market. Cavett allegedly convinced the
Baldwins to stay in the market because, again, it would be good from a tax
standpoint. By 2009, the value of the Baldwins’ investments had decreased
substantially.
In September 2010, the Baldwins sued Cavett and CTW in the Eastern
District of Texas. The Baldwins’ suit alleges violations of the Racketeer
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No. 11-41199
Influenced and Corrupt Organizations (RICO) statute, see 18 U.S.C. § 1961 et
seq., as well as various state-law claims, including common law fraud, negligent
misrepresentation, accountant malpractice, and breach of fiduciary duty. Cavett
and CTW moved to compel the dispute to arbitration based on the arbitration
clause in the Client Agreement. The Baldwins opposed the motion and filed
their First Amended Complaint, which altered several allegations concerning
Cavett. Cavett and CTW then filed a motion to compel the revised claims in the
First Amended Complaint to arbitration.
The district court referred the case to a magistrate judge for pretrial
purposes. On September 12, 2011, the magistrate judge issued a report
recommending that the district court deny Cavett and CTW’s motion to compel
arbitration. The district court adopted the magistrate judge’s conclusions and
denied the motion to compel arbitration, which prompted Cavett and CTW to
appeal.
After Cavett and CTW filed their notice of appeal, the Baldwins filed a
Second Amended Complaint adding Turner and Wyble as defendants. Turner
and Wyble moved to compel the Baldwins’ claim to arbitration, arguing
essentially the same theories that Cavett and CTW previously advanced.
Because those arguments were resolved in the earlier ruling on Cavett and
CTW’s motion to compel arbitration, the motion was denied. Turner and Wyble
then filed a notice of appeal. The two appeals have been consolidated in this
court.
II.
To determine whether a person may be compelled to arbitrate, we apply
a two-step analysis. Jones v. Halliburton Co., 583 F.3d 228, 233–34 (5th Cir.
2009) (citing Sherer v. Green Tree Servicing LLC, 548 F.3d 379, 381 (5th Cir.
2008)). First, we examine whether the person agreed to arbitrate the dispute.
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No. 11-41199
Id. This inquiry requires us to ask: “(1) is there a valid agreement to arbitrate
the claims and (2) does the dispute in question fall within the scope of that
arbitration agreement.” Id. at 234 (quoting Sherer, 548 F.3d at 381). Second,
if the answer to both of these questions is “yes,” we consider whether any federal
statute or policy renders the dispute nonarbitrable. Id.
Our inquiry here begins and ends with the first step. While Cavett and
the other defendants contend that there is an agreement to arbitrate the
Baldwins’ claims, their arguments are unpersuasive for the reasons below.
A.
Cavett, Turner, and Wyble argue that they are “parties” to the arbitration
clause contained in the Client Agreement because it expressly references
“employees or agents” of RJFS. We disagree.
Our jurisprudence recognizes an important distinction between signatories
and nonsignatories to an arbitration agreement. See, e.g., Westmoreland v.
Sadoux, 299 F.3d 462, 465 (5th Cir. 2002) (stating that “an arbitration clause
must be in writing and signed by the party invoking it” and explaining that “we
will allow a nonsignatory to invoke an arbitration agreement only in rare
circumstances”). Here, it is undisputed that Cavett, Turner, and Wyble did not
sign the New Account Forms or Client Agreements that contain the arbitration
clause. Furthermore, generally-applicable rules of contract interpretation and
enforcement govern arbitration clauses. See 9 U.S.C. § 2. The parties here have
assumed that Texas law applies, and three elements comprise contract formation
in Texas: offer, acceptance, and a “meeting of the minds.” Bocchi Ams. Assocs.,
Inc v. Commerce Fresh Mkt., Inc., 515 F.3d 383, 392 (5th Cir. 2008) (citing Prime
Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex. App.—Houston [1st
Dist.] 2002, pet. denied)). Cavett neither made an offer to the Baldwins, nor
accepted an offer from them. The same is true for Turner and Wyble. Therefore,
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No. 11-41199
under ordinary contract principles, Cavett, Turner, and Wyble are not parties
to the arbitration agreement. We reject their attempts to refute this straight-
forward conclusion.
B.
Cavett, Turner, and Wyble next contend that there is an agreement to
arbitrate the Baldwins’ claims against them because they are agents of RJFS.
In Westmoreland, we joined other courts of appeal in concluding that a
nonsignatory may not compel arbitration “merely because he is an agent of one
of the signatories.” 299 F.3d at 466. But Cavett, Turner, and Wyble assert that
this case is different because the arbitration clause applies to “[a]ny dispute or
controversy” and “includes . . . employees or agents.” They insist that they may
compel to arbitration any claims that any RJFS customer subject to the Client
Agreement may have against them for any conduct, no matter how unrelated to
their work for RJFS. In support of this argument, they direct us to In re
Rubiola, 334 S.W.3d 220 (Tex. 2011). We agree that Rubiola is instructive here,
but it reveals that Cavett, Turner, and Wyble’s position is untenable.
In Rubiola, the Salmons agreed to purchase a home from Greg Rubiola,
who along with his brother, J.C., operated several real estate businesses. Id. at
222. Greg and J.C. were president and vice-president, respectively, of Rubiola
Mortgage Company (“RMC”)—a corporation they used to obtain financing for
real estate buyers. Id. The Salmons applied for mortgage financing with RMC,
and as part of the lending process, executed an arbitration agreement with RMC.
Id. The arbitration agreement applied to “any and all controversies or claims
between the parties of whatever type or manner,” and it expressly defined
“parties” to include:
Rubiola Mortgage Company, and each and all persons and entities
signing this agreement or any other agreements between or among
any of the parties as part of this transaction. “The parties” shall also
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No. 11-41199
include individual partners, affiliates, officers, directors, employees,
agents, and/or representatives of any party to such documents, and
shall include any other owner and holder of this agreement.
Id. at 222–23. J.C. signed the agreement on behalf of RMC, but Greg did not
sign it. See id. at 223. The Salmons later sued Greg and J.C., alleging, in part,
that J.C.—as both a listing agent and a principal involved in the construction
and repair of their home—made numerous misrepresentations. Id. The
Rubiolas moved to compel the Salmons’ claims to arbitration, arguing that they
could rely on the arbitration agreement as officers and representatives of RMC.
Id. at 224. The Rubiola court agreed. Id. The arbitration agreement explicitly
provided that nonsignatory officers and representatives were parties to the
agreement, and the Rubiolas were thus entitled to compel arbitration in their
capacity as officers and representatives of RMC. See id. at 224–25.
Cavett, Turner, and Wyble would have us focus entirely on the similarity
between the arbitration agreement in Rubiola, which expressly referenced
officers and representatives of a signatory, and the agreement here, which
“includes . . . employees or agents” of a signatory. But we cannot divorce the
language of the arbitration agreement from the facts. That is because here, as
in Rubiola, the nonsignatories’ ability to compel arbitration depends on their
relationship with a signatory. Cavett, Turner, and Wyble derive their
arbitration rights from RJFS, just as the Rubiolas derived their arbitration
rights from RMC. In both cases, acting on behalf of the signatory is a necessary
condition to relying on the arbitration clause.1 While that did not present an
1
Despite Cavett, Turner, and Wyble’s argument to the contrary, our conclusion here
is consistent with Downer v. Siegel, 489 F.3d 623 (5th Cir. 2007). There, we addressed the
scope of an arbitration clause and held that the parties’ dispute was within the scope of the
clause because “[a] reasonable interpretation . . . support[ed] a conclusion that the clause
cover[ed] the dispute.” Id. at 626. This case is different from Downer because we deal here not
with the scope of an arbitration clause, but with whether there is an agreement to arbitrate
the claims. We need not reach the question of scope when there is no agreement to arbitrate,
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No. 11-41199
obstacle to compelling arbitration in Rubiola, it does here. For their part,
Turner and Wyble make no argument that they were acting on behalf of RJFS
when they allegedly engaged in the conduct of which the Baldwins complain.
Regarding Cavett, the district court adopted the magistrate judge’s
determination that Cavett was not acting on behalf of RJFS when he provided
the services on which the Baldwins base their claims. Cavett contends that
determination was erroneous, but we disagree.
The magistrate judge’s report to the district court explained that Cavett
provided the Baldwins with general accounting services for over seven years
before engaging in the activities of which the Baldwins complain in this suit.
When the Baldwins decided to open accounts with RJFS, Cavett referred them
to his partner, Legnion, instead of representing them himself. Soon after the
Baldwins executed the New Account Forms, they signed the Activity Letter,
which notified them that the accounting services they were receiving from CTW
were “being offered to [them] by [their] CPA in his/her individual capacity and
not in the capacity as a registered representative of [RJFS].” Then, in the
Engagement Letter, Cavett represented to the Baldwins that he was providing
them with three specific types of accounting services. Furthermore, the New
Account Forms merely listed Cavett as the “CPA” to receive duplicate copies of
financial statements, while Legnion was identified as the “Financial Advisor.”
Based on these facts, the magistrate judge recommended and the district court
concluded that “Cavett was acting outside of his role as an agent of RJFS in
providing the [Baldwins] with the general accounting and investment tax advice
at issue in this case.”
see Jones, 583 F.3d at 233–34, and as we explain above, there is no such agreement between
Cavett, Turner, and Wyble and the Baldwins.
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No. 11-41199
The standard of review we use in reviewing the district court’s conclusion
depends on the nature of the case. Whether an employee or agent was acting
within the course and scope of his work is a mixed question of law and fact.
Beech v. Hercules Drilling Co., L.L.C., 691 F.3d 566, 569 (5th Cir. 2012) (quoting
Hussaini v. Marine Transp. Lines, Inc., 158 F.3d 584 (5th Cir. 1998)
(unpublished)). If legal issues predominate, such as when all of the facts are
settled and undisputed, then we review de novo the district court’s application
of the law to the facts and its conclusion regarding whether an agent or
employee was acting within the course of his work. Id. But when factual issues
predominate, we review the district court’s course-and-scope determination for
clear error. Id. (quoting Hussaini, 158 F.3d at 584). Clear error exists only if
this court, after reviewing the record, has a definite and firm conviction that the
district court made a mistake. Boudreaux v. United States, 280 F.3d 461, 466
(5th Cir. 2002) (quoting McAllister v. United States, 348 U.S. 19, 20 (1954)); see
Estate of Lisle v. C.I.R., 541 F.3d 595, 601 (5th Cir. 2008) (“If the district court’s
account of the evidence is plausible in light of the record viewed in its entirety,
the court of appeals may not reverse it even though convinced that had it been
sitting as the trier of fact, it would have weighed the evidence differently.”
(quoting Anderson v. Bessemer City, 470 U.S. 564, 573–74 (1985)). Here, factual
questions predominate. The parties sharply dispute whether the Baldwins knew
that Cavett was a registered RJFS securities broker. They also dispute whether
Cavett provided the Baldwins with investment advice in his role as a broker, or
tax advice in his role as an accountant. The clear-error standard therefore
applies.
Our review of the record does not give rise to a definite and firm conviction
that the district court made a mistake. The Activity Letter, Engagement Letter,
and the other allegations recited in the magistrate’s report support the district
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No. 11-41199
court’s conclusion that Cavett was acting outside the course and scope of his
relationship with RJFS when he provided the services that form the basis of the
Baldwins’ claims. Accordingly, the district court did not clearly err.
C.
As a nonsignatory, nonparty, nonagent, CTW asserts that it is entitled to
compel the Baldwins’ claims against it to arbitration based on principles of
equitable estoppel. We disagree.
The doctrine of equitable estoppel can sometimes provide a basis for a
nonsignatory to enforce an arbitration agreement against a signatory. See
Grigson v. Creative Artists Agency L.L.C., 210 F.3d 524, 527 (5th Cir. 2000). We
have recognized two scenarios in which equitable estoppel applies:
(1) “[W]hen 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,” and
(2) “[W]hen the signatory to the contract containing an arbitration
clause raises allegations of substantially interdependent and
concerted misconduct by both the nonsignatory and one or more
signatories.”
Id. (emphasis and citation omitted). We review for abuse of discretion a district
court’s order denying a motion to compel arbitration based on equitable estoppel.
Weingarten Realty Investors v. Miller, 661 F.3d 904, 912 (5th Cir. 2011).
Generally, an abuse of discretion occurs only when no reasonable person could
agree with the district court’s decision. Friends for Am. Free Enterp. Ass’n v.
Wal-Mart Stores, Inc., 284 F.3d 575, 578 (5th Cir. 2002) (quoting Dawson v.
United States, 68 F.3d 886, 896 (5th Cir. 1995)).
On the facts of this case, the district court did not abuse its discretion. The
Activity Letter and Engagement Letter made clear to the Baldwins that the
services Cavett was providing them through CTW were not in his capacity as a
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No. 11-41199
registered representative of RJFS. Based on these facts and the magistrate
judge’s recommendation, the district court concluded that the Baldwins’ claims
against CTW do not rely on the Client Agreement between the Baldwins and
RJFS. The district court also concluded that CTW could not rely on the
concerted-misconduct theory because Cavett was not a party to the arbitration
agreement. CTW argues that this conclusion is erroneous because Cavett was
a party to the arbitration agreement and acted in his capacity as an RJFS agent
when providing the services of which the Baldwins complain. But for the
reasons we explained above, Cavett was not a party to the arbitration
agreement, and the district court did not clearly err in concluding that Cavett
was acting outside of his role as an RJFS agent when he provided the advice at
issue in this case. Therefore, CTW has not shown that the district court abused
its discretion by denying CTW’s motion to compel arbitration based on equitable
estoppel. See Weingarten, 661 F.3d at 912; Friends for Am. Free Enterp. Ass’n,
284 F.3d at 578.
III.
For the foregoing reasons, we find no reversible error and AFFIRM the
orders denying the motions to compel arbitration.
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