Opinion
Civil Action No. 3:03-CV-2348-L.
May 20, 2004
FINDINGS, CONCLUSIONS, AND RECOMMENDATION
Pursuant to the District Court's Order of Reference, filed March 10, 2004, this matter has been referred to the undersigned United States Magistrate Judge for hearing, if necessary, and for submission of proposed findings and recommendation. Before the Court are Defendant and Third-Party Plaintiff's Motion and Brief to Stay Proceedings and Compel Arbitration, filed February 19, 2004, and Raghib R. Ismail's Response to Defendant and Third-Party Plaintiff's Motion to Stay Proceedings and Compel Arbitration, filed March 8, 2004. After considering the evidence submitted, the Court RECOMMENDS that Defendant and Third-Party Plaintiff's Motion and Brief to Stay Proceedings and Compel Arbitration be DENIED, in part and GRANTED, in part.
I. BACKGROUND
The background facts are derived from the parties' pleadings and are not contested.
AFA now moves to stay the instant proceedings pending arbitration. Both AFA and AmEx agree to settle their dispute via arbitration. AFA seeks to compel Ismail to arbitrate as well.
II. ANALYSIS
A. Standard
The Federal Arbitration Act ("FAA") provides that "[i]f any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . ." 9 U.S.C. § 3. In determining whether to grant a motion for a stay under the FAA, a court must determine whether there is a written agreement to arbitrate and whether the issues raised in the case are within the reach of that agreement. Complaint of Hornbeck Offshore (1984) Corp., 981 F.2d 752, 754 (5th Cir. 1993). A written agreement to arbitrate a dispute arising out of that agreement is valid, irrevocable, and enforceable under the FAA if the agreement is one "evidencing a transaction involving commerce." 9 U.S.C. § 2.
In this case, the parties do not dispute that the Merchant Agreement is a valid contract which contains an enforceable arbitration provision. At issue is whether Ismail, a nonsignatory to the Merchant Agreement, can be compelled to arbitrate AFA's claims against him.
A nonsignatory to an agreement to arbitrate may be bound to submit to arbitration under certain circumstances. Bridas S.A.P.I.C. v. Turkmenistan, 345 F.3d 347, 356 (5th Cir. 2003). "Six theories for binding a nonsignatory to an arbitration agreement have been recognized: (a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing/alter ego; (e) estoppel; and (f) third-party beneficiary." Id. APA seeks to invoke several of these theories to compel Ismail to arbitration.
B. "Direct Benefits" Estoppel
AFA claims that Ismail invoked the benefits of the Merchant Agreement between AmEx and AFA when he disputed the charges to his credit card. (M. at 5.) AFA asserts that Ismail is therefore estopped from denying that he can be compelled to arbitrate under the terms of the Merchant Agreement. Id.
AFA cites International Paper Co. v. Schwabedissen Maschinen Anlagen GMBH, 206 F.3d 411 (4th Cir. 2000), for the proposition that a party may not claim the benefit of a contract and simultaneously avoid its burdens by claiming that, as a nonsignatory, it cannot be compelled to arbitrate. (M. at 6.) In International Paper, a nonsignatory sued a signatory for breach of a contract to which it was not a signatory. 206 F.3d at 414. The nonsignatory then sought to avoid arbitration under the same contract based on its nonsignatory status. 206 F.3d at 414. The Fourth Circuit held that the nonsignatory was estopped from refusing to comply with the arbitration clause because the nonsignatory maintained that other provisions of the same contract should be enforced to its benefit. Id. at 418. The court noted that the contract provided part of the factual foundation for every claim asserted by the nonsignatory against the signatory. Id.
Unlike the nonsignatory in International Paper, however, the nonsignatory in this case has not asserted any claims against AFA under the Merchant Agreement. The mere fact of disputing credit card charges, which is governed by the Cardmember Agreement between Ismail and AmEx, is not equivalent to filing suit against AFA under the Merchant Agreement. Because Ismail has not brought suit on the Merchant Agreement against AFA, he is not estopped from avoiding arbitration based on the theory of "direct benefits" estoppel. See Bridas, 345 F.3d at 361 (concluding that a nonsignatory who did not sue the signatory on the agreement cannot be estopped from avoiding arbitration).
C. Equitable Estoppel
AFA next states that the claims asserted by AmEx against AFA and the claims asserted by AFA against Ismail arise out of and directly relate to the Cardmember Agreement and the Merchant Agreement, both of which contain arbitration provisions. (M. at 7.) Therefore, AFA claims, Ismail is estopped from denying he can be compelled to arbitration. Id.
Equitable estoppel is an appropriate basis for allowing a nonsignatory to compel arbitration (1) when a signatory must rely on the terms of the written agreement containing an arbitration clause in asserting claims against a nonsignatory, and (2) when the signatory raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract. Grigson v. Creative Artists Agency L.L.C., 210 F.3d 524, 527 (5th Cir. 2000) (citing MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999)).
AFA relies on two theories in support of its claim of equitable estoppel. In the first instance, AFA asserts that Ismail relied upon the Merchant Agreement between AmEx and AFA in disputing the charges. (M. at 10.) As noted above, the doctrine of equitable estoppel may be used by a nonsignatory to a contract to compel a signatory to arbitration where the signatory relies on the contract in asserting claims against the nonsignatory. Grigson, 210 F.3d at 527. Equitable estoppel is not a mechanism to be utilized by a signatory to compel a nonsignatory to arbitration. Thomson-CSF, S.A. v. American Arbitration Ass'n., 64 F.3d 773, 779 (2nd Cir. 1995). Because Ismail was not a party to the Merchant Agreement, the doctrine of equitable estoppel is inapplicable under that contract.
Secondly, AFA claims that it because it relies upon the Cardmember Agreement entered into by Ismail and AmEx in asserting its claims against Ismail, Ismail can be compelled to arbitrate under the terms of that contract. (M. at 10.) With respect to the Cardmember Agreement, AFA is a nonsignatory attempting to compel a signatory to arbitrate. However, the doctrine of equitable estoppel is still unavailable to AFA because the signatory to this agreement, Ismail, does not rely on the terms of the contract in asserting claims against AFA. In fact, Ismail has asserted no claims against AFA. Therefore, Ismail is not equitably estopped from denying he can be compelled to arbitrate. D. Incorporation by Reference
AFA claims that the arbitration agreements contained within the Cardmember Agreement entered into by Ismail and AmEx and within the Merchant Agreement entered into by AFA and AmEx were incorporated by reference in the contract between Ismail and AFA. (M. at 11.)
"A nonsignatory may compel arbitration against a party to an arbitration agreement when that party has entered into a separate contractual relationship with the nonsignatory which incorporates the existing arbitration clause." Thomson-CSF, 64 F.3d at 777. AFA has provided the Court with no evidence of a contract between AFA and Ismail which contains an incorporation clause referencing either the Merchant Agreement or the Cardmember Agreement. In the absence of an express intent by Ismail and AFA to incorporate the arbitration clauses contained in those contracts in their agreement, this Court cannot find incorporation by reference.
E. Agency
AFA asserts that by contacting AmEx and claiming the charges submitted by AFA were unauthorized, Ismail authorized AmEx to act as his agent in the dispute between Ismail and AFA. (M. at 11-12.)
Agency results when one party consents that another party shall act on his behalf and subject to his control. Bridas, 345 F.3d 347, 357 (5th Cir. 2003). Agency may be shown by "written or spoken words or conduct, by the principal, communicated either to the agent (actual authority) or to the third party (apparent authority)." Id. (quoting Hester Intern. Corp. v. Federal Republic of Nigeria, 879 F.2d 170, 181 (5th Cir. 1989). If a signatory to a contract containing an arbitration agreement was acting as an agent of a nonsignatory, the nonsignatory may be bound by the arbitration requirement. Bridas, 345 F.3d at 357.
Ismail contacted AmEx to dispute a charge or charges made to his credit card. While Ismail could have foreseen that AmEx would then attempt to recover the disputed amount from AFA, the Court does not interpret the act of disputing a credit card charge to equate with a grant of agency to AmEx to act on behalf of Ismail. There is no evidence that Ismail had any control over the subsequent actions of AmEx in attempting to recover the disputed amount. Because AmEx was not subject to Ismail's control, it was not acting as his agent, and Ismail may not be bound to arbitrate under the theory of agency.
F. Third-Party Beneficiary
AFA asserts that Ismail may be compelled to arbitration because he is a third-party beneficiary under the terms of the Merchant Agreement. (M. at 12.)
"Under third party beneficiary theory, a court must look to the intentions of the parties at the time the contract was executed." Bridas, 345 F.3d at 362 (quoting E.I. DuPont de Nemours and Co. v. Rhone Poulenc Fiber and Resin, 269 F.3d 187, 200 n. 7 (3rd Cir. 2001)). In general, parties to a contract are presumed to be contracting only for themselves, and this presumption is overcome only when the intent to make someone a third-party beneficiary is clearly evidenced in the contract. Id.
The Merchant Agreement contains specific references to claims made by "a Cardmember." (M. at 12-13.) The clause cited by AFA is intended to give AmEx the right to make a final determination as to whether a disputed charge should be attributable to the Cardmember or to the merchant. However, "the fact that a person is directly affected by the parties' conduct, or that he may have a substantial interest in a contract's enforcement, does not make him a third-party beneficiary." Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069, 1075-76 (5th Cir. 2002) (internal quotations omitted). While the procedure set forth in the Merchant Agreement may benefit Ismail, it is far from clear that in signing the Merchant Agreement, AmEx and AFA intended him to be a third-party beneficiary. The plain language of the agreement merely sets forth a procedure for resolving disputes over payment to the merchant. Furthermore, when a nonsignatory has made no attempt to enforce the terms of an agreement, courts are reluctant to bind the nonsignatory to those terms. Bridas, 345 F.3d at 363.
In this case, Ismail has not sought to enforce the terms of the Merchant Agreement. In disputing the charges, Ismail was enforcing the terms of the Cardmember Agreement, which is not a subject of dispute in the instant action. For the foregoing reasons, Ismail will not be compelled to arbitrate as a third-party beneficiary.
III. CONCLUSION
For the foregoing reasons, the court RECOMMENDS that Defendant and Third-Party Plaintiff's Motion and Brief to Stay Proceedings and Compel Arbitration be DENIED, in part and GRANTED, in part, and that AFA's claims against Ismail be stayed pending the outcome of arbitration between AmEx and AFA.
SO RECOMMENDED.