In the Matter of Samuel Belzberg, Appellant, Doris Lindbergh, et al., Petitioners,v.Verus Investments Holdings Inc., Respondent.BriefN.Y.September 4, 2013New York County Clerkโs Index No. 600977/10 New York Court of Appeals -------------------- โฆ โฆ โฆ -------------------- SAMUEL BELZBERG, Petitioner-Appellant, and DORIS LINDBERGH, WINTON CAPITAL HOLDING and GIBRALT CAPITAL, Respondents, -against- VERUS INVESTMENT HOLDINGS, INC., Respondent-Respondent. BRIEF OF PETITIONER-APPELLANT KAYE SCHOLER LLP Attorneys for Petitioner-Appellant Office and Post Office Address: 425 Park Avenue New York, New York 10022 Telephone: (212) 836-8000 Facsimile: (212) 836-8689 peter.haveles@kayescholer.com TABLE OF CONTENTS Page . . TABLE OF AUTHORITIES .................................................................................... 11 PRELIMINARY STATEMENT ............................................................................... 1 STATEMENT OF THE CASE ................................................................................. 5 Nature of the Case ......................................................................................... 5 Nature of the Proceedings Below ................................................................... 5 STATEMENT OF FACTS ..................................................................................... 13 ....................................................................... STATEMENT OF JURISDICTION 20 QUESTIONS PRESENTED FOR REVIEW ......................................................... 21 ARGUMENT .......................................................................................................... 22 POINT I THE APPELLATE DIVISION ERRONEOUSLY IGNORED THE CLEAR LIMITS ON THE APPLICATION OF THE DIRECT ................................................ BENEFITS ESTOPPEL DOCTRINE 22 A . New York Courts Are Reluctant to Compel Nonsignatories to Arbitrate .............................................................................................. 23 B . Application of the Direct Benefits Doctrine Does Not Require ........................................... Belzberg to Participate in the Arbitration 25 C . The Appellate Division's Rejection of the Trial Court's ..................................................... Holding Is Fundamentally Flawed 33 POINT I1 THE TRIAL COURT CORRECTLY HELD THAT WINTON'S ................. LIABILITY CANNOT BE IMPUTED TO BELZBERG 41 CONCLUSION ....................................................................................................... 43 TABLE OF AUTHORITIES AICO International, E.C. v. Merrill Lynch & Co., 98 Fed. App'x 44 (2d Cir. 2004) ........................................................................ 28 Andres Holding Corp. v. Village - Del Rio, Ltd., No. S-09-CA-127-XR, 2009 WL 2252251 (W.D. Tex. Jul24,2009) .............. 39 Arhontisa Maritime Ltd. v. Twinbrook Corp., No. 01 Civ. 5044, 2001 WL 1142136 (S.D.N.Y. Sept. 27, 2001) ..................... 39 AT&T Technologies v. Communications Workers of America, 475 U.S. 643 (1986) ........................................................................................... 23 Ayco Co. v. Frisch, No. 11 Civ. 580 (LEK), 2012 U.S. Dist. LEXIS 2112 (N.D.N.Y. Jan. 9, Barrack, Rodos & Bacine v. Ballon Stoll Bader & Nadler, P.C., No. 08 Civ. 02152 (PKL), 2008 WL 759353 (S.D.N.Y. Mar. 20,2008) ............... ...................................................................................................................... 25, 28 Bel-Ray Co. Inc. v. Chemrite Ltd., 181 F.3d 435 (3d Cir. 1999) ............................................................................... 40 Bridas S.A.P.I.C. v. Government of Turkmenistan, ................................................................. 345 F.3d 347 (5th Cir. 2003) 23, 25, 27 Burke v. Crosson, .......................................................................................... 85 N.Y.2d 10 (1995) 20 Deloitte Noraudit AIS v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060 (2d Cir. 1993) ........................................................................... 26, 27 Denny v. BD.0 Seidrnan, LLP, ................................................................................. 4 12 F.3d 58 (2d Cir. 2005) 24 Haskins v. First American Title Insurance Co., 866 F. Supp. 2d 343 (D.N.J. 2012) .................................................................... 26 HRH Construction LLC v. Metropolitan Transportation Authority, 33 A.D.3d 568 (1st Dep't 2006) ........................................................................ 34 InterGen N.V. v. Grina, 344 F.3d 134 (1 st Cir. 2003) .............................................................................. 26 John Hancock Life Insurance Co. v. Wilson, 254 F.3d 48 (2d Cir. 2001) ................................................................................. 23 Johnston v. Silverrnan, 167 A.D.2d 284 (1st Dep't 1990) ...................................................................... 40 Legacy Wireless Services, Inc. v. Human Capital, L.L.C., 3 14 F. Supp. 2d 1045 (D. Ore. 2004) ................................................................ 26 MAG Portfolio Consult, GMBH v. Merlin Biomed Group, LLC, 268 F.3d 58 (2d Cir. 2001) ............................................................... 25, 26, 27, 28 Mahan Securities Co. v. Aviator Master Fund, Ltd., 20 Misc. 3d 386 (Sup. Ct. N.Y. Co. 2008) ........................................................ 23 Mark Ross & Co. v. XE Capital Management, LLC, 46 A.D.3d 296 (1st Dep't 2007) ........................................................................ 34 Merrill Lynch Investment Managers v. Optibase, Ltd., 337 F.3d 125 (2d Cir. 2003) ......................................................................... 23, 24 Metamorphosis Construction Corp. v. Glekel, 247 A.D.2d 23 1 (1st Dep't 1998) ...................................................................... 40 Mionis v. Bank Julius Baer & Co., Ltd., 301 A.D.2d 104 (1st Dep't 2002) ...................................................................... 40 Morris v. State Department of Taxation and Finance, 82 N.Y.2d 135 (1993) ........................................................................................ 41 Oppenheimer & Co. v. Deutsche bank AG, No. 09 Civ. 8154 (LAP), 2010 WL 743 915 (U.S. Dist. Ct. S.D.N.Y. Mar. 2, 2010) ................................................................................................ 26, 28 SmithIEnron Cogeneration Ltd. Partnership v. Smith Cogeneration International, Inc., 198 F.3d 88 (2d Cir. 1999) ................................................................................. 26 SSL International. PLC v . Zook. ........................................................................ 44 A.D.3d 429 (1st Dep't 2007) 38 Thomson.CSF. S.A. v . American Arbitration Association. 64 F.3d 773 (2d Cir . 1995) ............................................................... 24. 27. 28. 29 TNS Holdings. Inc . V . MKI Securities Corp., 92 N.Y. 2d 335 (1998) ........................................................................... 24. 33. 34 United Steelworkers of America v . Warrior & Gulf Navigation . Co.. ........................................................................................... 363 U.S. 574 (1960) 23 PRELIMINARY STATEMENT Petitioner-appellant Samuel Belzberg submits this brief in support of his appeal from the Decision and Order of the Appellate Division, which (i) reversed the trial court's judgment staying arbitration as against him and (ii) granted the cross petition of respondent-respondent Verus Investment Holdings, Inc. ("Verus") to compel him to arbitrate. This appeal concerns the obligation of a nonsignatory to arbitrate and the scope of the direct benefits estoppel doctrine. That doctrine is to be sparingly applied, and only in limited circumstances may it provide the basis to compel a nonsignatory to arbitrate. The Appellate Division erroneously applied that doctrine. It not only rejected the trial court's carefully reasoned decision, but it also ignored this Court's admonition that restraint must be exercised when dealing with a nonsignatory. The Appellate Division glossed over the doctrine's fundamental requirement that there must be a clear showing that the benefit obtained by a nonsignatory arose from (&, had a direct nexus with) the underlying agreement containing the arbitration clause. Conversely, when the benefit was indirect (k, it arose through another relationship that benefited from the underlying contract), then arbitration may not be compelled. This appeal arises out of a simple set of facts. Petitioner Winton Capital participated in a trade with Verus, executed through Verus' brokerage account at Jefferies & Company, Inc. ("Jefferies"), a broker-dealer. Belzberg, who is Winton's financial advisor, was responsible for dealing with Verus on behalf of Winton and arranged for Winton to participate in the joint securities transaction in Verus' account at Jefferies. After the transaction was closed out, the principal portion of Winton's share of the trade proceeds was returned to Winton, except for the profits from the trade, which were sent at Belzberg's direction to Belzberg7s friend as a loan. Soon thereafter, Jefferies belatedly demanded that Verus pay certain withholding taxes that Jefferies purportedly had failed to collect. When Verus refused to pay, Jefferies commenced an arbitration against Verus. Verus thereupon attempted to join Winton, Belzberg, Belzberg's friend and another entity as third party defendants in the arbitration proceeding, contending that they were bound by Verus7 agreement with Jefferies. Based on a careful and detailed application of the direct benefit estoppel doctrine, the trial court held that Winton was bound to arbitrate because it had received a "direct" benefit from the Jefferies account. But it also held that Belzberg was not obligated to arbitrate the dispute with Verus on the ground that Belzberg had not received a "direct" benefit.' The Appellate Division, however, rejected that holding, and held that Belzberg had obtained a "direct" benefit by virtue of the control that he exercised over the transaction and the fact that he caused Winton to use its trade profits to make a loan to his friend. The Appellate Division's decision is contrary to direct benefit estoppel doctrine's requirements and effectively eliminates the requirement that the benefit "directly" result from the agreement. Unlike the effort made by the trial court, the Appellate Division failed to determine, as it should have, whether the benefit that Belzberg obtained derived from the customer agreement that existed between Verus and Jefferies, or whether it derived from Belzberg's relationship with Winton and the fortuitous fact that Winton had profits from a transaction that Belzberg chose to direct to his friend. As the trial court saw with great clarity, as a matter of law, it was the latter. As the courts in many other jurisdictions have held, the fact that Belzberg obtained a derivative benefit from the proceeds that Winton obtained fkom the transaction does not cause him to receive a "direct" benefit from the Jefferies customer agreement. The money belonged to Winton. By causing Winton's money to be lent to Lindbergh by virtue of the authority and control that 1 It reached a similar decision with respect to the other two parties. Winton granted to him, the "direct" benefit that Belzberg received came from his relationship with Winton. In reaching its erroneous decision, however, the Appellate Division held that it was sufficient that Belzberg obtained a benefit, regardless of whether it was direct and regardless of the source of his authority. By making such a superficial ruling, the Appellate Division has overridden the doctrine's requirement that the benefit must be direct. Reversal of the Appellate Division's order is necessary in order to ensure the clear and uniform application of the "limited circumstances" when a nonsignatory may be compelled to arbitrate. It is important for this Court to provide that clear guidance in order to prevent the result-oriented analysis underlying the Appellate Division's ruling. STATEMENT OF THE CASE Nature of the Case Belzberg and petitioners Doris Lindbergh, Winton and Gibralt Capital ("Gibralt") filed a petition to stay an arbitration as it related to third party claims asserted by Verus against them in connection with an arbitration proceeding that Jefferies had commenced against Verus (the "Jefferies Arbitration") before the Financial Industry Regulatory Authority. ~ . 2 0 - 2 8 . ~ Verus filed a cross-motion to compel each of the four petitioners to participate in the Jefferies Arbitration. A.79-80. Nature of the Proceedings Below Belzberg, Lindbergh, Winton and Gibralt filed their Petition pursuant to CPLR 7503. A.22-28. In support of their Petition, they submitted affidavits from Belzberg, Lindbergh and Ryan Chan of Gibralt. A.62-73. On May 11,2010, Verus responded to the Petition. A.74-78. On May 17, 2010, it moved to compel all of petitioners to arbitrate. A.79-152. Verus submitted an affidavit fiom its attorney attaching numerous exhibits as well as affidavits from Ajmal Khan and Hilary Herscher, each of Verus. A.8 1 - 152. 2 "A" refers to the Appendix jointly filed by the parties in connection with Verus' appeal from the Judgment to the Appellate Division, First Department, a copy of which is being submitted herewith. That record collection is entitled "Appendix" just like the Appendix being concurrently filed with this Brief pursuant to Rule 500.14(b). In order to avoid confusion, references to "CA" in this Brief refer to the Appendix that Belzberg is submitting herewith pursuant to Rule 500.14(b). The trial court heard oral argument on July 1, 20 10. A. 153. The trial court commented that, at that time, it viewed petitioners' analysis of the direct benefits estoppel doctrine as weak. A.168 The trial court questioned "how can you argue that at least Winton did not receive a substantial benefit?" A. 163. Later in the hearing, the trial court inquired how Gibralt was involved in the matter, and the court was advised that "Gibralt was basically being a conduit of information. It acted to pass on or facilitate information. It never had any financial stake or involvement." A.168. At the conclusion of the hearing, after hearing that Lindbergh was not a customer of Jefferies and had no dealings with either Verus or Jefferies, the trial court inquired: "So, if I left Lindbergh out and the other three in, that would be okay?" A. 18 1. In response, counsel observed that "No. I think the same analysis applies with respect to Gibralt and Belzberg." A. 18 1-82. In a Decision and Judgment, entered October 21, 2010 (the "October Decision"), the trial court permanently stayed the arbitration as to Gibralt, granted Verus's cross-motion to compel arbitration as to Winton and deferred its ruling with respect to Lindbergh and Belzberg pending a fkther hearing3 CA.44-45. The trial court also denied Verus's motion for legal fees. CA.45. A copy of the Order can be found in the accompanying Appendix at CA.33-45. It also appears in the Joint Appendix at A. 189-203. The trial court concluded that Winton had to participate. CA.41. In finding that Winton had "received a direct benefit under the Customer Agreement," the trial court reasoned that, "[albsent the Customer Agreement, Winton would not have been able to place a trade for [Fording] securities with Jefferies; and receive back its principal investment after the trade was closed." As to Gibralt, the trial court denied Verus's motion to compel. CA.43. The trial court observed that the "evidence shows that Ryan Chan, the Vice President of Gibralt, disclosed in his communications with Verus and Jefferies that he was acting as an intermediary for Belzberg and/or Winton." CA.43. The trial court held that a contractual intent to arbitrate therefore could not be imputed to Gibralt based on the mere fact that Gibralt was acting as an agent. The trial court also held that Belzberg could not be compelled to arbitrate under the theory of "piercing the corporate veil." CA.42. The trial court stated that: Verus admits that Belzberg is not Winton's owner because Winton's stock is owned by a Liberian corporation, and the Liberian corporation is owned by members of Belzberg's family. Hence Belzberg is not a stockholder and "the piercing of the corporate veil" doctrine cannot apply to him. As to Lindbergh and Belzberg, the trial court directed that there be an evidentiary hearing. CA.42, 44. The focus of the hearing would be whether Belzberg and/or Lindbergh: knowingly exploited the Customer Agreement and directly benefitted from it, the circumstances under which Doris Lindbergh received Winton Capital Holding's share of the profits, what Doris Lindbergh did with the money, whether Samuel Belzberg and/or Winton Holding received any of the money, and whether there were agency relationships between Doris Lindbergh, Samuel Belzberg, Gibralt Capital and/or Winton Capital Holding. CA.44-45 (emphasis added). Lindbergh testified before the trial court at a hearing held on December 6, 2010. A.204-57. Due to his health, Belzberg gave a trial deposition in Rancho Mirage, California on January 7,201 1. A.258-352. The trial court issued its Supplemental Order and Decision and Judgment, entered May 27,201 1 (the "Supplemental ~ r d e r " ) . ~ CA.22. The trial court permanently stayed the arbitration as to Belzberg and Lindbergh. CA. 23-32. In denying Verus's motion as against Lindbergh, the trial court held that the "first prong of the 'arbitration by estoppel' test is not satisfied - Lindbergh A copy of the Supplemental Order can be found in the accompanying Appendix at CA.22-32. It also appears in the Joint Appendix at A. 10-1 9. did not knowingly - exploit an agreement with an arbitration clause in it." CA.30 (citation omitted; emphasis in original). The trial court further found that "Lindbergh's involvement in the securities transaction was limited to receiving Winton's share of profits thereunder, without knowledge of the transaction or the Customer Agreement that facilitated it." CA.3 1. As to Belzberg, the trial court held that: Belzberg, however, cannot be compelled to arbitrate because the second requirement of the 'arbitration by estoppel' test is not met in his case. Even if Belzberq initiated and orchestrated the entire transaction on behalf of Winton, and even if he knew of the arbitration clause in the Customer Agreement, Belzberg - did not receive a benefit flowing directly from the Customer Agreement. After Jefferies closed the transaction, it returned the principal investment to Winton and the share of the profits to Lindbergh, who, ultimately must repay the loan to Winton. CA.28-29 (emphasis in original; citations omitted). The trial court observed that Belzberg testified that he had never been compensated by Winton in connection with acting as a financial advisor and that he had never derived any financial benefit from any of the proceeds obtained from the trading of Fording securities. CA.29. Thus, the trial court held that: Belzberg's - benefit, if any, consisted in Lindbergh - -- his long - time friend -- receiving a loan from Winton. This benefit, however, did not flow directly from the Customer Agreement between Verus and Jefferies, but from the business relationship between Belzberg and Winton and Belzberg's authority to make investment decisions, including loans, on Winton's behalf. CA.29 (emphasis added; italics in original). Second, the trial court held that "Winton's liability under the estoppel theory, in turn, cannot reach Belzberg." CA.29. The trial court found that Belzberg is not an officer of Winton. CA.29. It held that, even if he were, "individual officers . . . are not personally liable on contracts entered into on behalf of a corporation if they do not purport to bind themselves individually." CA.29 (citations omitted; ellipses in original). Thus, the trial court held that: even if the intent to arbitrate under the Customer Agreement is properly imputed to Winton under an estoppel theory, it cannot be imputed to Belzberg, unless he purported to bind himself individually. Verus does not allege, and there is no evidence to suggest, an intent by Belzberg to be so bound. CA.29-30 (citation omitted). Third, the trial court reaffirmed its holding that Belzberg cannot be compelled to arbitrate under the "piercing the corporate veil" doctrine. CA.30 (citations omitted). The trial court noted that: Belzberg testified that he does not have an ownership or beneficial interest in Winton and that he is not an officer of Winton. Winton is a British Virgin Islands Corporation, which is owned by a Bermuda trust and, according to Belzberg, only his children are beneficiaries of that trust. Thus, "the piercing of the corporate veil" doctrine cannot apply to Belzberg. CA.30 (citations omitted). Accordingly, the trial court held that "Verus fails to carry the burden of proof that its third-party claim against Belzberg is arbitrable." CA.30. The Clerk entered the Judgment on August 9,201 1. See A.8-9. Verus timely filed a notice of appeal from the Judgment. A.6-7. In its Decision and Order entered May 24, 2012 (the "Appellate Division ~ecision") ,~ the Appellate Division reversed the Judgment entered by the trial court, and directed the Clerk to enter judgment granting Verus's cross petition to compel Belzberg to arbitrate. CA.4. The Appellate Division rejected the trial court's analysis, based on the Appellate Division's misunderstanding of the "direct" requirement, and held: The motion court should have compelled Belzberg to arbitrate. It is well settled that in certain circumstances, an intent to arbitrate may be imputed to a non-signatory. For example, "[a] non-signatory to an agreement containing an arbitration clause that has knowingly received direct benefits under the agreement will be equitably estopped from avoiding the agreement's obligation to arbitrate." Here, Belzberg should be estopped from avoiding arbitration because he knowingly exploited and received direct benefits from the customer agreement between Verus and Jefferies. Although Belzberg claimed that he acted only as a financial advisor to Winton, and he had no stake in the proceeds transferred to Lindbergh, the record demonstrates otherwise. Belzberg specifically A copy of the Appellate Division Decision can be found in the accompanying Appendix at CA.4-12. asked Khan if he could use Verus's brokerage account at Jefferies to process the Fording trade, and when Khan agreed, Belzberg initiated and orchestrated the entire transaction. After the securities were liquidated, Belzberg appropriated - - the $223,655 of trading profits by instructing Verus to transfer them to his good friend of 25 years so that she could buy a summer home, and then directed that she repay him. CA.9- 10 (citations omitted) (emphasis added). The Appellate Division rejected the trial court's analysis regarding whether the benefit was "direct" because Belzberg caused a loan to be made to his friend. Without evaluating the source and basis of Belzberg's authority to act and to "appropriate" Winton's trading proceeds, as this trial court had done, see CA.28- 29, the Appellate Division stated: "Although the motion court characterized the transfer as a loan from Winton, the record shows that Belzberg, in his personal capacity not Winton, gave the money to Lindbergh." CA.lO. The Appellate Division never asked how Belzberg could make a loan in his personal capacity using Winton's Because of Belzberg's role in directing and coordinating the entire transaction, the Appellate Division held that the benefit that Belzberg received "flowed directly from the customer agreement [with Jefferies]," even though the 6 The Appellate Division disregarded the undisputed fact that the funds that were used to make the loan belonged only to Winton. CA. 10; see A. 100,221-22. transaction at the Jefferies' account occurred with funds from Winton for the benefit of w in ton.^ CA. 1 1; see A.202-03. The Appellate Division stated: The profits Belzberg diverted to Lindberah were generated in the Fording trade that Belzberg orchestrated using Verus's account at Jefferies. As the motion court recognized when it ordered Winton to arbitrate, absent the Verus-Jefferies customer agreement, Belzberg would not have been able to place the trade with Jefferies. And, as Lindbergh testified, she will repay the money directly to Belzberg, which means that Belzberg will ultimately receive the profits fi-om the trade. CA. 1 1 - 12 (citation omitted; emphasis added). Verus served notice of entry of the Appellate Division Decision via electronic filing on May 3 1,20 12. CA.2. On September 18, 2012, this Court granted Winton's motion for leave to appeal. CA. 1, STATEMENT OF FACTS Winton is a British Virgin Islands corporation, and has its principal place of business in Grand Cayman, Cayman Islands, BWI. A.63. Winton is 7 The Appellate Division's holding that Belzberg received a direct benefit from the transaction is inconsistent with the holding, with which the Appellate Division concurred, that Winton had to participate in the Jefferies Arbitration because it had received a direct benefit. If the funds used to engage in the transaction were Winton's funds (and Belzberg was acting on behalf of Winton), which must be the case if Winton, in fact, benefited from that transaction, then Belzberg also could not have received a "direct" benefit unless the veil is pierced and Belzberg is held to be an alter ego of Winton. The trial court held to the contrary, CA.30, 42-43, and Verus never challenged on appeal the trial court's holding that the corporate veil could not be pierced. owned by a Bermuda trust, and Belzberg's children are the sole beneficiaries of that trust. A.262-63,35 1. Belzberg does not have any ownership or beneficial interest in Winton. A.262-63. Nor is he an officer of Winton. A.263. He has no right to any of Winton's income or principal. A.262-63,264. Belzberg serves only as a financial advisor to Winton, with authority to make investment decisions on Winton's behalf. A.263-64. Winton does not compensate Belzberg for any of its advice or investment management in any respect. A.274. In early 2008, Belzberg, acting pursuant to his role as a financial advisor to Winton, caused Winton to invest in Fording Canadian Coal Trust securities (the "Fording Securities"). A.265-66. Belzberg, however, later caused Winton to liquidate that transaction when he became aware of potential adverse tax consequences. A.266. Thereafter, in the Fall of 2008, Verus's principal Ajmal Khan, an individual with whom Belzberg has engaged in business dealings for over 20 years, spoke with Belzberg and asked Belzberg about his investments. A.266. Belzberg informed Khan about Winton's prior investment in Fording Securities, as well as the tax consequences that led him to liquidate the position. A.266. When Belzberg told Khan about those tax issues, Khan responded that he would "have no problem with that because I am -- I have an offshore company." A.266-67. Belzberg was not convinced, and asked Khan to do a further investigation on the tax issues. A.267. Belzberg further testified that he advised Khan that "RBC - the Royal Bank brokerage house, Dominion Securities is either a trustee or handling the deal," and suggested that Khan contact someone at RBC to obtain more information about any potential tax issues. A.267. Belzberg believed that Khan had, in fact, discussed the issue with someone at RBC because the next day Khan informed him that there was "[a]bsolutely no problem." A.267. Still skeptical, Belzberg informed Khan that Winton had "sold its stock because our brokers in Canada told us there is a problem. So please check it again." A.267. Belzberg concluded that Khan had conducted a further investigation as to any tax considerations, when Khan informed him "we have no problem." A.267. In a final effort to provide additional assurances on the tax issues, Khan had Belzberg speak with a senior executive at a leading international accounting firm who was advising them. A.33 1. Consequently, in reliance on Khan's assurances, Belzberg caused Winton to reestablish a position in the Fording Securities. A.266-67, 329-31. Belzberg acted in his capacity as a financial advisor for Winton. A.284-85. Belzberg directed Chan to wire Winton funds to Verus's account at Jefferies to participate in the purchase of the Fording Securities. A.267. Chan did so. A. 114, 238. The Jefferies account statements show that the funds came exclusively from Winton. A. 100. At about the same time, Verus also wired $1 million of its money to Verus's account for the purchase of Fording Securities. A.97. Verus assumed responsibility for execution of the entire trade, in its name through its account at Jefferies. A.267-68. Verus controlled the execution of the securities transaction, including the necessary communications with and directions to Jefferies, and neither Belzberg nor any of the petitioners directed Jefferies with respect to execution of the trade or its liquidation. A. 1 13-2 1. Although Gibralt provided information to Jefferies regarding Winton's bank account for the wiring of funds, Verus controlled Jefferies' transmission of the proceeds.8 A.68. Neither Winton nor Belzberg exercised any control over Jefferies with respect to the transmission of the trade proceeds. See A. 12 1-45. 8 For example, on November 4, Khan notified Chan that Verus would send out the wire to Winton once Verus has sold out its position. A.115. There were at least 10 emails on November 7 regarding the status of the promised wire. See, e.g, A.121-29. There were approximately six more emails concerning the promised wire on November 10. See e.g., A. 129-41. Thereafter, there were several communications relating to: (i) the status of the wire and "profit splits", A. 138-42; (ii) distribution of some of the proceeds to Lindbergh, A. 144-48; and (iii) a confirmation regarding the calculation as to the profit split between Winton and Verus. A. 141-47. When the position was liquidated, Jefferies wired $5 million to Verus. A. 103. Those proceeds were wired to Verus's bank account in Bermuda. A. 137. Chan communicated with Herscher and Khan concerning the return of the $5 million to Winton. A. 1 17-3 1. After the securities were liquidated, on November 10, Verus wired $5 million to Winton from its bank. A. 103, 1 14,268. With respect to Winton's $223,655.25 profits fi-om the trade, Belzberg directed Chan to have Verus send those profits to Lindbergh. A.264, 268-69, 280. Consequently, Chan requested Verus to wire those funds to Lindbergh, and Versus thereafter instructed Jefferies to transmit those hnds to Lindbergh. A. 141-47. The undisputed record evidence is that the wire to Lindbergh came from Winton's share of the proceeds fi-om the Fording Securities trade in the Verus account at Jefferies. A.22 1 -22. Belzberg gave that direction to Chan in his capacity as Winton's financial advisor. A.264, 280. He exercised the discretion that Winton vested in him after having had discussions with Lindbergh regarding her inability to obtain a mortgage for the purchase of a second home. A.269. In November 2008, Belzberg called Lindbergh to tell her that he would have hnds lent to her to assist her in the purchase of a second home.9 A.210, 269. She had no knowledge as to the source of the hnds, including any connection between the funds and the Fording Securities transaction. A.2 10- 12. Belzberg advised Lindbergh, and she understood, that the hnds were a loan. A.212, 268. Lindbergh informed Belzberg that she would repay the loan with interest. A.239, 270. Belzberg never asked Lindbergh to sign a promissory note, and there is no documentation memorializing Lindbergh's obligation to repay the loan. A.269. Lindbergh never had any dealings with Verus prior to being served with Verus's third-party demand for arbitration. A. 157. Nor did she notice on her bank statement that the hnds had come from Verus. A.221-22. She also had no knowledge about the purchase and liquidation of Fording Securities in Verus' account at Jefferies. A.208-09. Sometime after the trade was completed and Jefferies had released the trade proceeds from Verus7s account at Jefferies, the Canadian tax authorities notified Jefferies that a $928,053.45 withholding tax was owed on the Fording 9 Belzberg's and Lindbergh's testimony concerning the reason why the transfer was made to Lindbergh initially was vague. They did not describe the transfer as a loan. See A.72- 73. In the hearing before the trial court, they both did so. A.210'268-70. Securities trade. A.98. In September 2009, Jefferies commenced the Jefferies Arbitration against Verus for the unpaid Canadian withholding taxes. A.46-54. Verus answered the petition. A.29-39. In addition, Verus asserted third-party claims against Winton, Gibralt, Belzberg and Lindbergh, seeking payment of the Canadian withholding tax from them. A.40-44. Verus served that third-party claim on Winton and the other petitioners in the last week of March 2010. A.24. They promptly commenced this proceeding to obtain a stay under CPLR 7503. A.20-28. STATEMENT OF JURISDICTION The Appellate Division reversed the Judgment entered by the trial court, and directed entry of judgment in favor of Verus's cross-petition. CA.4. The judgment is therefore final. Burke v. Crosson, 85 N.Y.2d 10, 15 (1995). QUESTIONS PRESENTED FOR REVIEW 1. Did the Appellate Division err when it compelled an individual to arbitrate a dispute as a third-party defendant, when: (a) the individual was not a party to the arbitration agreement between the broker-dealer and the entity seeking to compel the individual to arbitrate; (b) the individual had no ownership or other financial interest in the trade executed in the brokerage account or the proceeds of the trade that is the subject of the arbitration; (c) the individual acted only as a financial advisor to another named third-party defendant that participated in the trade and contributed its funds for the trade (and which entity has been compelled to participate in the arbitration); (d) the individual received no financial gain from the proceeds of the trade; (e) the only benefit that the individual received was that, by virtue of exercising his authority as the entity's financial advisor subsequent to the trade, he caused that entity to send some of the trade's profits to the individual's friend as a loan for her? ARGUMENT POINT I THE APPELLATE DIVISION ERRONEOUSLY IGNORED THE CLEAR LIMITS ON THE APPLICATION OF THE DIRECT BENEFITS ESTOPPEL DOCTRINE The Appellate Division held that Belzberg must participate in the Jefferies Arbitration under the direct benefits estoppel doctrine because he controlled the entirety of the transaction and the decision making that resulted in the loan being made to Lindbergh. Totally absent from the Appellate Division's analysis, however, is any examination of the source of Belzberg7s control and authority. The direct benefits estoppel doctrine, however, requires such an examination. By failing to make that examination, the Appellate Division ignored the limitations that other courts have imposed, and likewise ignored this Court's admonitions. The Appellate Division erroneously engaged in a superficial analysis, looking at Belzberg7s conduct and the benefit provided to his friend. That analysis is inconsistent with, and ignores all the learning provided by, the case law decided in numerous courts regarding the requirements and application of that doctrine. If Belzberg's ability to make a loan to his friend did not derive from the Jefferies Agreement, then the benefit was "indirect" as the trial court correctly held, regardless of the control that Belzberg exercised. A. New York Courts Are Reluctant to Compel Nonsignatories to Arbitrate Arbitration is contractual by nature -- "a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960). Arbitration agreements may not be so broadly construed so as to encompass parties that were not intended by the original contract. See AT&T Technologies v. Communications Workers of America, 475 U.S. 643, 648 (1986); see also John Hancock Life Insurance Co. v. Wilson, 254 F.3d 48, 58 (2d Cir. -- 2001); Mahan Securities Co. v. Aviator Master Fund, Ltd., 20 Misc. 3d 386, 392 (Sup. Ct. N.Y. Co. 2008). Therefore, a signatory seeking to enforce an arbitration agreement against a nonsignatory, as is the case here, must establish at least one of the following bases for arbitration: "1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercinglalter ego; and 5) estoppel." Merrill Lynch Investment Managers v. Optibase, Ltd., 337 F.3d 125, 129 (2d Cir. 2003) (citation omitted).'' When, as here, a party seeks to compel unwilling nonsignatories, courts will compel arbitration only in very narrow circumstances. See, m, Bridas lo Much of the case law on this issue comes from the federal courts because those courts frequently confront that issue under the Federal Arbitration Act. S.A.P.I.C. v. Governrnent of Turkmenistan, 345 F.3d 347, 361 (5th Cir. 2003) ("[blecause arbitration is guided by contract principles, the reverse is not also true: a signatory may not estop a nonsignatory from avoiding arbitration regardless of how closely affiliated that nonsignatory is with another signing party" (citation omitted)); Merrill Lynch, 337 F.3d at 129-30 ("[albsent an express agreement to arbitrate, this Court has recognized only 'limited theories upon which [it] is willing to enforce an arbitration agreement against a nonsignatory'" (citation omitted)); Thomson-CSF, S.A. v. American Arbitration Association, 64 F.3d 773, 780 (2d Cir. 1995) (reversing district court's order compelling unwilling nonsignatory parent company to arbitrate, and discussing inapplicability of "intertwined" standard to nonsignatory); see also Denny v. BDO Seidman, LLP, 412 F.3d 58, 71 (2d Cir. 2005) (describing different standards applicable to unwilling signatory and nonsignatory parties). Indeed, in one of the decisions cited by the Appellate Division purportedly to justify its ruling, TNS Holdings, Inc. V. MKI Securities Corp., 92 N.Y.2d 335 (1998) (cited at CA.9), this Court expressly warned against a broad and expansive approach, and made clear that the doctrines used to determine whether to compel a nonsignatory to arbitrate must be strictly applied. This Court stated: Although arbitration is favored as a matter of public policy, equally important is the policy that seeks to avoid the unintentional waiver of the benefits and safeguards which a court of law may provide in resolving disputes. Indeed, unless the parties have subscribed to an arbitration agreement it would be "unfair to infer such a significant waiver on the basis of anything less than a clear indication of intent." While CPLR 7501 requires that an agreement to arbitrate be in writing, this court has recognized in certain limited circumstances the need to impute the intent to arbitrate to a nonsignatory. Id. at 339 (citations omitted; emphasis supplied). After making that observation, - this Court strictly applied the "alter ego" exception, and declined to hold the nonsignatory subject to an arbitration agreement. The Appellate Division made no reference to that policy, and ignored Judge Leisure's extremely apposite decision that exercised the restraint required when applying the direct benefits estoppel doctrine. See Barrack, Rodos & Bacine v. Ballon Stoll Bader & Nadler, P.C., No. 08 Civ. 02152(PKL), 2008 WL 759353 (S.D.N.Y. Mar. 20, 2008). See this Brief at 28-29, infi-a. B. Application of the Direct Benefits Doctrine Does Not Require Belzberg to Participate in the Arbitration In cases such as this one -- when a signatory seeks to bind a nonsignatory (such as Belzberg) to an arbitration clause to which the nonsignatory never agreed -- numerous courts have been reluctant to apply the direct benefits estoppel doctrine. See, e.g., MAG Portfolio Consult, GMBH v. Merlin Biomed Group, LLC, 268 F.3d 58, 62 (2d Cir. 2001); Bridas, 345 F.3d at 361. Instead, they apply a more rigid standard in determining whether the direct benefits estoppel doctrine applies. See SmithIEnron Cogeneration Ltd. Partnership v. Smith Cogeneration International, Inc., 198 F.3d 88, 97 (2d Cir. 1999) ("a court should be wary of imposing a contractual obligation to arbitrate on a non- contracting party."); accord InterGen N.V. v. Grina, 344 F.3d 134, 145-46 (1 st Cir. 2003) (courts "have been hesitant to estop a nonsignatory seeking to avoid arbitration."); Oppenheimer & Co. v. Deutsche bank AG, No. 09 Civ. 8 154 (LAP), 2010 WL 743 915, at *2 (U.S. Dist. Ct. S.D.N.Y. Mar. 2, 2010); Legacy Wireless Services, Inc. v. Human Capital, L.L.C., 3 14 F. Supp. 2d 1045, 1055-56 (D. Ore. 2004). ' As the trial court held, CA.28-29, a nonsignatory may be estopped from avoiding arbitration only when the party "'knowingly accepted the benefits' of an agreement with an arbitration clause." MAG Portfolio, 268 F.3d at 61 (quoting Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993)); accord Ayco Co. v. Frisch, No. 1 1 Civ. 580 (LEK), 2012 U.S. Dist. LEXIS 21 12, at *31 (N.D.N.Y. Jan. 9, 2012) ("By contrast, a benefit is merely indirect 'where the nonsignatory exploits the contractual relation of parties to an agreement, but does not exploit (and thereby assume) the agreement itself."' (citation omitted)); see also Haskins v. First American Title Insurance Co., 866 F. " As Belzberg explained in his Motion for Leave to Appeal, this Court has not addressed this doctrine. Supp. 2d 343, 354 (D.N.J. 20 12) (citing and following MAG). "The benefits must be direct -- which is to say, flowing directly from the agreement." Id. (emphasis added); Thomson CSF, 64 F.3d at 779 (the signatory must show that the nonsignatory "knowingly exploit[edIn the underlying agreement and thereby received a direct benefit from the contract)); Bridas, 345 F.3d at 361. Deloitte Noraudit illustrates when there is a direct benefit that triggers the obligation to arbitrate. There, an international association of accounting firms entered into a settlement agreement on behalf of its members concerning the use of the trade name "Deloitte." 9 F.3d at 1062. The agreement, which contained an arbitration clause, allowed the local affiliates to use the trade name "Deloitte" in exchange for adherence to the dictates of the agreement. Id. at 1062. A Norwegian accounting firm continued using the Deloitte trade name after accepting the agreement and making no objections to its terms. When the Norwegian firm later argued that it could not be bound by the arbitration clause contained in the agreement, the court held that the firm was estopped from avoiding arbitration. Id. at 1065. Even though the firm did not sign the agreement, it had accepted a copy of it and had directly benefitted from the agreement's terms by continuing to use the name "Deloitte." Id. at 1064. In contrast, as the trial court also correctly stated, CA.28, the benefit derived from an agreement is "indirect" when the nonsignatory exploits the relationship with the signatory, but does not exploit (and thereby assume or become subject to) the agreement itself. See MAG Portfolio, 268 F.3d at 61 (citing Thomson CSF, 64 F.3d at 778-79); see also AICO International, E.C. v. Merrill Lynch & Co., 98 Fed. App'x 44, 46 (2d Cir. 2004) ("Estoppel of an unwilling nonsignatory requires a showing, absent here, that the nonsignatory 'knowingly exploited' the benefits of an agreement with an arbitration clause and derived a 'direct benefit' from the agreement"); Oppenheimer, 2010 WL 743915, at *2-4. As noted above, Barrack, 2008 WL 759353, is instructive because of its strong similarity to the situation here. In Barrack, the court held that the direct benefits estoppel doctrine did not apply because the nonsignatory had not received a direct benefit from the contract containing the arbitration clause. An attorney worked for a law firm and left to join another firm. Id. at * 1. The attorney's personal professional corporation and his prior firm entered into a contract agreeing to divide the attorney's cases and to divide future fees from certain cases initiated by the attorney. Id. That agreement contained an arbitration provision. Id. After the attorney moved to his new firm, a dispute arose as to the attorneys' - fees that the new firm obtained as a result of settling a case that the attorney had originated while working at his prior firm. Id. The attorney's prior firm initiated arbitration against the attorney, his professional corporation and his new firm. Id. at * 2. As to the new firm, the prior firm argued that that the new firm was estopped from avoiding arbitration because it had received attorneys' fees as a "direct benefit" of the agreement between the attorney and his prior firm, fees that otherwise would have belonged to the attorney. Id. at * 6. The court held that the new firm had: exploited the contractual relation of the parties to an agreement by taking over the role of counsel in the . . . case. However, [the second firm] has not exploit[ed] (and thereby assume[d]) the agreement itself. Id. (internal citation and quotations omitted; ellipsis in original). Thus, the court - held that, although the prior firm claimed an interest in the fees based on the agreement with the professional corporation, that fact did not establish that the second firm had benefitted from the agreement, but established, at most, that the new firm had received only an indirect benefit from the agreement. Id. at * 6-7; see also Thomson CSF, 64 F.3d at 778-79 (refusing to compel arbitration and -- finding indirect benefit because nonsignatory exploited merely the contractual relation of the parties). In other words, as Belzberg did with Winton, the new firm received the "direct benefit" from the lawyer, who obtained his benefit as a result of the agreement with his prior firm. Here, the trial court applied the principles concerning nonsignatories and the direct benefits doctrine. It correctly concluded that no basis could be established to compel Belzberg to participate in the Jefferies Arbitration. CA.29- 30. In the Supplemental Order, the trial court correctly concluded that Belzberg's benefit was indirect: Belzberg's benefit, if any, consisted in Lindbergh -- his long time friend -- receiving a loan from Winton. This benefit, however, did not flow directly from the Customer Agreement between Verus and Jefferies, but from the business relationship between Belzberg and Winton and Belzberg's authority to make investment decisions, including loans, on Winton's behalf. CA.29 (emphasis in original). In reaching this conclusion, the trial court rejected Verus' assertions that Belzberg received a direct benefit, which Verus repeated before the Appellate Division. First, Verus argued that Belzberg knowingly exploited the Customer Agreement because he asked to use Verus' brokerage account at Jefferies to process the Fording Securities trade. The trial court correctly rejected that superficial contention. It stated that, "[elven if Belzberg initiated and orchestrated the entire transaction on behalf of Winton, and even if he knew of the arbitration clause in the Customer Agreement, Belzberg did not receive a benefit flowing directly from the Customer Agreement." CA.29 (emphasis in original). The record evidence is undisputed that the proceeds of the securities transactions belonged solely to Winton, which is the only party that provided hnds for the transfer. A. 100,268-70. Hence, Winton exploited the relationship with the Customer Agreement. Belzberg thereafter used his relationship with Winton to direct Verus to return a portion of Winton's share of the trade proceeds by making a transfer to Ms. Lindbergh. A.268-70. Thus, the trial court properly held that "Belzberg's benefit, if any, consisted in Lindbergh -- his long-time friend -- receiving a loan from Winton. This benefit, however, did not flow directly fi-om the Customer Agreement between Verus and Jefferies, but from the business relationship between Belzberg and Winton and Belzberg's authority to make investment decisions, including loans on Winton's behalf." CA.29 (emphasis in original). The trial court found that, "[alfter Jefferies closed the transaction, it returned the principal investment to Winton and the share of the profits to Lindbergh, who, ultimately must repay the loan to Winton." CA.29. The trial court observed that "Belzberg testified that he has never been compensated from Winton in connection with acting as a financial advisor and, more importantly, that he never derived any financial benefit from any of the proceeds obtained from the trading of the [Fording] securities in this case."12 CA.29. The trial court's finding is consistent with the record. Belzberg does not have any ownership or beneficial interest in Winton. A.262-63. He is not an officer of Winton, and serves only as a financial advisor with authority to make l2 There is no evidence in the record to the contrary. investments, including loans on its behalf. A.263. Belzberg had no financial interest in the proceeds of Winton's investment. A.264. After the transaction closed, Belzberg directed Chan to have Winton's profits sent to Lindbergh. A.269, 279-80. Second, Verus contended that Belzberg purportedly received a direct benefit because Belzberg caused Winton to send Lindbergh a portion of Winton's proceeds in order to assist her to purchase a second home, and that it does not make sense that Winton, which had no prior relationship with Lindbergh, would lend her money. In essence, Verus claimed that it is somehow not plausible for Winton to have made a loan to Lindbergh, that the loan was really a "gift" and that the testimonial evidence of Lindbergh and Belzberg should not be given any credence. Verus' argument begs the question -- no matter how the loan is characterized, it has nothing to do with, and does not directly flow from, the contractual relationship with Jefferies and the Fording Securities transaction. The trial court's analysis of the lack of a "direct benefit" is not altered by how the transfer to Ms. Lindbergh is characterized, as the transaction was indisputably executed by Winton with its funds. CA.24. Even assuming ar~uendo that Verus' characterization of the loan has merit, the only factual issue is whether Winton is deemed to have made a loan to Belzberg, who then made a loan or gift to Lindbergh, or whether (as actually occurred) Winton made the loan directly to Lindbergh. Regardless of which alternative is accepted, the characterization of the transfer to Lindbergh relates only to how Belzberg exploited his advisory relationship with Winton -- not to the source of Belzberg's authority to cause the Lindbergh transfer to occur. C. The Appellate Division's Rejection of the Trial Court's Holding Is Fundamentally Flawed The Appellate Division erroneously held otherwise because it misunderstood the requirement that the benefit be "direct". The Appellate Division wrongly rejected the trial court's analysis. Although the Appellate Division concluded that Belzberg received direct benefits from the Jefferies Customer Agreement, nothing in its analysis supports such a conclusion. In its decision, the Appellate Division collapsed all the facts, ignored corporate formalities, and concluded that Belzberg must arbitrate because he received a benefit, even though it flowed from and made possible only by his agency relationship with Winton, as opposed to the Jefferies Customer Agreement. This critical distinction caused the trial court to reach the contrary conclusion. See CA.28-30. In effect, in order to evade the strict requirements that this Court applied in TNS, the Appellate Division eviscerated the safeguards that the courts have built into the direct benefits estoppel doctrine.13 Consistent with this Court's observation in TNS, the federal courts have likewise held that the direct benefits estoppel doctrine must be rigorously applied in order to avoid the unfair result. See this Brief at 26, supra. - The Appellate Division recited the following facts in support of that conclusion: (i) Belzberg was a financial advisor to Winton; (ii) Belzberg dealt with Verus and its principal in order to use Verus's brokerage account at Jefferies; (iii) Belzberg orchestrated the entire transaction; and (iv) Belzberg appropriated the trading profits from the transaction in order to make a loan to his good friend. See CA.9- 10. In stating that incomplete syllogism, the Appellate Division - neglected to ask whose funds were used and for whose benefit was the transaction in the Jefferies account made. In other words, was Belzberg acting for himself or l3 AS is the case with the Appellate Division's inapt reliance on TNS Holdings, see this Brief at 24-25, supra, the two other decisions cited by the Appellate Division its string citation illustrate the narrow circumstances as to when it is appropriate to require a nonsignatory to participate in an arbitration and how the Appellate Division erroneously overreached. A.9. In Mark Ross & Co. v. XE Capital Management, LLC, 46 A.D.3d 296, 297 (1st Dep't 2007), the Appellate Division affirmed denial of the appellants' motion to stay arbitration because (i) the appellants had actually participated in the preliminary stages of the arbitration for approximately 7 months without objection, (ii) they had sought to compel another nonparty to the agreement to participate in the arbitration; and (iii) they "derived direct benefits from the Agreement, via a Services - Agreement, that provided that [one of the appellants] was to receive a monthly service fee." In HRH Construction LLC v. Metropolitan Transportation Authority, 33 A.D.3d 568, 569 (1st Dep't 2006), the Appellate Division affirmed the order granting the cross motion to compel arbitration because the appellant had assumed actual performance of the contract containing the arbitration clause and was therefore "the real party in interest in the arbitration." for Winton when he had all those dealings with Verus and caused the trade to be executed? The Appellate Division also neglected to ask how was Belzberg able to "appropriate" the trading proceeds, and failed to connect the appropriation of those funds to the Jefferies Customer Agreement. The failure to address either of those two questions regarding Belzberg's authority and his authority's relationship to the Jefferies Customer Agreement makes the Appellate Division's decision legally deficient. There can be no dispute that Belzberg acted on behalf of Winton and for Winton's benefit. The record evidence is undisputed that the proceeds of the securities transactions belonged solely to Winton. A. 100, 268-70. Belzberg used his relationship with Winton to cause Winton to transfer funds to the Jefferies account in order for Winton to participate in the trade. A.141-47, 264, 280. In other words, Belzberg acted as Winton's agent or representative. And with respect to the "appropriation" of the trade profits, Belzberg used his relationship and authority with respect to Winton to direct Chan to call Verus and to tell Verus that it should have some of Winton's trade proceeds sent to Lindbergh's account from the Jefferies account. l 4 A. 14 1-47 Thus, the Appellate Division wrongly concluded that Belzberg received a direct benefit from the Jefferies Customer Agreement. As the trial court correctly held, "Belzberg's benefit, if any, consisted in Lindbergh -- his long-time friend -- rece iving a loan from Winton. This benefit, however, did not flow directly from the Customer Agreement between Verus and Jefferies, but from the business relationship between Belzberg and Winton and Belzberg's authority to make investment decisions, including loans on Winton's behalf." CA.29 (emphasis in original). As the trial court stated, "[alfter Jefferies closed the transaction, it returned the principal investment to Winton and the share of the profits to Lindbergh, who, ultimately must repay the loan to Winton." CA.29. The Appellate Division, however, adopted Verus' flawed reasoning. See this Brief at 32-33, supra. It held that Belzberg purportedly received a direct benefit because he had appropriated the trade profits to make a loan to Lindbergh and because Lindbergh was going to purportedly repay the loan to Belzberg as l4 Indeed, it is noteworthy that all of the communications regarding the trade proceeds, and when they were going to be returned to Winton, and when a portion was going to be sent to Lindbergh, occurred exclusively with Verus. See A.113-47. Chan had no communications with Jefferies with respect to the transfer of funds to Lindbergh. this Brief at 17, supra. Indeed, Verus and its principal jealously retained complete control over the trade proceeds and their disposition, including instructions to Jefferies with respect to what to do with those proceeds. See A. 141 -47. opposed to Winton. CA. 10. The court further stated that it did not make sense that Winton, which had no prior relationship with Lindbergh, would lend her money for the purchase of a second home. CA. 10. The Appellate Division accepted Verus's assertion that it was not plausible for Winton to have made a loan to Lindbergh and that the testimonial evidence of Lindbergh and Belzberg should not be given any credence. CA. 1 0- 1 1. Even if the Appellate Division correctly accepted Verus's view of the evidence, the Appellate Division's finding begs the question -- regardless of how the loan is characterized, Belzberg's actions and the making of the loan do not directly flow from the contractual relationship with Jefferies. See this Brief at 32- 33, supra. Indeed, at worst, the Appellate Division's findings support only the conclusion that Belzberg misused his authority and took advantage of Winton's assets for his personal benefit. Even assuming, despite the lack of any record support, that Belzberg intended to keep those h d s for himself upon Lindbergh's repayment of the loan, the Appellate Division finding means only that Winton would have a claim against Belzberg for misuse of his authority as a financial advisor -- not that Belzberg's loan occurred because of rights granted to Winton under the Jefferies Customer Agreement. Belzberg's actions derived solely from Winton's grant of complete discretion to Belzberg and the authority that Belzberg was therefore able to exercise. See this Brief at 3 1-32, supra. The Appellate Division fails to make that critical distinction, even though all the case law from the other courts regarding the direct benefits doctrine requires such an analysis.15 The trial court's analysis of the lack of a "direct benefit" is correct because the transaction was indisputably executed with only Winton's fbnds.I6 CA.24. It does not matter whether Winton is deemed to have made a loan or a transfer to Belzberg, who then made a loan to Lindbergh, or whether Winton made the loan directly to Lindbergh. In other words, the determination of how to characterize the transfer to Lindbergh is unrelated to the transaction that occurred in Verus's account at Jefferies and therefore the Customer Agreement between Verus and Jefferies. The Appellate Division's conclusion that Belzberg received a direct benefit because he controlled the disposition of the transaction's proceeds has also l 5 Even the one decision cited by the Appellate Division to support its conclusion regarding Belzberg, SSL International, PLC v. Zook, 44 A.D.3d 429 (1st Dep't 2007)' requires a more robust analysis than the one that the Appellate Division performed here. See CA.12. In m, the court held that the petitioners were bound to arbitrate because they had "exploited the 1997 license agreement between respondent and Silipos, Inc., by marketing products that utilize technology covered by the license agreement." Id. at 430. Here, in contrast, the Appellate Division cannot point to a single provision or right conferred by the Jefferies Customer Agreement that enabled Belzberg to do what he did. l6 The Appellate Division made the point that the profits were never in Winton's possession and remained in the Jefferies account. See CA.10. That fact, however, is of no consequence because Winton had the sole beneficial interest in those proceeds. The fact that it did not yet have possession of the funds did not mean that the funds belonged to Belzberg. been rejected by courts in similar cases. For example, in Andres Holding Corp. v. Village Del Rio, Ltd., No. S-09-CA-127-XR, 2009 WL 2252251, * 1 (W.D. Tex. Jul 24, 2009), the court held that an individual who controls a transaction is not subject to the principal's obligation to arbitrate. In that case, Andres Holding Corp ("Andres") and Villaje del Rio, Ltd. ("VDR") executed a construction contract pursuant to which Andres agreed to serve as the general contractor. Id. VDR terminated Andres as the general contractor, and filed a demand for arbitration against Andres, which thereupon asserted third-party claims against Villaje Management, LLC ("VM) and VM's sole shareholder, George Geis. Neither Geis nor VM were signatories to the contract. Id. In seeking to compel Geis to arbitrate, Andres argued that the direct benefits estoppel theory applied because Geis controlled the entire construction project and personally directed Andres and certain of its subcontractors. Id. at * 4. Andres further claimed that any benefits would directly inure to Geis, as he was the individual with sole financial and corporate control over VDR and VM. Id. The court rejected Andres' contentions. The court held that "the bulk of Andres' allegations -- including, for example, Geis' efforts in controlling the progress of construction -- relate to Geis' performance, as VDR's agent, of VDR's duties, not Geis' pursuit or receipt, in his individual capacity of benefits under the contract." Id. (emphasis in original); see Arhontisa Maritime Ltd. v. Twinbrook Corp., No. 01 Civ. 5044, 2001 WL 1142136, at *45 (S.D.N.Y. Sept. 27, 2001) (the estoppel doctrine did not apply when individual defendant received no benefit and merely acted as a contractually- specified conduit for a funds transfer)." Belzberg acted solely as a financial advisor to Winton with broad control over investment decisions on behalf of Winton. CA.29; A.263-64. Pursuant to that authority, Belzberg directed that Winton invest in the Fording Securities and that the profits fiom the transaction be wired to Lindbergh. A.66, 103, 239, 266-67, 270, 284-85. Yet, Belzberg had no stake in the transaction.'* A.266,274. Thus, as the trial court correctly held, Belzberg should not be compelled to arbitrate "because the second requirement of the 'arbitration by estoppel' test is not met in this case." CA.28-29. l 7 This result is also consistent with numerous decisions holding that an employee or officer cannot be compelled to arbitrate by virtue of a corporation's obligation to arbitrate, even when the employee played a substantial role in the transaction. See, e.g, Mionis v. Bank Julius Baer & Co., Ltd., 301 A.D.2d 104, 110 (1st Dep't 2002); Metamorphosis Construction Corn. v. Glekel, 247 A.D.2d 231, 231 (1st Dep't 1998); Johnston v. Silverman, 167 A.D.2d 284, 285 (1st Dep't 1990); see also Bel-Ray Co. Inc. v. Chemrite Ltd., 181 F.3d 435, 446 (3d Cir. 1999) (directors and officers could not be compelled to arbitrate under estoppel theory because, without piercing the corporate veil, they did not receive any direct benefit). l 8 The Appellate Division's conclusion that Belzberg did receive a financial benefit based on its conclusion that Winton did not possess the funds and Lindbergh would repay the loan to Belzberg. CA. 1 1. Yet, as discussed above, in fact, that benefit derived solely from Belzberg's exploitation of his relationship with Winton. See this Brief at 32-33, supra. POINT I1 THE TRIAL COURT CORRECTLY HELD THAT WINTON'S LIABILITY CANNOT BE IMPUTED TO BELZBERG The only other basis pursuant to which Belzberg could be held obligated to participate in the Jefferies Arbitration is that Winton's veil should be pierced as against Belzberg. See this Brief at 23, supra. There is no basis, however, to apply that doctrine here. The "piercing the corporate veil" doctrine allows courts to disregard the corporate form whenever necessary to prevent fraud and hold owners liable for the corporation's obligations. Morris v. State Department of Taxation and Finance, 82 N.Y.2d 135, 140-141 (1993). Thus, unless Vems established that Winton's corporate veil should be pierced as to Belzberg, he could not be compelled to arbitrate based on Winton's obligation to arbitrate. The trial court correctly held that Winton's liability cannot be imputed to Belzberg under a veil piercing theory. CA.30. Consequently, the direct benefit that Winton had received cannot be imputed to Belzberg. CA.29-30. Verus has never challenged the trial court's holding with respect to veil piercing. In its Supplemental Decision, the trial court reaffirmed that, because "Belzberg testified that he is not an officer of Winton," CA.29, "Winton's liability under the estoppel theory, in turn, cannot reach Belzberg." CA.29. The trial court observed that "individual officers . . . are not personally liable on contracts entered into on behalf of a corporation if they do not purport to bind themselves individually." CA.29 (citations omitted; ellipses in original). Thus, the trial court correctly held that: even if the intent to arbitrate under the Customer Agreement is properly imputed to Winton under an estoppel theory, it cannot be imputed to Belzberg, unless he purported to bind himself individually. Verus does not allege, and there is no evidence to suggest, an intent by Belzberg to be so bound. CA.29-30 (citation omitted). The trial court correctly held that Belzberg cannot be compelled to arbitrate under the "piercing the corporate veil" doctrine. CA.30. In the Supplemental Decision, the trial court stated: Belzberg testified that he does not have an ownership or beneficial interest in Winton and that he is not an officer of Winton. Winton is a British Virgin Islands Corporation, which is owned by a Bermuda trust and, according to Belzberg, only his children are beneficiaries of that trust. Thus, "the piercing of the corporate veil" doctrine cannot apply to Belzberg. CA.30 (citations omitted). Likewise, in the October Decision, the trial court held that: Verus admits that Belzberg is not Winton's owner because Winton's stock is owned by a Liberian corporation, and the Liberian corporation is owned by members of Belzberg's family. Hence, Belzberg is not a stockholder and 'the piercing the corporate veil' doctrine cannot apply to him. Accordingly, the trial court correctly held, and Verus has conceded on this appeal, that Winton's veil may not be pierced to compel Belzberg to arbitrate. CONCLUSION THE ORDER OF THE APPELLATE DIVISION SHOULD BE REVERSED, AND THE JUDGMENT ENTERED BY THE TRIAL COURT SHOULD BE REINSTATED IN ITS ENTIRETY. Dated: New York, New York December 7,20 12 KAYE SCHOLER LLP r By: - H. peter kavelesy~r. / Stacey A. Lara Office and Post Office Address: 425 Park Avenue New York, New York 10022 Telephone: (2 12) 836-8000 Facsimile: 212-836-8689 peter.haveles@kayescholer.com Attorneys for Petitioner-Appellant Samuel Belzberg