Commercial Litigation and Arbitration

Equitable Estoppel as Basis for Compelling Arbitration against Non-Signatory — Claim Must Arise out of an Obligation Created by Contract Containing the Arbitration Clause

Weingarten Realty Investors v. Miller, 2012 U.S. App. LEXIS 21984 (5th Cir. Oct. 22, 2012):

***WRI and Miller Sheriden, LLC ("Miller Sheriden"), an LLC organized by Miller, created a joint venture, Weingarten Miller Sheriden ("WMS"), and WRI loaned that joint venture $75,000,000 under a Loan Agreement between WRI and WMS. The Loan Agreement contained an arbitration provision stating that any dispute "arising out of, in connection with, or relating to the Note or any of the other Loan Documents or any transaction provided for therein . . . at the request of any party to the Loan Documents . . . be settled by arbitration." Miller was not a party to the Loan Agreement, though he did sign a Limited Guaranty on the same day the Loan Agreement was executed, in which he and Miller Sheriden guaranteed the loan against any default by WRS on its loan obligations. There is no arbitration clause in the Limited Guaranty, and the Loan Agreement does not list the Limited Guaranty as a Loan Document. When WMS did not pay the note on time, WRI unsuccessfully sought payment from guarantors Miller and Miller Sheriden.

WRI sued Miller in Texas state court, seeking a declaration of the guarantors' obligations under the Limited Guaranty. Miller removed the action to federal court and moved to compel arbitration based on the arbitration provision of the Loan Agreement between WMS and WRI. The district court denied Miller's motion, holding that Miller was not entitled to compel arbitration because he is not a party to any Loan Document as defined in the Loan Agreement containing the arbitration provision Miller seeks to invoke. ***

STANDARD OF REVIEW

We review the denial of a motion to compel arbitration de novo. Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 428 (5th Cir. 2004). We review a district court's decision not to apply equitable estoppel to compel arbitration for abuse of discretion. Grigson v. Creative Artists Agency LLC, 210 F.3d 524, 528 (5th Cir. 2000).***

DISCUSSION

Miller argues that the district court erred in refusing to compel arbitration based on the terms of the arbitration provision itself and, alternatively, argues that the district court abused its discretion by declining to compel arbitration pursuant to the doctrine of equitable estoppel. We conclude that the arbitration provision in the Loan Agreement does not provide for arbitration for disputes arising from the Loan Guaranty, because the guaranty is not among the exclusive list of "Loan Documents" to which the arbitration provision applies by its plain terms. We further conclude that the district court correctly refused to invoke the doctrine of equitable estoppel, because the arbitration provision expressly states that only a party to a "Loan Document" -- rather than a non-party such as Miller -- may seek arbitration, and because WRI does not seek to enforce any obligation arising out of the contract containing the arbitration clause. ***

II.

Miller next contends that the district court abused its discretion in refusing to apply the doctrine of equitable estoppel as an alternative means of enforcing arbitration of WRI's suit. We disagree.

This Court has made recourse to the theory of "equitable estoppel[] to determine a nonsignatory's rights and duties under an arbitration clause" in certain circumstances in which an arbitration clause's "terms do not expressly state whether a signatory may be compelled to arbitrate with a nonsignatory." Sherer v. Green Tree Servicing LLC, 548 F.3d 379, 381-82 (5th Cir. 2008) (footnote omitted). "[W]e will allow a nonsignatory to invoke an arbitration agreement only in rare circumstances." Westmoreland v. Sadoux, 299 F.3d 462, 465 (5th Cir. 2002). We have done so where "the signatory to a written agreement must rely on the terms of the written agreement in asserting its claims against the nonsignatory[,]" reasoning that "[w]hen each of the signatory's claims against a nonsignatory makes reference to or presumes the existence of the written agreement, the signatory's claims arise out of and relate directly to the written agreement, and arbitration is appropriate." Grigson, 210 F.3d at 527 (emphasis omitted) (quoting MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999)). In Grigson, we explained that a signatory "cannot, on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny the arbitration's applicability because the defendant is a non-signatory." Id. at 528.

Miller fails to demonstrate that the district court abused its discretion in declining to apply equitable estoppel in the circumstances here. First, it is not the case here that the "[arbitration] agreement's terms do not expressly state whether a signatory may be compelled to arbitrate with a nonsignatory," see Sherer, 548 F.3d at 381, because the arbitration provision of the Loan Agreement expressly provides that only a party to a Loan Document may request arbitration.

Second, signatory WRI does not "seek to hold the non-signatory [Miller] liable pursuant to duties imposed by the agreement[]. . . contain[ing] [the] arbitration provision," see Grigson, 210 F.3d at 528, as WRI has not brought any claim against Miller based on any obligation of Miller's under the Loan Agreement. Rather, WRI seeks to establish Miller's alleged obligations under the Limited Guaranty, which contains no arbitration clause. Accordingly, the district court did not abuse its discretion in declining to apply equitable estoppel to compel arbitration.

Share this article:

Facebook
Twitter
LinkedIn
Email

Recent Posts

Archives