Fact that RICO Claim Would Not Exist But for Plaintiff’s Entry into Contract Is Insufficient to Permit Non-Signatories to Assert Equitable Estoppel to Enforce Forum Selection Clause — Court Will Apply Law All Parties Assume Is Applicable

Bahamas Sales Assoc., LLC v. Ginn Fin’l Servs., LLC, 2012 U.S. App. LEXIS 24887 (11th Cir. Dec. 4, 2012):

In late 2006, Donald Cameron Byers purchased a lot in the Bahamas. His purchase contract contains a provision that requires all disputes to be litigated in the Bahamas under Bahamian law. Byers financed the purchase with a mortgage loan made by Bahamas Sales Associate, LLC (Bahamas Sales), a mortgage lender. After Byers failed to make payments on the mortgage note, Bahamas Sales sued Byers in the Middle District of Florida. Byers counterclaimed against Bahamas Sales and others associated with Bahamas Sales, alleging that they engaged in appraisal fraud. The defendants to the counterclaim moved the court to dismiss Byers's counterclaim for improper venue, arguing that, under the purchase contract, venue is proper only in the Bahamas. The district court held that the counterclaim fell within the scope of the forum-selection clause in the purchase contract. The court then applied the doctrine of equitable estoppel to allow the Counterclaim Defendants (all of which are nonsignatories to the purchase contract) to invoke that forum-selection clause requiring that the case be litigated in the Bahamas. The court then dismissed the case for improper venue. Byers appeals the dismissal. We reverse and remand. ***

Byers argues that the district court incorrectly applied equitable estoppel to allow the Mortgage Entities to invoke the lot purchase contract's forum-selection clause. Byers asserts that his counterclaim does not rely on the lot purchase contract and that, for this reason, the doctrine of equitable estoppel cannot properly be applied.

We note at the outset that the parties litigated this case on the assumption that federal common law applies to the question of whether equitable estoppel should apply to allow a nonsignatory to invoke a forum-selection clause. All of the parties briefed and argued their cases under federal common law as to the equitable estoppel issue on this appeal. If the parties litigate the case under the assumption that a certain law applies, we will assume that that law applies. Chase Manhattan Bank v. Rood, 698 F.2d 435, 436 n.1 (11th Cir. 1983) (assuming Florida law is the applicable substantive law in the case because both parties briefed and argued Florida law on appeal). Therefore, we assume that federal common law is the applicable law in this case.

Generally, "one who is not a party to an agreement cannot enforce its terms against one who is a party." Lawson v. Life of the S. Ins. Co., 648 F.3d 1166, 1167 (11th Cir. 2011). There are, however, exceptions to this general rule. And the doctrine of equitable estoppel is one of them.

Footnote 7. Although all of the cases we cite concern the application of equitable estoppel to contracts with arbitration clauses rather than forum-selection clauses, the equitable estoppel analysis is the same. Arbitration clauses are similar to forum-selection clauses. Scherk v. Alberto-Culver Co., 417 U.S. 506, 519, 94 S. Ct. 2449, 2457 (1974) ("An agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum-selection clause . . . .").

Equitable estoppel allows a nonsignatory to enforce the provisions of a contract against a signatory in two circumstances: (1) when the signatory to the contract relies on the terms of the contract to assert his or her claims against the nonsignatory; and (2) when the signatory raises allegations of interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract. MS Dealer, 177 F.3d at 947. In essence, equitable estoppel precludes a party from claiming the benefits of some of the provisions of a contract while simultaneously attempting to avoid the burdens that some other provisions of the contract impose. Blinco v. Green Tree Servicing LLC, 400 F.3d 1308, 1312 (11th Cir. 2005). A forum-selection clause would be one such burden. The doctrine of equitable estoppel is grounded in fairness. As we noted in In re Humana Inc. Managed Care Litigation:

In all cases, the lynchpin for equitable estoppel is equity, and the point of applying it to compel [application of a contractual provision] is to prevent a situation that would fly in the face of fairness. The purpose of the doctrine is to prevent a plaintiff from, in effect, trying to have his cake and eat it too; that is, from relying on the contract when it works to his advantage by establishing the claim, and repudiating it when it works to his disadvantage . . . . The plaintiff's actual depend[e]nce on the underlying contract in making out the claim against the nonsignatory defendant is therefore always the sine qua non of an appropriate situation for applying equitable estoppel.

285 F.3d 971, 976 (11th Cir. 2002) (citations omitted) (internal quotation marks omitted), rev'd on other grounds sub nom. PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 123 S. Ct. 1531 (2003).

Byers does not allege concerted misconduct between the Mortgage Entities and Ginn-LA (the developer and signatory to the lot purchase contract). Thus, the Mortgage Entities must look only to the first circumstance in which the doctrine of equitable estoppel applies. We therefore limit our inquiry to whether Byers relies on the terms of the lot purchase contract in asserting his appraisal fraud claims against the Mortgage Entities.

A party relies on the terms of a contract when the party's claims are "intimately founded in and intertwined with the underlying contract obligations." McBro Planning & Dev. Co. v. Triangle Elec. Constr. Co., Inc., 741 F.2d 342, 344 (11th Cir. 1984) (quoting Hughes Masonry Co. v. Greater Clark Cnty. Sch. Bldg. Corp., 659 F.2d 836, 841 n.9 (7th Cir. 1981)) (internal quotation marks omitted). That is, the party must actually depend on the underlying contract to make out his or her claim against the nonsignatory. In re Humana, 285 F.3d at 976. The signatory must attempt to hold the nonsignatory to the terms of the contract. Becker v. Davis, 491 F.3d 1292, 1300 (11th Cir. 2007).

A but-for relationship between the claims and the contract "alone is not enough to warrant equitable estoppel." Lawson, 648 F.3d at 1174. As we noted above, for a party's claims to rely on a contract, the party must actually depend on the underlying contract to assert the claims. In re Humana, 285 F.3d at 976. A simple but-for relationship does not constitute the actual dependence on the underlying contract that equitable estoppel requires. There is scant authority dealing with this precise issue. Our view, however, comports with the view of two of our sister circuits. See Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 449 F. App'x 704, 709 (10th Cir. 2011) (per curiam) ("For a plaintiff's claims to rely on the contract containing the arbitration provision, the contract must form the legal basis of those claims; it is not enough that the contract is factually significant to the plaintiff's claims or has a 'but-for' relationship with them."); Brantley v. Republic Mortg. Ins. Co., 424 F.3d 392, 396 (4th Cir. 2005) ("The district court correctly found that the mere existence of a loan transaction requiring plaintiffs to obtain mortgage insurance cannot be the basis for finding their federal statutory claims . . . to be intertwined with that contract."). And the parties cite no precedent to the contrary.

Because the application of equitable estoppel is not a "rigid test, and each case turns on its facts," In re Humana, 285 F.3d at 976, we now turn to the facts of this case.

Byers's counterclaim alleges that the Mortgage Entities fraudulently appraised his lot for an inflated amount and that as a result, the amount of his mortgage note far exceeded the market value of his lot. Byers argues that the appraisal fraud claims do not rely on the lot purchase contract because he does not need the contract to establish the liability of the Mortgage Entities, he does not attempt to hold the Mortgage Entities to the terms of the lot purchase contract, and he does not allege that the Mortgage Entities breached the lot purchase contract.

The Mortgage Entities, on the other hand, contend that this case is just like Liles v. Ginn-LA W. End, Ltd., 631 F.3d 1242 (11th Cir. 2011)--a case in which we held that equitable estoppel was properly applied.

Liles, however, is clearly distinguishable. In Liles, the plaintiffs, buyers of Ginn Sur Mer lots, sued Ginn-LA (the developer and signatory to the lot purchase contract), Robert Masters (Ginn-LA's President), Edward R. "Bobby" Ginn (Ginn-LA's chairman), and Ginn Financial Services. Id. at 1243. The plaintiffs alleged that all of the defendants except Ginn Financial Services violated the Interstate Land Sales Full Disclosure Act (the Land Sales Act) by failing to disclose or affirmatively concealing material facts concerning the titles to the properties. Id. at 1243-44. They further alleged common law fraud, claiming that all of the defendants failed to disclose information relating to the titles to the lots. Id. For relief, the plaintiffs sought rescission of their lot purchase contracts. Id. at 1243. The defendants sought to invoke the lot purchase contract's Bahamian forum-selection clause. Id. at 1244. We held both that Ginn-LA could invoke the forum-selection clause in the contract because it was a signatory and that the other nonsignatory defendants could invoke the clause under the doctrine of equitable estoppel. Id. at 1256-57.

We correctly applied equitable estoppel in Liles. The Liles plaintiffs' Land Sales Act claims relied on the lot purchase contract. The lot purchase contract incorporated the Lands Sales Act disclosure rights and remedies and it was necessary for the plaintiffs to establish the defendants' liability. Without the lot purchase contracts and their incorporation of Land Sales Act disclosure rights and remedies, the plaintiffs would have been unable to bring their claims. The Land Sales Act claims depended on the contractual obligation imposed on the defendants to adhere to Land Sales Act. The plaintiffs, moreover, sought to hold the defendants to the lot purchase contract's terms incorporating the Land Sales Act rights and remedies. Additionally, the nonsignatories that were allowed to enforce the forum-selection clause were officers of Ginn-LA, a signatory to the contract. Further, the plaintiffs' common law fraud claim was based on the defendants' alleged failure to meet a duty set forth in the lot purchase contract to disclose information that related to the titles to the lots. Finally, the plaintiffs sought rescission of the lot purchase contract for relief.

But the case before us is different from Liles. Byers does not, on one hand, rely on the terms of the lot purchase contract to assert his claim, but, on the other hand, seek to avoid the enforcement of the forum-selection clause. Moreover, Byers's counterclaim does not rely on the terms of the lot purchase contract to impose liability on the Mortgage Entities. Unlike the plaintiffs in Liles, Byers does not attempt to hold the Mortgage Entities to the terms of the lot purchase contract or any obligations under the lot purchase contract. Nor does he seek any relief concerning the lot purchase contract. Instead, he seeks revocation of the mortgage note and restitution for payments previously made on the note.

The Mortgage Entities further argue that the claims rely on the lot purchase contract because if Byers had never entered into the lot purchase contract, there would be no RICO liability. That is, but for Byers entering into the lot purchase contract, he would not have entered into the mortgage note and been a victim of the alleged appraisal fraud. Although Byers would have never entered into the mortgage note without first entering into the lot purchase contract to buy the lot, this but-for relationship is, as we noted above, not enough to warrant the application of equitable estoppel. Thus, Byers's counterclaim does not rely on the lot purchase contract and the application of equitable estoppel was error.

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