Arbitration — District Court’s Use of Equitable Estoppel to Compel Arbitration with Non-Signatory Is Reviewed De Novo — Mere Allegation of Conspiracy Insufficient to Trigger Equitable Estoppel — Intertwining of Claim & Contract Key

In re: Wholesale Grocery Products Antitrust Litigation, 2013 U.S. App. LEXIS 2949 (2d Cir. Feb. 13, 2013):

Appellants Blue Goose Super Market, Inc. ("Blue Goose"), Millennium Operations, Inc. ("Millennium"), and King Cole Foods, Inc. ("King Cole") all have supply and arbitration agreements with Appellee SuperValu, Inc. ("SuperValu"). Appellants JFM Market, Inc. and MJF Market, Inc. (collectively "the Village Markets") both have supply and arbitration agreements with Appellee C&S Wholesale Grocers, Inc. ("C&S"). The parties all agree that the Retailers' supply agreements with the Wholesalers do not specify price terms. Millennium's supply agreement with SuperValu specifies Millennium will purchase a certain percentage of its requirements from SuperValu. The other Retailers' supply agreements do not contain requirements provisions, but rather generally state that the Wholesaler named in the agreement will make products available and that the Retailer named in the agreement will pay the prices stated on any future sales documents. The arbitration agreements accompanying the supply agreements all generally specify that the signatories will arbitrate any disputes between them.

In September 2003, C&S and SuperValu entered into an Asset Exchange Agreement ("AEA") in which they exchanged certain business assets, including some customer contracts, and agreed not to do business with or solicit any of the exchanged customers for a certain time period. Some, but not all, of the Retailers' supply and arbitration agreements were among the contracts exchanged as part of the AEA.

After the AEA, all of the Retailers purchased goods from the Wholesaler with whom they had a supply and arbitration agreement ("the signatory Wholesaler"). Each Retailer subsequently brought class-action antitrust claims in federal district court. In an effort to avoid arbitration, each Retailer brought claims only against the Wholesaler with whom they did not have a supply and arbitration agreement. Thus, Blue Goose, Millennium, and King Cole, who had contracts and did business only with SuperValu during the class period, brought antitrust claims only against C&S. Likewise, the Village Markets, who had contracts and did business only with C&S during the class period, brought antitrust claims only against SuperValu. The Retailers alleged that the AEA amounted to an illegal antitrust conspiracy between the Wholesalers in violation of the Sherman Act, 15 U.S.C. § 1, artificially inflating prices and causing each Retailer to overpay for their wholesale grocery purchases.

The Wholesalers moved to dismiss the Retailers' antitrust claims. The Wholesalers argued that the doctrine of either equitable estoppel or successor-in-interest allowed the non-signatory Wholesaler to enforce the signatory Wholesaler's arbitration agreements with the Retailers, thus requiring the Retailers to arbitrate their antitrust claims against the non-signatories. The Retailers responded that neither the equitable estoppel doctrine nor the successor-in-interest doctrine compelled them to arbitrate, and further argued that even if one of those doctrines did apply, the arbitration agreements were unenforceable for public policy reasons.

The district court granted the Wholesalers' motion to dismiss the Retailers' claims from the putative class action. In re Wholesale Grocery Prods. Antitrust Litig., No. 09-MD-2090 ADM/AJB, slip op. at 11 (D. Minn. July 5, 2011). First, the court held that the non-signatory Wholesaler could invoke equitable estoppel to compel the Retailers to arbitrate their antitrust claims. Id. at 6. Second, the court held that the arbitration agreements were [*8] enforceable. Id. at 10. Because the district court held the Wholesalers could use equitable estoppel to compel arbitration, the court did not address the Wholesalers' argument that they could enforce the arbitration agreements as successors-in-interest. The Retailers brought the present appeal. ***

The first issue on appeal is whether the non-signatory Wholesalers can use equitable estoppel to compel the Retailers to arbitrate their antitrust claims. "Where a district court grants arbitration, its application of equitable estoppel presents at least mixed questions of law and fact. In this circuit, mixed questions of law and fact are reviewed de novo." Donaldson Co. v. Burroughs Diesel, Inc., 581 F.3d 726, 731 (8th Cir. 2009). Upon de novo review, we hold that the non-signatory Wholesalers cannot use equitable estoppel to compel arbitration.

As a preliminary matter, "state contract law governs the ability of nonsignatories to enforce arbitration provisions." PRM Energy Sys., Inc. v. Primenergy, L.L.C., 592 F.3d 830, 833 (8th Cir. 2010) (internal quotation marks omitted). The parties agree that Minnesota law applies here.4The only Minnesota Supreme Court case mentioning equitable estoppel in the arbitration context is Onvoy, Inc. v. SHAL, LLC, 669 N.W.2d 344 (Minn. 2003). In that case, the court stated the general rule that "arbitration clauses are contractual and cannot be enforced by persons who are not parties to the contract." Id. at 356. The court then explained that equitable estoppel is an exception to the rule and "prevents a signatory from relying on the underlying contract to make his or her claim against the nonsignatory." Id. The court did not reach the issue of whether equitable estoppel applied, however, because it remanded the case on other grounds. Id. at 357. One unpublished Minnesota Court of Appeals case has evaluated when equitable estoppel applies in the arbitration context, but Minnesota law specifies that unpublished cases are not precedential. Minn. Stat. § 480A.08(3)(c). Minnesota appears to follow federal law regarding equitable estoppel. See Onvoy, 669 N.W.2d at 356 ("Federal cases have set out at least three principles on which a nonsignatory to a contract can compel arbitration: equitable estoppel, agency, and third-party beneficiary." (citing MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999), abrogated on other grounds by Arthur Anderson LLP v. Carlisle, 556 U.S. 624, 631 (2009))). Since we do not have any published Minnesota cases applying equitable estoppel, and since Minnesota appears to follow federal law regarding equitable estoppel, we look to federal law here.

We addressed the doctrine of equitable estoppel in PRM Energy Systems. In that case, we explained:

[Equitable] estoppel typically relies, at least in part, on the claims being so intertwined with the agreement containing the arbitration clause that it would be unfair to allow the signatory to rely on the agreement in formulating its claims but to disavow availability of the arbitration clause of that same agreement.

PRM Energy Sys., 592 F.3d at 835 (footnote added). A non-signatory can "force a signatory into arbitration under the [equitable] estoppel theory when the relationship of the persons, wrongs and issues involved is a close one." CD Partners, LLC v. Grizzle, 424 F.3d 795, 799 (8th Cir. 2005). For example, as relevant to the instant case, equitable estoppel applies when a complaint involves "allegations of prearranged, collusive behavior demonstrating that the claims are intimately founded in and intertwined with the agreement at issue." PRM Energy Sys., 592 F.3d at 835 (internal quotation marks omitted). In contrast, merely alleging that a non-signatory conspired with a signatory is insufficient to invoke equitable estoppel, absent some "intimate[] . . . and intertwined" relationship the claims and the agreement containing the arbitration clause. PRM Energy Systems, 592 F.3d at 835.

Examining the facts of cases applying our equitable estoppel test is instructive. First, in CD Partners, CDWI and C.D. Partners signed franchise agreements containing arbitration clauses. 424 F.3d at 797. C.D. Partners later sued three of CDWI's chief executives for negligence, negligent misrepresentation, and fraudulent misrepresentation in connection with their operation of the franchises. Id. The three executives moved to compel arbitration, and the district court denied their motion. Id. at 798. We reversed, holding, in relevant part, that the "dispute between signatory C.D. Partners and [the three non-signatory chief executives] arises out of and relates directly to the contractual agreement between the signatories, where the core of the dispute is the conduct of the three nonsignatories in fulfilling signatory CDWI's promises." Id. at 800.

Second, in PRM Energy Systems, PRM had a contract with Primenergy that granted Primenergy a license to use some of PRM's technology and also allowed Primenergy to enter into sublicense agreements with third parties. 592 F.3d at 832. The contract contained an arbitration clause. Id. Primenergy allegedly conspired with a third party, the Japan-based company Kobe Steel, to violate the terms of that contract. Id. More specifically, although the contract specified Primenergy could not sublicense PRM's technology to companies in Japan, Primenergy and Kobe Steel allegedly entered into such a sublicense agreement. Id. PRM brought suit against non-signatory Kobe Steel for tortious interference and conspiracy, and Kobe Steel moved to compel arbitration. Id. at 833. The district court granted Kobe Steel's motion on the basis of equitable estoppel, and we affirmed. Id. We explained that equitable estoppel applied because the case involved allegations of violation of the terms of the agreement containing the arbitration clause, and because that agreement "anticipated that an entity such as Kobe Steel might enter into a licensing relationship with Primenergy, and the [agreement] attempted to govern that expected relationship." Id. at 836.

Applying this precedent, we hold that the Retailers' claims against the non-signatory Wholesalers are not "so intertwined with the agreement containing the arbitration clause that it would be unfair to allow the signatory to rely on the agreement in formulating its claims but to disavow availability of the arbitration clause of that same agreement." Id. at 835. In both PRM Energy Systems and CD Partners, the plaintiffs' claims arose directly from violations of the terms of a contract containing an arbitration clause. See PRM Energy Sys., 592 F.3d at 832-33; CD Partners, 424 F.3d at 797. Without the contracts in those cases, the plaintiffs would not have had a cause of action. In contrast, the Retailers are bringing antitrust conspiracy claims against the non-signatory Wholesalers. These statutory claims exist independent of the supply and arbitration agreements. See 15 U.S.C. § 1 ("Every . . . conspiracy[] in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal."); 15 U.S.C. § 15 ("[A]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor . . . ."). Moreover, the Retailers' antitrust claims are premised on paying artificially inflated prices, but since none of the Retailers' contracts with the Wholesalers specify price terms, the Retailers' claims do not involve alleged violation of any terms of those contracts. Nor is there any evidence, as there was in PRM Energy Systems, that the contracts explicitly anticipated a signatory would enter into the type of relationship with a non-signatory--here, the relationship being that of antitrust co-conspirators--that ultimately gave rise to the claims. Under these circumstances, we cannot say that the Retailers' claims "rely on" and have an "intimate[] . . . and intertwined" relationship with the contracts such that equitable estoppel should apply. See PRM Energy Sys., 592 F.3d at 835 (internal quotation marks omitted).

In holding that equitable estoppel permits the non-signatory Wholesaler to compel arbitration here, the district court reasoned, "The agreements to arbitrate . . . are a fundamental component of the entire wholesaler-retailer relationship between the signatories . . . . This is precisely the relationship that is at issue in this litigation." In re Wholesale Grocery Prods. Antitrust Litig., No. 09-MD-2090 ADM/AJB, slip op. at 6 (D. Minn. July 5, 2011). The court further reasoned that "the existence of the agreements to arbitrate is presumed by the claims asserted by the [Retailers] because without the agreements no wholesaler-supplier relationship would exist to be exploited by the alleged anti-trust conspiracy . . . ." Id. at 7. This analysis, however, focuses too much on the relationship between the signatories, rather than on the relationship between the signatory's claims against the non-signatory and the contract containing the arbitration clause. As explained above, these antitrust conspiracy claims do not involve violation of the terms of the contract, the face of the contract does not provide the basis for the alleged injuries, and there is no evidence that the contract anticipated the precise type of relationship giving rise to the claims. Thus, the requisite relationship is lacking here.

Although we hold that the non-signatory Wholesalers cannot use equitable estoppel to compel the Retailers to arbitrate their antitrust claims, this does not fully resolve the question of whether the non-signatory Wholesalers can compel any of the Retailers to arbitrate. The non-signatory Wholesalers also argue they can enforce Millennium's and the Village Market's arbitration agreements as successors-in-interest because those agreements were exchanged as part of the AEA. Since the district court found the equitable estoppel issue dispositive, it did not address the successor-in-interest argument. Accordingly, we remand for the district court to consider this argument in the first instance. See Alliant Techsystems, Inc. v. Marks, 465 F.3d 864, 873 (8th Cir. 2006) ("Because the district court did not decide the merits of these claims, which are heavily fact-based, we decline to consider them in the first instance.").

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