Commercial Litigation and Arbitration

Arbitration — Theories for Compelling Non-Parties to Arbitrate — All Governed by Applicable (State) Law — Rule 56 Standards Govern Motion to Compel Arbitration — Argument Raised Initially at Oral Argument, Like Footnote in Reply Brief, Waived

Flinkote Co. v. Aviva PLC, 2014 U.S. App. LEXIS 19272 (3d Cir. Oct. 9, 2014):

We exercise plenary review over the District Court's order on a motion to compel arbitration. Quilloin v. Tenet Healthsystem Phila., Inc., 673 F.3d 221, 228 (3d Cir. 2012). In assessing the motion to compel arbitration itself, we apply the standard for summary judgment in Rule 56(a), under which the motion should be granted where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). We view the facts and draw inferences in the light most favorable to the nonmoving party. Quilloin, 673 F.3d at 228. We apply this standard "because the district court's order compelling arbitration is in effect a summary disposition of the issue of whether or not there had been a meeting of the minds on the agreement to arbitrate." Century Indem. Co. v. Certain Underwriters at Lloyd's, London, 584 F.3d 513, 528 (3d Cir. 2009) (quotation marks and citations omitted).


With its enactment of [*9]  the FAA, Congress "expressed a strong federal policy in favor of resolving disputes through arbitration." Id. at 522. Even in light of the FAA, however, we have recognized that "[a]rbitration is strictly a matter of contract. If a party has not agreed to arbitrate, the courts have no authority to mandate that he do so." Bel-Ray Co., Inc. v. Chemrite (Pty) Ltd., 181 F.3d 435, 444 (3d Cir. 1999). Thus, in deciding whether a party may be compelled to arbitrate under the FAA, we first consider "(1) whether there is a valid agreement to arbitrate between the parties and, if so, (2) whether the merits-based dispute in question falls within the scope of that valid agreement."3 Century Indem., 584 F.3d at 527. Here, it is undisputed that no express agreement to arbitrate existed between Flintkote and Aviva.

3.  Although a presumption in favor of arbitration exists, that presumption applies only when interpreting the scope of an arbitration agreement, and not when deciding whether a valid agreement exists. Century Indem., 584 F.3d at 527.

Instead, Flintkote relies upon our recurring admonition that a party, despite being a non-signatory to an arbitration agreement, may be equitably bound to arbitrate "under traditional principles of contract and agency law." E.I. DuPont De Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 194-95 (3d Cir. 2001).Such principles, which by the Supreme Court's [*10]  recent measure include "assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel," Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009) (quotation marks omitted), all are founded on the notion that a contract may sometimes be equitably enforced by or against even nonparties. In the wake of Arthur Andersen, however, we must expressly consider "whether the relevant state contract law recognizes [the particular principle] as a ground for enforcing contracts against third parties." Id. at 632.

Neither the District Court's opinion in this case nor the parties' briefing addresses with particularity which state's law governs Flintkote's motion to compel arbitration. At various times throughout their briefing on Flintkote's motion, however, both parties cite to either Delaware case law or federal opinions interpreting Delaware law. (See Appellant's Br. at 22, 33-34; Appellee's Br. at 23-24, 34; Appellant's Reply Br. at 8; App. 65, 426, 558.) And the District Court ultimately concluded that Aviva was equitably bound to arbitrate under two distinct theories of estoppel, both of which arise under Delaware law: first, that Aviva "exploited" the Wellington agreement to secure benefits [*11]  to which it would otherwise not have been entitled, E.I. DuPont, 269 F.3d at 199 (addressing a diversity case implicating Delaware law); and second, that Aviva's participation in mediation caused Flintkote to "change [its] position to [its] detriment[,]" Great Am. Credit Corp. v. Wilmington Hous. Auth., 680 F. Supp. 131, 134 (D. Del. 1988) (quotation marks and citations omitted) (applying Delaware law). (App. 12-14.) For these reasons, and because neither party presented a timely argument that Flintkote's motion is governed by the law of any jurisdiction other than the forum state, we too will apply the law of Delaware.5

5.  Aviva suggested for the first time at oral argument that California law applies to the equitable estoppel analysis. Because Aviva did not make that argument in its briefing or before the District Court, we consider it waived. See Griswold v. Coventry First LLC, 762 F.3d 264, 272 n.6 (3d Cir. 2014) (noting that a "footnote in [a] reply brief" was "insufficient to raise a choice-of-law issue on appeal").  In the alternative, we note that California law is materially similar to Delaware law on the basic principles of equitable estoppel. See Steinhart v. Cnty. of Los Angeles, 47 Cal. 4th 1298, 1315 (Cal. 2010) (recognizing [*12]  doctrine of equitable estoppel); NAMA Holdings, LLC v. Related World Mkt. Ctr., 922 A.2d 417, 431-33 (Del. Ch. 2007) (same);Goldman v. KPMG LLP, 173 Cal. App. 4th 209 (Cal. App. Ct. 2009) (compelling arbitration on the basis of equitable estoppel); Wilcox & Fetzer, Ltd. v. Corbett & Wilcox, No. 2037-N, 2006 WL 2473665, *4-6 (Del. Ch. Aug. 22, 2006) (same); In re Marriage of Brinkman, 4 Cal. Rptr. 3d 722, 728 (Cal. Ct. App. 2003) (requiring proof of equitable estoppel by clear and convincing evidence); Emp'rs' Liab. Assurance Corp. v. Madric, 183 A.2d 182, 188 (Del. 1962) (same).  Thus, seeing no appreciable conflict of laws, we opt to apply the law of Delaware.

Delaware law recognizes the doctrine of equitable estoppel, see NAMA Holdings, LLC v. Related World Mkt. Ctr., 922 A.2d 417, 431-33 (Del. Ch. 2007), and imposes the burden of producing clear and convincing proof on the party asserting estoppel, see Emp'rs' Liab. Assurance Corp. v. Madric, 183 A.2d 182, 188 (Del. 1962). "An estoppel may not rest upon an inference that is merely one of several possible inferences." Id. We now consider Aviva's argument that Flintkote failed to justify application of equitable estoppel by clear and convincing evidence.


... [T]he first basis for the District Court's opinion was what we have termed the "knowing exploitation" theory of equitable estoppel. We first addressed that principle in E.I. DuPont, where, drawing on the opinions of other federal circuits, we explained that a non-signatory is equitably precluded from "embracing a contract, and then turning its back on the portions of the contract, such as an arbitration clause, that it finds distasteful." 269 F.3d at 200.6

6.  Delaware courts have since cited that portion of the E.I. [*13]  DuPont opinion favorably on several occasions. See, e.g., Aveta Inc. v. Cavallieri, 23 A.3d 157, 182 (Del. Ch. 2010); NAMA Holdings, 922 A.2d at 430-32 & nn.25-27, 35; Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168, 218 n.155 (Del. Ch. 2006). We thus have no concern that our continuing validation of E.I. DuPont constitutes an application of federal common law which would be precluded under Arthur Andersen. See Griswold, 762 F.3d at 272 n.6 ("Because we are satisfied that the Supreme Court's decision in Arthur Andersen did not overrule Third Circuit decisions consistent with relevant state law contract principles, we may rely on our prior decisions so long as they do not conflict with [the applicable] [*14]  state law principles."). 

Delaware courts have identified several circumstances under which a non-signatory may "embrace" a contract: (1) where the non-signatory "direct[ly], rather than indirect[ly], benefit[ted] from the [agreement] during the course of the agreement's performance[,]" NAMA Holdings, 922 A.2d at 432; (2) where the non-signatory "'consistently maintain[s] that other provisions of the same contract should be enforced to benefit him[,]'" Aveta Inc., 23 A.3d at 182 (quoting E.I. DuPont, 269 F.3d at 200); or (3) where the non-signatory "'sue[s] to enforce the provisions of a contract that it likes, while simultaneously disclaiming the provisions that it does not[,]'" id. (quoting Town of Smyrna v. Kent Cnty. Levy Court, No. 244-K, 2004 WL 2671745, at *4 (Del. Ch. Nov. 9, 2004)).7 Even so, a court must "proceed with a good deal of caution . . . lest nuanced concepts of equity be allowed to override established legal principles of contract formation." NAMA Holdings, 922 A.2d at 433 n.35.

7.  One might argue that we announced a more restrictive rule in Bouriez v. Carnegie Mellon University, 359 F.3d 292, 295 (3d Cir. 2004), when we stated that "[a] person may also be equitably estopped from challenging an agreement that includes an arbitration clause when that person embraces the agreement and directly benefits from it." (emphasis added) (citing E.I. DuPont, 269 F.3d at 199-200). But Bouriez has never been cited approvingly by a Delaware court, and in any event did not purport to apply Delaware law.  Thus, in light of Arthur Andersen, we will not consider it here.

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