769 F. Supp. 2d 838
D. Maryland2011Background
- IMMDF, a Texas corporation, loaned $2,000,000 to AGTTT, an Iraqi business owned by Al Harmoosh.
- The loan terms are in a Medium Term Loan Agreement; the agreement contains an arbitration clause for disputes arising under it.
- Al Harmoosh personally guaranteed repayment by signing a promissory note executed for AGTTT's loan.
- The Note states it is given in connection with the loan and references the Loan Agreement as consideration.
- AGTTT defaulted; IMMDF demanded payment and filed suit for breach of the Note against Al Harmoosh.
- Al Harmoosh moved to dismiss the action and compel arbitration under the Loan Agreement; the court granted the motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether equitable estoppel allows arbitraton by a nonsignatory. | IMMDF asserts estoppel; the Note and claims relate to the Loan Agreement. | Harmoosh argues he is not a party to the arbitration clause; claims should not arbitrate. | Equitable estoppel applies; claims are arbitrable. |
| Whether the scope of the arbitration clause covers the Note claim. | Claims arise out of or relate to the Loan Agreement and its guarantee. | Clauses limited to the contract; may not cover the Note's breach. | Significant relationship test shows scope includes the Note; arbitrable. |
| Whether dismissal is proper when all issues are arbitrable. | N/A | If arbitrable, dismissal is appropriate under FAA rather than stay. | Dismissal is the proper remedy. |
Key Cases Cited
- Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (U.S. 1983) (strong federal policy favoring arbitration)
- Wachovia Bank, Nat'l Ass'n v. Schmidt, 445 F.3d 762 (4th Cir. 2006) (significant relationship scope for 'arising out of or relating to' clauses)
- Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411 (4th Cir. 2000) (nonsignatory enforcement of arbitration clause)
- Am. Bankers Ins. Grp., Inc. v. Long, 453 F.3d 623 (4th Cir. 2006) (equitable estoppel under arbitration contracts)
- Wheaton Triangle Lanes, Inc. v. Rinaldi, 236 Md. 525 (Md. 1964) (interpretation of contract incorporation by reference)
- Ocean Petroleum, Co., Inc. v. Yanek, 5 A.3d 683 (Md. 2010) (objective contract interpretation under Maryland law)
- Evans v. B.F. Perkins Co., 166 F.3d 642 (4th Cir. 1999) (court may consider extrinsic evidence in 12(b)(1) review)
- American Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88 (4th Cir. 1996) (scope of arbitration with contract-based claims)