Jacks v. CMH Homes, Inc.
2017 U.S. App. LEXIS 8642
| 10th Cir. | 2017Background
- In 2009 Jacquelyn Jacks bought a manufactured home from CMH Homes under a retail installment contract that contained a broad arbitration clause covering “any occupants of the Manufactured Home (as intended beneficiaries of this Arbitration Agreement).”
- Jacks signed the contract and later, with her husband and children (who did not sign), sued CMH Homes and CMH Manufacturing in state court alleging negligent installation/repair leading to toxic mold, product defect/unreasonably dangerous condition, unfitness for habitation, and sought rescission of the purchase.
- Defendants removed to federal court and moved to compel arbitration; the district court compelled arbitration as to Jacks (the signatory) but denied the motion as to the nonsignatory occupants (husband and children).
- The district court held the single-sentence designation of ‘‘occupants’’ was insufficient to make nonsignatory plaintiffs third-party beneficiaries and rejected defendants’ equitable-estoppel arguments, finding no conduct or misrepresentation to estop the nonsignatories.
- Defendants appealed the partial denial. The Tenth Circuit affirmed, reasoning that (1) parties seeking to compel arbitration must show the agreement applies to nonsignatories, (2) an intended-beneficiary clause alone does not bind a nonsignatory who has not accepted the benefit, and (3) defendants’ equitable-estoppel theories either do not apply or were waived under Oklahoma law.
Issues
| Issue | Jacks' Argument | CMH's Argument | Held |
|---|---|---|---|
| Whether nonsignatory occupants are bound as intended third-party beneficiaries of the arbitration clause | Occupants did not agree to or accept the arbitration benefit; thus not bound | The arbitration clause expressly names ‘‘any occupants’’ as intended beneficiaries, so occupants are bound | Clause alone insufficient; nonsignatories not bound as beneficiaries absent acceptance or assent |
| Whether nonsignatories must arbitrate under equitable estoppel (intertwined-claims theory) | Equitable estoppel does not apply because defendants seek to compel arbitration of nonsignatories; no conduct warrants estoppel | Claims of nonsignatories are ‘‘integrally related’’ to contract issues, so estoppel should bind them | Intertwined-claims estoppel inapplicable where signatory-defendant seeks to compel nonsignatory-plaintiff; district court correctly rejected it |
| Whether defendants can invoke direct-benefit estoppel to bind nonsignatories | Direct-benefit estoppel not argued below; nonsignatories did not knowingly exploit the contract | Nonsignatories sought benefits tied to the contract and so should be estopped from avoiding arbitration | Direct-benefit estoppel argument was waived on appeal and Oklahoma law does not clearly endorse it; court declined to reach it |
| Proper standard of appellate review for estoppel rulings | (Jacks implicitly) district court findings unnecessary to disturb; outcome reviewed under appropriate standard | Defendants asserted de novo review for denial to compel arbitration | Court did not decide a different standard is required — held defendants’ estoppel argument fails under either de novo or abuse-of-discretion standards |
Key Cases Cited
- Hancock v. Am. Tel. & Tel. Co., 701 F.3d 1248 (10th Cir. 2012) (burden on party seeking to compel arbitration to show agreement applies)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (favor arbitration principle generally applies)
- Riley Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d 775 (10th Cir. 1998) (presumption of arbitrability does not apply when existence of a valid arbitration agreement is disputed)
- AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643 (1986) (arbitration is a matter of contract; consent essential)
- Janvey v. Alguire, 847 F.3d 231 (5th Cir. 2017) (distinguishes intertwined-claims estoppel applications depending on signatory/ nonsignatory positions)
- In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (Tex. 2005) (describing direct-benefits estoppel where nonsignatory exploits contract benefits)
- Voss v. City of Okla. City, 618 P.2d 925 (Okla. 1980) (agreement to submit issues to arbitrators is prerequisite to a valid arbitration agreement)