Scruggs v. Wyatt
2011 Miss. LEXIS 173
| Miss. | 2011Background
- Wyatt entered into an unwritten employment agreement with Nutt & McAlister, PLLC as part of the Katrina Joint Venture (Katrina JVA) formed to sue insurers for Katrina-related losses; the Katrina JVA contains a broad, mandatory arbitration clause.
- Nutt & McAlister withdrew from the Katrina Joint Venture in 2008 after disqualification of Katrina Joint Venture attorneys in Mississippi federal cases; Wyatt disputed his 10% fee-share and related compensation.
- Wyatt filed a June 2009 First Amended Complaint alleging he was a fee-sharing participant and that Scruggs Defendants breached fiduciary duties and fee-sharing agreements, among other tort and contract claims.
- Scruggs Defendants moved to compel arbitration, arguing Wyatt’s claims related to Katrina Joint Venture fees fall within the Katrina JVA arbitration clause; the circuit court held the clause broad but denied arbitration, citing Wyatt’s lack of signatory status and non-beneficiary status.
- Wyatt contends the arbitration clause should not apply to his claims against Scruggs; the Scruggs Defendants appeal, arguing direct-benefit estoppel and that Scruggs may enforce the clause against him.
- The Mississippi Supreme Court reviews de novo whether the dispute is referable to arbitration, including whether a nonsignatory may be bound under estoppel and whether external constraints bar arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether there is a valid arbitration agreement governing Wyatt’s claims | Wyatt contends no agreement exists between him and Scruggs to arbitrate. | Scruggs argues the Katrina JVA arbitration clause is broad and binds related claims and parties, including nonsignatories via estoppel. | Yes; the arbitration clause is valid and broad, and Wyat t’s claims are referable to arbitration. |
| Whether Wyatt’s claims fall within the scope of the Katrina JVA arbitration clause | Wyatt claims his unwritten agreement with Nutt & McAlister is independent of the Katrina JVA and not subject to arbitration. | Wyatt’s claims rely on the Katrina Joint Venture and its fee-sharing structure; thus they touch on the Katrina JVA and are arbitrable. | Yes; Wyatt’s claims touch the Katrina JVA and are within its broad arbitration scope. |
| Whether direct-benefit estoppel binds Wyatt to arbitrate against Scruggs | Wyatt argues estoppel does not apply because he is not enforcing the Katrina JVA against Scruggs. | Scruggs contends direct-benefit estoppel applies because Wyatt’s claims rely on the Katrina JVA and his fee-sharing interest. | Yes; direct-benefit estoppel applies, binding Wyatt to arbitrate his claims against Scruggs. |
| Whether Scruggs, individually, may enforce the arbitration clause against Wyatt | Wyatt argues Scruggs lacks standing to compel arbitration because he did not sign for Scruggs. | Scruggs may enforce as a nonsignatory under the broad clause and agency/partnership principles. | Yes; Scruggs, individually, may enforce the arbitration clause against Wyatt. |
| Whether external legal constraints (e.g., unclean hands) foreclose arbitration | Wyatt argues unclean hands bar enforcement due to Scruggs’ conduct in related litigation. | The clean-hands doctrine does not apply to bar arbitration here since no willful misconduct by Scruggs in this dispute is shown. | No; clean hands do not foreclose arbitration. |
Key Cases Cited
- Waste Mgmt., Inc. v. Residuos Industriales Multiquim, S.A., 372 F.3d 339 (5th Cir.2004) (arising-under/arising-relating standard; courts focus on allegations touching arbitration clause)
- Noble Drilling Servs., Inc. v. Centex USA, Inc., 620 F.3d 469 (5th Cir.2010) (direct-benefit estoppel; non-signatories bound when contract benefits are sought or enforced)
- Qualcomm Inc. v. Am. Wireless License Group, 980 So.2d 261 (Miss.2007) (agency/third-party beneficiary approach to nonsignatories; contract-based binding)
- East Ford, Inc. v. Taylor, 826 So.2d 709 (Miss.2002) (two-pronged FAA arbitration inquiry; existence and scope)
- Terminix Int’l, Inc. v. Rice, 904 So.2d 1051 (Miss.2004) (arbitration clause validity; external constraints)
- Ables v. Greater Canton Ford Mercury, Inc., 948 So.2d 417 (Miss.2007) (scope and validity of arbitration agreements; broader language governs)
- Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347 (5th Cir.2003) (six theories binding nonsignatories; estoppel recognized)
- Blinco v. Green Tree Servicing, LLC, 400 F.3d 1308 (11th Cir.2005) (nonsignatories may compel arbitration under broad clauses)
- Bailey v. Bailey, 364 F.3d 260 (5th Cir.2004) (estoppel and non-signatories; direct-benefit/unclean hands analysis)
- Jones, Funderburg, Sessums & Peterson, PLLC, 27 So.3d 363 (Miss.2009) (context for fixation of arbitration scope and sanctions)
- Smith/Enron Co-generation Ltd. P’ship v. Smith Cogeneration Int’l, 198 F.3d 88 (2d Cir.1999) (touches whether claims fall within arbitration when allegations align with contract)