CD Partners v. Jerry Grizzle

Agreement intended, nor shall be MURPHY, BYE, Before SMITH, and deemed, to confer any Person or Circuit Judges. legal entity Franchisee, other than Fran- chisor, officers, directors, Franchisor’s and BYE, Judge. employees ... any rights or remedies un- Jerry Grizzle, Doyle Motley Gary and der or reason of Agreement.” In Johnson, principals three in a corporation instance, each agreements signed were Warehouse, called C.D. (CDWI), Inc. ap- by David Gott on behalf of C.D. Partners peal the district court’s order denying Jerry and on Grizzle behalf of CDWI. their motion to compel arbitration of the In April 2000, a contractual dispute tort Partners, lawsuit C.D. L.L.C., filed arose between the corporations. two them. The lawsuit accuses the C.D. Partners filed suit against three of negligence, CDWI in negligent misrepre- Iowa state court. sentation, CDWI removed and the ac- fraudulent misrepresenta- tion to court, federal district tion arising out of four where it was agree- franchise subsequently stayed ments (franchisor) pending CDWI and pursuant (franchisee). to the C.D. Partners in the The district parties’ agreements. franchise denied the motion on grounds arbi- tration however, the three was never principals held, were not signatories because CDWI filed for agreements franchise bankruptcy. between the two corporations, and the tort lawsuit was not In May C.D. Partners filed this covered by agreements’ in suit Iowa state court. Whereas the first clauses. We reverse and remand for fur- suit in sounded contract and was brought ther proceedings. directly against CDWI, the corporation second suit sounded in tort and was I brought directly against the three individ- Between 1997 and CDWI and C.D. uals who comprised primary CDWI’s man- signed Partners four franchise agree- agement Jerry Grizzle, president its and — operate ments retail stores under the Chief (CEO); Executive Officer Doyle name CD purpose Warehouse. The of the Motley, its Chief (CFO); Financial Officer agreements was to sell new and used mu- Gary Johnson, Operating Chief Of- (CDs). compact sic discs Each franchise (COO). ficer The complaint alleged negli- agreement contained an identical arbitra- gence, negligent misrepresentation, tion stated, clause which part: relevant fraudulent misrepresentation. “Except provided Agreement, in this Franchisor and agree Franchisee any The complaint alleged negli- Grizzle was claim, controversy arising out of gent in specific ways, nine all related to 1. The Iowa; Waterloo, four franchise Iowa; relate to re- Maryland Iowa; tail City, stores in Iowa Rapids, Heights, Cedar Missouri. II (for exam- the franchises operation territo- exclusive protect failing to

ple, the denial de novo review fail- agreements, franchise under ries Telectron compel arbitration. motion to point-of-sale improvements make ing to Corp., Inc. v. Guidant Sys., Pacing ics suitable provide software, failing Cir.1998). “[A]ny 428, 430 improvements capital financing timely lan contract construing raised doubts negligence stores). Similarly, be resolved arbitrability ‘should on guage all Motley Johnson ” allegations at 430-31 arbitration.’ in favor franchises. related Hosp. v. H. Cone Mem’l Moses (quoting al- count misrepresentation negligent 24-25, U.S. Corp., 460 Mercury Constr. provided C.D. defendants leged all (1983)). 765 927, L.Ed.2d 74 S.Ct. 103 to influ- information false with Partners they contend Grizzle, Motley Johnson and between transactions the franchise ence in the the enforce can damage C.D. caused parties, which the and CDWI between agreements franchise misrepresenta- fraudulent The Partners. non- as their status despite Partners C.D. defendants three alleged all tion count agree. We signatories. they made representations certain knew de- they false, that intended an enforce nonsignatory can were A signatory Partners. a against ceive C.D. circumstances. in several agreement the principals The three removed the case to the relationship between “the is when One federal district court and filed a motion to is defendants nonsignatory signatory compel pursuant to the fran- by permitting only close that sufficiently chise between C.D. Partners may invoke arbitration nonsignatory to the They argued they and CDWI. could en- underlying arbitration evisceration force the arbitration clauses between the signatories between agreement corporations-notwithstanding two Corp. Serv. Dealer MS avoided.” they signatories fact were not to the 942, Cir. 947 Franklin, 177 F.3d agreement-because allegations the tort Legend, 1999) v. Homes Boyd (quoting against them arose from the contractual (M.D.Ala. 1423, Inc., 1432 F.Supp. relationship corporations, between the two 1997)). signatory “when Another is against and the claims them arose from containing an arbitra agreement a written they performed acting the duties while of the terms rely on the ‘must tion clause signatory, officers of the CDWI. C.D. claims’ asserting [its] agreement written motion, contending Partners resisted the Id. (quoting nonsignatory.” against principals the three could not enforce the Drinks, Grow Inc. v. Sunkist Sunkist Soft they arbitration clauses because were not Cir.1993)). Inc., ers, F.3d signatories against and the tort claims against claims signatory’s of a each “When scope officers did not fall within the of the pre to or reference nonsignatory makes arbitration clauses. agree of the written the existence sumes motion denied The district out of arise ment, claims signatory’s concluding “neither compel arbitration agree written directly relate are in this case sought damages nor claims ment, appropriate.” and arbitration the cor- sought as those the same omitted). (internal quotations Grizzle, lawsuit.” earlier poration pres are circumstances both believe timely ap- filed this Motley and Johnson signa- relationship here. ent peal. tory CDWI and the nonsignatory appel- signatory seeking to arbitrate with a lants is a close one. The tort allegations non-signatory that is unwilling must es against the three appellants all arise out of tablish at least one of the five theories their conduct acting while as officers of [Thomson-CSF, described in S.A. v. CDWI. Evisceration of underlying ar- Ass’n, Am. Arbitration 64 F.3d (2d bitration only Cir.1995) will be avoided ]. by allowing the three principals to invoke Lynch, (internal Merrill at 131 Similarly, C.D. Partners’s omitted). citations quotations appellants rely courts clearly recognize a nonsignatory’s to,

upon, refer presume the existence ability to force a signatory into arbitration written between the two under the “alternative” estoppel theory corporations. Thus, arbitration appro- when the relationship of the persons, priate. wrongs and issues involved is a close one.

The authority cited C.D. Partners is See, e.g., Astra Oil Co. v. Rover Naviga inapposite. For example, Flink v. Carl tion, Ltd., (2d 279-80 Cir. son, (8th Cir.1988), 856 F.2d 44 involved a 2003) (holding a nonsignatory may compel signatory attempting nonsigna- to force a arbitration against a signatory to an arbi tory into arbitration. See id. at 46-47 tration agreement because of nonsignato- (affirming stay district court’s of arbitra ry’s close affiliation with the other signato tion of a brokerage house’s claims against ry party to agreement). the the individual representative who was not The dissent relies a case not cited signatory agreements a to the in question); by Partners, C.D. McCarthy Azure, v. 22 Lynch see also Merrill Inv. Managers v. (1st Cir.1994), F.3d 351 arguing it is better Ltd., Optibase, (2d 125, 337 F.3d 131-32 reasoned than the cases we have cited and Cir.2003) (affirming grant district court’s point. on We respectfully disagree a preliminary injunction enjoining an McCarthy on point. is McCarthy turned investor from proceeding with arbitration primarily on the fact agreement the at against advisor fund agreed who had not purchase issue was a agreement, a “one- arbitration). shot transaction” only the where act the This is not such a case. This ais case nonsignatory performed for the corporate a nonsignatory where awith close relation- signatory was that of signing the purchase ship to a signatory wants the signa- other agreement itself. 22 F.3d at 357. The tory to arbitrate a claim. The test First specifically distinguished determining whether nonsignatory a can such an instance from those in instances force a signatory into arbitration differ- is which the contracting parties “contem- ent from the test for determining whether plate[] an ongoing relationship in which signatory a can force nonsignatory a into the [signatory’s] promises only can be ful- arbitration: by filled (unspecified) future acts of its

[I]t matters whether party the resisting employees agents or stretching well into arbitration is a signatory or not.... [A] an uncertain future.” Id. (distinguishing willing nonsignatory seeking to arbitrate Pritzker v. Lynch, Pierce, Merrill Fenner with a signatory that is unwilling may Smith, do (3d Cir.1993) & so under what has been called alter- an (allowing nonsignatories to enforce an ar- native estoppel theory which takes into bitration for a dispute clause out of arising consideration the relationships of per- ongoing contract); an service Roby v. sons, wrongs, issues, willing Corp. (2d [b]ut a Lloyd’s, 996 F.2d signatory arbitration Prudential

Cir.1993) (same); Letizia Partners. 1185, 1188 C.D. Inc., F.2d Sec., Bache (same)). Cir.1986) Ill “a one-shot not have

Here, dowe obligations purchaser’s in which fur Grizzle, and Johnson Motley essentially, per- are, specified are filed tort suit contend ther there- or soon closing, in full at formed covered is Partners by C.D. them ongoing an case involves This after.” agree franchise in the clauses CDWI’s signatory relationship where Partners. C.D. CDWI and between ments by the fulfilled only be could promises agree. officers, corporate conduct future dis- current agents. employees, the fran in Partners C.D. signatory pute between broadly to are worded chise Grizzle, Motley, and John- nonsignatories controversy dispute claim, “any cover directly to of and relates out arises son Franchisee’s relating to of or arising out signa- contractual un business Franchised of the tories, core of where strong a There is Agreement.” der ful- in nonsignatories conduct of arbitration. in favor policy national Thus, promises. CDWI’s filling signatory Enters., v. Hawk’s Dobbins one to the inapposite here the situation Cir.1999). consequence, As McCarthy, and similar addressed an whether about doubts Pritzker, Roby, addressed situations particular cover a construed should nonsig- Letizia, courts allowed where in favor generally are resolved clause. an arbitration to enforce natories Telectronics, at 430. 143 F.3d such as clauses implies arbitration Broadly worded The dissent also the franchise con generally here are at issue ones the involved here were not drafted the arising from skillfully enough cover tort suits to strued to include ODWI's cers aby withinthe ambitof thearbitration clause. covered facts operative set of same respectfully disagree. agreement's agree parties the between contract Each broadly ment. arbitration clause was drafted every "claim,controversy to cover or v. P Industries in P example, & For disputearising out of' the of (10th Cir.1999), 179 F.3d Corp., Sutter agreement provided franchise.Each further an arbitration addressed Tenth

nothing agreement the would agreement agency an exclusive clause rights deemedto confer or remedies and marketer. a manufacturer anyone Franchisee,Franchisor, "other than “[a]ny con- provided clause officers, rectors, Franchisor's arising out of claim, or breach troversy, including right arbitrate-upon to "Franchisor's arbi- shall be Agreement” this relating to officers,directors, ployees." and em- Under held at 871. trable. case, circumstances in- volvedin this enough was broad clearly appropriate it the market- claims where encompass tort nonsignatories allow enforce the Under the circumstances in conduct improper allegations er’s limited were manufacturer clearly appropriate volved in this case it is the manu- with in connection taken actions nonsignatories to allow the to enforce the facturer’s decision to agree- terminate the lating to Agreement or the breach ment. Id.2 thereof. language Broad of this nature covers contract-generated or contract-re-

Similarly, in Gregory v. Electro-Me disputes lated parties between the chanical howev- Corp., 88 F.3d 382 Cir. er labeled: it is 1996), immaterial the Eleventh Circuit whether claims addressed a tort[.]”).3 are in contract or in provision in a purchase stock provided which for arbitration of all dis case, In this the tort putes “arising hereunder.” The court held appellants genesis in, had their arose the arbitration clause required arbitration of, out and related to C.D. oper- Partners’s only not claims, the seller’s contract but ation of the franchises under the franchise of all claims asserted in the seller’s com agreements. Thus, the tort claims stated fraud, plaint including fraudulent induce — in this lawsuit subject are to the arbitra- ment, deceit, misrepresentation, conver tion clauses. sion, breach good faith fair dealing, outrage all the tort claims —because rv “disputes were that originate[d] out of or ha[d] connection with underlying th[e] Finally, the arbitration provide agreement.” 383; Id. at see also Kroll v. the “[arbitration place shall take at Fran- Assocs., Doctor’s chisor’s principal place of business in Okla- Cir.1993) (“[A] plaintiff may not avoid an County, homa Oklahoma.” Notwithstand- otherwise provision valid arbitration mere ing its to the contrary, C.D. ly by casting complaint in tort. The Partners contends the arbitration should touchstone arbitrability in such situa place take in Iowa because tions is the Section of the relationship of alleged the tort (FAA) Federal Arbitration Act subject provides matter of the arbitration clause.”) (internal “hearings quotations and proceedings, and citations under such omitted); agreement, Acevedo In shall be within Maldonado PPG district in dios., (1st Cir.1975) (“The petition which the for an directing order provide contracts ‘any arbitration of such § filed.” 9 U.S.C. 4. controversy or claim arising out of or re- C.D. Partners therefore requests us to Chica, Citing (8th 2. Lee v. 983 proposition F.2d 883 Cir. apply we different rules of con- 1993), the dissent contends P &P Industries is interpretation tract to an arbitration clause inapposite "arising on issue whether out already we have when determined a is language of” in an arbitration clause is broad arbitrable. enough to cover tort claims P & P because Industries involved the confirmation of an ar 3. The dissent contends our reliance bitration award rather than a to com motion Gregoryv. Corp. Electro-Mechanical and Kroll pel We respectfully disagree. v. Doctor’s misplaced is Associates because The made distinction in Chica between com those cases not nonsignatory. did involve a pelling confirming arbitration and an arbitra again, Once respectfully disagree. we tion award addressed whether state or federal nonsignatories issue whether can enforce an applies law deciding party when aif has arbitration entirely separate is clause and dis- standing challenge to validity, revocabili- tinct from the phrase issue whether the “aris- ty, enforceability of an clause. arbitration ing enough encompass hereunder” is broad Chica, to (citing 983 at Perry F.2d 886 v. Thom- as, arising tort 483, claims 9, opera- from the set of same 482 U.S. 492 n. 107 S.Ct. 96 tive (1987)). case, by facts a employing covered L.Ed.2d 426 contract In this we have Thus, already Grizzle, phrase that in its arbitration Motley, determined clause. standing Johnson Gregory have to the arbitra- do have enforce Kroll not to involve a tion clause. Chica does not nonsignatory persuasive. stand for the to 802 major Cir.1999), by the (10th on relied to 861 on remand court district

require the anof arbitra confirmation ity, involved in Iowa place to take arbitration order therefore, inapposite. award, and, is tion than Oklahoma. rather (8th Chica, Cir. F.2d 883 983 v. Lee See require not did The district court to 1993) being compelled that (explaining arbitration, is so there undergo to parties an arbi confirming from arbitrate differs take the arbitration compelling no order award). Likewise, majority’s tration Thus, or Oklahoma. in either Iowa place Electro-Mechanical Gregory v. reliance on this review at for our ripe not this issue (11th Cir.1996), F.3d Corp., to the district court it time, we leave “aris phrase merely interpreted which on remand. first instance in to address not as it hereunder,” misplaced did ing also Kroll See non-signatory. involve a V Assocs., Inc., F.3d 1167 Doctor’s court’s order district reverse the non- Cir.1993) (situation a involve did not compel the motion denying signatory). proceedings. further for and remand case factually similar I find dissenting. Judge, SMITH, Circuit (1st Azure, Cir. McCarthy v. properly district that the I believe stronger foundation 1994), on a to rest in C.D. Part- compel arbitration refused McCarthy, the reasoning. In better with Grizzle, Doyle Jerry case ner’s officer, corporate a Circuit held First therefore, and, Johnson, Gary Motley, containing an an signed who First, I note that dissent. respectfully capacity, in his official whether, or under decide yet has circuit claims compel arbitration not could circumstances, to a non-signatories what an individual. him lodged an arbi- can enforce contractual McCarthy rightfully at 363. McCarthy, Id. rely does not majority tration clause. The drafting encourages skillful prece- controlling Eighth Circuit any on including officers means proper as the factually similar dent, other and cites no “A an clause. in ambit of re- precedent The Eleventh case. bring agents that wishes corporation the doc- majority invokes by the lied on do tent can into the arbitral employees theory not estoppel, equitable trine of specify that will writing contracts... so here; Dealer Serv. and MS argued McCarthy 360. at the desired result.” n. 4 Franklin, Corp. v. well reasoned. point and is on Cir.1999), noted that the court dissent. respectfully I in- specifically at issue arbitration clause arising out of the tort cluded at issue arbitration clause

fraud. language and have such does not case un- arising limited specifically Indeed, majority Agreement.

der the necessary to relationship notes “a precedent the Eleventh apply close one.” strong national is a that there agree I P However in favor of policy Indus., Corp., 179 F.3d P Inc. Sutter &

Case Details

Case Name: CD Partners v. Jerry Grizzle

Court Name: Court of Appeals for the Eighth Circuit

Date Published: Sep 23, 2005

Citation: 424 F.3d 795

Docket Number: 03-3831

Court Abbreviation: 8th Cir.