Case Information
*3 HARDIMAN, Circuit Judge .
Appellee Lincoln T. Griswold purchased a life insurance policy that was later sold to Appellant Coventry First LLC (Coventry) for an allegedly inflated price that included undisclosed kickbacks to the broker. Griswold sued, and Coventry moved to dismiss the case for lack of standing or, in the alternative, to compel arbitration. The District Court denied the motion and Coventry appealed. Two questions are presented: (1) whether we have appellate jurisdiction to review the District Court’s denial of a motion to dismiss for lack of standing; and (2) whether the District Court erred when it denied a motion to compel arbitration.
I
This appeal arises from an alleged fraud in connection with a “life settlement,” which involves the sale of a life insurance policy for more than its cash-surrender value but less than the net death benefit. The purchaser of the policy pays the premiums until the original policy owner’s death, at which time the purchaser collects the death benefit.
In January 2006, Griswold purchased an $8.4 million life insurance policy. He then established the Lincoln T. Griswold Irrevocable Trust (the Trust) under Georgia law for the “sole and exclusive purpose” of owning the policy and he disclaimed any personal “right, title or interest in or power, privilege or incident of ownership” in the trust property. He appointed Wells Fargo Bank to serve as Trustee.
Two weeks after the Trust was formed, Griswold named Griswold LLP [1] as its sole beneficiary. [2] According to the terms of the partnership agreement, Griswold LLP would *5 dissolve once it fulfilled its limited purpose of receiving the proceeds of the life insurance policy. At that point, it would enter into a “winding-up period,” during which the trustee was tasked with “liquidating its property, satisfying the claims of its creditors, and distributing any remaining property or the proceeds therefrom to the Partners.” JA 382 (§ 9.3). Upon completion of the winding up period, the liquidating trustee would file a “Cancellation of the Election to Become a Limited Liability Partnership” to terminate the partnership. JA 384 (§ 9.8).
In January 2006, the Trust appointed Mid-Atlantic Financial as its exclusive agent to “identify, select and appoint” a life-settlement broker who would help the Trust sell Griswold’s life insurance policy. JA 326 (§ 1.1). Mid- Atlantic selected Kevin McGarrey, who had previously assisted Griswold in procuring the policy, to be the settlement broker. In March 2008, McGarrey reached out to Appellant Coventry First LLC (Coventry), a Pennsylvania-based insurer and significant player in the life settlement industry, indicating that Griswold’s life insurance policy was for sale and that Mid-Atlantic had authorized him to broker a life settlement for a commission of $84,000. In his complaint, Griswold alleges that Coventry rigged the bidding process by having McGarrey sign a written producer agreement—the “Secret McGarrey Agreement”—promising to refrain from seeking any further bids and to report any competing offers and their material terms to Coventry. In exchange, Coventry allegedly allowed McGarrey to “self-determine” his commission to the tune of $145,000, which was $61,000 more than what he was entitled to. Accordingly, McGarrey did not put the policy on the competitive market and did not pursue any other potential buyers.
Coventry offered $1.675 million for the Griswold policy—$1.53 million for the policy and $145,000 for McGarrey’s commission. Coventry and McGarrey did not disclose the amount of broker compensation to the Trust or to Griswold. [3] On March 31, 2008, the Trust sold its policy to Coventry without having received a competing offer. The written purchase agreement contained the following arbitration clause:
All disputes and controversies of every kind and nature between the Parties arising out of or in connection with this Agreement including, but not limited to, its existence, construction, validity, interpretation or meaning, performance, non-performance, enforcement, operation, breach, continuance, or termination thereof shall be submitted and settled by arbitration in accordance with the rules of the American Arbitration Association.
JA 648 (§ 8.8). Once Coventry acquired the life insurance policy, the Trust dissolved, having fulfilled its sole purpose. The Trustee, Wells Fargo, then transferred the proceeds of the sale to Griswold LLP, the sole beneficiary. In December 2008, the partners of Griswold LLP filed a “Cancellation of *7 Limited Liability Partnership Election” in Georgia state court pursuant to the LLP’s partnership agreement.
In September 2010, after learning of Coventry’s alleged fraud, Griswold sued Coventry, Coventry Group, Montgomery Capital, Coventry Financial, and Reid S. Buerger, Coventry’s Executive Vice President, in Pennsylvania state court on behalf of himself—both in his individual capacity and as the former majority partner of Griswold LLP—and on behalf of a class of persons who had sold their life insurance policies to these Defendants. Griswold alleged that Coventry’s collusion with McGarrey to conceal his self-determined commission and rig the bidding process constituted common law fraud, fraudulent concealment, conversion, aiding and abetting the breach of fiduciary duties, unjust enrichment, and also violated state life settlement acts, the Sherman Act, and the Racketeer Influenced and Corrupt Organizations Act (RICO).
Because the class action sought over $5 million in damages, Coventry removed the case to the United States District Court for the Eastern District of Pennsylvania. In recognition of the fact that Griswold had not signed the purchase agreement, Coventry filed a motion to dismiss for lack of standing, or in the alternative, to compel arbitration pursuant to the purchase agreement. [4] In response, Griswold filed an “Election to Revive and Reinstate and Otherwise *8 Become a Limited Liability Partnership,” followed by an Amended Complaint adding Griswold LLP as a Plaintiff. JA 480. Coventry moved to dismiss the Amended Complaint.
The District Court denied Coventry’s motion to dismiss, finding that because “Griswold possesses a proprietary interest in the property of Griswold LLP that was injured, both Lincoln T. Griswold and the LLP have Article III standing.” JA 4. The District Court then denied Coventry’s alternative motion to compel arbitration, holding that the arbitration clause was “unenforceable as to Plaintiffs who are non-signatories.” Id. Coventry timely appealed.
II
The District Court had jurisdiction pursuant to 28
U.S.C. § 1332(d). We have appellate jurisdiction over the
District Court’s denial of defendants’ motion to compel
arbitration pursuant to 28 U.S.C. § 1291 and the Federal
Arbitration Act (FAA), 9 U.S.C. § 16(a)(1)(B), which
provides that “[a]n appeal may be taken” from an order
denying a petition to compel arbitration.
See E.I. Dupont de
Nemours & Co. v. Rhone Poulenc Fiber and Resin
Intermediates S.A.S.
,
The parties dispute whether we have appellate
jurisdiction to review the District Court’s denial of
Coventry’s motion to dismiss for lack of standing. Coventry
argues that we have not only the authority but the obligation
to determine whether Appellees possess standing because it is
a “threshold jurisdictional requirement” both in the district
court and on appeal. Coventry Br. at 18-19 (citing
Majestic
Star Casino
,
LLC v. Barden Development, Inc.
,
Though Coventry insists that our decision in
Majestic
Star
should guide our analysis, that case bears little similarity
to this appeal. There, the standing issue was raised for the
first time on appeal and was inextricably intertwined with the
merits of the case.
Majestic Star
,
Here, however, we must decide whether we are required to adjudicate the standing issue after it has already been decided by the District Court. As we stated in Petroleos Mexicanos Refinacion v. M/T King A (Ex-Tbilisi) , 377 F.3d 329 (3d Cir. 2004), “[t]here are countless cases where a district court rejects a defendant’s challenge to the plaintiff's standing; in that posture, defendants simply may not seek immediate review in the court of appeals.” Id. at 335. In other words, although standing is always a threshold issue, standing to appeal should not be confused with standing to sue. Once a district court has determined that a plaintiff has standing to sue, our power to adjudicate that issue on an interlocutory basis is limited.
Coventry argues that we can and should exercise pendent appellate jurisdiction over the District Court’s ruling on the standing question. Pendent appellate jurisdiction exists where an appealable issue is so “inextricably intertwined” with a nonappealable issue that one cannot resolve the former without addressing the latter. DuPont , 269 F.3d at 203. Because we have jurisdiction to review the order of the District Court compelling arbitration, Coventry argues, we should assert jurisdiction over the order denying Coventry’s motion to dismiss for lack of standing. We disagree.
The doctrine of pendent jurisdiction is indisputably “narrow” and should be used “‘sparingly’ and only where there is a sufficient overlap in the facts relevant to both the appealable and nonappealable issues to warrant plenary review.” Id. (emphasis in original); In re Montgomery County , 215 F.3d 367, 375-76 (3d Cir. 2000) (“Pendent appellate jurisdiction over an otherwise unappealable order is available only to the extent necessary to ensure meaningful review of an appealable order.”) (internal quotation marks and citation omitted); Swint v. Chambers Cnty. Comm’n , 514 U.S. 35, 49-50 (1995) (warning that “loosely allowing pendent appellate jurisdiction would encourage parties to parlay Cohen -type collateral orders into multi-issue interlocutory appeal tickets.”).
In DuPont , we considered whether we could review the denial of a motion to dismiss for lack of personal jurisdiction (an otherwise nonappealable order) pendent to our review of a denial of a motion to compel arbitration (an appealable order). We held that the jurisdictional question was not sufficiently intertwined with the merits of the appealable order, requiring us to “exercise restraint and forego review until the unrelated issue is appealable in its *11 own right.” DuPont , 269 F.3d at 204 (citing United States Fidelity & Guaranty Co. v. Braspetro Oil Serv. Co. , 199 F.3d 94, 97 (2d Cir. 1999)).
As personal jurisdiction and standing are both
threshold jurisdictional questions, our reasoning in
DuPont
applies here. Moreover, as Coventry has acknowledged,
Coventry Reply Br. at n.1, two of our sister courts have
declined to extend pendent appellate jurisdiction to adjudicate
district court orders on standing.
Summit Medical Assoc., P.C.
v. Pryor
,
Like the Eleventh Circuit in Summit Medical and the Seventh Circuit in Triad Associates , the issues before us now are not sufficiently intertwined to support the exercise of pendent appellate jurisdiction. Regardless of how we adjudicate the standing question, we may still reach the arbitration question. Moreover, the factual underpinnings of the issues are distinct: the standing issue involves an inquiry into whether Griswold LLP remains in existence and can bring claims on behalf of the Trust as its sole beneficiary. In contrast, the question of arbitrability requires us to decide whether Griswold LLP, a non-signatory to the purchase agreement, can be bound to its arbitration clause because it *12 reaped the benefits of the contract. The two considerations are discrete and neither issue’s determination is dependent upon the other.
In sum, we decline to exercise pendent appellate jurisdiction over the District Court’s denial of Coventry’s motion to dismiss because it is not inextricably intertwined with the denial of the motion to compel arbitration, nor is its review necessary to adjudicate the arbitrability issue.
III
We turn next to the District Court’s order denying Coventry’s motion to compel arbitration, which the parties and the Court agree is now subject to our review. FAA, 9 U.S.C. § 16(a)(1)(B) (providing that an appeal may be taken from an order denying a petition to compel arbitration); 28 U.S.C. § 1291.
We review decisions regarding the applicability and
scope of arbitration agreements de novo, applying the same
standard the District Court applied.
SBRMCOA, LLC v.
Bayside Resort Inc.
, 707 F.3d 267, 270-71 (3d Cir. 2013)
(citing
Kaneff v. Del. Title Loans
,
In this appeal, it is undisputed that the purchase
agreement contained a broad arbitration clause requiring the
*13
parties to arbitrate any disputes arising out of the contract.
[5]
Courts generally apply a presumption in favor of enforcing
arbitration clauses.
Preston v. Ferrer
, 552 U.S. 346, 349
(2008) (stating that the FAA established “a national policy
favoring arbitration when the parties contract for that mode of
dispute resolution”);
Dupont
,
The presumption in favor of arbitration does not extend, however, to non-signatories to an agreement; it applies only when both parties have consented to and are bound by the arbitration clause. See United Steelworkers of America v. Warrior & Gulf Navigation Co. , 363 U.S. 574, 582 (1960) (“[A] party cannot be required to submit to *14 arbitration any dispute which he has not agreed so to submit.”); Bel-Ray Co., Inc. v. Chemrite (Pty) Ltd. , 181 F.3d 435, 444 (3d Cir. 1999) (“If a party has not agreed to arbitrate, the courts have no authority to mandate that he do so.”). Still, a non-signatory may be bound by an arbitration agreement if “‘traditional principles’ of state law allow a contract to be enforced by or against nonparties to the contract.” Arthur Andersen LLP v. Carlisle , 556 U.S. 624, 631 (2009); see also Dupont , 269 F.3d at 194 (a non- signatory may be bound to an arbitration agreement if “under traditional principles of contract . . . [the party is] akin to a signatory of the underlying agreement”) (internal quotation marks and citation omitted) .
Coventry seeks to compel Appellees to arbitrate under
one such traditional contract principle: equitable estoppel.
Both Georgia and Pennsylvania law allow non-signatories to
be bound to an arbitration agreement.
See, e.g.
,
Price v. Ernst
& Young, LLP
, 617 S.E.2d 156, 159 (Ga. Ct. App. 2005)
(finding that “equitable estoppel applies when the signatory to
a written agreement containing an arbitration clause must rely
on the terms of the written agreement in asserting its claims
against the nonsignatory.”) (quoting
MS Dealer Svc. Corp. v.
Franklin
, 177 F.3d 942, 947 (11th Cir. 1999));
LaSonde v.
CitiFinancial Mortgage Co., Inc.
, 614 S.E.2d 224, 226 (Ga.
Ct. App. 2005) (“Federal law provides guidance for
determining the circumstances under which a nonsignatory
may be bound by such agreements. And as found by both
Georgia and federal courts, the theory of equitable estoppel
provides one basis for bringing a nonsignatory within an
arbitration agreement.”) (internal quotation marks and citation
omitted);
Dodds v. Pulte Home Corp.
,
Estoppel “can bind a non-signatory to an arbitration
clause when that non-signatory has reaped the benefits of a
contract containing an arbitration clause.”
Invista S.A.R.L. v.
Rhodia, S.A.
,
Second, courts have bound a signatory to arbitrate with a non-signatory “at the non- signatory’s insistence because of ‘the close relationship between the entities involved, as well as the relationship of the alleged wrongs to the non[-]signatory’s obligations and duties in the contract ... and [the fact that] the claims were intimately founded in and intertwined with the underlying contract obligations.’” 269 F.3d at 199 (internal quotation and citation omitted). Here, the latter theory is inapplicable because our case involves a signatory (Coventry) attempting to bind a non- signatory (Griswold) to the arbitration clause, rather than the inverse. [7] See id. at 202 (“Appellants recognize that these cases bind a signatory not a non-signatory to arbitration, but argue that this is a distinction without a difference. They are wrong.”) (emphasis in original).
*17
Coventry asserts that under the first theory of equitable
estoppel—the “knowingly exploits” theory—a non-signatory
may be bound by an arbitration clause if it “embraces the
agreement and directly benefits from it.”
Bouriez v. Carnegie
Mellon Univ.
, 359 F.3d 292, 295 (3d Cir. 2004). “A non-
signatory can ‘embrace’ a contract in two ways: (1) by
knowingly seeking and obtaining direct benefits from that
contract; or (2) by seeking to enforce terms of that contract or
asserting claims [based on the contract’s other provisions].”
Haskins v. First Am. Title Ins. Co
.,
Equitable estoppel thus prevents a non-signatory from
“‘cherry-picking’ the provisions of a contract that it will
benefit from and ignoring other provisions that don’t benefit
it or that it would prefer not to be governed by (such as an
arbitration clause).”
Invista
, 625 F.3d at 85 (internal citation
omitted);
see also DuPont
, 269 F.3d at 200 (“To allow [a
non-signatory] to claim the benefit of the contract and
simultaneously avoid its burdens would both disregard equity
and contravene the purposes underlying enactment of the
Arbitration Act.”) (internal citation omitted). A non-signatory
cannot knowingly embrace the contract only to later “turn its
back” on other provisions in the contract, such as an
arbitration clause.
Dupont
,
In DuPont , plaintiff was the parent company to a subsidiary that had signed a joint venture agreement with two other companies. The agreement provided that DuPont, a non-signatory, would “assist . . . in the balancing of foreign exchange during the [joint venture's] initial years” and “not take action detrimental to the interest or well-being of the *18 [joint venture].” 269 F.3d at 191, 192 (internal quotation marks omitted). DuPont and Rhodia, a signatory to the joint venture agreement, entered into three agreements related to the joint venture: a supply agreement, a license contract and an export sales agreement. Id. at 192.
When the joint venture failed, DuPont sued the parties, including Rhodia, alleging breach of an oral contract to fully perform the joint venture agreement. Rhodia sought to bind DuPont, a non-signatory, to the agreement’s arbitration clause. We held that DuPont had not “embraced the Agreement itself during the lifetime of the Agreement,” and that it had not “received any direct benefit under the Agreement.” Id. at 200 (emphasis in original). Nevertheless, we expressed concern that DuPont’s claim against Rhodia seemed to “(a) embrace[ ] the underlying Agreement and (b) require[ ] proof that Rhodia . . . ultimately breached the underlying Agreement.” Id. at 201.
What gives us some pause . . . is that a close examination of the Amended Complaint reveals that, at bottom, DuPont’s claims arise, at least in part, from the underlying Agreement. . . . On the one hand, we must be careful about disregarding the corporate form and treating a non-signatory like a signatory. On the other hand, by alleging, albeit by virtue of a separate oral agreement, that Rhodia Fiber failed to secure loan guarantees, DuPont’s claim against Rhodia Fiber implicates, at least in part, the very Agreement which DuPont repudiates to avoid arbitration. It is, however, that separate oral agreement that saves the day for DuPont because, wholly apart from whether Rhodia *19 Fiber breached the Agreement, what is at the core of this case is the conduct and the statements of the appellants’ representative [in making the oral promise].
Id. at 200-01. We thus held that DuPont was not bound to the arbitration clause because its claim did not hinge on whether Rhodia breached the joint venture agreement itself, but rather on an oral promise made outside of, albeit related to, the agreement.
In this sense, our case bears substantial similarity to DuPont. Here, what “saves the day” for Griswold is the fact that the alleged “Secret McGarrey Agreement” took place prior to and apart from the execution of the purchase agreement. Of course, that alleged fraud was related to the purchase agreement—it set the purchase price and, allegedly, the inflated, undisclosed broker’s commission. But that alone is not sufficient to compel arbitration under the equitable estoppel doctrine: the claims must be based directly on the agreement. Id . Here, Appellees’ Amended Complaint sufficiently alleged their injury without mention of the purchase agreement. Put simply, Appellees do not allege breach of the purchase agreement; they allege fraud antecedent to the purchase agreement.
Our relatively narrow application of the equitable estoppel exception is further reinforced by Bouriez , 359 F.3d at 294-96. Bouriez sued Carnegie Mellon University (CMU) for fraudulent inducement to enter a shareholders’ agreement with Governors Technologies to fund projects at CMU. CMU then sought to compel arbitration against Bouriez based on a contract between CMU and Governors Technologies. The District Court ordered arbitration and we reversed, holding *20 that equitable estoppel did not support binding Bouriez, a non-signatory, to the arbitration clause as there was no evidence in the record to indicate that Bouriez had directly benefited from the contract. At most, the facts showed that Bouriez became a minority shareholder in Governors Technologies for the sole purpose of funding a CMU project; no evidence indicated that benefits from that project would flow to Bouriez directly. Id. at 295.
In Bouriez , we relied heavily on Industrial Electronics Corp. of Wisconsin v. iPower Distribution Group , 215 F.3d 677 (7th Cir. 2000), whose facts we declared “nearly identical” to those in Bouriez. 359 F.3d at 295. In Industrial Electronics , plaintiffs alleged that iPower fraudulently induced Industrial Electronics to enter into an association of other companies. Industrial Electronics sued, and iPower sought to compel arbitration pursuant to an arbitration clause in the franchise agreement between iPower and the association. Id. (citing Industrial Electronics , 215 F.3d at 679). The Seventh Circuit held that Industrial Electronics’ claims were not based on the franchise agreement, nor had the corporation directly benefited from the agreement; therefore, it could not be bound by its arbitration clause. Id. (quoting Industrial Electronics , 215 F.3d at 681) (“A dispute that arises under one agreement may be litigated notwithstanding a mandatory arbitration clause in a second agreement, even where the two agreements are closely intertwined.”).
As in DuPont , Bouriez , and Industrial Electronics , the fraudulent conduct alleged in this case—the “Secret McGarrey Agreement”—took place prior to and apart from the purchase agreement. Accordingly, the District Court properly found that Griswold’s claims “would exist even if the contract containing the arbitration clause were void,” and *21 are “independent of the Purchase Agreement at issue.” JA4-5. In other words, because the “Secret McGarrey Agreement” was not incorporated into the purchase agreement, Appellees’ claims do not allege a breach of that agreement and they are not bound by its terms. Therefore, Coventry cannot compel arbitration against Appellees, who never consented to the purchase agreement. [8]
* * *
For the reasons stated, we hold that we lack appellate jurisdiction to review the District Court’s denial of Coventry’s motion to dismiss. And we will affirm the District Court’s denial of the motion to compel arbitration against Griswold and Griswold LLP.
Griswold Br. at 58. Aside from this footnote, Appellees make
no attempt to reassert class status. Because they failed to brief
the issue on appeal and conceded as much at oral argument,
they have forfeited the argument.
See John Wyeth & Bro. Ltd.
v. CIGNA Int’l Corp.
,
Notes
[1] The partners in the LLP were Griswold, who owned 99% of the shares, and his son, Kirk Griswold, who owned the remainder.
[2] The partnership also served as the borrower under a financing agreement made with Bedrock Financing, in which the partnership received funds and then transmitted them to the Trust to pay the premiums on the life insurance policy. The partnership agreement specifically prohibited the partnership from “engag[ing] in any business or activity whatsoever except as specifically authorized” in the partnership agreement or the financing agreement with Bedrock. JA 370 (§ 2.7).
[3] At the time, neither Pennsylvania nor Georgia state law required the policy purchaser to disclose the broker compensation to the policy owner. However, Pennsylvania law imposed a fiduciary duty on the broker to disclose the amount of compensation, 40 Pa. Stat. Ann. § 626.7(d). Thus Griswold argues that Coventry is liable for aiding and abetting McGarrey’s deliberate breach of fiduciary duty. 40 Pa. Stat. Ann. § 626.2.
[4] Only the Griswold Trust, which has since dissolved, signed the purchase agreement; neither of the Appellees— Griswold and Griswold LLP—were signatories. Thus, Coventry is the only party to this litigation to have signed the purchase agreement.
[5] The arbitration clause encompassed “[a]ll disputes
and controversies of every kind and nature
between the
Parties
arising out of or in connection with this Agreement.”
JA 648 (emphasis added). By all accounts, the language in the
arbitration provision is fairly standard and interpreted to
apply broadly.
See Battaglia v. McKendry
,
[6] Neither party relied on Georgia or Pennsylvania law either in the District Court, see Griswold's Memorandum in Opposition to Motion to Dismiss, D.E. 34 at 55-61; Coventry's Memorandum in Reply to Response to Motion to Dismiss, D.E. 38 at 68-75, or on appeal, see Coventry Br. at 45-55; Griswold Br. at 26-28. In a brief footnote in its reply brief, Coventry acknowledges that state law may be applicable. See Coventry Reply at 24 n.8. That belated and undeveloped argument is insufficient to raise a choice-of-law issue on appeal. See Neely v. Club Med Mgmt. Servs., Inc. , 63 F.3d 166, 180 (3d Cir. 1995) (en banc) (observing that "choice of law issues may be waived"). 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 these Georgia and Pennsylvania state law principles. See Kramer v. Toyota Motor Corp. , 705 F.3d 1122, 1130 n.5 (9th Cir. 2013) (holding that pre- Arthur Andersen federal decisions consistent with relevant state contract principles remain good law).
[7] The other Appellants—Coventry Group, Montgomery Capital, Coventry Financial, and Reid S. Buerger—were non-signatories to the purchase agreement, and therefore cannot bind other non-signatories. Invista , 625 F.3d at 85 (stating that the party seeking to compel arbitration had “offer[ed] no authority for its contention that a non- signatory to an arbitration agreement can compel another non-signatory to arbitrate certain claims, and we have found none”).
[8] Because we find that Coventry cannot compel arbitration, we need not reach the question of whether Appellees would be required to arbitrate their claims on an individual rather than a class basis. However, because the parties request that we specify the answer to that question in this appeal, we will note that Appellees waived their class action claim on appeal, having neglected to properly brief the issue and having conceded as much at oral argument. Only in the very last footnote of their brief do Appellees discuss the issue of class status, and only abstractly: [T]he class plaintiff’s individual standing, linked to his or her asserted claim, becomes automatically linked to the class claim. Having standing which a class representative shares with the members of a class is another way of saying that the class representative is a proper party to raise a particular issue common to the class . . . .