Britton v. Co-op Banking Group

• Decision Date: 14 April 1993
• Docket Number: No. 91-16851,CO-OP,91-16851
• Citation: 4 F.3d 742
• Parties: , Fed. Sec. L. Rep. P 97,752 Joseph BRITTON, Plaintiff-Appellee, v.BANKING GROUP, Defendant. Jeff Liebling, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 742

4 F.3d 742

62 USLW 2171, Fed. Sec. L. Rep. P 97,752

Joseph BRITTON, Plaintiff-Appellee, v. CO-OP BANKING GROUP, Defendant Jeff Liebling, Defendant-Appellant.

No. 91-16851.

United States Court of Appeals Ninth Circuit.

Submitted April 14, 1993 ^*.

Decided Sept. 1, 1993.

Jeff Liebling, pro se.

William P. Torngren, Andrea M. Miller, David C. Adams, Bartel, Eng, Miller and Torngren, Sacramento, CA, for appellee.

Appeal from the United States District Court for the Eastern District of California.

Before: CANBY, BRUNETTI, Circuit Judges, and ROBERT E. JONES. ^**

ROBERT E. JONES, District Judge:

The issue on appeal is whether Jeff Liebling, a non-signatory to a contract entered into by a company he later purchased, may invoke the contract's arbitration clause.

We find that Liebling may not invoke the contract's arbitration clause because: (1) Plaintiffs ¹ are not estopped from claiming Liebling has no standing to compel arbitration; (2) Liebling was not a third party beneficiary or successor in interest to the contract; and (3) Although Liebling became an agent, officer and employee of the original contracting party, none of his allegedly wrongful acts arose out of or were related to the contract.

The decision of the district court is affirmed.

Facts and proceedings below

This appeal is part of a class action alleging that defendants perpetuated a securities fraud scheme by selling a fraudulent tax shelter investment and that Liebling engaged in fraudulent activity after the initial sales. Plaintiffs signed a contract for the allegedly fraudulent securities with Gold Depository and Loan Company ("GDL"). This contract contained an arbitration provision. Liebling, a non-signatory to the contract who later bought GDL, demanded arbitration but the plaintiffs refused. His motion to compel arbitration was denied by the district court, which found that he had waived arbitration. Liebling appealed, and while his appeal was pending, the district court entered a default judgment against him as a discovery sanction.

This Court reversed. Britton v. Co-op Banking Group, 916 F.2d 1405 (9th Cir.1990). The Britton panel, which chronicled the facts and proceedings in this case in more detail, concluded that Liebling had not waived his right to compel arbitration. The panel also found that the district court had not addressed the threshold issue of Liebling's standing to compel arbitration and remanded the case to the district court for further determination and fact-finding on that issue. The panel concluded that if Liebling does not have the right to have this dispute submitted to arbitration, the "default judgment" may stand. On the other hand, if Liebling proves to be correct on the arbitration question, the "default judgment" will have to be set aside.

The district court, on remand, concluded that Liebling lacked standing under the contract to assert a right to arbitrate and that the "default judgment" therefore remains in effect. Liebling timely appealed and we have jurisdiction pursuant to 28 U.S.C. Sec. 1292(a)(1) and 9 U.S.C. Sec. 15(a)(1)(A), (B).

Standard of review

The denial of a motion to compel arbitration is reviewed de novo. Pipe Trades Council, Local 159 v. Underground Contractor's Ass'n, 835 F.2d 1275, 1273 (9th Cir.1987).

Discussion

Plaintiffs are not estopped from claiming Liebling has no standing to compel arbitration.

Liebling argues that judicial estoppel should bar the plaintiffs from denying the allegations in their complaint regarding his status as an agent or successor in interest of GDL. We disagree. This circuit has declined to adopt either the majority or minority view of judicial estoppel. See, e.g., Yanez v. Broco, 989 F.2d 323 (9th Cir.1993).

This court recently described the two competing views of judicial estoppel as follows:

Under the majority view, judicial estoppel does not apply unless the assertion inconsistent with the claim made in the subsequent litigation "was adopted in some manner by the court in the prior litigation." [Stevens Tech. Services, Inc. v. SS Brooklyn, 885 F.2d 584, 588 (9th Cir.1989).] Under the minority view, judicial estoppel can apply even when a party was unsuccessful in asserting its position in the prior judicial proceeding, "if the court determines that the alleged offending party engaged in 'fast and loose' behavior which undermined the integrity of the court." [Stevens, 885 F.2d at 589.]

In re Corey, 892 F.2d 829, 836 (9th Cir.1989).

Under the majority view, Liebling's estoppel argument fails, simply because he has neither alleged nor proven that the court below ever adopted plaintiffs' prior position that he was liable as agent or employee of GDL. To the contrary, the granting of a default was a sanction for discovery violations, unrelated to the allegations in the complaint.

Under the minority view, it is a closer question, but the argument still fails. Plaintiffs did not truly obtain relief by "asserting and offering proof to support one position" and then contradict themselves to establish a second claim. Arizona v. Shamrock Foods Co., 729 F.2d 1208, 1215 (9th Cir.1984), cert. denied, 469 U.S. 1197, 105 S.Ct. 980, 83 L.Ed.2d 982 (1985). Again, they obtained relief via Liebling's refusal to comply with the discovery order.

Neither do we consider plaintiffs to be playing "fast and loose" with the courts. This characterization is reserved for more egregious conduct than just "threshold" inconsistency, Yanez, supra, especially where, as here, the complainant has not been prejudiced by the inconsistency.

Liebling did not have standing to compel arbitration.

Liebling contends that he has standing to enforce the contract's arbitration clause for one or more of three reasons: (1) he is a third party beneficiary of the contract; (2) he is a successor in interest to the contract; or (3) he is an agent, officer, and employee of GDL.

The right to compel arbitration stems from a contractual right. Britton, 916 F.2d at 1413. That contractual right may not be invoked by one who is not a party to the agreement and does not otherwise possess the right to compel arbitration. Lorber Industries of California v. Los Angeles Printworks Corp., 803 F.2d 523, 525 (9th Cir.1986). An entity that is neither a party to nor agent for nor beneficiary of the contract lacks standing to compel arbitration, E.E.O.C. v. Goodyear Aerospace Corp., 813 F.2d 1539, 1543, n. 2 (9th Cir.1987) (citing Lorber).

With that framework in mind, the following facts regarding the relationship between GDL, plaintiffs and Liebling become pivotal:

Defendant GDL allegedly sold marine dry cargo containers and then acted as an agent for purchasers in leasing those containers. According to plaintiffs, GDL was sued as a principal actor in the alleged securities fraud scheme. Eventually, plaintiffs obtained an order of default against GDL, but never proceeded to judgment.

According to Liebling's motion to intervene, he is an international business consultant and the sole proprietor of International Business Services ("IBS"). In May, 1985, he claims he was offered a seat on the board of USA/GDL, a California corporation that later acquired GDL. During the summer of 1985, USA/GDL hired Liebling, doing business as IBS, to serve as its representative agent. In September, Liebling/IBS was retained to handle contacts with investors in GDL's allegedly fraudulent container program. At that time, Liebling relates:

I knew almost nothing of GD & L's past business history or details regarding the Program except was told an IRS summons enforcement action was being fought (supposedly) to protect the privacy rights of program investors ...

He says he learned of allegations of wrongdoing in October, 1985, and as he learned more facts he became suspicious about whether his supposed job--"to protect GD & L's goodwill by helping [p]rogram investors"--was the true motive of USA. He continues:

By late November my suspicions that both the investors and the board were being screwed seemed true. In the belief that GD & L could be helpful to investor's interest if it was in friendly hands, and with an eye to re-establishing GD & L's commercially valuable goodwill, I engineered a necessarily "hostile takeover."

He claims to be "president, board and shareholder" of GD & L. Documentation proving his ownership includes a sales contract signed by Liebling and an officer of USA-GDL on Nov. 25, 1985. Plaintiffs' complaint against Liebling (reprinted below) charges him with acts starting in June, 1985 and continuing through 1987.

The original sale and leasing contracts GDL entered into with various plaintiffs contained the following arbitration clause:

Any controversy or claim arising out of or relating to this Agreement or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any Court having jurisdiction thereof. (Emphasis added.)

As the district court noted, this arbitration clause is broad on its face, and in fact, it is routinely used in many securities and labor agreements to secure the broadest possible arbitration coverage. However, as explained above, because Liebling was not a party to the agreement, he must fit into one of the three categories that follow in order to invoke the right to arbitrate.

1. Was Liebling a third-party beneficiary to the contract?

Courts have held that nonsignatories of arbitration agreements may be bound by the agreement under ordinary contract and agency principles. Letizia v. Prudential Bache Securities, Inc., 802 F.2d 1185, 1187 (9th Cir.1986).

If the parties to the contract had no intention to benefit a third party, that third party has no rights under the contract. Sherman v. British Leyland Motors, Ltd., 601 F.2d 429, 440, n. 13 (9th Cir.1979) (citing Martinez v. Socoma Cos., Inc., 11 Cal.3d 394, 113...