Kroma Makeup Eu, LLC v. Boldface Licensing + Branding, Inc.

• Decision Date: 18 January 2017
• Docket Number: No. 15-15060,15-15060
• Citation: 121 U.S.P.Q.2d 1312,845 F.3d 1351
• Parties: KROMA MAKEUP EU, LLC, a United Kingdom Limited Liability Company, Plaintiff-Appellee, v. BOLDFACE LICENSING + BRANDING, INC., a Nevada Corporation, et al., Defendants, Kimberly Kardashian, a California resident, Kourtney Kardashian, a California Resident, Khloe Kardashian, a California Resident, Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

845 F.3d 1351

121 U.S.P.Q.2d 1312

KROMA MAKEUP EU, LLC, a United Kingdom Limited Liability Company, Plaintiff-Appellee,

v. BOLDFACE LICENSING + BRANDING, INC., a Nevada Corporation, et al., Defendants,Kimberly Kardashian, a California resident, Kourtney Kardashian, a California Resident, Khloe Kardashian, a California Resident, Defendants-Appellants.

No. 15-15060

United States Court of Appeals, Eleventh Circuit.

January 18, 2017

Elizabeth Lee Beck, Jared Harrison Beck, Beck & Lee, PA, Miami, FL, Nolan Keith Klein, Law Offices of Nolan Klein, P.A., Fort Lauderdale, FL, for Plaintiff-Appellee.

Michael Joseph Kump, Kinsella Weitzman Iser Kump & Aldisert, LLP, Santa Monica, CA, Ron J. Bitman, Allison Morat, Pearson Bitman, LLP, Maitland, FL, Katherine T. Kleindienst, Jonathan Philip Steinsapir, Kinsella Weitzman Iser Kump & Aldisert, LLP, Santa Monica, CA, for Defendants-Appellants.

Before ED CARNES, Chief Judge, ANDERSON, Circuit Judge, and ROSENBERG,^* District Judge.

ED CARNES, Chief Judge:

Kimberly, Kourtney, and Khloe Kardashian appeal the district court's denial of their motion to compel arbitration of Kroma Makeup, EU's claims against them for cosmetics trademark infringement. At first blush, the issue appears to require application of Florida's doctrine of equitable estoppel under which a party to an agreement who relies on it in a dispute with a non-party can be required by that non-party to comply with other terms of the agreement, including the arbitration clause. But there is a wrinkle in this case: the arbitration clause that the non-party to the agreement is seeking to enforce is explicitly limited to disputes between the parties. What then?

I.

By Lee Tillett, Inc. developed and registered a trademark for a line of cosmetics products known as Kroma cosmetics beginning in 2004. In 2010 Tillett contracted with Jay Willey Ltd. giving Willey the exclusive right to sell Kroma cosmetics in the United Kingdom and European Union. That agreement expired in October 2012 and Tillett entered into a new one with Kroma EU, which contained similar terms giving Kroma EU the exclusive rights to sell and distribute Kroma products in the United Kingdom and European Union. It also gave Kroma EU the right to use the Kroma trademark. The new agreement contained an arbitration clause, which stated:

If it is impossible to settle the disputes peacefully, the Parties agree that the disputes arising between them concerning the validity, interpretation, termination or performance of the present Contract, should be considered [in] independent arbitration in the State of Florida, United States.

(emphasis added).

While that contract was in effect and with Kroma makeup being sold in the United States and Europe, the Kardashians entered into a licensing agreement with Boldface Licensing + Branding, Inc. to create a Kardashian makeup line called "Khroma." After the Khroma product line was released, Boldface filed a lawsuit against Tillett seeking declaratory judgment that the Khroma name did not infringe on Tillett's Kroma trademark. Tillet filed trademark infringement counterclaims against Boldface and added the Kardashians as counterclaim defendants.

Tillett, Boldface, and the Kardashians settled that lawsuit in April 2014. Despite Tillett's representations to Kroma EU that it was protecting Kroma EU's interests and recovering damages on its behalf, Tillett later refused to share any of its settlement recovery.

As a result, Kroma EU filed this lawsuit asserting trademark infringement and tortious interference claims against Boldface, vicarious liability for trademark infringement claims against the Kardashians, and a promissory estoppel claim against Tillett. Tillett and the Kardashians both filed motions to compel arbitration. The district court granted Tillett's motion to compel Kroma EU to arbitrate, and neither that ruling nor Tillett is in this appeal. The court, however, denied the Kardashians' motion to compel Kroma EU to arbitrate its claims against them, and this is their appeal from that denial. See 9 U.S.C. § 16(a)(1)(B) ("An appeal may be taken from ... an order ... denying a petition under [the Federal Arbitration Act] to order arbitration to proceed....").

II.

We review de novo a district court's denial of a motion to compel arbitration. Lawson v. Life of the S. Ins. Co., 648 F.3d 1166, 1170 (11th Cir. 2011). In doing so, "we apply the federal substantive law of arbitrability, which is applicable to any arbitration agreement within the coverage of the FAA," keeping in mind the "healthy regard for the federal policy favoring arbitration." Id.(quotation marks omitted). Arbitration is, however, a matter of contract, and "the FAA's strong proarbitration policy only applies to disputes that the parties have agreed to arbitrate." Klay v. All Defendants, 389 F.3d 1191, 1200 (11th Cir. 2004). The issue of whether a non-signatory to an agreement can use an arbitration clause in that agreement to force a signatory to arbitrate a dispute between them is controlled by state law. See Lawson, 648 F.3d at 1170–71. The Kardashians and Kroma EU agree that Florida law controls on that issue.

While the Kardashians are not signatories to the agreement between Kroma EU and Tillett, they contend that they can compel arbitration of Kroma EU's claims against them by using Florida's doctrine of equitable estoppel. Under that doctrine, a defendant who is a non-signatory to an agreement containing an arbitration clause can force arbitration of a signatory's claims when "the signatory ... must rely on the terms of the written agreement in asserting its claims against the nonsignatory...." Allscripts Healthcare Sols., Inc. v. Pain Clinic of Nw. Fla., Inc., 158 So.3d 644, 646 (Fla. 3d DCA 2014). A non-signatory, however, cannot invoke the doctrine to compel arbitration of claims that are not within the scope of the arbitration clause. Equitable estoppel does not allow a nonsignatory to an agreement to alter and expand an arbitration clause that would not otherwise cover the claims asserted. What this means is that in order to establish that they are entitled to compel arbitration under Florida's doctrine of equitable estoppel, the Kardashians must show both that Kroma EU is relying on the agreement to assert its claims against them and that the scope of the arbitration clause covers the dispute.

That two-step framework comes from the Florida District Court of Appeal's decision in Koechli v. BIP International, Inc., 870 So.2d 940 (Fla. 1st DCA 2004). There the court first concluded that because the signatory plaintiff was claiming rights under the agreement, the non-signatory defendants could invoke equitable estoppel to estop the plaintiff from denying the defendants access to the arbitration provision in the agreement between the plaintiff and the other signatory to it. Id. at 941–42, 944–45. The court's analysis, however, did not end there. Instead, the court felt it necessary to determine whether the arbitration clause, which covered "any dispute between the parties as to any matter arising out of or relating to this contract," id. at 944 n.1, was broad enough to cover the dispute between the plaintiff who was a party to the agreement and the defendants who were not, id. at 945–46. Even though they technically were non-parties, the defendants were agents of a party to the agreement, had received rights and obligations under the contract, and were being sued for their actions taken as a signatory's agents pursuant to the contract. Id. That was enough. The Koechli court concluded that, "in the context of the unique facts of this case," the non-signatories were in the relevant sense parties to the contract because they had received rights and obligations under it and because the claims arose from their actions taken as a signatory's agents. Id.

What the Koechli court's analysis means is that under Florida law even if a non-signatory to an agreement containing an arbitration clause can invoke the doctrine of equitable estoppel to access that clause, she can compel arbitration under it only if her dispute with the signatory falls within the scope of the arbitration clause.¹ Here, the arbitration clause states that "the Parties agree that the disputes arising between them concerning the validity, interpretation, termination or performance" of the agreement will be arbitrated. If the Kardashians are not considered "parties" to the agreement within the scope of the arbitration clause, they cannot use equitable estoppel to compel arbitration of the claims, even if the doctrine were otherwise applicable in this case.

The Kardashians point to no Florida decisions indicating that a Florida court would deem them parties to the agreement for arbitration clause purposes. While Florida courts have on some occasions concluded...