Sanford v. Bracewell & Guiliani, LLP
| Decision Date | 02 July 2015 |
| Docket Number | No. 14-1763,14-1763 |
| Parties | CRAIG SANFORD; MARY JO SANFORD v. BRACEWELL & GUILIANI, LLP, Appellant |
| Court | U.S. Court of Appeals — Third Circuit |
NOT PRECEDENTIAL
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Before: FISHER, JORDAN, and SHWARTZ, Circuit Judges.
Peter C. Buckley, Esq. [ARGUED]
Eric E. Reed, Esq.
Abraham C. Reich, Esq.
Fox Rothschild
2000 Market Street
20th Floor
Philadelphia, PA 19103
Steven M. Schneebaum, Esq.
Fox Rothschild
1030 15th Street, NW
Suite 360 East
Washington, DC 20005
Counsel for Appellant
Clifford E. Haines, Esq. [ARGUED]
Haines & Associates
1835 Market Street
Suite 2420
Philadelphia, PA 19103
Counsel for Appellee
Bracewell & Guiliani, LLP (the "Firm") appeals the District Court's order denying its motion to stay pending arbitration and granting Mary Jo Sanford a trial to determine whether she is bound by the arbitration provision embodied in an agreement with the Firm. Because it is clear from the face of the Complaint that Mary Jo Sanford is required to arbitrate her claims, we will reverse.
This case arises out of Craig and Mary Jo Sanford's (the "Sanfords") efforts torecoup $12.5 million that they entrusted to Jamie Smith.1 When Smith failed to timely return the money, Craig Sanford spoke with an attorney at the Firm who "assured the Sanfords that [the Firm] would be able to assist them in getting a return of their money." App. 63-64. "[T]he Sanfords entered into an attorney-client relationship with [the Firm] by way of an engagement agreement [the "Engagement Agreement"] between . . . the Firm and Mr. Sanford." App. 64. "The Firm agreed to represent the Sanfords in obtaining a return of their money," and "[i]n exchange for this representation, the Sanfords paid the firm $50,000." Id. While the Sanfords allege that the Firm represented both of them, the Engagement Agreement identifies only Craig Sanford as the client and states that the Firm's "representation does not include employers, partners, spouses, siblings, or other family members." App. 82. The Engagement Agreement also contains an arbitration provision, which provides that "any controversy, dispute or claim . . . arising out of or relating to the . . . engagement of [the Firm], shall be resolved by arbitration." App. 80.
The Sanfords allege that the Firm, "[f]or all intents and purposes," took "no steps to locate or secure [their] money." App. 64. As a result, Craig Sanford spoke with an attorney at the Firm and "it was decided that the representation would be terminated." Id.
The Sanfords thereafter filed a two-count verified Complaint that was subsequently removed to federal court, alleging that the Firm engaged in professionalmalpractice and breached the Engagement Agreement, which was attached to and explicitly referenced therein. The Firm moved to stay proceedings pending arbitration (the "Motion"), arguing that the Sanfords were bound by the terms of the Engagement Agreement, including the arbitration provision, because their Complaint alleged that "the Sanfords" entered into an attorney-client relationship "by way of" the Engagement Agreement. App. 97 (internal quotation marks omitted). The Firm further argued that the Sanfords' decision to include Mary Jo Sanford as a plaintiff could not defeat their obligation to arbitrate the breach of contract claim because Mary Jo Sanford had identified the written Engagement Agreement as the contract breached and, since that contract contained an arbitration provision, she is "compelled to arbitrate any dispute deriving from [it]" under principles of equitable estoppel. App. 101-102.
In response, the Sanfords argued that the arbitration agreement was void as a matter of public policy. They also opposed the Firm's "suggest[ion] that [Mary Jo Sanford] should not be a party to th[e] lawsuit, or [that] naming her as a party [was] an attempt to circumvent the arbitration clause," arguing that Mary Jo Sanford "was clearly a third[-]party beneficiary" of the Engagement Agreement. Opposition to Mot. to Stay Arbitration at 14 & n.4, No. 13-cv-1205 (E.D. Pa. Mar. 27, 2013), ECF No. 7.
The District Court conducted hearings on the Motion at which the parties presented evidence of, among other things, whether communications prior to execution of the Engagement Agreement established an attorney-client relationship between Mary JoSanford and the Firm.
The District Court granted the Motion with respect to Craig Sanford but denied the Motion with respect to Mary Jo Sanford. It concluded that the arbitration provision did not violate public policy, and, relying on the Complaint, determined that Craig Sanford was bound to arbitrate.2 With respect to Mary Jo Sanford, the District Court observed that she was not a signatory to the Engagement Agreement and that "the Complaint and the supporting documents are unclear regarding [Mary Jo] Sanford's status as a client" and "the effect of the arbitration agreement on her." App. 29. For this reason, the District Court considered the hearing testimony, applied the summary judgment standard, and concluded that a genuine issue of material fact existed as to whether Mary Jo Sanford was a client of the Firm and whether, if she was a client, she was bound by the arbitration provision.
The Firm appeals the District Court's denial of the Motion with respect to Mary JoSanford.
The Firm argues that the District Court should have resolved the Motion based upon the pleadings pursuant to Federal Rule of Civil Procedure 12(b)(6) and that, since Mary Jo Sanford seeks to recover for breach of a contract that contains an arbitration provision, equitable estoppel precludes her from avoiding arbitration.
Arbitration is "strictly a matter of contract." 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." Id. "[I]n deciding whether a party may be compelled to arbitrate under the [Federal Arbitration Act ("FAA")], we first consider (1) whether there is a valid agreement to arbitrate between the parties and, if so, (2) whether the merits-based dispute in question falls within the scope of that valid agreement." Flintkote Co. v. Aviva PLC, 769 F.3d 215, 220 (3d Cir. 2014) (internal quotation marks omitted).
To determine whether there is a valid agreement to arbitrate between Mary Jo Sanford and the Firm, we must initially decide whether the determination is made under Fed. R. Civ. P. 12(b)(6) or 56 and thus, what materials we may consider. Motions to compel arbitration are reviewed under Rule 12(b)(6) "[w]here the affirmative defense of arbitrability of claims is apparent on the face of a complaint (or . . . documents reliedupon in the complaint)." Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 773-74 (3d Cir. 2013) (). If the motion to compel arbitration is not based on a complaint "with the requisite clarity" to establish arbitrability or "the opposing party has come forth with reliable evidence that is more than a naked assertion . . . that it did not intend to be bound by the arbitration agreement, even though on the face of the pleadings it appears that it did," resort to discovery and Rule 56 is proper. Id. at 774 ().
The Complaint reveals that Mary Jo Sanford has sued for breach of the written Engagement Agreement, which includes an arbitration clause. Because "the affirmative defense of arbitrability" was therefore apparent from the face of the complaint and the documents relied upon therein, Guidotti, 716 F.3d at 773-74 (internal quotation marks omitted), the motion should have been reviewed under Rule 12(b)(6), accepting the factual allegations as true and construing the Complaint in the light most favorable to the Sanfords.4 Id. at 772.
Applying this standard, we conclude that, although Mary Jo Sanford is not a signatory to the Engagement Agreement, she is nevertheless bound by the arbitration clause under equitable estoppel principles. Under the FAA, arbitration provisions may be enforced against non-signatories under the doctrine of equitable estoppel if "the relevant state contract law recognizes [that principle] as a ground for enforcing contracts against third parties." Flintkote, 769 F.3d at 220 (internal quotation marks omitted). This Court has recognized that "Pennsylvania law allow[s] non-signatories to be bound to [] arbitration agreement[s]" and that a non-signatory may be bound by an arbitration clause "when the non-signatory knowingly exploits the agreement containing the arbitration clause despite having never signed the agreement." Griswold v. Coventry First LLC, 762 F.3d 264, 271-72 (3d Cir. 2014) (quoting E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 199 (3d Cir. 2001)); see also Dodds v. Pulte Home Corp., 909 A.2d 348, 351 (Pa. Super. Ct. 2006). Such exploitation occurs when a non-signatory embraces a contract by "seeking to enforce terms of that contract or asserting claims based on the contract's other provisions," Griswold, 762 F.3d at 272 (internal quotation marks, citations, and brackets omitted), and "then turn[s] itsback on the portions of the contract, such as an arbitration clause, that it finds distasteful," Flintkote, 769 F.3d at 221 (internal quotation marks omitted).
Here, Mary Jo Sanford has asserted a breach of contract claim and identified the written Engagement Agreement as the contract allegedly breached. Despite having sued to enforce the terms of the Engagement Agreement, she claims that she is not bound by the arbitration provision contained therein. This attempt to "claim the benefit of the contract and simultaneously avoid its burdens" is precisely the situation the doctrine of...
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