[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS FILED FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS ELEVENTH CIRCUIT ________________________ JULY 2, 2012 JOHN LEY No. 11-14807 CLERK Non-Argument Calendar ________________________
D.C. Docket No. 2:10-cv-00128-RWS
K. CRAIG BRANCH, For himself and as Custodian for his Children, MARY W. BRANCH, For herself and as Custodian for her children, et al.,
Plaintiffs-Appellants,
versus
JOHN T. OTTINGER, JR.,
Defendant-Appellee.
___________________________
Appeal from the United States District Court for the Northern District of Georgia ____________________________ (July 2, 2012)
Before TJOFLAT, JORDAN and KRAVITCH, Circuit Judges.
PER CURIAM: K. Craig Branch and others sued Jayme Sickert, George Dixon, and John
Ottinger, asserting claims under the federal and state securities laws and state tort
law. The district court dismissed the claims against Messrs. Sickert and Dixon
pursuant to an arbitration agreement executed by the plaintiffs and Mr. Sickert. The
plaintiffs do not challenge the ruling as to Messrs. Sickert and Dixon, but appeal the
district court’s denial of their motion to compel arbitration of their claims against Mr.
Ottinger, as well as the district court’s refusal to stay the lawsuit against Mr. Ottinger
pending resolution of the arbitration proceeding involving Messrs. Sickert and Dixon.
See Branch v. Ottinger, 2011 WL 4500094 (N.D. Ga. 2011). Finding no error, we
affirm.
I
On July 12, 2010, the plaintiffs filed suit against Messrs. Dixon, Sickert, and
Ottinger in the Northern District of Georgia asserting claims for (1) violations of the
securities laws of Georgia and Alabama, (2) common law fraud, (3) promissory fraud,
(4) breach of fiduciary duty, and (5) violations of the Securities Exchange Act of
1934, 15 U.S.C. § 78a et seq., and Rule 10b-5, 17 C.F.R. § 240.10b-5. The plaintiffs
alleged that the claims arose out of a series of securities transactions between
themselves, Cornerstone Ministries Investments, Inc., and Wellstone Retirement
Communities I, LLC. Mr. Sickert was the person who sold the securities to the
2 plaintiffs through the securities arm of Wellstone; Mr. Ottinger was the Chief
Financial Officer of Cornerstone; and Mr. Dixon is the administrator of the estate of
Cecil Brooks, who was the Chairman and Chief Executive Officer of Cornerstone.
On February 28, 2011, the district court granted the motions to dismiss filed
by Messrs. Sickert and Dixon, which the plaintiffs had opposed. The district court
ruled that venue was improper because of a valid arbitration agreement executed by
the plaintiffs and Mr. Sickert, which Mr. Dixon was able to enforce against the
plaintiffs through equitable estoppel. The district court also denied Mr. Ottinger’s
motion to dismiss for failure to state a claim, but ordered the plaintiffs to file an
amended complaint. These rulings are not before us on appeal.
On March 14, 2011, the plaintiffs filed a motion to compel arbitration of the
remaining claims against Mr. Ottinger, or to alternatively stay the lawsuit against Mr.
Ottinger pending completion of the arbitration proceeding involving Messrs. Dixon
and Sickert. The district court denied the motion to compel arbitration because Mr.
Ottinger was not a signatory to the arbitration agreement. Although the plaintiffs
presented two possible routes for the district court to compel arbitration against Mr.
Ottinger as a nonsignatory, the district court rejected both of them. First, the plaintiffs
argued that arbitration should be compelled because the issues involving Mr. Ottinger
and the other two defendants, Messrs. Sickert and Dixon, were virtually
3 indistinguishable. The district court concluded, however, that the plaintiffs presented
no evidence that any arbitration judgment against Messrs. Sickert or Dixon would be
preclusive against Mr. Ottinger, and that all the claims alleged by the plaintiffs arose
out of Mr. Ottinger’s individual actions, not through a conspiracy or similar joint
action. As a result, the claims against Mr. Ottinger would need to be heard and
resolved independently. Second, the plaintiffs argued that the equitable state law
principles of “assumption, piercing the corporate veil, alter ego, incorporation by
reference, and third-party beneficiary” could be used to compel Mr. Ottinger into
arbitration. The district court dismissed this argument because the plaintiffs had failed
to provide any explanation or facts to substantiate any of these grounds.1
Alternatively, the plaintiffs argued that the claims against Mr. Ottinger should
be stayed pending the completion of the arbitration proceeding against Messrs. Dixon
and Sickert because the claims against Mr. Ottinger presented arbitrable issues, or
because the arbitrable issues predominated over the issues involving Mr. Ottinger
alone. As noted above, the district court was not convinced that the claims against
Mr. Ottinger were referable to arbitration. The district court also concluded that the
individual liability claims against Mr. Ottinger did not create an overlap of defendants
1 On appeal, the plaintiffs have similarly failed to argue this theory, and we therefore deem it abandoned. See United States v. Jernigan, 341 F.3d 1273, 1283 n.8 (11th Cir. 2003).
4 between different fora, which would have caused duplicative proceedings, and that
neither set of proceedings would have a preclusive effect on the other.
II
“We review de novo the district court’s denial of a motion to compel
arbitration.” Lawson v. Life of the South Ins. Co., 648 F.3d 1166, 1170 (11th Cir.
2010) (citation omitted). The Federal Arbitration Act, 9 U.S.C. § 1 et seq (“FAA”),
establishes a “liberal federal policy favoring arbitration agreements.” CompuCredit
Corp. v. Greenwood, 132 S.Ct. 665, 668-69 (2012) (citations and internal quotations
omitted). “Because arbitration is a matter of contract, however, 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) (citation omitted).
Thus, where the parties have not agreed to arbitrate, a court cannot compel them to
arbitration. See id. An exception to this rule allows a nonparty to “force arbitration
‘if the relevant state contract law allows him to enforce the agreement’ to arbitrate.”
See Lawson, 648 F.3d at 1170 (quoting Arthur Andersen LLP v. Carlisle, 556 U.S.
624, 632, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009)).
It is well-recognized that “traditional principles of state law allow a contract
to be enforced by or against nonparties to the contract through assumption, piercing
the corporate veil, alter ego, incorporation by reference, third-party beneficiary
5 theories, waiver and estoppel.” Carlisle, 556 U.S. at 631.
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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS FILED FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS ELEVENTH CIRCUIT ________________________ JULY 2, 2012 JOHN LEY No. 11-14807 CLERK Non-Argument Calendar ________________________
D.C. Docket No. 2:10-cv-00128-RWS
K. CRAIG BRANCH, For himself and as Custodian for his Children, MARY W. BRANCH, For herself and as Custodian for her children, et al.,
Plaintiffs-Appellants,
versus
JOHN T. OTTINGER, JR.,
Defendant-Appellee.
___________________________
Appeal from the United States District Court for the Northern District of Georgia ____________________________ (July 2, 2012)
Before TJOFLAT, JORDAN and KRAVITCH, Circuit Judges.
PER CURIAM: K. Craig Branch and others sued Jayme Sickert, George Dixon, and John
Ottinger, asserting claims under the federal and state securities laws and state tort
law. The district court dismissed the claims against Messrs. Sickert and Dixon
pursuant to an arbitration agreement executed by the plaintiffs and Mr. Sickert. The
plaintiffs do not challenge the ruling as to Messrs. Sickert and Dixon, but appeal the
district court’s denial of their motion to compel arbitration of their claims against Mr.
Ottinger, as well as the district court’s refusal to stay the lawsuit against Mr. Ottinger
pending resolution of the arbitration proceeding involving Messrs. Sickert and Dixon.
See Branch v. Ottinger, 2011 WL 4500094 (N.D. Ga. 2011). Finding no error, we
affirm.
I
On July 12, 2010, the plaintiffs filed suit against Messrs. Dixon, Sickert, and
Ottinger in the Northern District of Georgia asserting claims for (1) violations of the
securities laws of Georgia and Alabama, (2) common law fraud, (3) promissory fraud,
(4) breach of fiduciary duty, and (5) violations of the Securities Exchange Act of
1934, 15 U.S.C. § 78a et seq., and Rule 10b-5, 17 C.F.R. § 240.10b-5. The plaintiffs
alleged that the claims arose out of a series of securities transactions between
themselves, Cornerstone Ministries Investments, Inc., and Wellstone Retirement
Communities I, LLC. Mr. Sickert was the person who sold the securities to the
2 plaintiffs through the securities arm of Wellstone; Mr. Ottinger was the Chief
Financial Officer of Cornerstone; and Mr. Dixon is the administrator of the estate of
Cecil Brooks, who was the Chairman and Chief Executive Officer of Cornerstone.
On February 28, 2011, the district court granted the motions to dismiss filed
by Messrs. Sickert and Dixon, which the plaintiffs had opposed. The district court
ruled that venue was improper because of a valid arbitration agreement executed by
the plaintiffs and Mr. Sickert, which Mr. Dixon was able to enforce against the
plaintiffs through equitable estoppel. The district court also denied Mr. Ottinger’s
motion to dismiss for failure to state a claim, but ordered the plaintiffs to file an
amended complaint. These rulings are not before us on appeal.
On March 14, 2011, the plaintiffs filed a motion to compel arbitration of the
remaining claims against Mr. Ottinger, or to alternatively stay the lawsuit against Mr.
Ottinger pending completion of the arbitration proceeding involving Messrs. Dixon
and Sickert. The district court denied the motion to compel arbitration because Mr.
Ottinger was not a signatory to the arbitration agreement. Although the plaintiffs
presented two possible routes for the district court to compel arbitration against Mr.
Ottinger as a nonsignatory, the district court rejected both of them. First, the plaintiffs
argued that arbitration should be compelled because the issues involving Mr. Ottinger
and the other two defendants, Messrs. Sickert and Dixon, were virtually
3 indistinguishable. The district court concluded, however, that the plaintiffs presented
no evidence that any arbitration judgment against Messrs. Sickert or Dixon would be
preclusive against Mr. Ottinger, and that all the claims alleged by the plaintiffs arose
out of Mr. Ottinger’s individual actions, not through a conspiracy or similar joint
action. As a result, the claims against Mr. Ottinger would need to be heard and
resolved independently. Second, the plaintiffs argued that the equitable state law
principles of “assumption, piercing the corporate veil, alter ego, incorporation by
reference, and third-party beneficiary” could be used to compel Mr. Ottinger into
arbitration. The district court dismissed this argument because the plaintiffs had failed
to provide any explanation or facts to substantiate any of these grounds.1
Alternatively, the plaintiffs argued that the claims against Mr. Ottinger should
be stayed pending the completion of the arbitration proceeding against Messrs. Dixon
and Sickert because the claims against Mr. Ottinger presented arbitrable issues, or
because the arbitrable issues predominated over the issues involving Mr. Ottinger
alone. As noted above, the district court was not convinced that the claims against
Mr. Ottinger were referable to arbitration. The district court also concluded that the
individual liability claims against Mr. Ottinger did not create an overlap of defendants
1 On appeal, the plaintiffs have similarly failed to argue this theory, and we therefore deem it abandoned. See United States v. Jernigan, 341 F.3d 1273, 1283 n.8 (11th Cir. 2003).
4 between different fora, which would have caused duplicative proceedings, and that
neither set of proceedings would have a preclusive effect on the other.
II
“We review de novo the district court’s denial of a motion to compel
arbitration.” Lawson v. Life of the South Ins. Co., 648 F.3d 1166, 1170 (11th Cir.
2010) (citation omitted). The Federal Arbitration Act, 9 U.S.C. § 1 et seq (“FAA”),
establishes a “liberal federal policy favoring arbitration agreements.” CompuCredit
Corp. v. Greenwood, 132 S.Ct. 665, 668-69 (2012) (citations and internal quotations
omitted). “Because arbitration is a matter of contract, however, 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) (citation omitted).
Thus, where the parties have not agreed to arbitrate, a court cannot compel them to
arbitration. See id. An exception to this rule allows a nonparty to “force arbitration
‘if the relevant state contract law allows him to enforce the agreement’ to arbitrate.”
See Lawson, 648 F.3d at 1170 (quoting Arthur Andersen LLP v. Carlisle, 556 U.S.
624, 632, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009)).
It is well-recognized that “traditional principles of state law allow a contract
to be enforced by or against nonparties to the contract through assumption, piercing
the corporate veil, alter ego, incorporation by reference, third-party beneficiary
5 theories, waiver and estoppel.” Carlisle, 556 U.S. at 631. Here, the plaintiffs attempt
to assert two principles of state law that could allow the arbitration agreement to be
enforced against Mr. Ottinger. First, the plaintiffs raise an equitable estoppel
argument. In doing so, however, they recognize that under Geogia equitable estoppel
law, the claims against Mr. Ottinger must be directly based on the contract containing
the arbitration clause. Because that is not the case here, this argument fails. See
Lawson, 648 F.3d at 1172. Second, the plaintiffs appear to argue that Mr. Ottinger
waived a judicial forum in favor of an arbitral forum because he assumed the risk that
the arbitration agreement would encompass him as well when the district court
considered whether to compel the plaintiffs to arbitrate their claims against Mr.
Dixon, another nonsignatory. The plaintiffs failed to raise this argument in the district
court, however, and therefore cannot assert it on appeal. See LeBlanc v. Unifund CCR
Partners, 601 F.3d 1185, 1199 (11th Cir. 2010) (“This Court has repeatedly held that
an issue not raised in the district court and raised for the first time in an appeal will
not be considered by this court.”) (internal quotation marks and citation omitted).
Indeed, in their motion to compel arbitration and/or stay the lawsuit, the plaintiffs
noted that Mr. Ottinger had merely reserved his position as to arbitration. See R3:56
6 at 9.2
III
“We review a district court’s denial of a motion to stay litigation of
nonarbitrable claims under an abuse of discretion standard.” Klay, 389 F.3d at 1203
(citations omitted). The abuse of discretion standard gives a district court a range of
choice, so long as that choice does not constitute a clear error of judgment. See, e.g.,
United States v. Lopez, 649 F.3d 1222, 1236 (11th Cir. 2011).
A district court is required to stay a pending suit when it is satisfied that only
arbitrable issues remain. See Klay, 389 F.3d at 1203-04. When both arbitrable and
non-arbitrable claims are advanced, however, a district court has discretion to stay the
nonarbitrable claims. See id. at 1204. When it is feasible to proceed with the
litigation, a court usually refuses to stay the proceedings of nonarbitrable claims. See
2 In any event, there was no waiver on the part of Mr. Ottinger. During the hearing on the defendants’ motions to dismiss, Mr. Ottinger’s counsel stated: “[A]t this time Mr. Ottinger has not sought to compel arbitration of the claims between him and the plaintiffs. The plaintiffs have not sought to compel arbitration of those claims either. So unless the court instructs me to take a position on this, I think this question is moot as to us, or not ripe as to us.” R2:54 at 23-24. That statement did not constitute a waiver of a judicial forum. Indeed, if anyone waived anything, it was the plaintiffs who waived the right to compel arbitration against Mr. Ottinger by filing a lawsuit against him in federal district court. See Morewitz v. West of England Ship Owners Mut. Protection and Indem. Ass’n, 62 F.3d 1356, 1366 (11th Cir. 1995) (“Waiver occurs when a party seeking arbitration substantially participates in litigation to a point inconsistent with an intent to arbitrate and this participation results in prejudice to the opposing party.”) (citation omitted). See also Erdman Co. v. Phoenix Land & Acquisition, LLC., 650 F.3d 1115, 1118 (8th Cir. 2011) (“A party substantially invokes the litigation machinery when, for example, it files a lawsuit on arbitrable claims.”) (internal quotation marks and citation omitted).
7 id. “Crucial to this determination is whether arbitrable claims predominate or whether
the outcome of the nonarbitrable claims will depend upon the arbitrator’s decision.”
Id. (citation omitted).
The plaintiffs argue that the district court abused its discretion because it failed
to decide whether the arbitrable claims predominated over the non-arbitrable claims.
The district court, however, correctly applied Klay and did not abuse its discretion.
The district court addressed “whether the outcome of the nonarbitrable claims
will depend upon the arbitrator’s decision” in concluding that a decision in either
proceeding would not have a preclusive effect in the other. See id. The district court
also determined that it would be feasible to proceed with the litigation because there
would not be any overlap of defendants between different fora and concluded that
refusing to grant a stay would not result in duplicative proceedings. The district court
further explained that all the claims against Mr. Ottinger had to be decided
individually because they arose out of Mr. Ottinger’s individual actions and were
therefore independent of the claims against the other defendants. In doing so, the
district court questioned whether these non-preclusive claims against Messrs. Dixon
and Sickert should even be considered in the predomination inquiry given that they
had been dismissed and were no longer before it. “Because it is well established that
a district court may order arbitration and refuse to stay nonarbitrable proceedings, the
8 district court was properly within its discretion to refuse [the plaintiffs’] motion to
stay litigation of nonarbitrable claims.” Id. (citations omitted). See also Volkswagen
of America, Inc. v. Sud’s of Peoria, Inc., 474 F.3d 966, 973-76 (7th Cir. 2007)
(affirming denial of motion to stay lawsuit pending arbitration proceeding because
nonarbitrable issue was independent of arbitrable issue).
The plaintiffs contend that the district court was required to grant a stay
because it had already decided that the issues involved the parties indistinguishably,
yet ordered some but not all of the parties to arbitrate. The premise of this argument
is incorrect, for the district court – as noted above – concluded that the non-arbitrable
claims against Mr. Ottinger were independent of the arbitrable claims against Messrs.
Dixon and Sickert. As we have explained, the plaintiffs have not presented any
persuasive reason why the claims against Mr. Ottinger are arbitrable. Accordingly,
we find no abuse of discretion in the district court’s refusal to stay the lawsuit against
Mr. Ottinger.
IV
The district court’s denial of the motion to compel arbitration, or to
alternatively stay the lawsuit pending arbitration, is affirmed.
AFFIRMED.