NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________
Nos. 09-4710 and 11-3447
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KENNETH SEGAL;
ADAM SEGAL, as trustee for and on behalf of the
Karen and Kenneth Segal Descendants Trust;
SEGAL AND MOREL, INC.,
v.
STRAUSSER ENTERPRISES, INC.;
GARY STRAUSSER;
LEONARD MELLON,
Leonard Mellon,
Appellant
__________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2:07-cv-04647)
District Judge: Hon. James Knoll Gardner
__________
Submitted under Third Circuit LAR 34.1(a)
June 22, 2012
Before: AMBRO, VANASKIE and ALDISERT, Circuit Judges
(Filed: June 28, 2012)
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OPINION OF THE COURT
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ALDISERT, Circuit Judge.
This interlocutory appeal from the District Court for the Eastern District of
Pennsylvania presents a single question: whether that court exceeded its discretion when,
based on Appellant’s arguments during arbitration and the principles of equitable
estoppel, it denied Appellant Leonard Mellon’s motion to compel arbitration. We hold
that the District Court acted well within its discretion, and we will affirm its judgment.
I.
Because we write primarily for the parties, who are familiar with the facts and
proceedings in this case, we will revisit them only briefly.
Appellees (collectively, “Segal”) entered a real estate deal with Strausser
Enterprises, Inc. (“SEI”) that contained a mandatory arbitration clause. After the parties
entered the contract, SEI believed that one of Segal’s impending commercial transactions
violated the deal and, through its attorney, Mellon, sued to enjoin Segal’s actions in
Pennsylvania state court. The Northampton County Court of Common Pleas held that
SEI’s claims fell under the mandatory arbitration clause and, accordingly, dismissed the
suit. SEI unsuccessfully appealed to the Pennsylvania Superior Court.
SEI commenced arbitration against Segal, during which Mellon continued to serve
as SEI’s lead counsel. In the arbitration, Segal raised its own claims against SEI and
Mellon, seeking damages and legal fees stemming from Mellon’s allegedly frivolous
state court filings and appeals. SEI objected to these claims being arbitrated. In its letter
to the Court of Common Pleas advising that the dispute had been submitted to arbitration,
for example, SEI contended that the arbitration panel did not have jurisdiction over the
issue of Segal’s attorneys’ fees. See App. 00201. During arbitration, moreover, SEI
repeatedly argued to the arbitration panel that the issue of legal fees was not properly
subject to arbitration and should be submitted to a court. After some negotiation, Segal
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agreed to withdraw its fees claims from arbitration and raise them, instead, in court. The
parties verbally memorialized this agreement before the arbitration panel, and the panel
accepted the withdrawal. See App. 00219.
While the arbitration continued, Segal asserted its fees claims, as promised, in a
complaint filed in the District Court for the Eastern District of Pennsylvania on
November 5, 2007. The complaint alleged tortious interference with contract, tortious
interference with prospective relations, malicious prosecution, and abuse of process, all
arising from Mellon’s (on SEI’s behalf) allegedly improper legal filings aimed at
thwarting Segal’s impending transaction. The complaint named as defendants SEI, Gary
Strausser (SEI’s principal), and Mellon.
On January 4, 2008, the defendants filed a motion to dismiss Segal’s complaint or,
alternatively, to compel arbitration because Segal’s claims arose from a contract with a
mandatory arbitration clause. In the motion, the defendants conceded that “the claims
brought by Plaintiff[s] in the instant matter against SEI and Strausser [and Mellon] . . .
were actually first brought by them in arbitration,” App. 00226, and “prior to filing
Plaintiffs’ Complaint, [Segal] sought to assert the very same claims in the ongoing
arbitration.” App. 00233 (emphasis added).
This attempt by the defendants to return to arbitration “the very same claims” they
had just successfully removed from arbitration led Segal to seek sanctions under Rule 11
of the Federal Rules of Civil Procedure. Shortly before the hearing on that sanctions
motion, defendants SEI and Strausser withdrew their support from the motion to compel
arbitration for “strategic reasons.” App. 00375. Mellon, though, pressed on.
The District Court converted Mellon’s motion into a motion for summary
judgment, incorporated into the record all relevant evidence presented at the sanctions
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hearing, and, on November 19, 2009, issued an order denying Mellon’s motion on the
grounds of equitable estoppel. The Court held that Segal’s detrimental reliance on SEI’s
earlier, anti-arbitration arguments equitably estopped Mellon from later adopting the
position that the exact same claims should be returned to arbitration. As an aside, the
Court noted that Mellon’s “fast and loose” tactics would likely run afoul of the doctrine
of judicial estoppel as well. App. 00021.
After unsuccessfully moving for reconsideration, Mellon timely appealed both the
District Court’s original order and its denial of his motion for reconsideration. We have
consolidated Mellon’s two appeals here.
II.
The District Court had jurisdiction under 28 U.S.C. § 1332. Because this is an
interlocutory appeal of the District Court’s order refusing a stay under 9 U.S.C. § 3 and
arbitration under 9 U.S.C. § 4, we have jurisdiction pursuant to 9 U.S.C. § 16(a)(1).
“We exercise plenary review over questions of law concerning the applicability
and scope of arbitration agreements.” Nino v. Jewelry Exch., Inc., 609 F.3d 191, 200 (3d
Cir. 2010) (quotation and citation omitted). We will reverse a district court’s application
of equitable estoppel, however, only if it has exceeded its discretion. See Meyer v.
CUNA Mut. Ins. Soc’y, 648 F.3d 154, 162 (3d Cir. 2011); Bechtel v. Robinson, 886 F.2d
644, 647 (3d Cir. 1989) (“[W]hen a trial court makes an equitable assessment after the
operative facts are established, we review that assessment for abuse of discretion.”). 1
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Appellant contends that we should review the District Court’s application of equitable
estoppel under a plenary standard, citing Nino’s statement that a court should “exercise
plenary review over the District Court’s determination of whether [a party], through its
litigation conduct, waived its right to compel arbitration.” 609 F.3d at 200 (citing Ehleiter
v. Grapetree Shores, Inc., 482 F.3d 207, 215 (3d Cir. 2007)). Appellant misses the mark.
The issues of whether a party has waived its right to arbitration, or even whether that
party has been judicially estopped from taking a contrary position, are distinct from the
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III.
We hold that the District Court acted within the bounds of its discretion when it
concluded that Segal’s detrimental reliance on Mellon’s previous anti-arbitration
positions justified equitable estoppel.
“[E]quitable estoppel serves to protect litigants from unscrupulous opponents who
induce a litigant’s reliance on a position, then reverse themselves to argue that they win
under the opposite scenario.” Teledyne Indus., Inc. v. NLRB, 911 F.2d 1214, 1220 (6th
Cir. 1990) (emphasis removed); see Oneida Motor Freight, Inc. v. United Jersey Bank,
848 F.2d 414, 419 (3d Cir. 1988) (“[E]quitable estoppel focuses on the relationship
between the parties to the prior litigation.”(citations omitted)). As the District Court
correctly explained, equitably estopping a litigant from taking a self-contradictory
position is proper if: (1) the parties (or parties in privity with them) were adverse in a
prior proceeding; (2) the party seeking estoppel detrimentally relied on its opponent’s
prior position; and (3) the party seeking estoppel would be prejudiced if its opponent
were allowed to assume a new position. See Montrose Med. Grp. Participating Sav. Plan
v. Bulger, 243 F.3d 773, 779 n.3 (3d Cir. 2001); Teledyne, 911 F.2d at 1220; Novelty
Knitting Mills, Inc. v. Siskind, 457 A.2d 502, 503 (Pa. 1983) (“[E]quitable estoppel
recognizes that an informal promise implied by one’s words, deeds or representations
which leads another to rely justifiably thereon to his own injury or detriment, may be
enforced in equity.”
After extensively reviewing the record, the District Court found that the evidence
satisfied these factors and, accordingly, warranted equitable estoppel. On appeal, Mellon
issue of whether equitable estoppel precludes that party from inducing an opponent’s
reliance on a particular argument and then reversing positions to the opponent’s
detriment. Because this case concerns the latter, we review for abuse of discretion.
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repeats his argument that, regardless of any past positions SEI may have taken, the
“liberal federal policy favoring arbitration” requires the legal-fees claims to be sent back
to arbitration, pursuant to the still-binding arbitration clause. See AT&T Mobility LLC v.
Concepcion, 131 S. Ct. 1740, 1745 (2011). This outcome requires Mellon to undermine
the District Court’s invocation of equitable estoppel; thus, he attacks the Court’s findings
on each of the equitable estoppel factors. Mellon contends that he was not a “party” to the
prior proceeding, both because he was absent from the arbitration hearing at which SEI’s
other counsel objected to arbitrating the legal-fees claims and because he was not a
named party in the arbitration. He argues that Segal cannot have detrimentally relied on
SEI’s positions because any statements that were made about removing the legal-fees
claims from arbitration were meant as “mere[] suggestions as to the proper forum” rather
than factual representations on which Segal should have relied, Brief for Appellants 24,
and because those statements “suggested” merely SEI’s wish that such claims be raised in
state court, but not federal court. And he disputes whether Segal has shown how it will be
prejudiced by a return to arbitration. Indeed, Mellon argues, the legal-fees claims were
always properly subject to arbitration—SEI’s past arguments, notwithstanding. Because
the claims Segal raised in federal court are broader than the legal-fees issues discussed in
arbitration, moreover, Mellon contends that any anti-arbitration arguments SEI may have
made about the earlier, narrower claims cannot have prejudiced Segal.
For all of their bluster, these contentions fail to show how the District Court’s
decision to apply equitable estoppel constituted an abuse of its discretion. The record
reveals ample evidence to support the District Court’s finding of each of the equitable
estoppel factors. First, although Mellon was not an expressly named “party” to the
original arbitration claims and those who were—Strausser and SEI—have withdrawn
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from the motion to compel arbitration, Mellon is nevertheless a “party” for equitable
estoppel purposes. Mellon represented SEI during the arbitration. The District Court
correctly concluded that, as SEI’s attorney and agent, Mellon is considered to be the same
party as SEI while performing his duties within the scope of his representation. See
Heffernan v. Hunter, 189 F.3d 405, 413 (3d Cir. 1999) (“[T]he mere fact that attorneys
have ‘mixed motives,’ such as ‘enhancing’ their reputation by aggressive representation,
does not remove their conduct from the scope of the agency.” (citation omitted)).
Notwithstanding Mellon’s contention that he is not a “party” for equitable estoppel
purposes, see Brief for Appellants 26, Mellon proudly claims that he is, in fact, “an agent
of SEI” for the purposes of invoking SEI’s arbitration clause, see id. at 17. Mellon must
accept the bitter of agency with the sweet, and may not claim a position as SEI’s agent
when it serves him and disavow it when it does not.
Second, Segal clearly relied upon SEI’s anti-arbitration positions. SEI repeatedly
sought to remove the legal-fees issues from arbitration, and Segal agreed to withdraw
those claims, expressly acquiescing to SEI’s requests. See App. 00219. SEI’s concession
that the claims brought in District Court were identical to those in arbitration, moreover,
lends credence to the District Court’s reasonable conclusion that Segal withdrew its
claims from arbitration with the mutual understanding that Segal would reassert those
claims in court. See App. 00233 (“[P]rior to filing Plaintiffs’ Complaint, [Segal] sought
to assert the very same claims in the ongoing arbitration.” (emphasis added)).
Third, this reliance would be both detrimental and prejudicial if Mellon could
merely bounce Segal back to arbitration to bring its claims anew after already having
borne the costs of raising these issues in arbitration, voluntarily withdrawing them, and
then filing and briefing a case in District Court. On this point, Mellon insists that
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requiring Segal to arbitrate claims that should always have been subject to a mandatory
arbitration agreement cannot constitute prejudice. But Mellon’s perceived right to
arbitrate these claims does not trump the protections that equitable estoppel affords
litigants. Indeed, because equitable estoppel is meant to safeguard innocent parties
against an opponent’s reprehensible behavior, it applies regardless of whatever
legitimacy a misbehaving party’s estopped claim might have enjoyed ab initio. See
Teledyne, 911 F.2d at 1220. Based on the extensive evidence at its disposal, the District
Court’s conclusion that these facts warranted equitable estoppel falls within the bounds of
its permissible discretion.
*****
We have considered all of the arguments advanced by the parties and conclude
that no further discussion is necessary. The judgment of the District Court will be
AFFIRMED.
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