McCarthy v. Azure

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 93-1842

WALTON W. McCARTHY,

Plaintiff, Appellee,

v.

LEO L. AZURE, JR.,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Shane Devine, Senior U.S. District Judge]

Before

Selya, Cyr and Boudin, Circuit Judges.

David R. Goodnight, with whom Patrick D. McVey, Howard A.

Coleman, Riddell, Williams, Bullitt & Walkinshaw, D. Donald

Dufresne, and Devine, Millimet & Branch were on brief, for

appellant.
Charles A. Szypszak, with whom Richard B. Couser and Orr and

Reno, P.A. were on brief, for appellee.

April 28, 1994

SELYA, Circuit Judge. This appeal presents intriguing
SELYA, Circuit Judge.

questions anent the rights of a corporate officer who, having

signed an agreement containing an arbitration clause in his

official capacity, seeks to compel arbitration of claims lodged

against him as an individual. The district court refused to

order arbitration under these circumstances. We affirm.

I. BACKGROUND

For purposes of this appeal, the facts can be taken

essentially as alleged. In 1987, plaintiff-appellee Walton W.

McCarthy, a renowned inventor of underground shelter technology,

incorporated T.H.E.T.A. Technologies, Inc. (Theta I), a New

Hampshire corporation, for the purpose of manufacturing

underground storage tanks and personal shelters. McCarthy owned

fifty percent of the corporation's stock and served as its

principal operating officer. Three passive investors held the

remaining shares.

In the fall of 1989, McCarthy met defendant-appellant

Leo L. Azure, Jr., a member of a Montana-based religious

organization, Church Universal & Triumphant (C.U.T.). Azure soon

entered into negotiations for the acquisition of both McCarthy's

company and patented technology. Azure formed a Washington

corporation, Theta Corporation (Theta II), to serve as a vehicle

for the planned purchase.

On December 29, 1989, McCarthy, Theta II, and others

2

entered into a contract (the Purchase Agreement).1 Azure signed

the Purchase Agreement on behalf of Theta II, but he did not sign

it in his personal capacity. Leaving to one side special

arrangements with various creditors, see supra note 1, this

contract delineated a two-phase transaction: McCarthy was to

sell his equity interest, including the patents, to the passive

investors, and transfer certain residual rights to Theta II;

then, Theta II was to buy all the outstanding stock of Theta I

for cash, payable over a period of no more than three years. The

Purchase Agreement expressly provided that "[d]isputes arising

under this Agreement shall be resolved by arbitration. . . ."

Though not mentioned in the Purchase Agreement, the parties

apparently understood that Theta II, in addition to paying

McCarthy a prescribed sum of money for the transferred rights,

would offer him employment under a separate long-term contract.

On January 11, 1990, McCarthy and Theta II executed a

second agreement (the Confidentiality Agreement). Azure signed

the Confidentiality Agreement, as he had signed the Purchase

Agreement, on behalf of Theta II, but not otherwise; indeed,

neither document contained a line for Azure's personal signature.

Pursuant to the Confidentiality Agreement, McCarthy promised to

keep all past and future information pertaining to the patents in

the bosom of the lodge, and to take certain related actions on

1Apart from McCarthy and Theta II, other parties to the
Purchase Agreement included the passive investors and three major
creditors of Theta I. For present purposes, nothing turns on the
involvement of the other parties.

3

behalf of Theta II. This agreement included a somewhat more

expansive arbitration clause, which stated that "[a]ny

controversy or claim arising out of or relating to this

Agreement, or breach hereof, shall be settled by arbitration. . .

." At a closing held the next day, Theta II delivered a letter

(the Employment Letter) engaging McCarthy as its president, chief

engineer, and chief executive officer at a stipulated annual

salary. The Employment Letter also provided for stock options.

It did not include an arbitration clause.

A little over two weeks after the closing, matters took

a turn for the bizarre (or, at least, for the mystical). On

January 28, 1990, Elizabeth Clare Prophet, Azure's spiritual

leader, informed him, on the advice of a "dead ascended master"

of C.U.T., that his newly acquired business was incompatible with

his "divine plan" and that he should not devote further energy to

the enterprise. Azure dutifully directed McCarthy to cashier all

the employees of Theta II, and then proceeded to terminate

McCarthy's employment. McCarthy never obtained any ownership

interest in Theta II, notwithstanding the promises contained in

the Employment Letter.

Apparently, Azure's religious convictions took him so

far, and no further. He not only continued operating the Theta

corporations, but also formed a third company, Omega Corporation.

In October of 1990, after Azure merged Theta I into Theta II,

Omega acquired the surviving entity. The following July, it

began selling shares to the public. For all intents and

4

purposes, Omega's business seemed indistinguishable from that of

Theta I and Theta II; Omega styled itself as a leader in

underground storage and marketed tanks manufactured pursuant to

McCarthy's patented technology.

Unwilling to turn the other cheek, McCarthy sued Azure,

Theta II, Omega, C.U.T., and Prophet in the United States

District Court for the District of New Hampshire.2 Azure, Theta

II, and Omega filed a motion to stay proceedings pending

arbitration, contending that the serial agreements obligated

plaintiff to arbitrate all claims. The district court granted

the motion with respect to Theta II, but denied it as to the

remaining movants. Azure appeals the district court's order

refusing to stay the action against him. We have jurisdiction by

virtue of 9 U.S.C. 16(a)(1) (Supp. 1992).

II. DISCUSSION

The court below reasoned that the source of appellant's

purported right to compel arbitration must be found, if at all,

in the Purchase Agreement.3 It then denied appellant's motion

2The complaint asserted claims against Azure, Theta II, and
Omega for, inter alia, breach of contract, wrongful discharge,

fraud, negligent misrepresentation, intentional infliction of
emotional distress, unfair trade practices, federal and state
securities violations, and racketeering. It also asserted claims
against Azure, C.U.T., and Prophet for tortious interference with
contractual relationships. Jurisdiction was premised on the
existence of both federal questions, 28 U.S.C. 1331 (1988), and
diversity of citizenship, 28 U.S.C. 1332(a)(1) (1988).

3Because the Confidentiality Agreement granted legal rights
only to Theta II and not to McCarthy, we agree with the district
court's conclusion that it could not furnish a basis for
precluding access to a judicial forum in respect to claims
asserted by McCarthy against Azure. For that reason, and for the

5

to stay on the ground that he was not a party to the Purchase

Agreement and, therefore, could not compel arbitration of claims

lodged against him personally, whether or not those claims

related to that agreement. Azure's appeal tests this thesis.

Because the appeal presents a question of law, appellate review

is plenary. See United States v. Gifford, F.3d , (1st

Cir. 1994) [No. 93-1645, slip op. at 20]; Liberty Mut. Ins. Co.

v. Commercial Union Ins. Co., 978 F.2d 750, 757 (1st Cir. 1992).

A. General Principles.

We start with bedrock: "arbitration is a matter of

contract and a party cannot be required to submit to arbitration

any dispute which he has not agreed so to submit." AT&T

Technologies, Inc. v. Communications Workers, 475 U.S. 643, 648

(1986), quoting United Steelworkers v. Warrior & Gulf Navig. Co.,

363 U.S. 574, 582 (1960). Thus, a party seeking to substitute an

arbitral forum for a judicial forum must show, at a bare minimum,

that the protagonists have agreed to arbitrate some claims.

This imperative is in no way inconsistent with the

acknowledged "federal policy favoring arbitration." Moses H.

Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24

(1983); see also Shearson/American Express, Inc. v. McMahon, 482

U.S. 220, 226 (1987). The federal policy presumes proof of a

preexisting agreement to arbitrate disputes arising between the

protagonists. Once that agreement has been proven and the

added reason that appellant, individually, was not a signatory to
the Confidentiality Agreement, our analysis revolves around the
Purchase Agreement.

6

protagonists identified, cases such as Cone and McMahon instruct

courts to use a particular hermeneutical principle for

interpreting the breadth of the agreement; that is, if the

contract language chosen by the parties is unclear as to the

nature of the claims to which an agreement to arbitrate extends,

a "healthy regard" for the federal policy favoring arbitration

requires that "any doubts concerning the scope of an arbitrable

issue be resolved in favor of arbitration." Moses H. Cone, 460

U.S. at 24-25. The federal policy, however, does not extend to

situations in which the identity of the parties who have agreed

to arbitrate is unclear. See Painewebber, Inc. v. Hartmann, 921

F.2d 507, 511 (3d Cir. 1990) (holding that "[a]s a matter of

contract, no party can be forced to arbitrate unless that party

has entered into an agreement to do so"). Thus, requiring that

arbitration rest on a consensual foundation is wholly consistent

with federal policy.

The requirement also makes perfect sense. Subject

matter jurisdiction over an action or series of claims can be

conceptualized as conferring a personal right on the parties to

have that action, or those claims, adjudicated in a judicial

forum. See, e.g., Pacemaker Diag. Clinic of America, Inc. v.

Instromedix, Inc., 725 F.2d 537, 541 (9th Cir. 1984) (en banc)

(recognizing that the "federal litigant has a personal right,

subject to exceptions in certain classes of cases, to demand

Article III adjudication of a civil suit"); accord Glidden Co. v.

Zdanok, 370 U.S. 530, 536 (1962). Though a person may, by

7

contract, waive his or her right to adjudication, see 9 U.S.C.

2, there can be no waiver in the absence of an agreement

signifying an assent.

B. Framing the Issue.

Viewed against this backdrop, the question before us

reduces to a matter of contract interpretation: Did plaintiff,

in executing the Purchase Agreement, agree to arbitrate disputes

he might have with Azure personally concerning Theta-related

transactions?4 This question, which involves the interpretation

of an arbitration provision touching upon matters of interstate

commerce, must be resolved according to federal law. See

McGregor v. Industrial Excess Landfill, Inc., 856 F.2d 39, 46 n.2

(6th Cir. 1988); Letizia v. Prudential Bache Securities, Inc.,

802 F.2d 1185, 1187 (9th Cir. 1986); see also 9 U.S.C. 2. As

under general principles of contract law, the final answer to

such a question is ordinarily a function of the parties' intent

as expressed in the language of the contract documents. See NRM

Corp. v. Hercules, Inc., 758 F.2d 676, 681 (D.C. Cir. 1985)

(explaining that contract interpretation, under federal law,

"dovetails precisely with general principles of contract law,"

4Although plaintiff originally sued Azure in two capacities
(individual and official), plaintiff agreed, following oral
argument in this court, to abandon his "official capacity" claims
against Azure. Given this agreement, plaintiff henceforth will
be disabled from pursuing any such claims. See United States v.

Levasseur, 846 F.2d 786, 792-93 (1st Cir.) (explicating doctrine

of judicial estoppel), cert. denied, 488 U.S. 89 (1988); Patriot

Cinemas Inc. v. General Cinema, Corp., 834 F.2d 208, 211-15 (1st

Cir. 1987) (similar). Consequently, we deal in this opinion only
with plaintiff's "individual capacity" claims against Azure.

8

such that, under both, "the judicial task in construing a

contract is to give effect to the mutual intentions of the

parties"); see also Local 1199 v. Brooks Drug Co., 956 F.2d 22,

25 (2d Cir. 1992) (determining the parties' intent is the

essential inquiry); S.A. Mineracao da Trinidade-Samitri v. Utah

Int'l, Inc., 745 F.2d 190, 193 (2d Cir. 1984) (similar).

This does not mean that state law is an irrelevancy.

In general, federal courts developing federal common law are free

to borrow from state law, unless there is either a demonstrated

need for a uniform national rule or a significant conflict

between state law and some discernible federal policy.5 See

United States v. Kimbell Foods, Inc., 440 U.S. 715, 728-30

(1979).

5When state law is likely to prove an appropriate model, but
different states have an interest in the claim, it is reasonable
for a federal court to apply the choice-of-law principles of the
forum in order to ascertain what state's substantive law should
be consulted. Cf., e.g., Klaxon Co. v. Stentor Elec. Mfg. Co.,

313 U.S. 487, 496-97 (1941); Crellin Technologies, Inc. v.

Equipmentlease Corp., F.3d , (1st Cir. 1994) [No. 93-

1615, slip op. at 7-8]. Here, our task is simplified: the
Purchase Agreement contains a provision directing the reader to
New Hampshire law. Because a reasonable choice-of-law provision
in a contract generally should be respected, see Restatement

(Second) of the Conflict of Laws 187 (1971); see also

Ferrofluidics Corp. v. Advanced Vacuum Components, Inc., 968 F.2d

1463, 1467 (1st Cir. 1992) (applying New Hampshire choice-of-law
principles); Allied Adjustment Serv. v. Heney, 484 A.2d 1189,

1190-91 (N.H. 1948) (stating that the parties' selection of the
law of a particular jurisdiction will be honored so long as "the
contract bears any significant relationship to that
jurisdiction"), we will from time to time consult New Hampshire
law for guidance. Where New Hampshire law is recondite, we will
turn to the types of materials that we believe the New Hampshire
Supreme Court would look to in formulating new law. See Moores

v. Greenberg, 834 F.2d 1105, 1107 (1st Cir. 1987) (describing

materials); see also Kathios v. General Motors Corp., 862 F.2d

944, 949 (1st Cir. 1988).

9

In this case, there is no overt indication that the

parties intended to commit claims against appellant, as an

individual, to an arbitral forum. After all, appellant signed

the Purchase Agreement solely in his capacity as an agent for a

disclosed principal that is, as "Chairman" of Theta II and

not in his personal capacity; and it is settled beyond

peradventure that a person signing a contract only in a corporate

capacity, and unambiguously indicating that fact on the face of

the contract documents, does not thereby become a party to the

agreement. See, e.g., New York Ass'n for Retarded Children, Inc.

v. Keator, 606 N.Y.S.2d 784, 785 (App. Div. 1993) (finding

corporation, but not individual, bound when president of

corporation signed contract only on a line indicating his

official capacity); Central Ill. Pub. Serv. Corp. v. Molinarolo,

585 N.E.2d 199, 203 (Ill. App. Ct. 1992) (holding company, but

not individual, liable "[w]hen an agent signs a document and

indicates next to his signature his corporation affiliation");

Salzman Sign Co. v. Back, 176 N.E.2d 74, 76 (N.Y. 1961) (finding

no individual liability where defendant signed only as president

of corporation and did not otherwise explicitly indicate in the

contract an intent to be bound personally); cf. Dulik v. Amante,

570 N.Y.S.2d 590, 591 (App. Div. 1991) (finding that a party, by

signing the agreement twice, intended to bind both his

corporation and himself).

To be sure, the law recognizes certain contract and

agency principles under which nonsignatories sometimes can be

10

obligated by, or benefit from, agreements signed by others, and

these principles can apply to arbitration provisions. See, e.g.,

In re Oil Spill by Amoco Cadiz, 659 F.2d 789, 795-96 (7th Cir.

1981); Fisser v. International Bank, 282 F.2d 231, 233-34 (2d

Cir. 1960) (collecting cases). Thus, appellant's failure to sign

the Purchase Agreement individually does not in and of itself

settle the somewhat different question of whether he can invoke

the arbitration clause contained therein. Seizing on this

possibility, appellant charts three routes by which he, as a

nonsignatory, might achieve the sanctuary he desires. In the

succeeding sections, we trace these routes and explain why we

find them to be blind alleys.

C. Appellant's Agency Theory.

Appellant's most heralded claim is that, as a disclosed

agent of Theta II, he is entitled to enforce the arbitration

provision included in his principal's agreement with the

plaintiff. He buttresses this claim by citation to authority

from several other courts of appeals. See Pritzker v. Merrill

Lynch, Pierce, Fenner & Smith, 7 F.3d 1110, 1121 (3d Cir. 1993);

Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1360 (2d Cir.),

cert. denied, 114 S. Ct. 385 (1993); Arnold v. Arnold Corp., 920

F.2d 1269, 1282 (6th Cir. 1990); Letizia, 802 F.2d at 1188. We

think appellant's reading of these cases is overly sanguine and

that his claim is insupportable for several reasons.

1. Comparing Apples to Oranges. To put appellant's
1. Comparing Apples to Oranges.

theorem into focus, we first must clarify the animating

11

principles that drive the cases on which the theorem rests.

Doing so persuades us that appellant is comparing apples to

oranges.

To be sure, there is a superficial similarity between

the precedents on which appellant relies and the situation at

hand. In each of the four cited cases, the court gave a

nonsignatory the benefit of an arbitration clause signed by the

corporate entity for which he or she worked. In three of these

cases, however, the defendant was sued qua employee and the court

specifically found that, as a matter of contract interpretation,

the parties intended the arbitration provision to cover

employees. See Roby, 996 F.2d at 1360 (observing that "the

parties fully intended to protect the individual Chairs to the

extent they are charged with misconduct within the scope of the

agreements"); Arnold, 920 F.2d at 1282 (explaining that "the

language of the arbitration agreement indicates that the parties'

basic intent was to provide a single arbitral forum to all

disputes arising under the stock purchase agreement"); Letizia,

802 F.2d at 1188 (determining that the company "clearly indicated

its intention to protect its employees" by means of the

arbitration provision). The fourth case also rested largely on

contract language. See Pritzker, 7 F.3d at 1114 (noting the

breadth of language used in formulating the arbitration clause).

Here, however, as opposed to the cases marshalled by

appellant, the arbitration clause fails to indicate the corporate

signatory's intention to protect employees through arbitration,

12

see Letizia, 802 F.2d at 1188, and the very nature of the

Purchase Agreement, as contrasted to the agreements underlying

the other cases, explains why, in this situation, one would

naturally expect such protection to be absent.

For the most part, the cases hawked by appellant

involve disputes growing out of service contracts between

individuals and financial institutions.6 See Pritzker, 7 F.3d

at 1114 (involving handling of cash management account); Roby,

996 F.2d at 1357 (involving insurance underwriting); Letizia, 802

F.2d at 1186 (involving handling of securities account). The

claims diverted to arbitration in those cases and in other

cases that appellant could have, but did not, rely upon, see,

e.g., Lee v. Chica, 983 F.2d 883, 887 (8th Cir. 1993); Scher v.

Bear Stearns & Co., 723 F. Supp. 211, 216 (S.D.N.Y. 1989) were,

without exception, in the nature of professional malpractice.

Thus, each related directly to the essence of the service

contract that the consumer-plaintiff had signed.7 The Purchase

Agreement is at a considerable remove; it is primarily concerned

6The solitary exception is Arnold. Yet, as we point out

subsequently, see infra note 10, that case is distinguishable on

other grounds and, in all events, does not possess great
persuasive force.

7This is not to suggest that similarity of claims alone
suffices to clear the decks for arbitration. As we have made
pellucid, see supra p. 7, the basic prerequisite is the parties'

agreement to arbitrate, or, put another way, the existence of an
actual waiver of the right to litigate. But similarity of claims
sometimes may help to clarify what the parties intended when they
included an arbitration provision in an instrument.

13

with a transfer of assets.8 The distinction is an important

one. A person who enters into a service contract with a firm

contemplates an ongoing relationship in which the firm's promises

only can be fulfilled by future (unspecified) acts of its

employees or agents stretching well into an uncertain future. A

person who contracts to transfer assets to a company faces a much

different prospect: a one-shot transaction in which the

purchaser's obligations are specified and are, essentially,

performed in full at the closing, or soon thereafter. So it is

here. And because the Purchase Agreement cannot easily be

construed to refer to the operations of, or services rendered by,

Theta II, that company's employees cannot plausibly be included

by implication within the ambit of either the agreement or its

arbitration clause.9

2. The Scope of the Arbitration Clause. Close textual
2. The Scope of the Arbitration Clause.

analysis supports the conclusion that the Purchase Agreement's

arbitration clause should be read more narrowly than the clauses

in the cases upon which appellant relies. The Purchase Agreement

provides that disputes "arising under" the agreement will be

subject to arbitration. This language is considerably more

8While one section of the Purchase Agreement describes the
sellers' retention of a right to purchase products from Theta II
at preferential prices and to distribute those products in New
England, appellant has not argued that any of McCarthy's claims
implicate this distribution provision.

9Although we do not decide the point, we note that even an
implied reference likely would not suffice as a predicate for
enforced arbitration. See Salzman Sign, 176 N.E.2d at 76

(requiring "direct and explicit evidence of actual intent" as a
prerequisite to finding an obligation to arbitrate).

14

confining than that employed in other contracts to which

appellant alludes.10 See Pritzker, 7 F.3d at 1114 (agreeing to

arbitrate "all controversies which may arise between us,

including but not limited to . . . this or any other agreement

between us, whether entered into prior, or subsequent to the date

hereof"); Roby, 996 F.2d at 1361 (agreeing to arbitrate any

"dispute, difference, question or claim relating to" the

agreements for "all purposes of and in connection with" them)

(emphasis in original); Letizia, 802 F.2d at 1186 (agreeing to

arbitrate disputes "arising out of or relating to" plaintiff's

securities account).

The circumscribed nature of the Purchase Agreement's

arbitration provision stands out in bold relief when one compares

it with the arbitration provision in the Confidentiality

Agreement. Whereas the former directs arbitration only of

"[d]isputes arising under [the agreement]" (emphasis supplied),

the latter directs arbitration of "[a]ny controversy or claim

arising out of or relating to [the agreement]" (emphasis

supplied). Although the Purchase Agreement's arbitration clause

might arguably be read more broadly if it were the only provision

10Once again, the sole exception is Arnold, a case in which

the arbitration clause is virtually identical to the provision
contained in the Purchase Agreement. See Arnold, 920 F.2d at

1271. But in Arnold, unlike in this case, the stated clause

comprised the only arbitration provision at issue, thus making it
much easier to read the language broadly. See infra pp. 15-16

(discussing interpretive significance of dual agreements) and
cases cited. At any rate, to the extent that Arnold can be read

to support a result at odds with the result that we reach today,
we respectfully decline to follow it.

15

extant, see, e.g., Arnold, 920 F.2d at 1271; Martin Marietta

Alum., Inc. v. General Elec. Co., 586 F.2d 143, 145, 147-48 (9th

Cir. 1978), the use of significantly different language in two

clauses, sculpted by the same parties during the same

negotiations as part of the same overall transaction, strongly

suggests that the signatories intended the arbitration provisions

to be of different scope. See Appalachian Ins. Co. v. McDonnell

Douglas Corp., 262 Cal. Rptr. 716, 725 (Ct. App. 1989) (holding

that "[t]o ignore the differences in language used in the two

agreements would violate a fundamental rule of contract

interpretation, that is, the words of a contract, if clear, must

govern its interpretation"); see also Triple-A Baseball Club

Assoc. v. Northeastern Baseball, Inc., 832 F.2d 214, 221-22 (1st

Cir. 1987) (adopting narrow construction where a contract did not

include relatively broad language found in the parties' earlier

drafts), cert. denied, 485 U.S. 935 (1988); C & M Realty Trust v.

Wiedenkeller, 578 A.2d 354, 357 (N.H. 1990) (declaring that a

court's role is to interpret contracts in accordance with the

parties' intent discernible at the time of agreement, as measured

by objective criteria).

The intent to limit arbitral rights to signatories is

also made manifest by the inclusion of an integration clause in

the Purchase Agreement. The integration clause states that the

written agreement "represents the entire understanding of the

parties" and "supersedes all other understandings, arrangements

and negotiations." We, and other courts, routinely have declined

16

to read unwritten terms into agreements containing similar

declarations. See, e.g., Bidlack v. Wheelabrator Corp., 993 F.2d

603, 608 (7th Cir.) (explaining that an integration clause is an

"indication of the parties' desire to limit a free-ranging

judicial discretion to interpolate terms"), cert. denied, 114 S.

Ct. 291 (1993); Northern Heel Corp. v. Compo Indus., Inc., 851

F.2d 456, 466 (1st Cir. 1988) (similar). Applying that time-

honored principle here, it would be wrong to widen the

arbitration clause to include the signatories' agents and

employees.

In short, the Purchase Agreement itself is the best

indicator of the parties' intent. We must honor that intent an

intent which, for our purposes, translates into a direction to

read the arbitration clause set forth in the Purchase Agreement

straightforwardly rather than expansively. Operating in this

mode, it is difficult to see how a lawsuit between the seller and

a nonsignatory who is not a successor in interest to the buyer's

rights can be said to "aris[e] under" the Purchase Agreement.11

Thus, appellant's effort to compel plaintiff to arbitrate cannot

succeed, for, "as a matter of contract, no party can be forced to

arbitrate unless that party has entered an agreement to do so."

Painewebber, 921 F.2d at 511.

3. The Individual Capacity/Official Capacity Schism.

11By its terms, the Purchase Agreement "shall be binding
upon and inure to the benefit of the [parties'] successors and
assigns. . . ." There is no comparable provision anent the
parties' agents, servants, or employees. We think the omission
is telling.

17

For present purposes, we regard the distinction between Azure, in

his personal capacity, and Azure, in his representative capacity,

as possessing decretory significance.12 Not coincidentally, in

each of the four cases relied on by appellant the court

confronted a situation in which the claim asserted related to

actions undertaken by a corporate representative in his or her

official, rather than personal, capacity; and each of the courts

based its holding on this circumstance. See Roby, 996 F.2d at

1360 (concluding that the "complaints against the individual

Chairs are completely dependent on the complaints against the

[principals] . . . [and] arise[] out of the same misconduct

charged against the [principals]"); Arnold, 920 F.2d at 1282

(similar); see also Pritzker, 7 F.3d at 1114 (reciting facts

demonstrating that the nonsignatory was being sued for acts

within the scope of her role as an agent of the signatory

corporation); Letizia, 802 F.2d at 1188 (finding that all the

individual defendants' allegedly wrongful acts related to their

employment responsibilities).

Here, in contradistinction, plaintiff asserts claims

against Azure in his personal, rather than his corporate,

capacity. See supra note 4. This is no mere semantic quibble.

An official capacity suit is, in essence, "another way of

pleading an action against an entity of which an officer is an

12We use the terms "individual capacity" and "personal
capacity" interchangeably, and we use the terms "official
capacity," "representative capacity," and "corporate capacity" in
the same manner.

18

agent." Kentucky v. Graham, 473 U.S. 159, 165 (1985) (citations

omitted). Consequently, such a suit "is, in all respects other

than name, to be treated as a suit against the entity." Id. at

166. By contrast, personal capacity suits proceed against the

individual, not against the entity with which the individual is

affiliated.

In the corporate context, personal capacity actions can

take several forms, including by way of illustration claims

alleging ultra vires conduct, see, e.g., Expomotion, Ltd. v.

Heidepriem-Santandrea Inc., 421 N.Y.S.2d 520, 521 (Civ. Ct.

1979); tort suits in which a corporate officer or agent, though

operating within the scope of corporate authorization, "through

his or her own fault injures another to whom he or she owes a

personal duty," 3A William M. Fletcher, Fletcher Cyclopedia of

the Law of Private Corporations 1135, at 66-67 (1986 ed. &

Supp. 1992);13 and, of more immediate applicability, suits

alleging that a person affiliated with a corporation created or

manipulated it as part of a larger (fraudulent) scheme, see,

e.g., Dietel v. Day, 492 P.2d 455, 457-58 (Ariz. Ct. App. 1972)

(explaining that "[i]f a corporation was formed or is employed

for fraudulent purposes," personal liability may be imposed).

It is, therefore, apparent that drawing a distinction

between individual capacity and representative capacity claims is

13In this type of situation, the "officer or agent is
personally liable to the injured third party regardless of
whether the act resulting in injury is committed by or for the
corporation." 3A Fletcher, supra, 1135, at 67.

19

to draw a distinction that portends a meaningful legal

difference. Indeed, the distinction between claims aimed at a

defendant in his individual as opposed to representative capacity

can be found across the law. See, e.g., Stafford v. Briggs, 444

U.S. 527, 544 (1980) (distinguishing between individual and

official capacity claims for purposes of venue determination); Ex

Parte Young, 209 U.S. 123, 159 (1908) (distinguishing between

individual and official capacity acts for Eleventh Amendment

purposes); Northeast Fed. Credit Union v. Neves, 837 F.2d 531,

534 (1st Cir. 1988) (distinguishing between individual and

official capacity claims for jurisdictional purposes); Pelkoffer

v. Deer, 144 B.R. 282, 285-86 (W.D. Pa. 1992) (applying same

distinction in bankruptcy context); see also Graham, 473 U.S. at

165 (indicating differences between individual and official

capacity claims for purposes of suit under 42 U.S.C. 1983);

Estabrook v. Wetmore, 529 A.2d 956, 958 (N.H. 1987) (applying

doctrine that acts of a corporate employee performed in his

corporate capacity generally do not form the basis for personal

jurisdiction over him in his individual capacity). The ubiquity

of the distinction is a reflection of the reality that

individuals in our complex society frequently act on behalf of

other parties a reality that often makes it unfair to credit or

blame the actor, individually, for such acts. At the same time,

the law strikes a wise balance by refusing automatically to

saddle a principal with total responsibility for a

representative's conduct, come what may, and by declining

20

mechanically to limit an injured party's recourse to the

principal alone, regardless of the circumstances.

Appellant suggests that policy considerations counsel

against giving credence to the distinction between a corporate

officer's personal and representative capacities. He asserts

that, by honoring the distinction, we will enable wily plaintiffs

to circumvent arbitration provisions to which they previously had

agreed. To prevent such end runs, appellant says, agents and

employees must be allowed to stand in the principal's stead for

the purpose of invoking arbitration clauses. See Arnold, 920

F.2d at 1281. We believe that policy considerations, placed in

proper perspective, tilt in the opposite direction.

For one thing, to the extent that appellant's professed

fear of artful pleading is genuine, the best preventative is to

act before, rather than after, the fact; to be blunt, judicial

juggling is a far less effective anodyne than skillful drafting

of contract documents in the first instance. A corporation that

wishes to bring its agents and employees into the arbitral tent

can do so by writing contracts in general, and arbitration

clauses in particular, in ways that will specify the desired

result. See, e.g., Roby, 996 F.2d at 1361.

For another thing, whether a claim properly lies

against a party in his personal capacity or in his official

capacity is ultimately a function of the facts, not of pleading

techniques alone. Mechanisms exist for dealing with groundless,

overstated, or elliptical claims. See, e.g., Fed. R. Civ. P. 11;

21

28 U.S.C. 1927 (1988) (granting courts the power to charge

"excess costs, expenses, and attorneys' fees reasonably incurred"

due to "unreasonabl[e] and vexatious[]" conduct); Cruz v. Savage,

896 F.2d 626, 631-32 (1st Cir. 1990); see also Chambers v. NASCO,

Inc., 111 S. Ct. 2123, 2131-38 (1991) (discussing federal court's

inherent power to impose sanctions for abusive litigation

practices); Foster v. Mydas Assocs., Inc., 943 F.2d 139, 141-45

(1st Cir. 1991) (discussing range of sanctions available for

prosecution of frivolous claims).

Third, we are doubtful that the incentive to plead

deceitfully exists at all. Arbitration is almost invariably a

creature of contract, and an agent is not ordinarily liable for

his principal's breach of contract. See, e.g., Mastropieri v.

Solmar Constr. Co., 553 N.Y.S.2d 187, 188 (App. Div. 1990) ("It

is well settled that when an agent acts on behalf of a disclosed

principal, the agent will not be personally liable for a breach

of the contract, unless there is clear and explicit evidence of

the agent's intention to be bound."); see also Restatement

(Second) of Agency 328 (1958) ("An agent, by making a contract

only on behalf of a competent disclosed . . . principal whom he

has power so to bind, does not thereby become liable for its

nonperformance."). Thus, manipulating the reality of events in

order to bring suit against the agent holds only marginal promise

of financial reward.

Perhaps most important from a policy standpoint,

adopting appellant's proposal would introduce a troubling

22

asymmetry into the law. It is common ground that "[s]igning an

arbitration agreement as agent for a disclosed principal is not

sufficient to bind the agent to arbitrate claims against him

personally." Flink v. Carlson, 856 F.2d 44, 46 (8th Cir.

1988);14 accord Interocean Ship. Co. v. Nat'l Ship. & Trading

Corp., 523 F.2d 527, 538 (2d Cir. 1975), cert. denied, 423 U.S.

1054 (1976); see also Restatement (Second) of Agency 320. In

appellant's scenario, then, the agent, though he could not be

compelled to arbitrate, nonetheless could compel the claimant to

submit to arbitration. In other words, an agent for a disclosed

principal would enjoy the benefits of the principal's arbitral

agreement, but would shoulder none of the corresponding burdens.

He would have found a way, contrary to folklore, to run with the

hare and hunt with the hounds. In our view, judges should think

long and hard before endorsing a rule that will allow a party to

use the courts to vindicate his rights while at the same time

foreclosing his adversary from comparable access.

Here, for instance, appellant insists that the law

empowers him to shunt McCarthy's claims into an arbitral forum,

despite the fact that, if the shoe were on the other foot,

14We reject Azure's contention that the Eighth Circuit
significantly narrowed Flink's rule in Lee, 983 F.2d at 887. As

we read these cases, an agent's signature on behalf of a
disclosed principal "is not sufficient" to bind the agent to

arbitrate claims against him personally. Flink, 856 F.2d at 46

(emphasis supplied). Lee left this legal rule fully intact.

Lee, unlike Frank, merely involved the by-now routine investment

service contract context, a situation where additional factors,

including "the plain language of the arbitration clause," showed
that claims against the agent appropriately were subject to
arbitration. Lee, 983 F.2d at 887.

23

McCarthy could not force appellant to arbitrate those claims or

any other claims, for that matter. Though the law is not always

perfectly proportional, this lack of mutuality of obligation is

disturbing, particularly as it arises in a contractual context.

See generally Crellin Technologies, Inc. v. Equipmentlease Corp.,

F.3d , (1st Cir. 1994) [No. 93-1615, slip op. at 15]

(discussing rule that mutuality of obligation is a prerequisite

to a binding bilateral contract; citing numerous cases and other

authorities); Smith, Batchelder & Rugg v. Foster, 406 A.2d 1310,

1312 (N.H. 1979).

4. The Nature of the Claims. It is also worth noting,
4. The Nature of the Claims.

for the sake of completeness, that the bulk of plaintiff's claims

are litigable in any event simply because they fall outside the

ambit of the Purchase Agreement's closely tailored arbitration

clause. For example, the claims for breach of contract and

wrongful discharge concern plaintiff's employment rights. Those

rights are not mentioned at all in the Purchase Agreement. To

the contrary, they come within the purview of the Employment

Letter a document that conspicuously omits any arbitration

provision. Similarly, many aspects of plaintiff's claims of

fraud, misrepresentation, emotional distress, unfair trade

practices, and racketeering relate to his employment rights, and,

to that extent, also do not implicate the Purchase Agreement's

arbitration provision. And while the remaining claims touch upon

the Purchase Agreement, they do not uniformly "aris[e] under" it.

No useful purpose would be served by reciting book and

24

verse. It suffices to say that, even if Azure were a party to

the contract that contains the operative arbitration provision,

he would not be entitled as of right to an order staying

litigation of all or even most of McCarthy's claims. See 9

U.S.C. 3.15

D. Appellant's Third-Party Beneficiary Theory.

Appellant next posits that, as a third-party

beneficiary of the Purchase Agreement's arbitration clause, he

can compel plaintiff to arbitrate. This claim also fails.

As is generally the case in matters of contract

interpretation, "[t]he crux in third-party beneficiary analysis .

. . is the intent of the parties." Mowbray v. Moseley,

Hallgarten, Estabrook & Weeden, 795 F.2d 1111, 1117 (1st Cir.

1986). Because third-party beneficiary status constitutes an

exception to the general rule that a contract does not grant

enforceable rights to nonsignatories, see, e.g., Arlington Trust

Co. v. Estate of Wood, 465 A.2d 917, 918 (N.H. 1993), a person

aspiring to such status must show with special clarity that the

contracting parties intended to confer a benefit on him. See

Mowbray, 795 F.2d at 1117; Arlington Trust, 465 A.2d at 918;

Tamposi Assocs. v. Star Mkt. Co., 406 A.2d 132, 134 (N.H. 1979);

see generally 3 E. Allan Farnsworth, Farnsworth on Contracts

15Of course, the district court in its discretion could stay
litigation of nonarbitrable claims pending the outcome of an
arbitration proceeding. See Moses H. Cone, 460 U.S. at 20 n.23;

see also Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 856

(2d Cir. 1987) (recommending stay of nonarbitrable claim when the
arbitrable claim predominates and the nonarbitrable claim is of
questionable merit).

25

10.3, at 22-23 (1990); 4 Arthur Corbin, Contracts 776 (1951).

In this instance, we are unable to discern any

indication in the Purchase Agreement that the parties meant to

make their respective agents or employees third-party

beneficiaries. Neither Azure nor any other employee of Theta II

is mentioned explicitly in the Purchase Agreement; there are no

meaningful categorical references; the critical provision in the

contract, see supra note 11, omits any mention of agents and

employees; and we can find no principled basis for including

Azure by necessary implication (especially since the contract

contains an integration clause). These facts strongly militate

against conferring third-party beneficiary status upon a

corporate officer with respect to arbitration rights. See

Shaffer v. Stratton Oakmont, Inc., 756 F. Supp. 365, 369 (N.D.

Ill. 1991) (refusing to find a third-party beneficiary

relationship generating an obligation to arbitrate in analogous

circumstances); Lester v. Basner, 676 F. Supp. 481, 484-85

(S.D.N.Y. 1987) (refusing to find an obligation to arbitrate

under a third-party beneficiary theory when the contract itself

"is silent as to whether [its] terms" apply to the purported

third-party beneficiaries).

The record is equally devoid of anything that might

intimate a course of dealing between McCarthy, Theta II, and

Azure from which an intent to create third-party beneficiaries

plausibly could be inferred. See Mowbray, 795 F.2d at 1117.

And, finally, the Purchase Agreement neither calls for any

26

performance by the promisor (McCarthy) that will satisfy some

obligation owed by the promisee (Theta II) to the putative third

party, nor is it "so expressed as to give the promisor reason to

know that a benefit to a third party is contemplated by the

promisee as one of the motivating causes of his making the

contract." Tamposi, 406 A.2d at 134.16

To say more would be to polish a star. For the reasons

indicated, appellant's thrust for relief on the ground that he is

a third-party beneficiary of Theta II's agreement to arbitrate

falls short. See Mowbray, 795 F.2d at 1117; Shaffer, 756 F.

Supp. at 369; Lester, 676 F. Supp. at 485; Tamposi, 406 A.2d at

134.

E. Appellant's Alter Ego Theory.

McCarthy's complaint alleges, at one point, that Azure

is the alter ego of Theta II. The last shot in appellant's sling

derives from this allegation: he asseverates that he should be

accorded the right to demand arbitration based on the asserted

equivalence between him and his corporate principal. This shot

exhibits a basic misunderstanding of the weapon appellant has

selected. Not surprisingly, it misses the mark.

The alter ego doctrine is equitable in nature. See,

e.g., Harrell v. DCS Equip. Leasing Corp., 951 F.2d 1453, 1458

(5th Cir. 1992); St. Paul Fire & Marine Ins. Comp. v. Pepsico,

Inc., 884 F.2d 688, 697 (2d Cir. 1989); 1 Fletcher, supra,

16These requirements are not satisfied merely because a
third party will benefit from performance of the contract. See

Arlington Trust, 465 A.2d at 918-19.

27

41.25. As such, the doctrine can be invoked "only where equity

requires the action to assist a third party." 1 Fletcher, supra,

at 41.10; see also In re Rehabilition of Centaur Ins. Co., 606

N.E.2d 291, 296 (Ill. App. Ct. 1992) (barring a subsidiary from

piercing its own corporate veil in order to reach its parent

because "the equitable remedy lies with third parties"), aff'd,

1994 WL 28672 (Feb. 3, 1994); Village Press, Inc. v. Stephen

Edward Comp., Inc., 416 A.2d 1373, 1375 (N.H. 1980) (holding

that, to employ the alter ego doctrine, "the plaintiff must

establish that the corporate entity was used to promote an

injustice or fraud").

The case law that appellant touts earns him no

indulgence. Without exception, these cases involve instances in

which an allegedly aggrieved party has sought to compel a person

or entity thought to be a corporate signatory's alter ego to

abide by an arbitration clause. Typical of the genre is Fisser,

a case holding that "if the parent is bound to the contract, then

its marionette [the alleged alter ego] is bound to submit to

arbitration." 282 F.2d at 234-35.

We are confronted with a much different situation. In

this case, the supposed wrongdoer seeks to invoke the alter ego

doctrine in order to hide behind the corporate entity, that is,

to avail himself of the corporation's right to repair to an

arbitral forum and thereby avoid a jury trial. As appellant is

not even arguably an innocent third party disadvantaged by

someone else's blurring of the line between a corporation and the

28

person who controls it, but, rather, is himself the one who is

claimed to have obscured the line, he cannot be permitted to use

the alter ego designation to his own behoof.17

III. CONCLUSION

We need go no further. Although the Purchase Agreement

does contain an arbitration clause, it is narrow in scope and

does not extend the right to compel arbitration to agents or

employees of the corporate signatory. By like token, the

Purchase Agreement does not make manifest an intention to confer

third-party beneficiary status on any such agents or employees.

And, finally, appellant cannot rely on plaintiff's alter ego

claim to draw an equivalence between himself and his corporate

principal for his own benefit. In sum, there is no contractual

or other legal lever by which appellant can force plaintiff to

arbitrate the "individual capacity" claims that are the subject

of the underlying suit. Because this is so, the district court

appropriately refused to grant the relief that appellant

requested.18

17We note that, although plaintiff has alleged that
appellant is the alter ego of Theta II, appellant has never
admitted the truth of the allegation. While not necessary to our
decision, we are impelled to remark the obvious: it would be
strange if an equitable doctrine could be construed to allow a
party, on one hand, to resist the characterization that he is a
corporation's alter ego, and, on the second hand, to allow him
simultaneously to use that characterization as a device to
sidetrack the characterizer's suit.

18On remand, the district court, by appropriate order,
should conform plaintiff's complaint to the representations made
in this court, see supra note 4, dismissing any claims asserted

against Azure in a representative capacity and striking all
related references from the complaint.

29

The order appealed from is affirmed and the case is

remanded to the district court for further proceedings. The

motions pending in this court are denied without prejudice to

their renewal below. Costs in favor of appellee.

30