Grigson v. Creative Artists Agency, L.L.C.

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
___________________

No. 98-51016
__________________

CHARLES O. GRIGSON, as Trustee for
“The Texas Chainsaw Massacre”;
RIVER CITY FILMS, INC.; ULTRA MUCHOS, INC.,

Plaintiffs-Appellants,

versus

CREATIVE ARTISTS AGENCY, L.L.C.;
MATTHEW DAVID McCONAUGHEY,

Defendants-Appellees.
________________________________________________________________

Appeal from the United States District Court
for the Western District of Texas

_________________________________________________________________
April 24, 2000

Before DUHÉ, BARKSDALE, and DENNIS, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

Solely at issue is whether the district court abused its

discretion by applying equitable estoppel to compel arbitration for

an action centered on tortious interference with a contract with an

arbitration clause, brought by signatories to the contract against

non-signatories, the court holding that, because this action is

intertwined with, and dependent upon, that contract, its

arbitration agreement should be given effect. We AFFIRM.
 I.

“Return of the Texas Chain Saw Massacre” (the movie) was

filmed in 1993-94; then “obscure actors” Matthew McConaughey and

Renee Zellweger acted in it. The movie was produced by Ultra

Muchos, Inc., and River City Films, Inc. The trustee for the

movie’s owners is Charles Grigson.

In October 1995, Ultra Muchos and River City entered into a

distribution agreement with Columbia TriStar Home Video, Inc. It

was given exclusive distribution rights and complete discretion on

how to exercise them; the producers were to receive a percentage of

the movie’s gross revenue. And, by separate, earlier agreement,

the owners were to receive a portion of the producers’ percentage.

In the period post-acting in the movie and prior to the fall

of 1996, McConaughey signed an agency contract with Creative

Artists Agency, L.L.C. The movie’s distribution was delayed by

TriStar to take advantage of Zellweger and McConaughey’s success in

subsequent movies. Subsequently, however, TriStar gave the movie

only a limited distribution.

In district court in mid-1997, Grigson, as trustee, sued Ultra

Muchos, River City, and TriStar for breach of the distribution

agreement. But, Grigson quickly and voluntarily had the action

dismissed that fall, when TriStar sought to enforce the

distribution agreement’s arbitration clause, which contains a forum

selection provision (Los Angeles County, California).

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 In late 1997, a few months after the voluntary dismissal of

the first action, Grigson, now joined by Ultra Muchos and River

City, filed this action in state court against McConaughey and

Creative Artists (Defendants) for, inter alia, tortious

interference with the distribution agreement, claiming that such

interference occurred between McConaughey’s signing with Creative

Artists and the movie’s limited distribution. In this regard,

Defendants allegedly pressured TriStar to limit the release because

they viewed it as an improper exploitation of McConaughey’s success

post-acting in the movie.

After the action was removed to federal court on the basis of

diversity of citizenship, Defendants, although non-signatories to

the distribution agreement, moved to compel arbitration under the

agreement. The same district court that had permitted the

voluntary dismissal of Grigson’s first action ruled that Grigson,

Ultra Muchos, and River City (Appellants) were equitably estopped

from relying upon Defendants’ being non-signatories. This was

based upon holding that, because the claims are so intertwined

with, and dependent upon, the distribution agreement, its

arbitration clause should be given effect. Accordingly, in the

light of the forum selection provision in the arbitration clause,

the court dismissed the action so that the parties could proceed in

the mandated forum (Los Angeles County, California).

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 II.

Arbitration is favored in the law. See Moses H. Cone Mem.

Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

Accordingly, parties to such agreements cannot avoid them by

casting their claims in tort, rather than in contract. See e.g.,

Acevedo Maldonado v. PPG Indus., Inc., 514 F.2d 614, 616 (1st Cir.

1975). Likewise, proceedings against parties and non-parties to

the arbitration agreement are stayed pending the outcome of

arbitration, when the action against the non-party is dependent

upon interpretation of the underlying contract. See Subway Equip.

Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir. 1999).

Similarly, as discussed infra, in certain limited instances,

pursuant to an equitable estoppel doctrine, a non-signatory-to-an-

arbitration-agreement-defendant can nevertheless compel arbitration

against a signatory-plaintiff.

In the distribution agreement, Ultra Muchos, River City, and

TriStar agreed

that any dispute or controversy relating to
any of the matters referred to in clauses
(d)(i),(ii), or (iii), above, shall be decided
by a Rent-A-Judge, mutually selected by the
parties (or, if they cannot agree, by the
Presiding Judge of the Los Angeles Superior
Court) appointed in accordance with California
Code of Civil Procedure Section 638, sitting
without a jury, in Los Angeles County
California, and the Parties hereby submit to
the jurisdiction of such court.

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The parties to this action agree that this procedure is the

equivalent of arbitration, which would be subject to the Federal

Arbitration Act, 9 U.S.C. § 1 et seq. The clauses referenced in

the arbitration provision concern

(i) the validity and interpretation of this
agreement, (ii) the performance by the Parties
of their respective obligations hereunder, and
(iii) all other causes of action (whether
sounding in contract or in tort) arising out
of or relating to this Agreement....

Because the owners seek compensation through the distribution

agreement, Grigson admits that he is a third party beneficiary of

that agreement; and that, therefore, he is required, as are the

signatory-producers, to arbitrate with TriStar all disputes

concerning that agreement. Appellants contend, however, that they

are not required to arbitrate with Defendants, because they are not

parties to the distribution agreement; and because, in the

alternative, Defendants do not fall within what Appellants view as

the quite limited bases for application of equitable estoppel to

compel arbitration: either a special relationship to the

distribution agreement signatories, or a role in carrying out the

agreement’s obligations. Creative Artists and McConaughey counter

that, because the charged tortious interference is intertwined with

the distribution agreement, they are entitled, through application

of equitable estoppel, to compel arbitration.

This is an issue of first impression for our circuit. Other

circuits have, in a few instances, allowed a non-signatory to a

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contract with an arbitration clause to compel arbitration under an

equitable estoppel theory, including when the action is intertwined

with, and dependent upon, that contract. E.g., Sunkist Soft

Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757 (11th Cir.

1993), cert. denied, 513 U.S. 869 (1994); Hughes Masonry Co., Inc.

v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 841 n.9

(7th Cir. 1981).

The Eleventh Circuit has taken the lead in applying equitable

estoppel under the intertwined-claims basis. See also McBro

Planning & Dev. Co. v. Triangle Elec. Constr. Co., 741 F.2d 342

(11th Cir. 1984). The test, which rejects the narrow strictures

urged by Appellants, see Sunkist, 10 F.3d at 757-58, is framed

nicely by that circuit in MS Dealer Serv. Corp. v. Franklin, 177

F.3d 942, 947 (11th Cir. 1999):

Existing case law demonstrates that
equitable estoppel allows a nonsignatory to
compel arbitration in two different
circumstances. First, equitable estoppel
applies when the signatory to a written
agreement containing an arbitration clause
must rely on the terms of the written
agreement in asserting its claims against the
nonsignatory. When each of a signatory’s
claims against a nonsignatory makes reference
to or presumes the existence of the written
agreement, the signatory’s claims arise out of
and relate directly to the written agreement,
and arbitration is appropriate. Second,
application of equitable estoppel is warranted
when the signatory to the contract containing
an arbitration clause raises allegations of
substantially interdependent and concerted
misconduct by both the nonsignatory and one or

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 more of the signatories to the contract.
Otherwise the arbitration proceedings between
the two signatories would be rendered
meaningless and the federal policy in favor of
arbitration effectively thwarted.

(Internal citations and quotation marks omitted; emphasis added.)

We agree with the intertwined-claims test formulated by the

Eleventh Circuit. Each case, of course, turns on its facts. Such

equitable estoppel is much more readily applicable when the case

presents both independent bases advanced by the Eleventh Circuit

for applying the intertwined-claims doctrine. That is the

situation here. The linchpin for equitable estoppel is equity —

fairness. For the case at hand, to not apply this intertwined-

claims basis to compel arbitration would fly in the face of

fairness.

For the above-quoted statement from MS Dealer Serv. Corp. that

equitable estoppel is applied in order to fulfill federal pro-

arbitration policy, the Eleventh Circuit quoted from our court’s

decision in Sam Reisfeld & Son Import Co. v. S. A. Eteco, 530 F.2d

679, 681 (5th Cir. 1976), which used an intertwined-claims

rationale for staying judicial proceedings against two defendants,

with links to a third, pending arbitration with plaintiff. Unlike

third-defendant, the other two were not signatories to the

arbitration agreement with plaintiff. Our court held, accordingly,

that the district court had “discretion” to stay the judicial

proceedings as to all three defendants, even though, as noted, two

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were not parties to the arbitration agreement: “[t]he charges

against these two defendants were based on the same operative facts

and were inherently inseparable from the claims against” third-

defendant, a signatory to the agreement. Id. Accordingly, our

court concluded that the district court had not abused its

discretion.

Although Reisfeld does not apply equitable estoppel per se,

its ratio decidendi comports with that for application of that

doctrine to allow a defendant non-signatory to an arbitration

agreement to compel arbitration with a plaintiff-signatory. In

short, although arbitration is a matter of contract and cannot, in

general, be required for a matter involving an arbitration

agreement non-signatory, a signatory to that agreement cannot, in

those instances described in MS Dealer Serv. Corp., “have it both

ways”: it cannot, on the one hand, seek to hold the non-signatory

liable pursuant to duties imposed by the agreement, which contains

an arbitration provision, but, on the other hand, deny

arbitration’s applicability because the defendant is a non-

signatory. MS Dealer Serv. Corp., 177 F.3d at 947; Hughes Masonry

Co., 659 F.2d at 838-39. Again, to allow such inconsistent

positions would be inequitable, to say the least.

Moreover, as noted, it would be especially inequitable where,

as here, a signatory non-defendant is charged with interdependent

and concerted misconduct with a non-signatory defendant. In such

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instances, that signatory, in essence, becomes a party, with

resulting loss, inter alia, of time and money because of its

required participation in the proceeding. Concomitantly,

detrimental reliance by that signatory cannot be denied: it and the

signatory-plaintiff had agreed to arbitration in lieu of litigation

(generally far more costly in terms of time and expense); but, the

plaintiff is seeking to avoid that agreement by bringing the action

against a non-signatory charged with acting in concert with that

non-defendant signatory. Of course, detrimental reliance is one of

the elements for the usual application of equitable estoppel.

E.g., In re Coastal Plains, 179 F.3d 197, 207 (5th Cir. 1999),

petition for cert. filed, 68 U.S.L.W. 3311 (U.S. 1 Oct. 1999)(No.

99-756).

Accordingly, whether to utilize equitable estoppel in this

fashion is within the district court’s discretion; we review to

determine only whether it has been abused. E.g., Scholle Corp. v.

Blackhawk Molding Co., 133 F.3d 1469, 1471 (Fed. Cir. 1998);

Hoefler v. Babbitt, 139 F.3d 726, 727 (9th Cir.), cert. denied, ___

U.S. ___, 119 S. Ct. 70 (1998). See In Re Coastal Plains, Inc.,

179 F.3d at 205 (judicial estoppel). To constitute an abuse of

discretion, the district court’s decision must be either premised

on an application of the law that is erroneous, or on an assessment

of the evidence that is clearly erroneous. Id.

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 The district court did not abuse its discretion by concluding

“that Plaintiffs’ claims are so intertwined with and dependent upon

the Distribution Agreement that the arbitration agreement within

the Distribution Agreement should be given effect”. This

conclusion is compelled by comparing the complaint (the operative

facts for purposes of the motion to compel arbitration) with the

distribution agreement (an exhibit to the complaint). This is

quickly and amply demonstrated with but a few examples.

The distribution agreement is not the only contract for which

tortious interference is claimed. Creative Artists is also charged

with such interference with McConaughey’s actor’s contract for the

movie (another exhibit to the complaint); he is charged with breach

of that contract. Among other things, he was required by that

actor’s contract to allow use of “his name and photographs ... for

commercial and advertising purposes”.

The complaint uses that specific requirement in the actor’s

contract in describing how, for the theatrical release (as defined

in the distribution agreement) mandated by the distribution

agreement, TriStar

had planned to distribute Chainsaw movie
posters prominently featuring the likeness and
name of McConaughey and, in fact, had printed
posters reflecting this plan. Creative
Artists, acting for McConaughey, contacted
Columbia Tristar and successfully pressured it
to retreat from its plan for the posters on
the grounds that McConaughey’s fame should not
be exploited in such a manner in connection
with the Chainsaw movie.

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 This is but part of the charged interference. In addition,

the complaint alleges that the theatrical release was delayed

initially to take advantage of Zellweger’s post-movie success in

another movie, also released by TriStar; that the plan changed to

take advantage of both actors’ success; that Creative Artists, on

behalf of McConaughey, “pressured” TriStar to not make a major

release of the movie and, instead, to make only a limited one, to

Appellants’ great financial detriment; and that, because of

Defendants’ actions, “TriStar failed to exercise its good faith

judgment in promoting, exploiting, and distributing” the movie.

(Emphasis added.)

As is obvious from the foregoing, and as the district court

concluded, these allegations and claims are intertwined with, and

dependent upon, the distribution agreement. In addition to

Appellants relying on the terms of the agreement in asserting their

claims, TriStar and Defendants are charged with interdependent and

concerted misconduct.

The distribution agreement, in describing the movie, lists

Zellweger and two others as “starring” in it; McConaughey is not so

listed. All rights to the movie are given to TriStar; and, subject

to it making a required minimum expenditure in connection with the

theatrical release, TriStar has “absolute discretion concerning the

exploitation of the [movie] in any and all media”. (Emphasis

added.)

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 In that provision, which obviously lies at the heart of this

action, Appellants

agree[d] that the good faith judgment of
[TriStar] regarding any matter affecting the
exploitation of the [movie] shall be binding
and conclusive upon [Appellants] ([TriStar]
shall make the determination, within its sole
discretion, whether or not to release the
[movie] in a given media and/or in a given
territory).

(Emphasis added.) “Territory” includes, with some exceptions,

“[t]he entire universe”, while “media” includes, but is not limited

to, movie theaters.

And, as noted, the distribution agreement’s arbitration clause

pertains, inter alia, to the “interpretation of [the distribution]

agreement, ... the performance by the Parties of their respective

obligations [there]under, and ... all other causes of action

(whether sounding in contract or in tort) arising out of or

relating to this Agreement”. (Emphasis added.)

In short, the scope of the distribution, the “discretion”,

both “absolute” and “sole”, vested in TriStar, and its “good faith

judgment” are at the center of this dispute. Among other things,

TriStar is charged with, as a result of the claimed interference

(“pressure”), not using its “good faith judgment”. Although not

sued (an obvious attempt to make an end-run around the arbitration

clause, as discussed infra), TriStar nevertheless will be involved

extensively — and, no doubt, quite expensively — in this dispute,

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including whether it performed properly under the distribution

agreement.

As stated, the foregoing are but a few examples of the

intertwining of the claims with the distribution agreement,

including the claimed concerted actions by Defendants (non-

signatories), with TriStar, a signatory. How possible damages

might be computed, in the light of the detailed “accounting”

provisions of the agreement, is but another example.

This action is quite similar to Grigson’s first action —

against TriStar, discussed below. After quickly instituting a

voluntary dismissal of that action, when TriStar moved to compel

arbitration, Appellants brought this one against McConaughey and

Creative Artists, non-signatories to the distribution agreement,

for, inter alia, interfering with that agreement. As noted, this

is a quite obvious, if not blatant, attempt to bypass the

agreement’s arbitration clause.

In Grigson’s first action, against the two producers (who

joined Grigson in this second action) and TriStar, Grigson charged

TriStar, as it is also alleged to have done in the action at hand,

with “breach[ing] the ‘good faith judgment’ clause ... of the

distribution agreement”. In the alternative, TriStar was charged

with fraud. And, the producers, charged with failing to exploit

the movie in breach of their contract with the owners, cross-

claimed against TriStar. One of the exhibits to the complaint is

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a 7 January 1997 letter to TriStar from one of the persons owning

rights to the movie, in which he stated that he and another

similarly-situated person (who had also directed the movie) were

“very eager to know what [was] being done by [TriStar] to fully

explore the financial possibilities of [the movie]”, and then

advised: “It goes without saying that [TriStar] has absolute

discretion in making those determinations but this does not change

my obligation to my investors to see that those decisions are based

on what is best for this film”. (Emphasis added.) When TriStar

moved promptly to compel arbitration, the owners and cross-claim

producers quickly folded their tents. The action, filed in

district court on 9 June 1997, was dismissed without prejudice on

10 September 1997.

The action at hand was filed two and one-half months later, on

22 December 1997. This time, it was filed in state court. TriStar

was no longer a defendant. Its earlier-charged failure to use its

contractually required “good faith judgment” was now alleged to

have been caused by “pressure” from the new defendants, Creative

Artists and McConaughey. In reality, the two actions are the same.

In essence, TriStar is a defendant. Each action turns on the

meaning of the distribution agreement’s numerous — often intricate

— provisions, which are unique to the film industry, and on

TriStar’s conduct in relation to that agreement.

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 Arguably, the inconsistent positions by Grigson and the two

producers in the first and second actions bump up on, if indeed do

not satisfy, the prerequisites for judicial estoppel. See In re

Coastal Plains, 179 F.3d at 205-07 (purpose of doctrine is to

prevent parties “playing fast and loose with the courts”).

Judicial estoppel is not raised; but, because that doctrine

protects the judicial system, id., we can apply it sua sponte in

certain instances. See United States For Use of Am. Bank v. C.I.T.

Constr. Inc., 944 F.2d 253, 258 (5th Cir. 1991).

In any event, comparison of the two actions demonstrates,

quite vividly, why the district court, which presided over both

actions, did not abuse its discretion in compelling arbitration in

the second, by applying the equitable estoppel doctrine crafted for

such situations. The claims are intertwined with, and dependent

upon, the distribution agreement, including, but not limited to,

Defendants (non-signatories) and TriStar (non-defendant signatory)

being charged with interdependent and concerted misconduct.

Indeed, this action is the quintessential situation for when the

doctrine should be applied.

III.

For the foregoing reasons, the judgment is

AFFIRMED.

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DENNIS, Circuit Judge, dissenting:

“[N]early anything can be called estoppel. When a lawyer or

a judge does not know what other name to give for his decision to

decide a case in a certain way, he says there is an estoppel.”1

The trouble with that kind of use of the estoppel label by the

majority in this case making circuit precedent is that it will

seriously hinder this court in upholding the basic principle that

a person has a right to a court’s decision about the merits of a

dispute unless he has agreed to submit it to arbitration. Because

the majority decision conflicts with the Supreme Court’s recent

emphatic affirmations of that principle, and the precedents of this

circuit, I respectfully dissent.

In First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938

(1995), the Supreme Court reaffirmed important contractual

arbitration principles: (1) Contract Governs Whether A Dispute Is

Arbitrable Or Litigable: “[A]rbitration is simply a matter of

contract between the parties; it is a way to resolve those

disputes–but only those disputes–that the parties have agreed to

submit to arbitration.”2 “[A] party who has not agreed to

1
Statement of Samuel Williston, 4 ALI Proceedings 61, 89-90
(1926) (quoted by 4 RICHARD A. LORD, WILLISTON ON CONTRACTS § 8.5, at 73
(4th ed. 1992)) [hereinafter WILLISTON].
2
First Options, 514 U.S. at 943 (citing AT&T Technologies,
Inc. v. Communications Workers, 475 U.S. 643, 649 (1986);
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57-58 and

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arbitrate will normally have a right to a court’s decision about

the merits of its dispute[.]”3 (2) State-Law Contract Principles

Govern Standing And Obligation To Arbitrate: “When deciding whether

the parties agreed to arbitrate a certain matter...courts

generally...should apply ordinary state-law principles that govern

the formation of contracts.”4 (3) Parity Of Contractual

Enforcement: “After all, the basic objective in this area is not to

resolve disputes in the quickest manner possible, no matter what

the parties’ wishes,5 but to ensure that commercial arbitration

agreements, like other contracts ‘”are enforced according to their

terms,”’6 and according to the intentions of the parties[.]”7

(4)Standard of Review: “[R]eview of...a district court decision

confirming an arbitration award on the ground that the parties

n.9 (1995); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 271
(1995); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614 , 625-26 (1985)).
3
Id. at 942.
4
Id. at 944 (citing Mastrobuono, 514 U.S. at 62-63 & n.9;
Volt Information Sciences, Inc. v. Board of Trustees of Leland
Stanford Junior Univ., 489 U.S. 468, 475-76 (1989); Perry v.
Thomas, 482 U.S. 483, 492-93 n.9 (1987); 1 GABRIEL M. WILNER, DOMKE
COMM ARBITRATION § 4:04, at 15 (Rev. Ed. 1993)) [hereinafter DOMKE].
5
Id. at 947 (citing Dean Witter Reynolds, Inc. v. Byrd, 470
U.S. 213, 219-20 (1985)).
6
Id. (citing Mastrobuono, 513 U.S. at 54 (quoting Volt
Information Sciences, 489 U.S. at 479)).
7
Id. (citing Mitsubishi Motors, 473 U.S. at 626; Allied-Bruce,
513 U.S. at 271).

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agreed to submit their dispute to arbitration, should proceed like

review of any other district court decision finding an agreement

between parties, e.g., accepting findings of fact that are not

‘clearly erroneous’ but deciding questions of law de novo.”8

(Internal citations placed in footnotes).

Air Line Pilots Ass’n v. Miller, 523 U.S. 866 (1998), strongly

confirmed these principles in holding that non-union pilots

challenging the agency fee collected by the union could not be

required to arbitrate their challenges because they had not agreed

to do so: “Ordinarily, ‘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.’” Id. at 876 (citing Steelworkers

v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960)); see also

First Options, 514 U.S. at 942 (“a party who has not agreed to

arbitrate will normally have a right to a court’s decision about

the merits of its dispute”).

As a general rule, an arbitration clause cannot be invoked by

a non-party to the arbitration contract, and only parties to the

arbitration agreement are bound to arbitrate. See 1 GABRIEL M.

WILNER, DOMKE COMM ARBITRATION § 10:00, at 1 (Rev. Ed. 1993) (citing,

inter alia, Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d 1287 (3d Cir.

1996); Gingiss Int’l v. Bormet, 58 F.3d 328 (7th Cir. 1995); United

8
First Options, 514 U.S. at 947-48 (citing Kaplan v. First
Options of Chicago, Inc., 19 F.3d 1503, 1509 (3d Cir. 1994)).

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States v. Harkins Builders, Inc., 45 F.3d 830 (4th Cir. 1995))

[hereinafter DOMKE]. The federal policy favoring arbitration is

strong, but it alone cannot authorize a non-party to invoke

arbitration or require a non-signatory to arbitrate. See id.

Nonetheless, a non-signatory may be bound by or acquire rights

under an arbitration agreement under ordinary state-law principles

of agency or contract. Id.; First Options, 514 U.S. at 944.

Courts have recognized a number of theories arising out of

common law principles of contract and agency law under which non-

signatories may be bound to the arbitration agreements of others.

For example, 1) incorporation by reference; 2) assumption by

conduct; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel.

See Thomson-CSF, S.A. v. American Arbitration Ass’n, 64 F.3d 773,

776-80 (2d Cir. 1995) (citing as examples Matter of Arbitration

Between Keystone Shipping Co. & Texport Oil Co., 782 F.Supp. 28, 31

(S.D.N.Y. 1992)(incorporation by bill of lading); Gvozdenovic v.

United Air Lines, Inc., 933 F.2d 1100, 1105 (2d Cir.)(assumption by

conduct), cert. denied, 502 U.S. 910 (1991); Interbras Cayman Co.

v. Orient Victory Shipping Co., S.A., 663 F.2d 4, 6-7 (2d Cir.

1981) (agency); Carte Blanche (Singapore) Pte., Ltd. v. Diners Club

Int’l. Inc., 2 F.3d 24, 26 (2d Cir. 1993)(veil-piercing); Wm.

Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d

131, 138-39 (2d Cir. 1991)(same); Deloitte Noraudit A/S v. Deloitte

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Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993)(non-

signatory bound to arbitration contract by estoppel)).

In theory, under ordinary state-law principles of equitable

and promissory estoppel, a non-party to a contract containing an

arbitration clause may invoke the clause and compel a signatory

party to arbitrate when the signatory reasonably should have

expected that, because of his statements or conduct, the non-

signatory would be induced to rely justifiably on the contract and

would be injured thereby if the signatory refused to recognize the

non-signatory’s rights or entitlements with respect to the

contract.9 However, there have been few, if any, cases in which

a non-signatory has successfully invoked an arbitration clause

against a party signatory to the contract under ordinary equitable

or promissory estoppel principles. In a relatively few arbitration

cases, a non-signatory to the arbitration agreement has been

allowed to compel arbitration under a spurious estoppel theory when

the peculiar integrated or interlocking circumstances of the

parties’ relationships, related contracts, contractually assigned

responsibilities, conduct, and disputes would allow the inference

that the signatory and non-signatory parties have by an agreement

9
See, e.g., WILLISTON, supra note 1, §§ 8.3 and 8.4; RESTATEMENT
(SECOND) OF CONTRACTS § 90(1) (“A promise which the promisor should
reasonably expect to induce action or forbearance on the part of
the promisee or a third person and which does induce such action or
forbearance is binding if injustice can be avoided only by
enforcement of the promise. The remedy granted for breach may be
limited as justice requires.”); cf. 1 DOMKE § 10.07, at 18.

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implied in fact become bound reciprocally by the arbitration clause

or the contract of which it is a part. See MS Dealer Service Corp.

v. Franklin, 177 F.3d 942 (11th Cir. 1999); Sunkist Soft Drinks,

Inc. v. Sunkist Growers, Inc., 10 F.3d 753 (11th Cir.), cert.

denied, 513 U.S. 869 (1994); J.J. Ryan & Sons, Inc. v. Rhone

Poulenc Textile, S.A., 863 F.2d 315 (4th Cir. 1988); McBro Planning

& Development Co. v. Triangle Elec. Const. Co., Inc., 741 F.2d 342

(11th Cir. 1984); Hughes Masonry Co., Inc. v. Greater Clark County

School Bldg. Corp., 659 F.2d 836 (7th Cir. 1981); cf. 1 DOMKE §

10:07, at 18-20.

In truth, however, the bases of facts and reasoning upon which

the courts in those cases ordered a signatory to an arbitration

agreement to arbitrate a dispute with a non-signatory have the

earmarks of a foundation for an agreement implied in fact rather

than an ordinary equitable or promissory estoppel. In the courts’

opinions the non-signatory is said to have standing to compel a

signatory to arbitrate, rather than litigate, a justiciable claim

against the non-signatory, if, in addition to other significant

factors, there is a close relationship between signatory and non-

signatory entities and the signatory’s claim against the non-

signatory is intertwined with an arbitrable dispute under the

contract. However, the facts in those cases which made the

relationships “close” and the claims “intertwined,” viz., the

disputants’ voluntary and knowing formation of (and performance

- 21 -
under) interlocking or integrated contracts, their bargained for

exchanges of promises and/or performances between themselves and

others, and, in Sunkist and J.J. Ryan, the parent-subsidiary

corporate relationship, indicate the existence of an implied in

fact agreement rather than an ordinary equitable or promissory

estoppel.

“An agreement implied in fact is ‘founded upon a meeting of

minds, which, although not embodied in an express contract, is

inferred, as a fact, from conduct of the parties showing, in the

light of the surrounding circumstances, their tacit

understanding.’” Hercules, Inc. v. United States, 516 U.S. 417,

424 (1996)(quoting Baltimore & Ohio R. Co. v. United States, 261

U.S. 592, 597 (1923)).10 The doctrine of equitable estoppel

generally provides “that a representation of past or existing fact

made to a party who relies upon it reasonably may not thereafter be

denied by the party making the representation if permitting the

denial would result in injury or damage to the party who so

10
See 1 WILLISTON § 1.5, at 18-20 (citing, inter alia, Wood v.
Ingram, 275 S.W. 397 (Tex.Civ.App. 1925)(writ dism w.o.j.)), and
stating: “The Restatement (Second)[Of Contracts §§ 4 & comment a;
91 & comment a]....indicates that a promise may be stated in words
or may be inferred wholly or partly from conduct....a contract by
conduct is, in essence, an implied in fact contract....the
Restatement, as well as the numerous cases, make the concept
abundantly clear.” Id. at 24-25; see also 4 WILLISTON §§ 8.3 and
8.4.

- 22 -
relies.”11 The widely accepted general statement of promissory

estoppel, which developed against the backdrop of equitable

estoppel, is set forth by RESTATEMENT (SECOND) OF CONTRACTS § 90(1): “A

promise which the promisor should reasonably expect to induce

action or forbearance on the part of the promisee or a third person

and which does induce such action or forbearance is binding if

injustice can be avoided only by enforcement of the promise. The

remedy granted for breach may be limited as justice requires.” In

determining whether a person is bound either by an agreement

implied in fact or by the ordinary principles of equitable or

promissory estoppel, it should be kept in mind that “[j]ust as

assent may be manifested by words or other conduct, sometimes

including silence, so intention to make a promise may be manifested

in language or by implication from other circumstances, including

course of dealing or usage of trade or course of performance.”12

A brief review of Hughes, McBro, Sunkist and MS Dealer shows ample

evidence of assents and promises that may have more appropriately

warranted basing those decisions on agreements implied in fact, or

perhaps on ordinary promissory estoppel, rather than upon the

highly abstract new theory of an “estoppel” loosely based on

11
4 WILLISTON § 8.3, at 28-30 (citing, inter alia, Morton v.
Samuels, 268 S.W.2d 490 (Tex.Civ.App. 1954, writ ref’d n.r.e.)).
12
RESTATEMENT (SECOND) OF CONTRACTS § 4,comment a.

- 23 -
“close” relationships, “intertwined” claims, and other variable

factors.

The facts in McBro and Hughes were highly suggestive of an

implied in fact agreement between the parties to be mutually bound

by the contract containing the arbitration clause.13 In each case

a construction contractor entered a contract with the owner of the

proposed facility containing an arbitration clause. The same

contract designated a non-signatory party as construction manager

and outlined the duties of the owner, construction contractor,

construction manager, and, in one case, the architect, with respect

to the construction project. The construction managers in both

cases had not signed the owner-contractor agreement but had signed

separate contracts containing similar arbitration clauses with

either the owner or the owner’s architect. By performing duties

and accepting benefits under the interlocking and integrated system

13
See II IAN R. MACNEIL ET AL., FEDERAL ARBITRATION LAW, § 18.2.3
(Supp. 1999) (analyzing the Eleventh Circuit cases of McBro
Planning & Development Co. v. Triangle Elec. Const. Co., Inc., 741
F.2d 342 (11th Cir. 1984) and acknowledging the opinion’s heavy
reliance on Hughes Masonry Co. v. Greater Clark County Sch. Bldg.
Corp., 659 F.2d 836 (7th Cir. 1981), the editors conclude: “It
should be noted that the action estopping Triangle was apparently
its contracting with Hospital in the first place and performing
under that contract. Thus the court could just as well have put
the result in terms of consent. That is to say, Hospital and McBro
could have reasonably understood from Triangle’s contracting with
the hospital with knowledge of the terms of the Hospital-McBro
contract that Triangle was consenting to be bound by the
arbitration clause. The decision is probably most useful in simply
broadening out conceptions of consent, rather than in introducing
any truly separate doctrine.”).

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of construction contracts and relationships the contractors

impliedly agreed to be bound to arbitrate disputes with the

construction managers concerning the performance of the managers’

duties assigned by and performed under the owner-contractor

agreement, although the managers had only signed the related but

separate contract documents between themselves and the owner or its

architect.

In Sunkist a non-signatory parent corporation was granted

standing to arbitrate disputes arising out of the performance of a

contract containing an arbitration clause between the parent’s

wholly owned subsidiary and the other signatory to the contract.

The court relied not only on the close relationships of the

entities and the close resemblance of the arbitrable and litigable

claims but also on a form of corporate veil piercing: “‘When the

charges against a parent company and its subsidiary are based on

the same facts and are inherently inseparable, a court may refer

claims against the parent to arbitration even though the parent is

not formally a party to the arbitration.’” Sunkist, 10 F.3d at 757

(quoting J.J. Ryan, 863 F.2d at 320-21). The Fourth Circuit in

J.J. Ryan relied on the foregoing veil piercing language quoted

from its opinion and merely noted in passing that the same result

had been reached under a theory of equitable estoppel in McBro.

See J.J. Ryan, 863 F.2d at 321.

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 In MS Dealer, Sharon Franklin agreed to purchase a car from

Jim Burke Motors and signed a buyer’s order with Burke. The

buyer’s order incorporated by reference a retail installment

contract between Franklin and Burke which provided that Franklin

was being charged $990.00 for a service contract under which MS

Dealer Service Corporation (apparently designated by name in the

buyer’s order) agreed to provide services for Franklin’s car. (The

court of appeal’s opinion suggests that MS Dealer entered an oral

or written contract with Burke or Franklin or both to provide

services for Franklin’s car.) The buyer’s order contained an

arbitration clause which provided that “all disputes and

controversies of every kind and nature between buyer and Jim Burke

Motors, Inc. arising out of or in connection with the purchase of

this vehicle will be resolved by arbitration.” Also, in another

passage, the buyer’s order stated that “[a]ll disputes and

controversies of every kind and nature between the parties hereto

arising out of or in connection with this contract” shall be

submitted to arbitration. MS Dealer did not sign the buyer’s order

or the installment contract.

Franklin sued Burke and MS Dealer in state court claiming that

MS Dealer improperly conspired and colluded with Burke and Chrysler

Credit Corporation, the assignee of the retail installment

contract, in a scheme to defraud her by imposing an excessive

charge of $990.00 for the service contract and dividing the excess

- 26 -
amount. Burke filed a motion in state court to compel Franklin to

arbitrate, which was granted and resulted in an arbitration award

in favor of Burke and a dismissal of the state suit against Burke.

MS Dealer sued Franklin in federal district court to compel her to

arbitrate her claims against it. The court of appeals reversed the

district court’s dismissal of MS Dealer’s petition and granted the

defendants’ motion to stay the action and compel arbitration.

The MS Dealer court, in concluding that Franklin was equitably

estopped from avoiding arbitration with MS Dealer, stated:

It is important to note that Franklin’s obligation to pay

the $990.00 charge arose under the Buyers Order and that

she specifically alleges that MS Dealer worked hand-in-

hand with Jim Burke and Chrysler Credit Corporation in

this alleged fraudulent scheme. Her ‘allegations of such

pre-arranged, collusive behavior establish[] that [her]

claims against [MS Dealer are] intimately founded in and

intertwined with the obligations imposed by the [Buyers

Order].’

MS Dealer, 177 F.3d at 948 (quoting Boyd v. Homes of Legend, Inc.,

981 F.Supp. 1423, 1433 (M.D.Ala. 1997)).

As in Hughes and McBro, the circumstances of interlocking and

integrated contracts would allow the inference that both Franklin

and MS Dealer had agreed to arbitrate any dispute between them

- 27 -
arising out of or connected with Franklin’s purchase of the

automobile. Indeed, the ambiguous buyer’s order contract

reasonably could be construed to include MS Dealer as one of the

“parties hereto.” Further, Franklin reasonably should have

understood that MS Dealer agreed to provide the service contract

in exchange for the compensation it was to receive under the

buyer’s order and the retail installment contract and would call

upon her to arbitrate any dispute related to the formation or

performance of the service contract. Moreover, because Franklin’s

allegations of Burke’s fraudulent overcharging for the service

contract was clearly an arbitrable dispute arising out of and

connected with the purchase of the vehicle, MS Dealer’s alleged

conspiracy and collusion with Burke in the fraudulent overcharge

was an essential part of the arbitrable dispute between Franklin

and Burke.

Nevertheless, the Eleventh Circuit chose to use the spurious

estoppel theory or label and, in justifying its decision, attempted

to draw from the case some abstract “equitable estoppel”

explanatory principles:

First, equitable estoppel applies when the signatory to

a written agreement containing an arbitration clause

‘must rely on the terms of the written agreement in

asserting [its] claims’ against the non-signatory.

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 Sunkist Soft Drinks, 10 F.3d at 757. When each of a

signatory's claims against a non-signatory ‘makes

reference to’ or ‘presumes the existence of’ the written

agreement, the signatory's claims ‘arise[ ] out of and

relate[ ] directly to the [written] agreement,’ and

arbitration is appropriate. Id. at 758. Second,

‘application of equitable estoppel is warranted ... when

the signatory [to the contract containing the arbitration

clause] raises allegations of ... substantially

interdependent and concerted misconduct by both the

nonsignatory and one or more of the signatories to the

contract.’ Boyd, 981 F.Supp. at 1433.

MS Dealer, 177 F.3d at 947. The remainder of the MS Dealer

opinion, however, in its painstaking analysis of the facts and

reasoning based on all of the circumstances involved, indicates no

intention that the foregoing principles should be applied as free-

standing rules of law. The Eleventh Circuit concluded that

Franklin was compelled to arbitrate her dispute with MS Dealer only

after pointing out facts indicating that both parties had actually

manifested their mutual assent to a bargain in which they exchanged

promises of performances with each other and with Jim Burke Motors;

that the buyer’s order incorporating the arbitration clause and the

retail installment contract, which incorporated the service

- 29 -
contract with MS Dealer, were all parts of the bargain of which

Franklin, MS Dealer, and Burke were aware or should have been aware

before they entered the agreement; and that, if MS Dealer was a co-

conspirator with Burke in defrauding Franklin as she alleged, her

claim against MS Dealer was part of her dispute with Burke, with

whom she was a co-signatory of the arbitration agreement. See id.

at 947-49.

On the other hand, the Second Circuit, in Thomson-CSF, S.A. v.

Am. Arbitration Ass’n, 64 F.3d 773 (2d Cir. 1995), refused to

accept “[a]nything short of requiring a full showing of some

accepted theory under agency or contract law” before compelling

arbitration between a signatory and a non-signatory. Id. at 780.

In Thomson, the court of appeals reversed the district court’s

order compelling a non-signatory parent corporation to arbitrate a

dispute with a third party under an arbitration agreement signed by

the parent’s subsidiary corporation prior to the parent’s

acquisition of the subsidiary. The district court had determined

that the claims of the third party, E & S, did not fall within any

of the traditional theories for binding a non-signatory, but

nevertheless ordered Thomson, the non-signatory, to arbitrate a

dispute with E & S, applying a “hybrid approach” based on Thomson’s

conduct in voluntarily becoming an affiliate of its subsidiary,

Rediffusion, on the degree of control Thomson exercised over

Rediffusion, and on the interrelatedness of the issues. In so

- 30 -
doing, the Second Circuit held, “the district court improperly

extended the law of this Circuit and diluted the protections

afforded nonsignatories by the ‘ordinary principles of contract and

agency.’ A nonsignatory may not be bound to arbitrate except as

dictated by some accepted theory under agency or contract law.”

Id. at 780 (quoting McAllister Bros., Inc. v. A & S Transp. Co.,

621 F.2d 519, 524 (2d Cir. 1980))(internal citation omitted).

The Thomson court addressed a situation in which a signatory

seeks to compel a non-signatory, the inverse of the pattern in MS

Dealer, Sunkist, J.J. Ryan, McBro and Hughes. Nonetheless, Thomson

lends support to the conclusion that the Hughes-McBro line of cases

lacked a valid basis in the ordinary principles of estoppel or

veil-piercing for compelling the signatories to arbitrate with the

non-signatories. Instead, as Thomson implicitly suggests, in MS

Dealer, McBro and Hughes, the only valid basis for compelling the

signatories to arbitrate with the non-signatories was that their

knowing participation in the reticulated transactional

arrangements, and their performance and conduct thereunder, allowed

the inference that they agreed to be mutually bound by the contract

including the arbitration clause. After taking Sunkist, J.J. Ryan,

and McBro into account, the Second Circuit in Thomson distinguished

them as inapposite to the case before it on several grounds,

including: (1) when Thomson acquired Rediffusion as its subsidiary,

Thomson explicitly disavowed any obligations under the working

- 31 -
agreement, including the arbitration clause, between Rediffusion

and E & S, see Thomson, 64 F.3d at 777; (2) “[v]eil piercing

determinations are fact specific and ‘differ[] with the

circumstances of each case.’”, Id. at 777-78 (quoting American

Protein Corp. v. AB Volvo, 844 F.2d 56, 60 (2d Cir.), cert. denied,

488 U.S. 852 (1988)); “E & S has not demonstrated that Thomson

exerted the degree of control over Rediffusion necessary to justify

piercing the corporate veil.”, Id. at 778; (3) “Thomson...cannot be

estopped from denying the existence of an arbitration clause to

which it is a signatory because no such clause exists. At no point

did Thomson indicate a willingness to arbitrate with E & S.” Id.

at 779; (4) “[t]he district court...improperly extended the limited

theories upon which this Court is willing to enforce an arbitration

agreement against a non-signatory. The district court’s hybrid

approach dilutes the safeguards afforded to a non-signatory by the

‘ordinary principles of contract and agency’ and fails to

adequately protect parent companies, the subsidiaries of which have

entered into arbitration agreements.” Id. at 780.

The Second Circuit’s adherence to “ordinary principles of

contract and agency” in Thomson was consistent with the Supreme

Court’s admonition and example it set in First Options as to the

application of ordinary state law principles of contracts to

determine whether the parties agreed to arbitrate a certain matter.

As mentioned above, the Court in First Options instructed:

- 32 -
 When deciding whether the parties agreed to arbitrate a

certain matter (including arbitrability), courts

generally (though with a qualification we discuss below)

should apply ordinary state-law principles that govern

the formation of contracts....The relevant state law

here, for example, would require the court to see whether

the parties objectively revealed an intent to submit the

arbitrability issue to arbitration. [citing an Illinois

case for the law of the state whose law governed the

workout agreement and a Pennsylvania case for the law of

the state where the Kaplans objected to arbitrability]

First Options, 514 U.S. at 944 (internal citations omitted).

The plaintiffs brought the present suit against Creative

Artists and McConaughey in a Texas state court asserting a Texas

state tort claim for interference with contract. Thus, the

ordinary state law principles of Texas governing the formation of

contracts should be applied to determine whether the plaintiffs

agreed to arbitrate this matter with the defendants. The trial

court acknowledged that neither of the defendants were signatories

to the contract between the plaintiffs and Columbia TriStar. The

trial court did not find that the plaintiffs and defendants had

entered an agreement, express or implied in fact, to arbitrate the

tortious interference with contract claim. Instead, the trial

- 33 -
court determined that the plaintiffs were bound by equitable

estoppel to arbitrate the matter with the defendants. On appeal

the defendants also rely solely on equitable estoppel.

All American jurisdictions adopt and apply a theory of

promissory estoppel grounded in section 90 of the contracts

restatements. 3 ERIC MILLS HOLMES, CORBIN ON CONTRACTS, § 8.12, at 58

(Joseph M. Perillo ed., rev. ed. 1997) [hereinafter CORBIN]. This

theory is an outgrowth of and includes the earlier doctrine of

equitable estoppel. See 1 E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS §

2.19, at 137-40 (1990 and Supp. 1998); 3 CORBIN § 8.11, at 46.

Recent Texas decisions cite and apply the second Restatement § 90.

See 3 CORBIN § 8.12, at 188 (citing City of Beaumont v. Excavators

& Contractors, Inc., 870 S.W.2d 123, 136, 154 (Tex.App. 1993, writ

denied) (citing RESTATEMENT (SECOND) OF CONTRACTS § 90); Traco, Inc. v.

Arrow Glass Co., Inc., 814 S.W.2d 186, 190 (Tex.App. 1991, writ

denied); First State Bank in Archer City v. Schwartz Co., 687

S.W.2d 453 (Tex.App.1985, writ ref’d n.r.e.)). The current three-

prong Texas promissory estoppel requisites, however, were fashioned

from the first Restatement in the 1960s: (1) a promise, (2)

foreseeability of reliance by the promisor, and (3) substantial

reliance by the promisee to its detriment. Id. (citing, e.g.,

English v. Fischer, 660 S.W.2d 521, 524 (Tex. 1983); Randle v. NCNB

Texas Nat’l Bank, 812 S.W.2d 381 (Tex.App. 1991); Aubrey v. W.O.

Workman, 384 S.W.2d 389, 395 (Tex.Civ.App. 1964, writ ref’d

- 34 -
n.r.e.)). Later decisions added: (4) reliance on the promise must

be reasonable, and (5) the promise will be enforced if necessary to

avoid injustice. Id. (citing Texas cases).

Applying the Texas state-law principles governing the

formation of contracts and promissory estoppel, it is evident that

the plaintiffs should not be compelled to arbitrate their tortious

interference with contract claim with Creative Artists and

McConaughey. There was no agreement between these parties, express

or implied, to arbitrate that dispute. None of the requisites of

section 90 of the RESTATEMENT (SECOND) OF CONTRACTS or of the Texas

three-prong promissory estoppel have been established. There is no

evidence that the plaintiffs promised the defendants anything, that

they could foresee any reliance by the defendants, or that the

defendants relied on a promise by the plaintiffs to defendants’

detriment.14

14
The district court apparently relied on Sunkist, McBro and
two Texas decisions, Carlin v. 3V Inc., 928 S.W.2d 291 (Tex.App.--
Houston [14th Dist.] 1996, no writ) and Fridl v. Cook, 908 S.W.2d
507(Tex.App.-El Paso 1995, writ dism’d w.o.j.). These decisions
are not relevant to the present case. Sunkist and McBro are
inapposite for the reasons stated earlier. Carlin is inapt because
its essential holding was simply that an assignee of an assignor’s
rights and duties under a contract assumes and is bound by the
arbitration clause in the contract when the assignee asserts a
breach of contract claim under the contract against the other
signatory party to the contract. Fridl is irrelevant because its
main holding was simply that a breach of contract claim based on a
contract containing an arbitration clause is subject to
arbitration.

- 35 -
 For all of these reasons, I believe that the majority has

fallen into a number of serious, harmful legal errors in the

present case. The amorphous, misnamed estoppel theories of MS

Dealer, Sunkist, McBro, and Hughes conflict with and endanger the

basic principles that the Supreme Court has held must be adhered to

in compelling a person to submit to commercial arbitration, viz.,

(1) a person cannot be required to submit to arbitration any

dispute which he has not agreed so to submit, (2) a person who has

not agreed to arbitrate will normally have a right to a court’s

decision about the merits of its dispute, and (3) ordinary state-

law principles governing the formation of contracts should be

applied when deciding whether the parties agreed to arbitrate a

certain matter. This court is not bound by the court of appeals’

decisions in the Hughes-McBro line of cases and should not attempt

to follow them.

However, the majority erroneously attempts to follow MS Dealer

and compounds its error by mistaking MS Dealer’s highly abstract

explanatory “equitable estoppel” principles for the Eleventh

Circuit’s complete ratio decidendi. Consequently, the majority

overlooks the significance of the material facts upon which the MS

Dealer decision is actually based. In contrast with the present

uncomplicated case, MS Dealer involved an integrated network of

interlocking agreements anchored in a buyer’s order containing an

arbitration agreement. The signatories of the buyer’s order,

- 36 -
Franklin and Jim Burke Motors, and the non-signatory of those two

documents, MS Dealer, struck a bargain in which each person agreed

to exchange promises of performance with the others. See RESTATEMENT

(SECOND) OF CONTRACTS § 17. Each of the three parties manifested

mutual assent to the bargain or exchanges of promises by

intentional conduct from which he or she knew or had reason to know

the other parties would infer such assent. See RESTATEMENT (SECOND)

OF CONTRACTS §§ 18, 19. Each of the parties, including Franklin in

particular, knew or had reason to know that the buyer’s order

contained an arbitration agreement and incorporated by reference

the retail installment contract and the vehicular service contract.

Thus, the rationale of MS Dealer can be viewed as limited by its

material facts and even as an enforcement of an agreement implied

in fact. Consequently, if MS Dealer merely enforces an agreement

implied in fact, it does no violence to the principles that a party

cannot be forced to submit to arbitration a dispute that he has not

agreed to so submit according to the application of ordinary state-

law principles that govern the formation of contracts. The

majority, on the other hand, by disregarding the important material

facts underlying MS Dealer, and by adopting and applying only that

decision’s skeletal explanatory theory, unleashes an indeterminate

precedent capable in its application of sweeping countless parties’

disputes into arbitration without even a semblance of their

- 37 -
agreement under ordinary state-law principles of contracts, agency

or equitable estoppel.

The majority also misstates the applicable standard of review,

although the error may not have had any effect upon its decision.

In First Options, the Supreme Court held that the standard a court

of appeals should apply when reviewing a district court decision

that refuses to vacate or confirms an arbitration award should

proceed by accepting findings of fact that are not clearly

erroneous but deciding questions of law de novo. See First

Options, 514 U.S. at 948. “We believe...that the majority of

Circuits is right in saying that courts of appeals should apply

ordinary, not special, standards when reviewing district court

decisions upholding arbitration awards. For one thing, it is

undesirable to make the law more complicated by proliferating

review standards without good reasons.” Id. This court followed

First Options in General Motors Corp. v. Pamela Equities Corp., 146

F.3d 242, 246 (5th Cir. 1998) and F.C. Schaffer & Assocs., Inc. v.

Demech Contractors, Ltd., 101 F.3d 40, 43 (5th Cir. 1996).

Accordingly, the standard of review should be the same in this case

in which we are reviewing a district court’s decision that compels

parties either to submit a dispute to arbitration (that they

contend they have not agreed to so submit) or to abandon their

right to a court’s decision about the merits of the dispute.

Previous decisions of this circuit and others have said that we

- 38 -
review the grant or denial of a motion to compel arbitration de

novo. See Webb v. Investacorp, Inc., 89 F.3d 252, 257 (5th Cir.

1996); Snap-On Tools Corp. v. Mason, 18 F.3d 1261, 1264 (5th Cir.

1994); Armijo v. Prudential Ins. Co. of Am., 72 F.3d 793, 796 (10th

Cir. 1995); Kidd v. Equitable Life Assurance Soc’y of the United

States, 32 F.3d 516, 518 (11th Cir. 1994); Sunkist, 10 F.3d at 756;

Britton v. Co-op Banking Group, 4 F.3d 742, 744 (9th Cir. 1993);

Trap Rock Indus., Inc. v. Local 825, Int'l Union of Operating

Engineers, AFL-CIO, 982 F.2d 884, 887 (3d Cir. 1992); MidAmerica

Federal Sav. and Loan Ass'n v. Shearson/American Express, Inc., 886

F.2d 1249, 1259 (10th Cir. 1989). Paradoxically, the majority

opinion states that we review to determine only whether the

district court has abused its discretion in applying equitable

estoppel, but that an application of law that is erroneous, or an

assessment of the evidence that is clearly erroneous, constitutes

an abuse of discretion. These contradictory statements of the

standard can only lead to confusion. In my opinion, abuse of

discretion does not belong in our standard for reviewing whether

the ordinary state-law requisites of promissory or equitable

estoppel have been met, but the district court may well have

discretion in limiting the remedy as justice requires. See

RESTATEMENT (SECOND) OF CONTRACTS § 90(1).

- 39 -