United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS November 26, 2003
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
No. 02-31185
WILL-DRILL RESOURCES, Inc.; C ALLEN WILLIAMS; L W/E W FAMILY
PARTNERS LTD #2; L W/E W FAMILY PARTNERS LTD #2, #3; VISTA VENTURES
LLC; ET AL,
Plaintiffs - Counter Defendants - Appellees,
versus
SAMSON RESOURCES CO.,
Defendant - Counter Claimant - Appellant.
Appeal from the United States District Court
For the Western District of Louisiana
Before JOLLY, HIGGINBOTHAM, and STEWART, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
Samson Resources Co. appeals an order staying litigation and
compelling arbitration pursuant to an arbitration clause in a
Proposed Sale Agreement between Samson, Will-Drill Resources and
several other sellers of mineral leases and related assets. Samson
contends that the Proposed Sale Agreement it signed was an offer to
purchase all of the sellers’ property, which was rejected when less
than all of the sellers signed the Proposed Sale Agreement. Thus,
Samson contends that no agreement of any kind was reached between
the parties. The district court held that because Samson’s
argument attacked the agreement generally, rather than the
arbitration clause specifically, the separability doctrine of Prima
Paint applied, and the court ordered arbitration. We vacate the
order compelling arbitration and remand the case to the district
court, concluding that where the very existence of any agreement to
arbitrate is at issue, it is for the courts to decide based on
state-law contract formation principles.
I.
Will-Drill Resources Inc., acting for itself and as agent for
over forty others, offered for sale mineral leases and related
assets in Mississippi. Samson Resources Co., an oil and gas
company interested in purchasing the properties, entered into a
Confidentiality Agreement with Will-Drill which permitted Samson to
review proprietary information about the properties and set out the
process that would lead to a possible transaction.
After reviewing the information and negotiating with
representative owner Earnest E. Nix Jr. (“Nix”), Samson presented
Nix with a Proposed Sale Agreement (“PSA”). The PSA provided that
Samson agreed to buy all of the sellers’ properties. It was signed
by Samson and had a separate signature block for each seller to
sign. It also contained a provision which provided for arbitration
of any “action dispute, claim or controversy of any kind now
2
existing or hereafter arising between the parties in any way
arising out of, pertaining to or in connection with” the PSA.
Nix later contacted Samson indicating that eight of the
sellers included on the signature pages had decided not to sell
their properties at the price offered and identified four new
sellers who wanted in on the deal.1 Samson then notified Nix that
it was withdrawing the PSA. Samson contended that the PSA was an
offer to buy all of the properties listed in the PSA, and with less
than all of sellers’ signatures, Samson’s offer was rejected and a
counter-offer was made by Nix, which Samson was rejecting. Thus,
there was no contract. Samson based its argument in part on the
Confidentiality Agreement, which was included by reference in the
PSA. Samson contended that the PSA requires the signature of all
parties before any legally binding agreement can be formed.
Will-Drill and several of the sellers who had signed the PSA
brought suit against Samson in Louisiana state court seeking
specific performance of the contract or damages. They then amended
their complaint seeking to invoke the arbitration provisions of the
PSA. Based on diversity jurisdiction, Samson removed the case to
the District Court and counterclaimed for breach of the
Confidentiality Agreement. After removal, additional plaintiffs
were added, all of whom had signed the PSA. The plaintiffs moved
1
The parties dispute the nature of the withdrawal of the eight sellers.
Will-Drill maintains that their withdrawal had been discussed prior to the
drafting of the PSA and that they had been included in the document by error.
Samson disputes this assertion.
3
to stay the proceedings and compel arbitration pursuant to the
Federal Arbitration Act,2 as well as partial summary judgment.
Samson moved for partial summary judgment and moved to strike
portions of an affidavit of Nix that had been presented to the
court.
The magistrate judge reviewing the case applied the doctrine
of separability,3 and determined that whether the PSA was an
enforceable contract was an issue for the arbitrator, not the
court, to decide. The magistrate judge recommended that the court
grant partial summary judgment in favor of Will-Drill by ordering
arbitration, deny Samson’s motion for partial summary judgment, and
deny the motion to strike as moot. The district court agreed and
entered the judgment as recommended. Samson appeals the judgment
compelling arbitration and the denial of its motion for partial
summary judgment.
II.
A.
2
The FAA, 9 U.S.C. § 4 reads:
A party aggrieved by the alleged failure, neglect, or refusal of
another to arbitrate under a written agreement for arbitration may
petition any United States district court ... for an order directing
that such arbitration proceed in the manner provided for in such
agreement. ... [U]pon being satisfied that the making of the
agreement for arbitration or the failure to comply therewith is not
in issue, the court shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the agreement
....
3
See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967).
4
We review de novo the grant or denial of a petition to compel
arbitration pursuant to § 4 of the FAA.4 Courts perform a two-step
inquiry to determine whether parties should be compelled to
arbitrate a dispute. “First, the court must determine whether the
parties agreed to arbitrate the dispute. Once the court finds that
the parties agreed to arbitrate, it must consider whether any
federal statute or policy renders the claims nonarbitrable.”5 When
considering the first question, there are two considerations:
“‘(1) whether there is a valid agreement to arbitrate between the
parties; and (2) whether the dispute in question falls within the
scope of that arbitration agreement.’”6 Although there is a strong
federal policy favoring arbitration, “this federal policy favoring
arbitration does not apply to the determination of whether there is
a valid agreement to arbitrate between the parties.”7 “Because the
FAA is at bottom a policy guaranteeing the enforcement of private
contractual arrangements, we look first to whether the parties
agreed to arbitrate a dispute, not to general policy goals, to
determine the scope of the agreement.”8 In determining whether an
4
Primerica Life Ins. Co. v. Brown, 304 F.3d 469, 471 (5th Cir. 2002).
5
R.M. Perez & Assocs., Inc. v. Welch, 960 F.2d 534, 538 (5th Cir. 1992)
(internal citations omitted).
6
Am. Heritage Life Ins. Co. v. Lang, 321 F.3d 533, 538 (5th Cir. 2003)
(quoting Webb v. Investacorp, 89 F.3d 252, 258 (5th Cir. 1996)).
7
Fleetwood Enters. Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002).
8
EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002) (internal quotation
marks and citations omitted).
5
agreement to arbitrate exists, we apply “ordinary contract
principles.”9
Will-Drill argues that the separability doctrine articulated
in Prima Paint,10 as recently applied by this court in Primerica,11
required the district court to order arbitration. In Primerica,
the plaintiff resisted arbitration, claiming he lacked the mental
capacity to execute a contract under Mississippi law, and therefore
the contract containing an arbitration clause which he signed was
void and the court could not order arbitration.12 Applying the
separability doctrine, we held that because the capacity defense
was directed at the contract generally and not a specific challenge
to the arbitration clause, the capacity defense must be submitted
to arbitration along with the rest of the dispute between the
parties.13 We stated the separability principle in broad terms:
9
Fleetwood, 280 F.3d at 538.
10
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967).
11
Primerica Life Ins. Co. v. Brown, 304 F.3d 469 (5th Cir. 2002).
12
Id. at 471.
13
Id. at 472; see also Snap-On Tools Corp. v. Mason, 18 F.3d 1261, 1267-68
(1994) (submitting fraudulent inducement defense to arbitration because
allegations of fraud did not specifically relate to the arbitration clause);
R.M. Perez & Assocs., Inc. v. Welch, 960 F.2d 534, 538-39 (1992) (submitting
allegations of fraud in obtaining signatures to contract to arbitration because
defense was not specific to the arbitration agreement); Lawrence v. Comprehensive
Bus. Serv. Co., 833 F.2d 1159, 1162 (5th Cir. 1987) (submitting illegality
defense to arbitration because it did not specifically relate to arbitration
clause); Mesa Operating Ltd. P’ship v. La. Intrastate Gas Corp., 797 F.2d 238,
244 (5th Cir. 1986) (submitting claim that contract was void ab initio to
arbitration because parties failed to demonstrate that the arbitration agreement
was “invalid separately from the entire contract”).
6
“[U]nless a defense relates specifically to the arbitration
agreement, it must be submitted to the arbitrator as part of the
underlying dispute.”14
Samson argues that Prima Paint does not apply here, even
though Samson’s argument that all of the sellers’ signatures were
required for the formation of the contract is directed at the
making of the contract generally, rather than the arbitration
clause specifically. Samson characterizes its argument as
challenging the very existence of a contract, rather than a defense
to an existing contract which it seeks to have declared void or
voidable.15 Samson notes that it is for the courts, and not an
arbitrator, to decide whether the parties have agreed to arbitrate.
Thus, Samson concludes that the court, not the arbitrator, must
decide whether less than all of the sellers’ signatures constitutes
acceptance of the offer and the creation of a contract. Where no
contract exists, there is no agreement on anything, including an
agreement to arbitrate.
Samson’s argument finds some support in our precedent. In
Jolley v. Welch, investors brought suit against their stockbroker
14
Primerica Life Ins. Co., 304 F.3d at 472.
15
Some circuits distinguish between defenses which make a contract void
and those which merely make the contract voidable. See, e.g., Sphere Drake Ins.
Ltd. v. Clarendon Nat’l Ins. Co., 263 F.3d 26, 32 (2d Cir. 2001); Sandvik AB v.
Advent Int’l Corp., 220 F.3d 99, 107 (3d Cir. 2000). In Primerica, we rejected
this distinction as inconsistent with our precedent. 304 F.3d at 472 n. 2
(citing Mesa Operating, 797 F.2d at 244).
7
and brokerage firm.16 The brokerage firm moved to submit the claims
against it to arbitration, and an issue arose about the possible
forgery of the plaintiffs’ signatures on forms containing the
arbitration clauses.17 The forgery issue was referred to the
magistrate judge “for an evidentiary hearing on which, if any, of
the original arbitration agreements bear legitimate signatures, and
which, if any, are forgeries.”18 The brokerage firm argued that the
district court erred in referring the forgery issue to the
magistrate judge because under Prima Paint, “a claim of fraud in
the inducement of the contract generally, as opposed to fraud in
the inducement of the arbitration clause, may not be passed on by
a federal court.”19
We held that “‘the first task of a court asked to compel
arbitration of a dispute is to determine whether the parties agreed
to arbitrate that dispute.’”20 Because the brokerage firm declined
to introduce an agreement signed by one of the plaintiffs, we
concluded that “the district court accordingly had no opportunity
to reach even its ‘first task,’” and therefore the district court
did not err in refusing to order arbitration of that plaintiff’s
16
904 F.2d 988, 990 (5th Cir. 1990).
17
Id. at 993.
18
Id.
19
Id. at 993-94.
20
Id. at 994 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614, 626 (1985) (emphasis added)).
8
claim.21 Although not explicitly stated in the opinion, we
implicitly rejected the argument that the forgery issue should have
been presented to the arbitrator, and was improperly before the
district court.
Similarly, in Fleetwood Enterprises, Inc. v. Gaskamp,22 we
refused to order arbitration of a dispute where one of the parties
claimed that it was not bound by the entire agreement, including
the arbitration clause.23 In Gaskamp, the parents brought suit
against the manufacturer of their mobile home on behalf of
themselves and as next friend of their minor children for injuries
sustained from exposure to toxic fumes present in their new mobile
home. The manufacturer tried to compel arbitration, based on an
arbitration clause in the sales agreement signed by the parents.
The parents resisted arbitration of their children’s claims,
arguing that the children were not bound by the arbitration clause
because the children did not sign the agreement. We turned to
Texas law to determine “whether there [was] a valid agreement to
arbitrate” between the children and the manufacturer, and concluded
that under Texas law, the children were not bound by their parents’
signatures.24 Even though the existence of the entire agreement,
21
Id.
22
280 F.3d 1069 (5th Cir. 2002).
23
Id. at 1077.
24
Id. at 1074-77.
9
and not just the arbitration clause, was at issue, we did not send
the issue to the arbitrator. We stated the basic principle that it
is for the courts to decide whether the parties have agreed to
arbitrate, and that “[t]his determination is generally made on the
basis of ‘ordinary state-law principles that govern the formation
of contracts.’”25
Our sister circuits have reached the same conclusion, refusing
to order arbitration of disputes where one party claims that it is
not bound by the arbitration agreement, either because it was not
an original party to the agreement,26 its signature was forged,27 or
because the person signing on its behalf was acting outside the
scope of his authority and thus the party is not bound by the
signature.28 In all of these cases, the parties resisting
25
Id. at 1073 (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938, 944 (1995)).
26
See Chastain v. Robinson-Humphrey Co., 957 F.2d 851 (11th Cir. 1992)
(refusing to compel arbitration where one party had not signed the agreement
containing the arbitration clause); I.S. Joseph Co. v. Mich. Sugar Co., 803 F.2d
396 (8th Cir. 1986) (holding that question of whether the assignee of party to
an agreement including arbitration clause could compel arbitration was for the
courts).
27
See Opals on Ice Lingerie v. Body Lines Inc., 320 F.3d 362 (2d Cir.
2003) (refusing to order arbitration where signature on agreement was not
genuine).
28
Sphere Drake Ins. Ltd. v. All Am. Ins. Co., 256 F.3d 587 (7th Cir. 2001)
(refusing to compel arbitration where party contended that agent who signed the
agreement lacked the authority to bind the party); Sandvik AB v. Advent Int’l
Corp., 220 F.3d 99 (3d Cir. 2000) (same); Three Valleys Mun. Water Dist. v. E.F.
Hutton & Co., 925 F.2d 1136 (9th Cir. 1991) (same); see also Snowden v.
Checkpoint Cashing, 290 F.3d 631, 637 (4th Cir. 2002) (citing favorably decisions
from other circuits refusing to compel arbitration where a party contends that
it never assented to the contract containing the arbitration provision).
10
arbitration attack the existence of the entire agreement, not the
arbitration clause specifically.
Refusing to order arbitration of a dispute where one of the
parties claims that it never signed the agreement, and therefore
never agreed to anything, is consistent with the Supreme Court’s
pronouncements that arbitration “does not require parties to
arbitrate when they have not agreed to do so,” and that
“[a]rbitration under the FAA is a matter of consent, not
coercion.”29 The Court has made clear that arbitration is a matter
of private contract, and “[i]t goes without saying that a contract
cannot bind a nonparty.”30 The Court has concluded that:
a gateway dispute about whether the parties are bound by
a given arbitration clause raises a “question of
arbitrability” for a court to decide. See [First Options
of Chicago, Inc., 514 U.S. at 943-946] (holding that a
court should decide whether the arbitration contract
bound parties who did not sign the agreement); John
Wiley & Sons, Inc. v. Livingston, [376 U.S. 543, 546-547
(1964)] (holding that a court should decide whether an
arbitration agreement survived a corporate merger and
bound the resulting corporation).31
In First Options of Chicago v. Kaplan,32 the dispute centered
on several agreements to resolve the payment of debts owed by
29
EEOC v. Waffle House, Inc., 534 U.S. 279, 293-94 (2002) (citing Volt
Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468,
478-79 (1989) (internal quotation marks omitted)).
30
Waffle House, Inc., 534 U.S. at 294.
31
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (emphasis
added).
32
514 U.S. 938 (1995).
11
Manuel Kaplan, his wife, and his wholly owned investment company,
MK Investments, Inc. MKI had signed an agreement containing an
arbitration clause, but the Kaplans had not done so in their
personal capacity. First Options moved to compel arbitration, and
MKI agreed to arbitrate while the Kaplans refused, arguing that
since they had not signed any agreements containing an arbitration
clause, they had not agreed to arbitrate any disputes.33
The Court analyzed the problem by distinguishing among three
related questions.34 The first question was the merits of the
dispute – whether the Kaplans owed First Options the money. The
second question was whether the parties agreed to arbitrate the
merits – the question of arbitrability. And the final question was
who should decide the second question. The unanimous Court held
that absent clear and unmistakable evidence that the parties agreed
to arbitrate the question of arbitrability, the third question is
for the courts.35 The Court then stated that “[w]hen deciding
whether the parties agreed to arbitrate a certain matter [the
second question] ... courts generally ... should apply ordinary
state-law principles that govern the formation of contracts.”36
33
Id. at 940-41.
34
Id. at 942.
35
Id. at 944 (internal quotation marks and brackets omitted).
36
Id. at 944.
12
This is consistent with the Court’s earlier opinion in Perry
v. Thomas.37 There the Court stated that the question of whether
a party could compel arbitration of a dispute based on an
arbitration agreement it had not signed “simply presents a
straightforward issue of contract interpretation: whether the
arbitration provision inures to the benefit of [the party] and may
be construed, in light of the circumstances surrounding the
litigants’ agreement, to cover the dispute that has arisen between
them. This issue may be resolved on remand.”38
These cases present two principles which are in tension.
First, it is clear that because arbitration is a matter of
contract, where a party contends that it has not signed any
agreement to arbitrate, the court must first determine if there is
an agreement to arbitrate before any additional dispute can be sent
to arbitration.39 We agree with those circuits which have included
claims that the signature is forged or the agent lacked authority
to bind the principle in this category.40 On the other hand, where
parties have formed an agreement which contains an arbitration
clause, any attempt to dissolve that agreement by having the entire
37
482 U.S. 483 (1987).
38
Id. at 492.
39
See Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069 (5th Cir.
2002); First Options of Chicago v. Kaplan, 514 U.S. 938 (1995).
40
See Jolley v. Welch, 904 F.2d 988, 993-94 (5th Cir. 1990); see supra
notes 27 & 28 and accompanying text.
13
agreement declared voidable or void is for the arbitrator.41 Only
if the arbitration clause is attacked on an independent basis can
the court decide the dispute; otherwise, general attacks on the
agreement are for the arbitrator.42
B.
This case lies between these principles. Samson is attacking
the very existence of any agreement. On the other hand, we have
before us a document signed by all parties wishing to enforce it,
as well as the party refusing arbitration. Its validity is being
attacked on a basis that is directed at the agreement in general,
rather than the arbitration clause in particular.
We base our answer on the fundamental principle that
arbitration is a matter of contract which cannot be forced upon a
party absent its consent. Where the very existence of any
agreement is disputed, it is for the courts to decide at the outset
whether an agreement was reached, applying state-law principles of
contract.
We reject the argument that where there is a signed document
containing an arbitration clause which the parties do not dispute
they signed, we must presume that there is a valid contract and
send any general attacks on the agreement to the arbitrator. The
base point to which the analysis inevitably returns is that the
41
See Primerica Life Ins. Co. v. Brown, 304 F.3d 469 (5th Cir. 2002);
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967).
42
See Primerica Life Ins. Co., 304 F.3d at 472.
14
separability doctrine rests on the assumption that there is an
underlying agreement. That one of the parties later disputes the
enforceability of that agreement does not change the fact that at
some point in time, the parties reached an agreement, and that
agreement included the decision to arbitrate disputes arising out
of the agreement. The existence of this agreement provides the
arbitrator with the authority required to decide whether the
agreement will continue to exist.43 Even if the arbitrator
concludes that the agreement was void, and the parties are returned
to their pre-agreement positions as if the agreement never existed,
the agreement existed long enough to give the arbitrator the power
to decide the dispute.
In contrast, where the very existence of an agreement is
challenged, ordering arbitration could result in an arbitrator
deciding that no agreement was ever formed. Such an outcome would
be a statement that the arbitrator never had any authority to
decide the issue. A presumption that a signed document represents
an agreement could lead to this untenable result.44 We therefore
conclude that where a party attacks the very existence of an
43
See Lawrence v. Comprehensive Bus. Servs. Co., 833 F.2d 1159 (5th Cir.
1987) (compelling arbitration of claim that contract was void as illegal); Mesa
Operating Ltd. P’ship v. La. Intrastate Gas Corp., 797 F.2d 238 (5th Cir. 1986)
(same).
44
See Kulukundis Shipping v. Amtorg Trading Corp., 126 F.2d 978, 986 (2nd
Cir. 1942) (noting that if an arbitrator had the authority to reexamine a court’s
prior determination that an agreement existed, it “would (1) negate the court’s
prior contrary decision on a subject which, admittedly, the [U.S. Arbitration]
Act commits to the court, and (2) destroy the arbitrators’ authority to decide
anything and thus make their decision a nullity”).
15
agreement, as opposed to its continued validity or enforcement, the
courts must first resolve that dispute.
This holding is consistent with Mesa Operating Limited
Partnership v. Louisiana Intrastate Gas Corp.45 In Mesa, the party
resisting arbitration challenged the entire agreement based on
illegality, arguing that the contract was therefore void ab
initio.46 We rejected the argument that the doctrine of
separability did not apply and ordered arbitration.47 The parties
reached an agreement since the contract was performed
satisfactorily by both sides for about two years.48 Thus, the
challenge in Mesa was to the continued viability of the agreement,
rather than its very existence.49
We are forced here to an admittedly fine distinction. And we
do not doubt that this distinction will occasionally be elusive.
But these cases, as this one, fall at the margins of our two
competing principles. Here, we find that Samson is attacking the
existence of an agreement, as opposed to the continued validity of
an agreement that already exists. We are informed in this
45
797 F.2d 238 (5th Cir. 1986).
46
Id. at 244.
47
Id.
48
Id. at 240.
49
See also Lawrence v. Comprehensive Bus. Servs. Co., 833 F.2d 1159, 1160-
61 (5th Cir. 1987) (ordering arbitration of dispute where party challenged
agreement on the basis of illegality, but party had been abiding by the agreement
prior to the dispute).
16
conclusion by a hypothetical offered by Samson, albeit with our
modification.
If A were to send an unsigned proposal containing an
arbitration clause to B, offering to buy Blackacre for $100,000,
and B were to sign the proposal after striking Blackacre and
substituting Whiteacre, no agreement was reached. It could be said
that A and B were both willing to arbitrate, but A was willing to
arbitrate the purchase of Blackacre, while B was willing to
arbitrate the sale of Whiteacre. Because A did not sign the
counter-offer, if A contends that no agreement to arbitrate exists
a court must first decide if an agreement exists between A and B.50
Under the same scenario, except that A signed the proposal to buy
Blackacre before sending it to B, A’s signature does not change the
fact that A and B, while willing to arbitrate, never reached an
agreement to arbitrate.
Samson contends that his is the second scenario. We decline
to express an opinion on the merits of Samson’s argument, beyond
the observation that a court must first resolve this dispute.
C.
Samson also challenges the district court’s denial of its
motion for partial summary judgment that no contract exists and
50
See Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069 (5th Cir.
2002) (refusing to order arbitration after court determined that party did not
sign agreement and was not bound under state contract law); First Options of
Chicago v. Kaplan, 514 U.S. 938 (1995) (holding that question of whether party
agreed to arbitrate was for the court to decide based on state-law principles of
contract formation).
17
that Will-Drill violated the Confidentiality Agreement by filing
suit. Samson asks us to reverse and render judgment. The district
court ordered arbitration, and did not further address the parties’
dispute. We vacate the order compelling arbitration. We decide
nothing more, remanding the remaining issues to the district court.
III.
We VACATE the district court’s order staying proceedings and
enforcing arbitration, and the district court’s grant of partial
summary judgement to Will-Drill. The case is REMANDED for further
proceedings consistent with this opinion.
18