Lincoln Griswold v. Coventry First LLC

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

___________

No. 13-1879

___________

LINCOLN T. GRISWOLD; LINCOLN T. GRISWOLD

FAMILY LLP

v.

COVENTRY FIRST LLC; THE COVENTRY GROUP,

INC.; MONTGOMERY CAPITAL, INC.; COVENTRY

FINANCIAL LLC; REID S. BUERGER,

Appellants

__________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 10-cv-05964)

District Judge: Honorable C. Darnell Jones, II

___________

Argued January 14, 2014

Before: AMBRO, HARDIMAN

and GREENAWAY, JR., Circuit Judges.

(Opinion Filed: August 11, 2014)

Ronald J. Mann [ARGUED]

Gerard M. McCabe

Mitts Law

1822 Spruce Street

Philadelphia, PA 19103

Daniel P. Goetz

R. Eric Kennedy

Weisman, Kennedy & Berris

1600 Midland Building

101 West Prospect Avenue

Cleveland, OH 44115

Mark D. Griffin

Thorman Petrov Griffin

3100 Terminal Tower

50 Public Square

Cleveland, OH 44113

Peter Hardin Levine

J. Matthew Linehan

Daniel P. Petrov

Christopher P. Thorman

Thorman & Hardin-Levine

1220 West Sixth Street

Cleveland, OH 44113

Attorneys for Lincoln T. Griswold and Lincoln

Griswold Family LLP, Plaintiffs-Appellees

Kannon K. Shanmugam [ARGUED]

Stephen D. Andrews

Kenneth J. Brown

Sarah K. Campbell

2

David Forkner

Marcie R. Ziegler

Williams & Connolly

725 12th Street, N.W.

Washington, DC 20005

F. Warren Jacoby

Jennifer M. McHugh

Cozen O'Connor

1900 Market Street

Philadelphia, PA 19103

Attorneys for Coventry First, LLC, Coventry Group,

Inc., Montgomery Capital, Inc., Coventry Financial

LLC, and Reid S. Buerger, Defendants - Appellants

____________

OPINION

____________

HARDIMAN, Circuit Judge.

Appellee Lincoln T. Griswold purchased a life

insurance policy that was later sold to Appellant Coventry

First LLC (Coventry) for an allegedly inflated price that

included undisclosed kickbacks to the broker. Griswold sued,

and Coventry moved to dismiss the case for lack of standing

or, in the alternative, to compel arbitration. The District Court

denied the motion and Coventry appealed. Two questions are

presented: (1) whether we have appellate jurisdiction to

review the District Court’s denial of a motion to dismiss for

lack of standing; and (2) whether the District Court erred

when it denied a motion to compel arbitration.

3

I

This appeal arises from an alleged fraud in connection

with a “life settlement,” which involves the sale of a life

insurance policy for more than its cash-surrender value but

less than the net death benefit. The purchaser of the policy

pays the premiums until the original policy owner’s death, at

which time the purchaser collects the death benefit.

In January 2006, Griswold purchased an $8.4 million

life insurance policy. He then established the Lincoln T.

Griswold Irrevocable Trust (the Trust) under Georgia law for

the “sole and exclusive purpose” of owning the policy and he

disclaimed any personal “right, title or interest in or power,

privilege or incident of ownership” in the trust property. He

appointed Wells Fargo Bank to serve as Trustee.

Two weeks after the Trust was formed, Griswold

named Griswold LLP 1 as its sole beneficiary. 2 According to

the terms of the partnership agreement, Griswold LLP would

1

The partners in the LLP were Griswold, who owned

99% of the shares, and his son, Kirk Griswold, who owned

the remainder.

2

The partnership also served as the borrower under a

financing agreement made with Bedrock Financing, in which

the partnership received funds and then transmitted them to

the Trust to pay the premiums on the life insurance policy.

The partnership agreement specifically prohibited the

partnership from “engag[ing] in any business or activity

whatsoever except as specifically authorized” in the

partnership agreement or the financing agreement with

Bedrock. JA 370 (§ 2.7).

4

dissolve once it fulfilled its limited purpose of receiving the

proceeds of the life insurance policy. At that point, it would

enter into a “winding-up period,” during which the trustee

was tasked with “liquidating its property, satisfying the

claims of its creditors, and distributing any remaining

property or the proceeds therefrom to the Partners.” JA 382 (§

9.3). Upon completion of the winding up period, the

liquidating trustee would file a “Cancellation of the Election

to Become a Limited Liability Partnership” to terminate the

partnership. JA 384 (§ 9.8).

In January 2006, the Trust appointed Mid-Atlantic

Financial as its exclusive agent to “identify, select and

appoint” a life-settlement broker who would help the Trust

sell Griswold’s life insurance policy. JA 326 (§ 1.1). Mid-

Atlantic selected Kevin McGarrey, who had previously

assisted Griswold in procuring the policy, to be the settlement

broker. In March 2008, McGarrey reached out to Appellant

Coventry First LLC (Coventry), a Pennsylvania-based insurer

and significant player in the life settlement industry,

indicating that Griswold’s life insurance policy was for sale

and that Mid-Atlantic had authorized him to broker a life

settlement for a commission of $84,000. In his complaint,

Griswold alleges that Coventry rigged the bidding process by

having McGarrey sign a written producer agreement—the

“Secret McGarrey Agreement”—promising to refrain from

seeking any further bids and to report any competing offers

and their material terms to Coventry. In exchange, Coventry

allegedly allowed McGarrey to “self-determine” his

commission to the tune of $145,000, which was $61,000

more than what he was entitled to. Accordingly, McGarrey

did not put the policy on the competitive market and did not

pursue any other potential buyers.

5

Coventry offered $1.675 million for the Griswold

policy—$1.53 million for the policy and $145,000 for

McGarrey’s commission. Coventry and McGarrey did not

disclose the amount of broker compensation to the Trust or to

Griswold. 3 On March 31, 2008, the Trust sold its policy to

Coventry without having received a competing offer. The

written purchase agreement contained the following

arbitration clause:

All disputes and controversies of every kind and nature

between the Parties arising out of or in connection with

this Agreement including, but not limited to, its

existence, construction, validity, interpretation or

meaning, performance, non-performance, enforcement,

operation, breach, continuance, or termination thereof

shall be submitted and settled by arbitration in

accordance with the rules of the American Arbitration

Association.

JA 648 (§ 8.8). Once Coventry acquired the life insurance

policy, the Trust dissolved, having fulfilled its sole purpose.

The Trustee, Wells Fargo, then transferred the proceeds of the

sale to Griswold LLP, the sole beneficiary. In December

2008, the partners of Griswold LLP filed a “Cancellation of

3

At the time, neither Pennsylvania nor Georgia state

law required the policy purchaser to disclose the broker

compensation to the policy owner. However, Pennsylvania

law imposed a fiduciary duty on the broker to disclose the

amount of compensation, 40 Pa. Stat. Ann. § 626.7(d). Thus

Griswold argues that Coventry is liable for aiding and

abetting McGarrey’s deliberate breach of fiduciary duty. 40

Pa. Stat. Ann. § 626.2.

6

Limited Liability Partnership Election” in Georgia state court

pursuant to the LLP’s partnership agreement.

In September 2010, after learning of Coventry’s alleged

fraud, Griswold sued Coventry, Coventry Group,

Montgomery Capital, Coventry Financial, and Reid S.

Buerger, Coventry’s Executive Vice President, in

Pennsylvania state court on behalf of himself—both in his

individual capacity and as the former majority partner of

Griswold LLP—and on behalf of a class of persons who had

sold their life insurance policies to these Defendants.

Griswold alleged that Coventry’s collusion with McGarrey to

conceal his self-determined commission and rig the bidding

process constituted common law fraud, fraudulent

concealment, conversion, aiding and abetting the breach of

fiduciary duties, unjust enrichment, and also violated state life

settlement acts, the Sherman Act, and the Racketeer

Influenced and Corrupt Organizations Act (RICO).

Because the class action sought over $5 million in

damages, Coventry removed the case to the United States

District Court for the Eastern District of Pennsylvania. In

recognition of the fact that Griswold had not signed the

purchase agreement, Coventry filed a motion to dismiss for

lack of standing, or in the alternative, to compel arbitration

pursuant to the purchase agreement. 4 In response, Griswold

filed an “Election to Revive and Reinstate and Otherwise

4

Only the Griswold Trust, which has since dissolved,

signed the purchase agreement; neither of the Appellees—

Griswold and Griswold LLP—were signatories. Thus,

Coventry is the only party to this litigation to have signed the

purchase agreement.

7

Become a Limited Liability Partnership,” followed by an

Amended Complaint adding Griswold LLP as a Plaintiff. JA

480. Coventry moved to dismiss the Amended Complaint.

The District Court denied Coventry’s motion to dismiss,

finding that because “Griswold possesses a proprietary

interest in the property of Griswold LLP that was injured,

both Lincoln T. Griswold and the LLP have Article III

standing.” JA 4. The District Court then denied Coventry’s

alternative motion to compel arbitration, holding that the

arbitration clause was “unenforceable as to Plaintiffs who are

non-signatories.” Id. Coventry timely appealed.

II

The District Court had jurisdiction pursuant to 28

U.S.C. § 1332(d). We have appellate jurisdiction over the

District Court’s denial of defendants’ motion to compel

arbitration pursuant to 28 U.S.C. § 1291 and the Federal

Arbitration Act (FAA), 9 U.S.C. § 16(a)(1)(B), which

provides that “[a]n appeal may be taken” from an order

denying a petition to compel arbitration. See E.I. Dupont de

Nemours & Co. v. Rhone Poulenc Fiber and Resin

Intermediates S.A.S., 269 F.3d 187, 204 (3d Cir. 2001).

The parties dispute whether we have appellate

jurisdiction to review the District Court’s denial of

Coventry’s motion to dismiss for lack of standing. Coventry

argues that we have not only the authority but the obligation

to determine whether Appellees possess standing because it is

a “threshold jurisdictional requirement” both in the district

court and on appeal. Coventry Br. at 18-19 (citing Majestic

Star Casino, LLC v. Barden Development, Inc., 716 F.3d 736,

747-49 (3d Cir. 2013) (“As a threshold matter of

8

justiciability, we must decide whether the Debtors have

standing . . . .”); Interfaith Community Org. v. Honeywell

Int’l, Inc., 399 F.3d 248, 254 (3d Cir. 2005).); see also Steel

Co. v. Citizens for a Better Env’t, 523 U.S. 83, 95 (1998)

(“[E]very federal appellate court has a special obligation to

‘satisfy itself not only of its own jurisdiction, but also that of

the lower courts in a cause under review.’”) (internal citation

omitted).

Though Coventry insists that our decision in Majestic

Star should guide our analysis, that case bears little similarity

to this appeal. There, the standing issue was raised for the

first time on appeal and was inextricably intertwined with the

merits of the case. Majestic Star, 716 F.3d at 749 (“We thus

find ourselves in a circumstance where what is ordinarily the

preliminary question of standing cannot be answered without

delving into whether the entity tax status of [the debtor

subsidiary] is ‘property’ and, if so, whether it belongs to [the

subsidiary or the corporate parent].”). Thus, we had no choice

but to decide the standing question in Majestic Star.

Here, however, we must decide whether we are

required to adjudicate the standing issue after it has already

been decided by the District Court. As we stated in Petroleos

Mexicanos Refinacion v. M/T King A (Ex-Tbilisi), 377 F.3d

329 (3d Cir. 2004), “[t]here are countless cases where a

district court rejects a defendant’s challenge to the plaintiff's

standing; in that posture, defendants simply may not seek

immediate review in the court of appeals.” Id. at 335. In other

words, although standing is always a threshold issue, standing

to appeal should not be confused with standing to sue. Once a

district court has determined that a plaintiff has standing to

sue, our power to adjudicate that issue on an interlocutory

basis is limited.

9

Coventry argues that we can and should exercise

pendent appellate jurisdiction over the District Court’s ruling

on the standing question. Pendent appellate jurisdiction exists

where an appealable issue is so “inextricably intertwined”

with a nonappealable issue that one cannot resolve the former

without addressing the latter. DuPont, 269 F.3d at 203.

Because we have jurisdiction to review the order of the

District Court compelling arbitration, Coventry argues, we

should assert jurisdiction over the order denying Coventry’s

motion to dismiss for lack of standing. We disagree.

The doctrine of pendent jurisdiction is indisputably

“narrow” and should be used “‘sparingly’ and only where

there is a sufficient overlap in the facts relevant to both the

appealable and nonappealable issues to warrant plenary

review.” Id. (emphasis in original); In re Montgomery

County, 215 F.3d 367, 375-76 (3d Cir. 2000) (“Pendent

appellate jurisdiction over an otherwise unappealable order is

available only to the extent necessary to ensure meaningful

review of an appealable order.”) (internal quotation marks

and citation omitted); Swint v. Chambers Cnty. Comm’n, 514

U.S. 35, 49-50 (1995) (warning that “loosely allowing

pendent appellate jurisdiction would encourage parties to

parlay Cohen-type collateral orders into multi-issue

interlocutory appeal tickets.”).

In DuPont, we considered whether we could review

the denial of a motion to dismiss for lack of personal

jurisdiction (an otherwise nonappealable order) pendent to

our review of a denial of a motion to compel arbitration (an

appealable order). We held that the jurisdictional question

was not sufficiently intertwined with the merits of the

appealable order, requiring us to “exercise restraint and

forego review until the unrelated issue is appealable in its

10

own right.” DuPont, 269 F.3d at 204 (citing United States

Fidelity & Guaranty Co. v. Braspetro Oil Serv. Co., 199 F.3d

94, 97 (2d Cir. 1999)).

As personal jurisdiction and standing are both

threshold jurisdictional questions, our reasoning in DuPont

applies here. Moreover, as Coventry has acknowledged,

Coventry Reply Br. at n.1, two of our sister courts have

declined to extend pendent appellate jurisdiction to adjudicate

district court orders on standing. Summit Medical Assoc., P.C.

v. Pryor, 180 F.3d 1326, 1334 (11th Cir. 1999) (finding that

the appealable dismissal on Eleventh Amendment immunity

grounds was not inextricably entwined with the non-

appealable standing issue); Triad Assoc., Inc. v. Robinson, 10

F.3d 492, 496 n.2 (7th Cir. 1993) (“To further beat the

jurisdictional dead horse, we do not find that [the non-

appealable collateral standing issue is] ‘inextricably

entwined’ with the appealable qualified immunity inquiry nor

that there are ‘compelling reasons’ . . . that would justify

invoking our rarely appropriate pendent appellate

jurisdiction.”) (internal citation omitted).

Like the Eleventh Circuit in Summit Medical and the

Seventh Circuit in Triad Associates, the issues before us now

are not sufficiently intertwined to support the exercise of

pendent appellate jurisdiction. Regardless of how we

adjudicate the standing question, we may still reach the

arbitration question. Moreover, the factual underpinnings of

the issues are distinct: the standing issue involves an inquiry

into whether Griswold LLP remains in existence and can

bring claims on behalf of the Trust as its sole beneficiary. In

contrast, the question of arbitrability requires us to decide

whether Griswold LLP, a non-signatory to the purchase

agreement, can be bound to its arbitration clause because it

11

reaped the benefits of the contract. The two considerations are

discrete and neither issue’s determination is dependent upon

the other.

In sum, we decline to exercise pendent appellate

jurisdiction over the District Court’s denial of Coventry’s

motion to dismiss because it is not inextricably intertwined

with the denial of the motion to compel arbitration, nor is its

review necessary to adjudicate the arbitrability issue.

III

We turn next to the District Court’s order denying

Coventry’s motion to compel arbitration, which the parties

and the Court agree is now subject to our review. FAA, 9

U.S.C. § 16(a)(1)(B) (providing that an appeal may be taken

from an order denying a petition to compel arbitration); 28

U.S.C. § 1291.

We review decisions regarding the applicability and

scope of arbitration agreements de novo, applying the same

standard the District Court applied. SBRMCOA, LLC v.

Bayside Resort Inc., 707 F.3d 267, 270-71 (3d Cir. 2013)

(citing Kaneff v. Del. Title Loans, 587 F.3d 616, 620 (3d Cir.

2009)). “A district court decides a motion to compel

arbitration under the same standard it applies to a motion for

summary judgment.” Kaneff, 587 F.3d at 620. “The party

opposing arbitration is given the benefit of all reasonable

doubts and inferences that may arise.” Id. (internal quotation

marks and citation omitted).

In this appeal, it is undisputed that the purchase

agreement contained a broad arbitration clause requiring the

12

parties to arbitrate any disputes arising out of the contract. 5

Courts generally apply a presumption in favor of enforcing

arbitration clauses. Preston v. Ferrer, 552 U.S. 346, 349

(2008) (stating that the FAA established “a national policy

favoring arbitration when the parties contract for that mode of

dispute resolution”); Dupont, 269 F.3d at 194 (citing Sandvik

AB v. Advent Int’l Corp., 220 F.3d 99, 104-05 (3d Cir. 2004)

(“The FAA establishes a strong federal policy in favor of

compelling arbitration over litigation.”) (internal quotation

marks omitted)). Coventry argues that because Griswold’s

claims “touch matters covered by [an arbitration clause in a

contract] . . . ‘those claims must be arbitrated.’” Coventry Br.

at 39-40 (quoting Brayman Construction Corp. v. Home

Insurance Co., 319 F.3d 622, 626 (3d Cir. 2003) (internal

quotation marks and citation omitted)).

The presumption in favor of arbitration does not

extend, however, to non-signatories to an agreement; it

applies only when both parties have consented to and are

bound by the arbitration clause. See United Steelworkers of

America v. Warrior & Gulf Navigation Co., 363 U.S. 574,

582 (1960) (“[A] party cannot be required to submit to

5

The arbitration clause encompassed “[a]ll disputes

and controversies of every kind and nature between the

Parties arising out of or in connection with this Agreement.”

JA 648 (emphasis added). By all accounts, the language in the

arbitration provision is fairly standard and interpreted to

apply broadly. See Battaglia v. McKendry, 233 F.3d 720, 727

(3d Cir. 2000) (“[W]hen phrases such as . . . ‘arising out of’

appear in arbitration provisions, they are normally given

broad construction.”).

13

arbitration any dispute which he has not agreed so to

submit.”); Bel-Ray Co., Inc. v. Chemrite (Pty) Ltd., 181 F.3d

435, 444 (3d Cir. 1999) (“If a party has not agreed to

arbitrate, the courts have no authority to mandate that he do

so.”). Still, a non-signatory may be bound by an arbitration

agreement if “‘traditional principles’ of state law allow a

contract to be enforced by or against nonparties to the

contract.” Arthur Andersen LLP v. Carlisle, 556 U.S. 624,

631 (2009); see also Dupont, 269 F.3d at 194 (a non-

signatory may be bound to an arbitration agreement if “under

traditional principles of contract . . . [the party is] akin to a

signatory of the underlying agreement”) (internal quotation

marks and citation omitted).

Coventry seeks to compel Appellees to arbitrate under

one such traditional contract principle: equitable estoppel.

Both Georgia and Pennsylvania law allow non-signatories to

be bound to an arbitration agreement. See, e.g., Price v. Ernst

& Young, LLP, 617 S.E.2d 156, 159 (Ga. Ct. App. 2005)

(finding that “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.”) (quoting MS Dealer Svc. Corp. v.

Franklin, 177 F.3d 942, 947 (11th Cir. 1999)); LaSonde v.

CitiFinancial Mortgage Co., Inc., 614 S.E.2d 224, 226 (Ga.

Ct. App. 2005) (“Federal law provides guidance for

determining the circumstances under which a nonsignatory

may be bound by such agreements. And as found by both

Georgia and federal courts, the theory of equitable estoppel

provides one basis for bringing a nonsignatory within an

arbitration agreement.”) (internal quotation marks and citation

omitted); Dodds v. Pulte Home Corp., 909 A.2d 348, 351 (Pa.

Super. Ct. 2006) (holding that non-signatories to a contract

14

may be compelled to arbitrate “when there is an obvious and

close nexus between the non-signatories and the contract or

the contracting parties.”). 6

Estoppel “can bind a non-signatory to an arbitration

clause when that non-signatory has reaped the benefits of a

contract containing an arbitration clause.” Invista S.A.R.L. v.

Rhodia, S.A., 625 F.3d 75, 85 (3d Cir. 2010) (internal citation

omitted). Equitable estoppel may apply under one of two

theories, which we outlined in Dupont:

6

Neither party relied on Georgia or Pennsylvania law

either in the District Court, see Griswold's Memorandum in

Opposition to Motion to Dismiss, D.E. 34 at 55-61;

Coventry's Memorandum in Reply to Response to Motion to

Dismiss, D.E. 38 at 68-75, or on appeal, see Coventry Br. at

45-55; Griswold Br. at 26-28. In a brief footnote in its reply

brief, Coventry acknowledges that state law may be

applicable. See Coventry Reply at 24 n.8. That belated and

undeveloped argument is insufficient to raise a choice-of-law

issue on appeal. See Neely v. Club Med Mgmt. Servs., Inc.,

63 F.3d 166, 180 (3d Cir. 1995) (en banc) (observing that

"choice of law issues may be waived").

Because we are satisfied that the Supreme Court’s

decision in Arthur Andersen did not overrule Third Circuit

decisions consistent with relevant state law contract

principles, we may rely on our prior decisions so long as they

do not conflict with these Georgia and Pennsylvania state law

principles. See Kramer v. Toyota Motor Corp., 705 F.3d

1122, 1130 n.5 (9th Cir. 2013) (holding that pre-Arthur

Andersen federal decisions consistent with relevant state

contract principles remain good law).

15

First, courts have held non-signatories to an

arbitration clause when the non-signatory

knowingly exploits the agreement containing

the arbitration clause despite having never

signed the agreement. . . .

Second, courts have bound a signatory to

arbitrate with a non-signatory “at the non-

signatory’s insistence because of ‘the close

relationship between the entities involved, as

well as the relationship of the alleged wrongs to

the non[-]signatory’s obligations and duties in

the contract ... and [the fact that] the claims

were intimately founded in and intertwined with

the underlying contract obligations.’”

269 F.3d at 199 (internal quotation and citation omitted).

Here, the latter theory is inapplicable because our case

involves a signatory (Coventry) attempting to bind a non-

signatory (Griswold) to the arbitration clause, rather than the

inverse. 7 See id. at 202 (“Appellants recognize that these

cases bind a signatory not a non-signatory to arbitration, but

argue that this is a distinction without a difference. They are

wrong.”) (emphasis in original).

7

The other Appellants—Coventry Group,

Montgomery Capital, Coventry Financial, and Reid S.

Buerger—were non-signatories to the purchase agreement,

and therefore cannot bind other non-signatories. Invista, 625

F.3d at 85 (stating that the party seeking to compel arbitration

had “offer[ed] no authority for its contention that a non-

signatory to an arbitration agreement can compel another

non-signatory to arbitrate certain claims, and we have found

none”).

16

Coventry asserts that under the first theory of equitable

estoppel—the “knowingly exploits” theory—a non-signatory

may be bound by an arbitration clause if it “embraces the

agreement and directly benefits from it.” Bouriez v. Carnegie

Mellon Univ., 359 F.3d 292, 295 (3d Cir. 2004). “A non-

signatory can ‘embrace’ a contract in two ways: (1) by

knowingly seeking and obtaining direct benefits from that

contract; or (2) by seeking to enforce terms of that contract or

asserting claims [based on the contract’s other provisions].”

Haskins v. First Am. Title Ins. Co., 866 F. Supp. 2d 343, 350

(D.N.J. 2012) (quoting Noble Drilling Services, Inc. v. Certex

USA, Inc., 620 F.3d 469, 473 (5th Cir. 2010) (internal

quotation marks and citation omitted).

Equitable estoppel thus prevents a non-signatory from

“‘cherry-picking’ the provisions of a contract that it will

benefit from and ignoring other provisions that don’t benefit

it or that it would prefer not to be governed by (such as an

arbitration clause).” Invista, 625 F.3d at 85 (internal citation

omitted); see also DuPont, 269 F.3d at 200 (“To allow [a

non-signatory] to claim the benefit of the contract and

simultaneously avoid its burdens would both disregard equity

and contravene the purposes underlying enactment of the

Arbitration Act.”) (internal citation omitted). A non-signatory

cannot knowingly embrace the contract only to later “turn its

back” on other provisions in the contract, such as an

arbitration clause. Dupont, 269 F.3d at 199.

In DuPont, plaintiff was the parent company to a

subsidiary that had signed a joint venture agreement with two

other companies. The agreement provided that DuPont, a

non-signatory, would “assist . . . in the balancing of foreign

exchange during the [joint venture's] initial years” and “not

take action detrimental to the interest or well-being of the

17

[joint venture].” 269 F.3d at 191, 192 (internal quotation

marks omitted). DuPont and Rhodia, a signatory to the joint

venture agreement, entered into three agreements related to

the joint venture: a supply agreement, a license contract and

an export sales agreement. Id. at 192.

When the joint venture failed, DuPont sued the parties,

including Rhodia, alleging breach of an oral contract to fully

perform the joint venture agreement. Rhodia sought to bind

DuPont, a non-signatory, to the agreement’s arbitration

clause. We held that DuPont had not “embraced the

Agreement itself during the lifetime of the Agreement,” and

that it had not “received any direct benefit under the

Agreement.” Id. at 200 (emphasis in original). Nevertheless,

we expressed concern that DuPont’s claim against Rhodia

seemed to “(a) embrace[ ] the underlying Agreement and (b)

require[ ] proof that Rhodia . . . ultimately breached the

underlying Agreement.” Id. at 201.

What gives us some pause . . . is that a close

examination of the Amended Complaint reveals

that, at bottom, DuPont’s claims arise, at least

in part, from the underlying Agreement. . . . On

the one hand, we must be careful about

disregarding the corporate form and treating a

non-signatory like a signatory. On the other

hand, by alleging, albeit by virtue of a separate

oral agreement, that Rhodia Fiber failed to

secure loan guarantees, DuPont’s claim against

Rhodia Fiber implicates, at least in part, the

very Agreement which DuPont repudiates to

avoid arbitration. It is, however, that separate

oral agreement that saves the day for DuPont

because, wholly apart from whether Rhodia

18

Fiber breached the Agreement, what is at the

core of this case is the conduct and the

statements of the appellants’ representative [in

making the oral promise].

Id. at 200-01. We thus held that DuPont was not bound to the

arbitration clause because its claim did not hinge on whether

Rhodia breached the joint venture agreement itself, but rather

on an oral promise made outside of, albeit related to, the

agreement.

In this sense, our case bears substantial similarity to

DuPont. Here, what “saves the day” for Griswold is the fact

that the alleged “Secret McGarrey Agreement” took place

prior to and apart from the execution of the purchase

agreement. Of course, that alleged fraud was related to the

purchase agreement—it set the purchase price and, allegedly,

the inflated, undisclosed broker’s commission. But that alone

is not sufficient to compel arbitration under the equitable

estoppel doctrine: the claims must be based directly on the

agreement. Id. Here, Appellees’ Amended Complaint

sufficiently alleged their injury without mention of the

purchase agreement. Put simply, Appellees do not allege

breach of the purchase agreement; they allege fraud

antecedent to the purchase agreement.

Our relatively narrow application of the equitable

estoppel exception is further reinforced by Bouriez, 359 F.3d

at 294-96. Bouriez sued Carnegie Mellon University (CMU)

for fraudulent inducement to enter a shareholders’ agreement

with Governors Technologies to fund projects at CMU. CMU

then sought to compel arbitration against Bouriez based on a

contract between CMU and Governors Technologies. The

District Court ordered arbitration and we reversed, holding

19

that equitable estoppel did not support binding Bouriez, a

non-signatory, to the arbitration clause as there was no

evidence in the record to indicate that Bouriez had directly

benefited from the contract. At most, the facts showed that

Bouriez became a minority shareholder in Governors

Technologies for the sole purpose of funding a CMU project;

no evidence indicated that benefits from that project would

flow to Bouriez directly. Id. at 295.

In Bouriez, we relied heavily on Industrial Electronics

Corp. of Wisconsin v. iPower Distribution Group, 215 F.3d

677 (7th Cir. 2000), whose facts we declared “nearly

identical” to those in Bouriez. 359 F.3d at 295. In Industrial

Electronics, plaintiffs alleged that iPower fraudulently

induced Industrial Electronics to enter into an association of

other companies. Industrial Electronics sued, and iPower

sought to compel arbitration pursuant to an arbitration clause

in the franchise agreement between iPower and the

association. Id. (citing Industrial Electronics, 215 F.3d at

679). The Seventh Circuit held that Industrial Electronics’

claims were not based on the franchise agreement, nor had the

corporation directly benefited from the agreement; therefore,

it could not be bound by its arbitration clause. Id. (quoting

Industrial Electronics, 215 F.3d at 681) (“A dispute that

arises under one agreement may be litigated notwithstanding

a mandatory arbitration clause in a second agreement, even

where the two agreements are closely intertwined.”).

As in DuPont, Bouriez, and Industrial Electronics, the

fraudulent conduct alleged in this case—the “Secret

McGarrey Agreement”—took place prior to and apart from

the purchase agreement. Accordingly, the District Court

properly found that Griswold’s claims “would exist even if

the contract containing the arbitration clause were void,” and

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are “independent of the Purchase Agreement at issue.” JA4-5.

In other words, because the “Secret McGarrey Agreement”

was not incorporated into the purchase agreement, Appellees’

claims do not allege a breach of that agreement and they are

not bound by its terms. Therefore, Coventry cannot compel

arbitration against Appellees, who never consented to the

purchase agreement. 8

8

Because we find that Coventry cannot compel

arbitration, we need not reach the question of whether

Appellees would be required to arbitrate their claims on an

individual rather than a class basis. However, because the

parties request that we specify the answer to that question in

this appeal, we will note that Appellees waived their class

action claim on appeal, having neglected to properly brief the

issue and having conceded as much at oral argument. Only in

the very last footnote of their brief do Appellees discuss the

issue of class status, and only abstractly:

[T]he class plaintiff’s individual standing, linked to his

or her asserted claim, becomes automatically linked to

the class claim. Having standing which a class

representative shares with the members of a class is

another way of saying that the class representative is a

proper party to raise a particular issue common to the

class . . . .

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* * *

For the reasons stated, we hold that we lack appellate

jurisdiction to review the District Court’s denial of

Coventry’s motion to dismiss. And we will affirm the District

Court’s denial of the motion to compel arbitration against

Griswold and Griswold LLP.

Griswold Br. at 58. Aside from this footnote, Appellees make

no attempt to reassert class status. Because they failed to brief

the issue on appeal and conceded as much at oral argument,

they have forfeited the argument. See John Wyeth & Bro. Ltd.

v. CIGNA Int’l Corp., 119 F.3d 1070, 1076 n.6 (3d Cir. 1997)

(“[A]rguments raised in passing (such as, in a footnote), but

not squarely argued, are considered waived.”).

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