PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

INTERNATIONAL PAPER COMPANY,

Plaintiff-Appellant,

v.

No. 98-2482

SCHWABEDISSEN MASCHINEN &

ANLAGEN GMBH,

Defendant-Appellee.

Appeal from the United States District Court

for the District of South Carolina, at Greenwood.

Solomon Blatt, Jr., Senior District Judge.

(CA-93-2727-9-8)

Argued: January 25, 2000

Decided: March 14, 2000

Before MOTZ and KING, Circuit Judges, and

John T. COPENHAVER, Jr., United States District Judge

for the Southern District of West Virginia,

sitting by designation.

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Affirmed by published opinion. Judge Motz wrote the opinion, in

which Judge King and Judge Copenhaver joined.

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COUNSEL

ARGUED: William Jefferson Leath, Jr., LEATH, BOUCH &

CRAWFORD, Charleston, South Carolina, for Appellant. Keating

Lewis Simons, III, LAW OFFICES OF SIMONS & KEAVENY,

Charleston, South Carolina, for Appellee.
OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

A buyer became dissatisfied with an industrial saw and brought suit

against the manufacturer of the saw on the basis of a contract between

the distributor and the manufacturer. The question presented to us is

whether an arbitration clause in the distributor-manufacturer contract

requires the buyer, a nonsignatory to that contract, to arbitrate its

claims against the manufacturer. The district court held that it did.

Concluding that the buyer cannot sue to enforce the guarantees and

warranties of the distributor-manufacturer contract without complying

with its arbitration provision, we affirm.

I.

Westinghouse Electric Corporation (a predecessor-in-interest of the

International Paper Company) sought to purchase an industrial saw

manufactured by Schwabedissen Maschinen & Anlagen GMBH, a

German corporation. On April 1, 1991, Westinghouse sent to Wood

Systems Incorporated, a United States distributor of Schwabedissen

saws, a non-binding letter of intent to purchase a new Schwabedissen

double trim saw. Westinghouse personnel then visited Schwabedissen's facility in Germany to observe its production process.

Upon their return, in a purchase order from Westinghouse to Wood

dated May 17, 1991, Westinghouse agreed to buy and Wood agreed

to sell the Schwabedissen saw, in accordance with a performance

guarantee and certain specifications.

On June 6, 1991, Schwabedissen sent Wood an "Order Confirmation/Contract" for the saw Westinghouse sought to purchase, which

included extensive specifications. Schwabedissen contends, and the

district court found, that this contract also included the terms of two

additional documents--the "General Conditions for the Supply and

Erection of Plant and Machinery for Import and Export No. 188A,

prepared under the auspices of the United Nations Economic Commission for Europe" (the "General Conditions"), and the "Annex

attached to the General Conditions for the Supply and Erection of

Plant and Machinery for Import and Export by the German Mechanical Engineering Industry" (the "Annex"). The "General Conditions"

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contain an arbitration clause providing that "[a]ny dispute arising out

of the Contract shall be finally settled, in accordance with the Rules

of Conciliation and Arbitration of the International Chamber of Commerce, by one or more arbitrators designated by those Rules," and

establish the governing law as that of the country of the contractor.

The "Annex" permits the contractor to bring an action before a court

rather than an arbitrator "unless and until the dispute has been referred

to arbitration by one of the parties."

On June 12, 1991, Wood sent a purchase order for the saw to Schwabedissen, together with the specifications from Westinghouse's

purchase order. In response, Schwabedissen arranged for delivery of

the saw, which was installed at Westinghouse's plant in late December 1991. According to Westinghouse, the saw "completely failed to

properly operate once installed or at anytime thereafter." No written

contract ever existed between Westinghouse and Schwabedissen, but

Westinghouse maintains that when difficulty arose as to the saw's

operation, Schwabedissen orally agreed to repair the saw, but failed

to do so.

On July 9, 1993, after Wood declared bankruptcy, Westinghouse

filed a complaint against Schwabedissen in South Carolina state court,

alleging breach of contract, rejection, and breach of warranties based

on the May 17, 1991, purchase order between Westinghouse and

Wood. Westinghouse alleged that Wood acted as an agent for Schwabedissen and therefore Schwabedissen was liable under that purchase

order. Schwabedissen removed the case to federal court.

On September 21, 1994, Westinghouse filed an amended complaint, in which it added allegations based on the WoodSchwabedissen contract and asserted that it was a third-party beneficiary of that contract. Schwabedissen then moved to stay the federal

court proceedings pending arbitration, relying on the arbitration

clause contained in its contract with Wood.

At argument on the motion to stay, Westinghouse maintained that

as a third-party beneficiary of the Wood-Schwabedissen contract, it

could compel arbitration in any disputes with a party to the contract,

but that a party could not compel a third-party beneficiary to arbitrate.

Responding to the district court's skepticism about this contention,

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Westinghouse withdrew its third-party beneficiary claim. The district

court then continued the hearing to allow the parties to brief the issues

without that claim.

When the district court again heard argument, Westinghouse contended that it had no knowledge of, and so could not be bound by, the

"General Conditions" (containing the arbitration clause) assertedly

made part of the Wood-Schwabedissen contract. The district court

rejected this argument, reasoning that because Westinghouse sought

"to take advantage of certain commitments that were made by Schwabedissen to" Wood in the Wood-Schwabedissen contract, it was

bound by all commitments in that contract, including the arbitration

provision.

Westinghouse then argued that, notwithstanding an affidavit of a

Schwabedissen employee that the Wood-Schwabedissen contract

included the "General Conditions," nothing in the June 6 contract nor

June 12 purchase order indicated that Wood had in fact accepted the

"General Conditions" as part of its contract with Schwabedissen. The

district court again continued the hearing on the motion to stay to

allow further discovery. At the subsequent hearing, Schwabedissen

produced an agreement between itself and Wood dated February 24,

1993, indicating that the "General Conditions" were part of the June

6 Wood-Schwabedissen contract. Westinghouse offered no contrary

evidence. The district court found that the "General Conditions" were

part of the Wood-Schwabedissen contract and that Westinghouse was

subject to the arbitration provision; therefore, the court granted Schwabedissen's motion to stay proceedings pending arbitration. The district court also substituted the International Paper Company, which

had purchased certain Westinghouse assets, for Westinghouse in the

litigation.

International Paper filed a request for arbitration before the International Court of Arbitration in Geneva. At the conclusion of the arbitral

proceedings, the arbitrators ruled in Schwabedissen's favor. The arbitrators concluded that International Paper had asserted no basis for

recovery against Schwabedissen because no contract existed between

Schwabedissen and Westinghouse (International Paper's predecessorin-interest), Wood was not an agent for Schwabedissen, and Westinghouse was not a third-party beneficiary of the Wood-Schwabedissen

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contract. The arbitrators also assessed costs against International

Paper.

When International Paper refused to comply with the arbitration

award, Schwabedissen sought its enforcement in the district court.

International Paper moved for leave to file a second amended complaint, seeking to allege a breach of both an implied warranty of

workmanlike service and an oral contract to repair. The district court

granted Schwabedissen's motion to enforce the arbitral award and

denied International Paper's motion for leave to amend. International

Paper now appeals.1

II.

International Paper claims that the district court erred in finding

that the Schwabedissen-Wood contract contains an arbitration clause.

It further contends that even if the contract contains such a clause, it

was not bound to adhere to it.

A.

Initially, International Paper contends that the WoodSchwabedissen contract contains no arbitration clause. International

Paper argues that the June 12 purchase order Wood sent to Schwabedissen was "the actual contract" between Wood and Schwabedissen, and that the parties never incorporated the "General

Conditions," which contain the arbitration clause, into that contract.2

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1 Schwabedissen maintains International Paper has failed to invoke our

jurisdiction over all of the issues in the case because International Paper

noted an appeal from the district court's order enforcing the arbitral

award, not its final order assessing post-judgment interest. The contention is meritless. See Firstier Mortgage Co. v. Investors Mortgage Ins.

Co., 498 U.S. 269, 276 (1991) ("[W]hen a district court announces a

decision that would be appealable if immediately followed by the entry

of judgment," then "a notice of appeal from a nonfinal decision . . . operate[s] as a notice of appeal from the final judgment.").

2 It is unclear whether International Paper argues on appeal that the

June 12 purchase order constituted the sole Wood-Schwabedissen contract, i.e., that the Wood-Schwabedissen contract does not include the

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Schwabedissen submitted an affidavit from one of its employees

stating that the Wood-Schwabedissen contract included the "General

Conditions." In addition, Schwabedissen offered a separate agreement

signed by Schwabedissen and Wood, dated February 24, 1993, that

referenced the contract for the saw sold to Westinghouse and stated

that the "General Conditions" were attached to that contract. Although

International Paper failed to contradict this evidence in any way, it

nonetheless claims that the district court erred in finding that "the

only reasonable inference that [it could] get from [the evidence] was

that the arbitration agreement was a part of the[WoodSchwabedissen] contract."

We review factual findings that form the basis of a decision as to

whether the parties have agreed to submit a dispute to arbitration for

clear error. See First Options of Chicago, Inc. v. Kaplan, 514 U.S.

938, 947-48 (1995). We find no error in the district court's factual

finding that the Wood-Schwabedissen contract included the "General

Conditions" containing the arbitration clause. Indeed, International

Paper offered nothing to counter Schwabedissen's evidence in support

of this finding.

B.

International Paper's principal contention is that even if the WoodSchwabedissen contract contains an arbitration clause, that clause

cannot be enforced against International Paper, a non-signatory to the

Wood-Schwabedissen contract.3

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June 6 "Order/Confirmation Contract." International Paper does not

expressly so contend and the argument appears to be frivolous. International Paper itself concedes that the June 12 purchase order between

Wood and Schwabedissen was preceded by the far more detailed June 6

"Order/Confirmation Contract." In any event, because International

Paper never contended in the district court that the June 12 purchase

order between Wood and Schwabedissen constituted the sole WoodSchwabedissen contract, we refuse to consider that argument on appeal.

See United States v. Banisadr Bldg. Joint Venture , 65 F.3d 374, 379 (4th

Cir. 1995).

3 The arbitration clause is a broad one, requiring arbitration of "[a]ny

dispute arising out of the Contract." International Paper makes no argument that the clause, if binding on it, does not cover the claims asserted

in its complaint.

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Generally, "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." United Steelworkers v. Warrior & Gulf Navigation Co.,

363 U.S. 574, 582 (1960); see also AT & T Techs., Inc. v. Communications Workers, 475 U.S. 643, 648 (1986). While a contract cannot

bind parties to arbitrate disputes they have not agreed to arbitrate, "[i]t

does not follow . . . that under the [Federal Arbitration] Act an obligation to arbitrate attaches only to one who has personally signed the

written arbitration provision." Fisser v. International Bank, 282 F.2d

231, 233 (2d Cir. 1960). Rather, a party can agree to submit to arbitration by means other than personally signing a contract containing an

arbitration clause.

Well-established common law principles dictate that in an appropriate case a nonsignatory can enforce, or be bound by, an arbitration

provision within a contract executed by other parties.4 For example,

in J.J. Ryan & Sons v. Rhone Poulenc Textile, S.A., 863 F.2d 315,

320-21 (4th Cir. 1988), we explained that when allegations against "a

parent company and its subsidiary are based on the same facts and are

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4 The Supreme Court has directed that we "apply ordinary state-law

principles that govern the formation of contracts," First Options, 514

U.S. at 944, and the "federal substantive law of arbitrability." Moses H.

Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).

Thus state law determines questions "concerning the validity, revocability, or enforceability of contracts generally," Perry v. Thomas, 482

U.S. 483, 493 n.9 (1987), but the Federal Arbitration Act, 9 U.S.C. § 2

(1994), and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, enforced by 9 U.S.C. §§ 201-08 (1994), "create a

body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses H. Cone Mem'l

Hosp., 460 U.S. at 24. These statutes constitute"a congressional declaration of liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary." Id.

The policy applies "with special force in the field of international commerce." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473

U.S. 614, 631 (1985). Because the determination of whether International Paper, a nonsignatory, is bound by the Wood-Schwabedissen contract presents no state law question of contract formation or validity, we

look to the "federal substantive law of arbitrability" to resolve this question.

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inherently inseparable, a court may refer claims against the parent to

arbitration even though the parent is not formally a party to the arbitration agreement." We further explained that"[t]he same result has

been reached under a theory of equitable estoppel." Id.; see also

Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc. , 10 F.3d 753, 757-

78 (11th Cir. 1993) (holding that because claims against nonsignatory

parent were "intimately founded in and intertwined with" a contract

containing an arbitration clause, signatory was estopped from refusing

to arbitrate those claims); Hughes Masonry Co. v. Greater Clark

County Sch. Bldg. Corp., 659 F.2d 836, 840-41 (7th Cir. 1981) (finding signatory equitably estopped from repudiating arbitration clause

in agreement on which suit against nonsignatory was based). Moreover, the Second Circuit recently noted that it had recognized that five

theories "aris[ing] out of common law principles of contract and

agency law" could provide a basis "for binding nonsignatories to arbitration agreements: 1) incorporation by references; 2) assumption; 3)

agency; 4) veil piercing/alter ego; and 5) estoppel." Thomson-CSF,

S.A. v. American Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995)

(citing cases); see also Bel-Ray Co. v. Chemrite (PTY) Ltd., 181 F.3d

435, 440-43 (3d Cir. 1999); Amoco Transport Co. v. Bugsier Recderei

& Bergungs, A.G. (In re Oil Spill By the"Amoco Cadiz"), 659 F.2d

789, 795-96 (7th Cir. 1981).5

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5 Such cases have spawned a burgeoning array of secondary authorities.

See, e.g., H. Warren Knight et al., Arbitration By and Against

Nonsignatories, in California Practice Guide: Alternative Dispute

Resolution, at §§ 5:261 to :288 (1998); Hope T. Stewart, The Equitable

Estoppel Argument for and Against Commercial Arbitration: From

Hughes Masonry Co., Inc. v. Clark County School Building Corp. to

Northern, Ltd. v. R.E. James, 103 Com. L.J. 336 (1998); David F.

Sawrie, Special Project, Equitable Estoppel and the Outer Boundaries of

Federal Arbitration Law: The Alabama Supreme Court's Retrenchment

of an Expansive Federal Policy Favoring Arbitration , 51 Vand. L. Rev.

721 (1998); Jeff DeArman, Comment, Resolving Arbitration's Nonsignatory Issue: A Critical Analysis of the Application of Equitable Estoppel

in Alabama Courts, 29 Cumb. L. Rev. 645 (1998-1999); Scott M. Mckinnis, Note, Enforcing Arbitration with a Nonsignatory: Equitable Estoppel and Defensive Piercing of the Corporate Veil, 1995 J. Disp. Resol.

197; Shea Welch, Comment, Arbitration Agreements: Standard of

Review, Interpretation and Who is Bound, 1997 J. Disp. Resol. 271.

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We believe that the doctrine of equitable estoppel applies here.

Equitable estoppel precludes a party from asserting rights "he otherwise would have had against another" when his own conduct renders

assertion of those rights contrary to equity. First Union Commercial

Corp. v. Nelson, Mullins, Riley & Scarborough (In re Varat Enters.,

Inc.) 81 F.3d 1310, 1317 (4th Cir. 1996); see also Lowery v. Stovall,

92 F.3d 219, 223 (4th Cir. 1996). In the arbitration context, the doctrine recognizes that a party may be estopped from asserting that the

lack of his signature on a written contract precludes enforcement of

the contract's arbitration clause when he has consistently maintained

that other provisions of the same contract should be enforced to benefit him. "To allow [a plaintiff] 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." Avila Group, Inc. v. Norma J. of California, 426 F. Supp. 537,

542 (S.D.N.Y. 1977).

A nonsignatory is estopped from refusing to comply with an arbitration clause "when it receives a `direct benefit' from a contract containing an arbitration clause." American Bureau of Shipping v.

Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (citing

Thomson-CSF, 64 F.3d at 778-79); Deloitte Noraudit A/s v. Deloitte

Haskins & Sells, 9 F.3d 1060, 1064 (2d Cir. 1993) (holding nonsignatory bound to arbitrate when it knew of the arbitration agreement and

"knowingly accepted the benefits of" that agreement); cf. Hughes

Masonry Co., 659 F.2d at 838-39 ("[I]t would be manifestly inequitable to permit Hughes to both claim that J.A. [a nonsignatory] is liable

to Hughes for its failure to perform the contractual duties described

in the [arbitration agreement] and at the same time deny that J.A. is

a party to that agreement in order to avoid arbitration of claims clearly

within the ambit of the arbitration clause."). 6

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6 Some courts have, at a nonsignatory's instance, required a signatory

of an arbitration agreement to arbitrate with the nonsignatory because of

"the close relationship between the entities involved, as well as the relationship of the alleged wrongs to the nonsignatory's obligations and

duties in the contract . . . and [the fact that] the claims were `intimately

founded in and intertwined with the underlying contract obligations.'"

Sunkist, 10 F.3d at 757 (quoting McBro Planning & Dev. Co. v. Triangle

Elec. Constr. Co., 741 F.2d 342, 344 (11th Cir. 1984)). The Second Cir-

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Applying these principles here we can only conclude that International Paper is estopped from refusing to arbitrate its dispute with

Schwabedissen. The Wood-Schwabedissen contract provides part of

the factual foundation for every claim asserted by International Paper

against Schwabedissen. In its amended complaint, International Paper

alleges that Schwabedissen failed to honor the warranties in the

Wood-Schwabedissen contract, and it seeks damages, revocation, and

rejection "in accordance with" that contract. International Paper's

entire case hinges on its asserted rights under the WoodSchwabedissen contract; it cannot seek to enforce those contractual

rights and avoid the contract's requirement that"any dispute arising

out of" the contract be arbitrated. The district court did not err in so

holding.7

III.

Alternatively, International Paper urges us to refuse to enforce the

arbitration clause in the Wood-Schwabedissen contract because that

clause is assertedly flawed and fundamentally unfair. For this contention International Paper relies on our recent decision in Hooters of

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cuit has held, however, that a "close relationship" and "intimate[ ]" factual connection provide no independent basis to require a nonsignatory

of an arbitration agreement to arbitrate with a signatory, and therefore

that a nonsignatory cannot be bound without receiving a "direct benefit"

from or pursuing a "claim . . . integrally related to the contract containing

the arbitration clause." Thomson-CSF, 64 F.3d at 778-80. We need not

reach this question here because International Paper clearly does seek a

"direct benefit" from the Wood-Schwabedissen agreement and makes a

"claim . . . integrally related to" that contract.

7 For the same reason, we reject International Paper's claim that the

Convention on the Recognition and Enforcement of Foreign Arbitral

Awards, see 9 U.S.C.A. § 201 (West 1999), precludes enforcement of the

arbitral award because it requires United States courts to enforce international arbitration agreements only against parties to "an agreement in

writing." Art. II, ¶ 1. As we have previously recognized, the estoppel

doctrine also applies to non-signatories to arbitration agreements governed by the Convention. See J.J. Ryan & Sons , 863 F.2d at 320-21; see

also Smith/Enron Cogeneration Ltd. Partnership v. Smith Cogeneration

Int'l, Inc., 198 F.3d 88, 97-98 (2d Cir. 1999).

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America, Inc. v. Phillips, 173 F.3d 933 (4th Cir. 1999), in which we

found that an employer "materially breached the arbitration agreement by promulgating rules so egregiously unfair as to constitute a

complete default of its contractual obligation to draft arbitration rules

and to do so in good faith." Id. at 938. In Hooters, we concluded that

the plaintiff employee was not required to submit to"rules . . . so onesided that their only possible purpose is to undermine the neutrality

of the proceeding." Id.

The contractual arbitration provision in Hooters allowed the

employer, but not its employees, "to bring suit in court to vacate or

modify an arbitral award when it [the employer] can show, by a preponderance of the evidence, that the panel exceeded its authority." Id.

at 939. The Hooters arbitration clause required employees to provide

the company notice of any claim, including "`the nature of the

Claim'" and "`the specific act(s) or omission(s) which are the basis

of the Claim,'" as well as "a list of all fact witnesses with a brief summary of the facts known to each," but the company was not required

to file any responsive pleadings, notice of its defenses, or lists of witnesses. Id. at 938. The contract provided that arbitrators were to be

chosen from a list of arbitrators "created exclusively by Hooters"; the

employer was free to place on that list arbitrators with "existing relationships, financial or familial" with the company. Id. at 939. Furthermore, once proceedings began, employees were not permitted to raise

any matters not raised in the initial notice, nor were the employees

allowed to audio or videotape the arbitration hearing--though the

company was permitted to do this. Id.

By contrast, in this case, the sole arbitration provision with which

International Paper finds fault permits Schwabedissen "to bring an

action, instead of before an arbitrator, before the ordinary court of his

residence or of his principal place of business, or before the ordinary

court having jurisdiction over the Purchaser, unless and until the dispute has been referred to arbitration by one of the parties." (Emphasis added.) This provision does nothing more than give

Schwabedissen a limited right to bring a judicial action in the event

that the other party expresses no interest in arbitration. The arbitration

clause at issue here contains none of the features so objectionable in

the arbitration clause at issue in Hooters. Rather than requiring the

adverse party to choose their arbitrators from a pool selected strictly

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by Schwabedissen, the clause requires (by mandating compliance

with International Chamber of Commerce Rules) that every arbitrator

"remain independent of the parties involved in the arbitration." International Chamber of Commerce, ICC Rules of Conciliation and Arbitration 14 (1990). Unlike the Hooters provision, the WoodSchwabedissen arbitration clause contains unexceptional filing and

notice requirements. Indeed, the arbitration process required under the

Wood-Schwabedissen agreement differs in virtually every respect

from the egregiously unbalanced, unfair process in Hooters.

Accordingly, we reject International Paper's assertion that the arbitration provision at issue here is flawed and unfair.8

IV.

Finally, International Paper contends that the district court erred in

denying its motion for leave to amend its complaint for a second time

to allege two additional causes of action: breach of an implied warranty of workmanlike service and breach of an oral contract to repair.

"We review a district court's decision to grant or deny a party leave

to amend for an abuse of discretion." Edwards v. City of Goldsboro,

178 F.3d 231, 242 (4th Cir. 1999). "Delay alone is an insufficient reason to deny leave to amend." Id. But when a district court finds that

a party's delay in moving to amend is accompanied by"prejudice,

bad faith or futility," it does not abuse its discretion in refusing to permit the amendment. Id.

International Paper filed its original complaint in July 1993; the

district court granted it leave to amend that complaint in September

1994. The company did not seek to amend its complaint a second

time until June 12, 1998--five years after it initiated this action and

four years after it had been granted leave to file its first amended

complaint. Moreover, International Paper did not request a second

opportunity to amend its complaint until after it had unsuccessfully

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8 We have also carefully considered International Paper's other arguments as to why the district court should not have enforced the arbitration clause and find them all meritless.

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participated in lengthy international arbitration proceedings and

numerous hearings before the district court.

The district court denied the motion, finding that the amendment

would prejudice Schwabedissen; the court explained,"it is five years

after you brought the suit, six years after you knew about [the new

causes of action], when it could have been handled--already handled

and now you want to start over." International Paper demurred that

the two theories it wished to add were not new but had been alleged

in its earlier complaints; it also contended that the further amendment

to the complaint simply sought "to clean up that pleading and to

amplify the allegations already made." The district court rejected this

argument, explaining that if International Paper had indeed asserted

the allegations in its earlier complaints, then the allegations should

have been addressed in the arbitration proceedings; thus, the proposed

amendment would be futile. The district court's reasoning was sound;

it certainly did not abuse its discretion in refusing to permit the

amendment.

V.

For all of these reasons, the judgment of the district court is

AFFIRMED.

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