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. e du/thir dc ir c uit_1999/170Filed June 28, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

NO. 98-6297

BEL-RAY COMPANY, INC.

v.

CHEMRITE (PTY) LTD.; LUBRITENE (PTY) LTD.;
IVOR H. KAHN; CESARE CARBONARE; IAN ROBERTSON;

PIERRE VAN DER RIET

Lubritene (Pty) Ltd.; Ivor H. Kahn; Cesare C arbonare; Ian Robertson; Pierre Van Der Riet, Appellants

On Appeal From the United States District Court For the District of New Jersey (D.C. Civil Action No. 98-cv-00424) District Judge: Honorable Katherine S. Hayden

Argued March 1, 1999

BEFORE: STAPLETON, RENDELL and ALDISERT, Circuit Judges

(Opinion Filed June 28, 1999)

Sanford D. Brown (Argued) Cerrato, Dawes, Collins, Saker

& Brown

509 Stillwells Corner Road

P.O. Box 6009 Freehold, NJ 07728

Attorney for AppelleesLouis R. Moffa, Jr. (Argued)

Edward J. McBride, Jr. Schnader, Harrison, Segal & Lewis

220 Lake Drive East - Suite 200 Cherry Hill, NJ 08002-1165 Attorney for Appellants

OPINION OF THE COURT

STAPLETON, Circuit Judge:

Lubritene Ltd. ("Lubritene") and four of its direct ors and officers appeal the District Court's order compelli ng them to arbitrate claims brought against them by Bel-Ray Company, Inc. ("Bel-Ray"). Lubritene claims the Dis trict Court erroneously concluded that it was bound under its predecessor's arbitration agreement. The directors and

officers contend that the District Court erred beca use it lacked personal jurisdiction over them, and because they are not bound by their corporate principal's agreem ent to arbitrate. We agree that Lubritene is bound to arbi trate this dispute and that the District Court had personal jurisdiction over the directors and officers. We co nclude, however, that the directors and officers are not bo und to arbitrate Bel-Ray's claims against them. Accordingl y, we will affirm in part and reverse in part.

I.

Bel-Ray is a New Jersey corporation engaged in the business of manufacturing specialty lubricants for the international mining, industrial and consumer marke ts. Bel-Ray has developed special formulas and blending technology for its products and maintains them in t he highest confidentiality. Between 1983 and 1996, Bel -Ray entered into a series of agreements with Chemrite ( Pty.) Ltd., a South African corporation, for the blending and distribution of Bel-Ray products in South Africa. I vor H. Kahn, Cesare Carbonare, Ian Robertson, and Pierre V an Der Riet (the "Individual Appellants") were officer s or directors, as well as shareholders, of Chemrite.

2In January of 1996, the parties entered into the mo st

recent set of these agreements (the "Trade Agreemen ts") by executing a (i) Distributor Sales Agreement, (ii) B lending Manufacturing License Agreement, and (iii) License Agreement to Trade Name. The Trade Agreements allow ed Chemrite to market and sell Bel-Ray products, and t o produce and market products under Bel-Ray's trade n ame in South Africa. Each agreement contains two clause s relevant to this appeal. First, each agreement requ ired arbitration of "any and all disputes relating to th [e] agreement or its breach" in Wall Township, New Jers ey. (A38; A60; A86) Arbitration was to proceed under th e American Arbitration Association rules and New Jers ey substantive law. Second, the agreements specificall y require Bel-Ray's written consent to any assignment of Chem rite's interests under the Trade Agreements.

On August 20, 1996, Chemrite sent Bel-Ray a fax indicating that it had changed its name to "Lubrite ne (Pty) Ltd." The change became more than nominal on Octobe r 10, 1996, when Chemrite sold its lubricant business

, expressly including its rights under the Trade Agre ements to Lubritene, a newly formed business entity, and C hemrite entered liquidation. Lubritene continued Chemrite's

lubricant business at the same location with the sa me employees and management, and the Individual Appell ants became Lubritene shareholders, directors and office rs. Lubritene and Bel-Ray continued to conduct business in the same manner under the Trade Agreements. In November of 1996, Lubritene sent Bel-Ray a package of

documents that included the October 10th sale of as sets documents and thereby informed Bel-Ray that Lubrite ne was a new and separate company.

In the Spring of 1997, the parties engaged in a ser ies of negotiations. These negotiations were initially mot ivated by Bel-Ray's interest in acquiring a stake in Lubriten e. When it became clear that such an acquisition was not in the cards, the negotiations turned to focus upon modify ing the Trade Agreements to add additional industrial produ cts and to extend their terms to six years. During negotiat ing sessions in South Africa, Lubritene representatives queried Bel-Ray representative Linda Kiefer as to whether B el-Ray

3believed there was a legally binding agreement betw een

Lubritene and Bel-Ray. According to Keifer:

[she] explained to them that, not being an a ttorney, [she] could not comment on the legal enforce ability of the [Trade Agreements], but told them that B el-Ray's attorneys had advised [her] that technically and legally we do have an agreement. Moreover, [she] poi nted out that both Bel-Ray and Lubritene had continue d to

conduct business in the same manner without interruption, since the agreements were sign ed . . . [and] that [she] understood from Bel-Ray's a ttorneys that as long as we both continued to do busi ness according to the terms of the existing agree ments while we discussed a possible new relationship, Be l-Ray had an implied agreement with Lubritene on the s ame terms as the existing agreements with Chemri te.

(A285). Six Lubritene affiants, however, contend th at Keifer stated that "technically and legally there is no ag reement between Lubritene and Bel-Ray" because any assignme nt of the Chemrite agreement required Bel-Ray's written c onsent, which had not yet been granted.

Soon after these negotiations, a former Lubritene d irector brought internal corporate documents to Bel-Ray's attention. Among these documents were the minutes o f a Lubritene board meeting held in anticipation of the Spring 1997 negotiations "to resolve the legal stance Lubr itene (Pty) Ltd must take in respect of the Bel-Ray Compa ny Inc[.] agreement." (A127) Lubritene's counsel advised the board at the meeting that:

while admittedly the [Trade Agreements were]

entered into between Chemrite Southern Afric a (Pty) Ltd[.,] and Bel-Ray Company Inc.[,] after th e deregistration/liquidation of Chemrite South ern Africa (Pty) Ltd[.], Bel-Ray still continued to dea l commercially with Lubritene (Pty) Ltd and therefore, Bel- Ray's conduct has basically assumed that the assig ned agreements were in fact assigned to Lubriten e (Pty) Ltd.[.] However, the agreements state that t he transfer of the agreements must be approved in writin g by Bel- Ray.

4Id. The board then resolved to (i) liquidate Chemri te; (ii)

"continue to trade with Bel-Ray Company Inc as is a nd not [to] suggest any changes to the current agreement w hen

Linda Kiefer and Bernie Meeks visit South Africa in April"; (iii) create another new company and transfer all o f Lubritene's business other than Bel-Ray to that com pany so that Lubritene "will have no assets" and"[i]f Be l-Ray decides to take legal action against Lubritene (Pty ) Ltd, there will be nothing left in the company and hence Bel-Ray will not recover any damages"; and (iv) when Bel-Ra y seeks to renew the Trade Agreements to inform them that t he Trade Agreements were with Chemrite, "which does no t exist anymore and that the agreements are no longer valid." Id. The minutes end by instructing that "[i]t is vi tal that we do not alert Bel-Ray to our plans and hence we must be very cautious and circumspect when we ALL meet with them in April." Id. (emphasis in original).

Bel-Ray alleges that these minutes and the other documents brought to them by the former Lubritene director reveal that Lubritene, and the Individual Appellants as its officers and directors, conspired to misappropriate Bel-Ray's technology and other propr ietary information and intentionally defrauded Bel-Ray by leading it to believe that Lubritene would abide by the Tra de Agreements. Additionally, they allege that Lubriten e marketed Bel-Ray products falsely under Lubritene's trade name, and conversely marketed inferior Lubritene pr oducts under Bel-Ray's trade name thereby damaging Bel-Ray 's business reputation.

Bel-Ray filed this action in the United States Dist rict Court for the District of New Jersey to compel Lubr itene and the Individual Appellants to arbitrate their cl aims under the Trade Agreements' arbitration clauses. Be l-Ray alleges that Lubritene's actions amount to the busi ness torts of (i) unfair competition, (ii) fraud, and (i ii) misappropriation. Bel-Ray also claims that these sa me actions constitute breaches of the Trade Agreements .1

___________________________________________________ ______________

1. Additionally, Bel-Ray alleges that Lubritene owe s it $64,532.60 for products received but not paid for. These products were purchased under bills of lading between Bel-Ray and Lubritene that included arbitration clauses for disputes regarding amounts owed. The parties do

not discuss these claims in their briefs to this Co urt. Nonetheless, it would appear that compelling arbitration of these c laims was proper.

5Lubritene and the Individual Appellants, jointly

represented, filed an answer asserting inter alia l ack of personal jurisdiction and counterclaims. The counte rclaims alleged that Bel-Ray had commenced related proceedi ngs in South Africa to enjoin Lubritene from continuing to use its intellectual property and trade name, and requested the District Court to either (i) stay the proceedings, or (ii) enjoin Bel-Ray from seeking to compel arbitration because it had waived its right to arbitrate by initiating the Sou th African litigation. Two months later, the Individual Appell ants filed a motion on their counterclaims requesting a stay, or alternatively, summary judgment enjoining Bel-Ray f rom seeking to compel arbitration.

The District Court denied the appellants' motion. M onths later, the Court granted Bel-Ray summary judgment a nd entered an order compelling arbitration on August 1 0, 1998. Lubritene and the Individual Appellants appea l this

order.

II.

The District Court had jurisdiction under 9 U.S.C.S 203 because this action to compel arbitration between international parties falls under the Convention on the Recognition and Enforcement of Foreign Arbitral Awa rds. See 9 U.S.C. SS 201-208. We have jurisdiction pursu ant to

28 U.S.C. S 1291. We review the District Court's su mmary judgment order compelling arbitration de novo and a pply

the same test that the District Court should have a pplied. Trap Rock Indus., Inc. v. Local 825, Int'l Union of Operating Eng'rs, AFL-CIO, 982 F.2d 884, 887 (3d Cir. 1992). "[P]ursuant to Fed. R. Civ. P. 56(c), we ask: `(1) is there no genuine issue of material fact and (2) is one party entitled to judgment as a matter of law?' " Id. (quoting Gra y v. York Newspapers, Inc., 957 F.2d 1070, 1078 (3d Cir.1992) ).

III.

We begin with the propriety of the District Court's order to the extent it compelled Lubritene to arbitrate B el-Ray's claims. Under the Federal Arbitration Act ("FAA"), a court may only compel a party to arbitrate where that par ty has

6entered into a written agreement to arbitrate that covers

the dispute. See 9 U.S.C. SS 2 & 206. The arbitrati on clauses in the Trade Agreements are the only writte n agreements to arbitrate offered in this case. It is undisputed that these agreements were entered into by Chemrite and Bel-Ray, and that Chemrite subsequentl y assigned the agreements to Lubritene. If these assi gnments are effective, then the District Court's order shou ld be affirmed. Lubritene, however, contends that the assignments are ineffective because Bel-Ray did not consent to the assignments in writing as the Trade Agreements require. They therefore argue that there is no written agreement to arbitrate and we must reverse the

District Court's order.

Thus, according to Lubritene, this case turns on th e effect to be given to the Trade Agreements' require ment that Bel-Ray consent in writing to any assignment of Che mrite's interest. As noted, the Trade Agreements are intern ational agreements between United States and South African parties. To determine the legal effect of this prov ision, we

must first resolve the threshold matter of which jurisdiction's contract law we should apply. Ordina rily, this would require a conflict of laws analysis to determ ine which state had the weightier interest in having its law apply in resolving the relevant issue. Because of a failure of proof discussed below, however, we will apply the law of the

forum.

Federal Rule of Civil Procedure 44.1 controls determinations of foreign law in federal court. It provides:

A party who intends to raise an issue concer ning the law of a foreign country shall give notice b y pleadings

or other reasonable written notice. The cour t, in determining foreign law, may consider any re levant material or source, including testimony, whe ther or not submitted by a party or admissible under the Federal

Rules of Evidence. The court's determination shall be treated as a ruling on a question of law.

Fed. R. Civ. P. 44.1. This rule provides courts wit h broad authority to conduct their own independent research to determine foreign law but imposes no duty upon them to do

7so. See Carey v. Bahama Cruise Lines, 864 F.2d 201, 205

(1st Cir. 1988)("[Rule] 44.1 empowers a federal cou rt to determine foreign law on its own, but does not obli ge it to do so."); Bartsch v. Metro-Goldwyn-Mayer, Inc., 391 F.2d 150, 155 n.3 (2d Cir. 1968) (Friendly, J.) (same).

The parties therefore generally carry both the burd en of raising the issue that foreign law may apply in an action, and the burden of adequately proving foreign law to enable the court to apply it in a particular case. See Whi rlpool Fin. Corp. v. Sevaux, 96 F.3d 216, 221 (7th Cir. 1996)(h olding that party waived conflicts of law issue because it failed to fulfill its obligation under Rule 44.1 "to provide the district

court with "reasonable notice" of his intention to raise an issue of foreign law."); Restatement (Second) Confl ict of Laws S 136 cmt. f (1971) ("[T]he party who claims t hat the foreign law is different from the local law of the forum has the burden of establishing the content of the forei gn law."). Where parties fail to satisfy either burden the cou rt will ordinarily apply the forum's law. See Walter v. Net herlands Mead N.V., 514 F.2d 1130, 1137 n.14 (3d Cir. 1975); see also Banco de Credito Indus. v. Tesoreria General, 990 F.2d 827, 837 (5th Cir. 1993)("When the parties have fai led to conclusively establish foreign law, a court is enti tled to look to its own forum's law in order to fill any gaps.") ; Carey, 864 F.2d at 205 (applying forum's law where parties fail to raise issue of foreign law's applicability); Commer cial Ins. Co. of Newark, N.J. v. Pacific-Peru Constr. Corp., 558 F.2d 948, 952 (9th Cir. 1977)(applying forum law where p arties failed to raise issue of foreign law's applicabilit y); Restatement (Second) Conflict of Laws S 136 cmt. h (1971) ("[W]here either no information, or else insufficie nt information, has been obtained about the foreign la w, the forum will usually decide the case in accordance wi th its own law, except when to do so would not meet the ne eds of the case or would not be in the interests of justic e.").

Lubritene claims that it cannot be bound by Chemrit e's agreement to arbitrate because, as a matter of cont ract law, the written consent provision prevents it from beco ming Chemrite's assignee. Lubritene, however, has not ra ised the issue of whether South African contract law applies to its claim, nor has it provided any evidence to prove th e

8substance of that law.2 We therefore will apply the law of

the forum.

This case was brought in New Jersey. Thus, we now t urn to consider that state's contract law. The New Jers ey Supreme Court has not yet addressed the effect of contractual provisions limiting or prohibiting assi gnments. Nevertheless, we are not without guidance because t he Superior Court's Appellate Division recently addres sed this issue in Garden State Buildings L.P. v. First Fidel ity Bank, N.A., 702 A.2d 1315 (N.J. Super. Ct. App. Div. 1997 ). There, a partnership had entered a loan agreement w ith

Midatlantic Bank for the construction of a new hote l. The parties subsequently entered into a modification ag reement to extend the loan's maturity date, which provided that: "No party hereto shall assign this Letter Agreement (or assign any right or delegate any obligation contained here in) without the prior written consent of the other part y hereto and any such assignment shall be void." Id. at 1318

. Midatlantic subsequently assigned the loan to Starw ood without obtaining the partnership's prior written c onsent. The partnership acknowledged Starwood's rights unde r the loan agreement by making payments to, and eventuall y entering a settlement agreement with, Starwood. Nonetheless, the partnership filed suit against Mid atlantic for damages arising from its breach of the modifica tion agreement's assignment clause. It argued that it wa s not required to void the assignment, but could recogniz e its validity while still preserving its right to sue Mi datlantic for breach of its covenant not to assign without the partnership's written consent.

To resolve this claim the Appellate Division looked to

___________________________________________________ ______________

2. The only information regarding South African law that Lubritene has provided relates to the distinct issue of successor liability. This information relates to Lubritene's claim that, if t he District Court properly considered successor liability, it should have used South African, not New Jersey, law on the issue. Lubriten e's primary argument, however, is that the District Court need not consid er successor liability principles because this case can be resolved as a m atter of contract law. In the course of making this argument, Lubritene do es not raise the issue of which country's contract law applies.

9S 322 of the Restatement (Second) of Contracts, whi ch

provides in relevant part:

(2) A contract term prohibiting assignment o f rights under the contract, unless a different inten tion is

manifested . . . .

(b) gives the obligor a right to damages fo r breach of the terms forbidding assignment but does not render the assignment ineffective . . .

Restatement (Second) of Contracts S 322 (1981) (emp hasis added). The Court, distinguished between an assignm ent provision's effect upon a party's "power" to assign , as opposed to its "right" to assign. A party's "power" to assign is only limited where the parties clearly manifest a different intention. According to the Court:

`[t]o reveal the intent necessary to preclud e the power to assign, or cause an assignment violative of contractual provisions to be wholly void, su ch clause must contain express provisions that any ass ignment

shall be void or invalid if not made in a ce rtain specified way.' Otherwise, the assignment is effective, and the obligor has the right to damages.

Garden State, 702 A.2d at 1321 (quoting University Mews Assoc's v. Jeanmarie, 471 N.Y.S.2d 457, 461 (N.Y. S up. Ct. 1984)). The Court concluded that the parties had sufficiently manifested their intent to limit Midat lantic's power to assign the loan because the anti-assignmen t clause clearly provided that assignments without th e other party's written consent "shall be void." Id. at 132 2.

In adopting S 322, New Jersey joins numerous other jurisdictions that follow the general rule that con tractual provisions limiting or prohibiting assignments oper ate only to limit a parties' right to assign the contract, b ut not their power to do so, unless the parties' manifest an int ent to the contrary with specificity. See Cedar Point Apartmen ts, Ltd. v. Cedar Point Inv. Corp., 693 F.2d 748, 754 & n.4 (8th Cir. 1982); Pro Cardiago Pronto Socorro Cardiological, S .A. v. Trussell, 863 F. Supp. 135, 137 (S.D.N.Y. 1994); Lo mas Mortgage U.S.A., Inc. v. W.E. O'Neil Constr. Co., 8 12 F. Supp. 841, 843-44 (N.D. Ill. 1993); Allhusen v. Car isto

10Const. Corp., 103 N.E.2d 891, 893 (N.Y. 1952); Mack lowe v.

42nd St. Dev. Corp., 566 N.Y.S.2d 606, 606-07 (N.Y. Sup. Ct. App. Div. 1991); Sullivan v. International Fide lity Ins. Co., 465 N.Y.S.2d 235, 237 (N.Y. Sup. Ct. App. Div. 1983); University Mews Assoc's v. Jeanmarie, 471 N.Y.S.2d 457, 461 (N.Y. Sup. Ct. 1984). To meet this standard theassignment provision must generally state that nonconforming assignments (i) shall be "void" or "inva lid," or (ii) that the assignee shall acquire no rights or the no nassigning party shall not recognize any such assign ment. See Garden State, 702 A.2d at 1321 ("clause must co ntain express provisions that any assignment shall be voi d or invalid if not made in a certain specified way"); C edar Point, 693 F.2d at 754 n.4 (same); Allhusen, 103 N.E.2d at 893; Sullivan, 465 N.Y.S.2d at 238; University Mews, 471 N.Y.S.2d at 461. In the absence of such language, t he provision limiting or prohibiting assignments will be interpreted merely as a covenant not to assign, or to follow specific procedures--typically obtaining the non-as signing party's prior written consent--before assigning. Br each of such a covenant may render the assigning party liab le in damages to the non-assigning party. The assignment, however, remains valid and enforceable against both the assignor and the assignee. See Garden State, 702 A. 2d at 1321; Cedar Point, 693 F.2d at 754 n.4; Pro Cadiago , 863 F. Supp. at 137; Lomas, 812 F. Supp. at 844; Allhus en, 103 N.E.2d at 892; Sullivan, 465 N.Y.S.2d at 237.

The Trade Agreements in this case contain the follo wing assignment provisions: (i) the Distributor Sales Ag reement S 7.06 provides that the "Agreement and the obligat ions and rights under this Agreement will not be assignable by [Chemrite] without express prior written consent of Bel-Ray, which may be withheld at the sole discretion of Bel -Ray"; (ii) the Blending and Manufacturing License Agreeme nt S 7.05 provides that the "Agreement and the obligat ions and rights hereunder will not be assignable by [Chemrit e] without the express prior written consent of BEL-RA Y"; and (iii) the License Agreement to Trade Name S 6.06 pr ovides that the "Agreement, and the obligations and rights under this agreement will not be assignable without the e xpress written consent of all Parties to this Agreement." (A39, A61, A83). None contain terms specifically stating that an

11assignment without Bel-Ray's written consent would be

void or invalid. Several courts have considered vir tually identical clauses and concluded that they did not c ontain the necessary express language to limit the assigni ng party's power to assign. See Lomas, 812 F. Supp. at 844; Macklowe, 566 N.Y.S.2d at 606-07; Sullivan, 465 N.Y .S.2d

at 236-38.

The Trade Agreements' assignment clauses do not contain the requisite clear language to limit Chemr ite's "power" to assign the Trade Agreements. Chemrite's assignment to Lubritene is therefore enforceable, a nd Lubritene is bound to arbitrate claims "relating to " the Trade Agreements pursuant to their arbitration clau ses. We therefore agree with the District Court that Bel-Ra y was entitled to an order compelling Lubritene to arbitr ate.

IV.

We now turn to consider whether the District Court properly compelled the Individual Appellants to arb itrate. The Individual Appellants contend that the District Court erred because it lacked personal jurisdiction over them, and because they did not individually agree to arbitrat e claims with Bel-Ray. We examine these claims in turn.

A.

The Individual Appellants first argue that the Dist rict Court lacked personal jurisdiction over them. Bel-R ay rejoins that appellants waived personal jurisdictio n by seeking summary judgment on their counterclaim for affirmative injunctive relief against Bel-Ray. We a gree.

"Because the requirement of personal jurisdiction represents first of all an individual right, it can , like other such rights, be waived." Insurance Corp. of Ir., Lt d., et al. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 703 (1982). Moreover, the "actions of the defendant may amount to a legal submission to the jurisdiction of the court, whether voluntary or not." Id. at 704-705. I n particular, where a party seeks affirmative relief from a court, it normally submits itself to the jurisdicti on of the

12court with respect to the adjudication of claims ar ising from

the same subject matter. Adam v. Saenger, 303 U.S. 59 (1938).

Because there "exists a strong policy to conserve j udicial time and resources," we have held that "preliminary matters such as . . . personal jurisdiction . . . s hould be raised and disposed of before the court considers t he merits or quasi-merits of a controversy." Wyrough & Loser, Inc. v. Pelmore Lab., Inc., 376 F.2d 543, 547 (3d Cir. 1967 ). Accordingly, in Wyrough we held that a defendant wh o participates in the adjudication of the plaintiff's application for a preliminary injunction without securing a determination of his challenge to the court's perso nal jurisdiction over him submits himself to the jurisd iction of the court unless it is not reasonably feasible tofi rst secure

that determination. See id. This is true even where the defendant raises his personal jurisdiction defense at the earliest point required by the Federal Rules. See i d.

While the Individual Appellants timely raised their personal jurisdiction defense in their answer as re quired by the Federal Rules, they did far more than resist an application for a preliminary injunction. They aske d the

District Court for affirmative relief before securi ng a determination on their personal jurisdiction defens es. On May 21, 1998, three months after they had entered t heir appearances before the District Court, the Individu al Appellants filed motions for summary judgment on th eir counterclaim asking the Court to enjoin Bel-Ray fro m seeking arbitration. They thereafter proceeded to l itigate those motions before securing a personal jurisdicti on determination. Their affidavits supporting their pe rsonal jurisdiction defenses were not filed until a little over a month after their motion for summary judgment was denied. Because the record contains nothing suggest ing

that it would be unfair to conclude that the Indivi dual Appellants thereby submitted themselves to the Dist rict Court's jurisdiction, we so hold.

B.

Arbitration is strictly a matter of contract. If a party has not agreed to arbitrate, the courts have no authori ty to

13mandate that he do so. United Steelworkers of Am. v

.

Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1 960). The Individual Appellants claim that the District C ourt violated this fundamental principle because they ha ve not signed an agreement consenting to submit disputes between themselves and Bel-Ray to arbitration. When asked to enforce an arbitration agreement against a nonsignatory, we ask whether he or she is bound by tha t agreement under traditional principles of contract and agency law. Kaplan v. First Options of Chicago, Inc ., 19 F.3d 1503 (3d Cir. 1994); Pritzker v. Merrill, Lynch, Pi erce, Fenner & Smith, 7 F.3d 1110, 1121 (3d Cir. 1993).

Bel-Ray insists that the Individual Appellants are bound by the arbitration clauses in the Trade Agreements" based on their status as [Lubritene's] agents," citing ou r decision in Pritzker. Appellants' Br. at 16. Bel-Ray does no t explicate, however, what principle of agency law en abled Lubritene to contract away the Individual Appellant s' right to litigate their personal liability on claims brou ght against them. Our reading of Pritzker does not suggest such a principle, and our research has uncovered none.

In Pritzker, the trustees of a pension plan sued th e brokerage firm which traded on behalf of the plan, the broker in the firm that serviced the plan's account , and a sister corporation of the brokerage firm that provi ded the plan with investment advice. The arbitration clause that the trustees sought to enforce was set forth in the Cas h Management Agreement between the trustees and the brokerage firm; neither the broker nor the sister corporation signed the agreement. After a dispute a rose regarding investment decisions and the trusteesfile d suit, the defendants sought to compel arbitration. The tr ustees resisted arbitration and argued that they could not be compelled to arbitrate against the broker and the s ister corporation because they had not entered into an arbitration agreement with those parties. We reject ed this
argument.

In Pritzker, the issue was whether a signatory to a n arbitration agreement could be compelled to arbitra te claims it had against the agents of the other party to the agreement. As we made clear at the outset of the op inion,

14the result turned on a construction of the arbitrat ion clause

to which the trustees had agreed -- i.e., whether i t was broad enough in scope to encompass claims against a gents of the brokerage firm arising out of the relationsh ip between the brokerage firm and the trustees. We hel d that by agreeing in the context of the customer's agreem ent to arbitrate "all controversies which may arise betwee n us,"

the trustees had committed themselves to arbitrate claims against the firm and its agents arising out of the brokerage relationship. We noted that since the brokerage cou ld act only through agents and employees, "an arbitration agreement would be of little value if it did not ex tend to [them]." Id. at 1122 (quoting Troll v. Paciolla, 74 8 F. Supp. 305, 309 (E.D. Pa. 1990). Accordingly, "[i]n keepin g with the federal policy favoring arbitration," we "exten d[ed] the scope of the arbitration clauses to agents of the p arty who signed the agreements." Id. at 1122.

The issue before us, however, is not the constructi on of

the arbitration clauses. The relevant issue here is whether an employee or agent who did not agree to arbitrate can be compelled to arbitrate his personal liability on th e basis of a commitment made by the corporation he serves.

The only other cases relied upon by Bel-Ray are our decision in Isidor Paiewonsky Assoc., Inc. v. Sharp Properties Inc., 998 F.3d 145 (3d Cir. 1993), and t he decision of the Court of Appeals for the Ninth Circ uit in Letizia v. Prudential Bache Securities, 802 F.2d 11 85 (9th Cir. 1986). Like Pritzker, Letizia was a suit by a client against a brokerage firm and the two firm employees who handled the account. As in Pritzker, the employees sought to compel the client to arbitrate his claims agains t them

and the result turned on construction of the arbitr ation clause in the agreement between the client and thef irm.

The court concluded that "all of the individual def endants' allegedly wrongful acts related to their handling o f[the client's] securities account" and that the firm had "clearly indicated its intentions [in the agreement] to prot ect its employees" from the expense of litigation arising f rom their work activities. Id. at 1188. Accordingly, the clie nt's claims against the employees were held to be within the sc ope of the client's commitment to arbitrate, and the emplo yees were held to be entitled to enforce that commitment

.

15In the Sharp case, a landlord and "head tenant" of a

shopping center had entered a master lease containi ng an arbitration clause. The issue we were required to d ecide was whether a subtenant, who had not signed the mas ter lease, was bound by an award resulting from arbitra tion

between the landlord and the "head tenant." The awa rd authorized the landlord to regain possession of the portion of the leasehold occupied by the subtenant. We held that the subtenant was bound, despite the fact that it w as not a party to the arbitration agreement. We first look ed to "basic principles of landlord-tenant law":

As a general matter, it is well-established that a subtenant's interest in real property cannot exceed that

of the head tenant because the subtenant's i nterest in the real property is strictly derivative of that of the head tenant. Normally, then, if a head tenan t loses its rights to continued possession of the proper ty in question, so does the subtenant . . .

Thus, to the extent that common law principl es of the rights of subtenants inform our analysis her e, [the subtenant] cannot complain when its rights t o continued possession of the Bolero Building ended upon an adverse adjudication of the rights o f its sublessor, [the head tenant].

Sharp, 998 F.2d at 154.

We then turned to the FAA and determined that none of its provisions required a different result. Accordi ngly, we enforced the award against the subtenant. While the general approach we followed in Sharp is equally ap plicable here, the ruling there provides little help in reso lving this

case.

We thus conclude that Bel-Ray has tendered no authorities supporting its position. Nor has our ow n research revealed supporting authority. On the cont rary, the authority that does exist suggests to us that t he District Court erred in compelling the Individual Appellees to

arbitrate.

Generally, of course, an agent of a disclosed princ ipal, even one who negotiates and signs a contract for he r

16principal, does not become a party to the contract. Kaplan

v. First Options of Chicago, Inc., 19 F.3d 1503 (3d Cir. 1994); Restatement (Second) of Agency S 320 (1958). Moreover, under traditional agency principles, the only other way we understand that an agent can be bound by the terms of a contract is if she is made a party t o the contract by her principal acting on her behalf with actual, implied, or apparent authority. The record in this case will not support a decision for Bel-Ray on any of these theories.

Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773 (2d Cir. 1995), catalogues the various theories recognized by the Court of Appeals for the Second C ircuit for binding non-signatories to an arbitration claus e. After noting that each theory is based on "common law pri nciples of contract and agency law," the court set forth th e following list:

1) incorporation by reference; 2) assumption ; 3) agency; 4) veil-piercing/alter ego; and 5 ) estoppel.

Thomson, 64 F.3d at 776.

In Thomson, the District Court compelled a non-sign atory parent corporation to arbitrate based on an arbitra tion agreement between its subsidiary and one of the subsidiary's suppliers. The Court of Appeals revers ed. After analyzing the record before it under each of the en umerated theories, the Court held that the District Court la cked authority under common law contract and agency principles to compel the parent to arbitrate even t hough the claim against it arose out of the relationship betw een the subsidiary and the supplier.

Having similarly compared our record with the Thoms on court's explanation of each of the five enumerated theories, we have also concluded that each is inapposite here . As in Thomson, the record will not support a piercing of the corporate veil and, without disregarding the entity of Lubritene, it is not possible to find the direct be nefit required by the estoppel cases.

Here, as in Kaplan, traditional principles of contr act and agency law do not support the conclusion that the p arties resisting arbitration are bound by an arbitration a greement

17they did not sign. Accordingly, we hold that the Di strict

Court erred in compelling the Individual Appellants to arbitrate Bel-Ray's claims against them. Bel-Ray ma y, if it so chooses, apply to the District Court for a stay of the proceeding on those claims pending its arbitration with

Lubritene.

V.

The order of the District Court compelling arbitrat ion will

be reversed and the case will be remanded to it wit h instructions to enter an order compelling only Lubr itene to

arbitrate.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

18