NOT RE CO M M E NDE D F OR F UL L
- T E XT P UB L I CA T I ON Fi l e N ame: 10a0121n. 06 N o. 07- 3549 UNI TED S TATES CO URT O F AP PEALS F O R T H E S IX T H C IR C U IT
H
. T H O M A S M O R A N , II, R ec eive r, Pl ai nt i ff- A ppel l ee,
v. DA VI D W
. SVETE, D e f e n d a n t-A p p e llan t. O n A ppeal fr om t he U ni t ed St at es D i s t r i ctC our tfort he Sout her n D i s t r i ctof O hi o at D ay t on

/ B efore: G U Y , R O G E R S , an d G R IF F IN , C i rcu i t Jud ges. R A L P H B . G U Y , J R ., C ir c u it J u d g e . D efe ndantD avi d W
. Svet e appe al s fr om t he deni al of hi s m ot i on t o di s m i s s t he compl ai nt , w hi ch soughtt o compel arbi t r at i on of cl ai m s br ought by t he R ece i ver , T hom as M or an, I I , ar i s i ng out of Svet e’ s al l eged cont r ol of L i feT i m e C apit al , Inc. ’s viat i cal i nv est m ent bu si ness. S vete ar gu es t hat i tw as er rort o refuse to co m p el arb itrati o n b ec au se th e d istri ct co u rt ’s reaso n s w ere n o t sup p o rt ed b ythe re co rd and i nvol ved er r or i n t he appl i cat i on of t he l aw conce r ni ng t he enfor cemento f a rbit rat i on cl aus es . T he R ece i ver cont ends t hat t he re ques t for arbi t r at i on w as pr oper l ydeni ed, ar gui ng b o th (1 ) th a t r es j udi cat a bar s l i t i gat i on of t he ques t i on of arbi t r abi l i t y ; and ( 2) t hatarbi t r at i on
w as pr oper l ydeni ed bec au se the chal l enge w as t o t he exi s t ence
— as oppos ed t o t heNo. 07-3549 2

val i di t y
— of t he contr actcont ai ni ng t he arbi t r at i on cl aus e. B eca us e t he di s t r i ctcour tfound th e a rb itratio n c lau se u n e n f o rc e a b le o n th e b a sis o f a lleg a tio n s th a t th e c o n tra c t a s a w h o le
w as a pr oduct of fr aud, w e re ver s e and r emand for fur t hercons i der at i on of t he demand for
arbi t r at i on i n t hi s cas e. I. V iatic a l se ttl e m e n ts a re f in a n c ial p ro d u c ts in v o lv in g a g re e m e n ts w ith ter m in a llyill vi at or s w ho s el l , at a di s count , t he ri ght t o r ece i ve t he benefi t s of t hei r l i fe i ns ur ance pol i ci es
u p o n m a tu rity . L if

e T im e C a p ital m a rk e ted a n d so ld b e n e f icia l in ter e sts in su c h p o licie s to i nves t or s , as s i gni ng t hem an i nt er es t equi val ent t o t hei r des i r ed i nves t m entpl us a pr om i s ed
r eturn. T hes e i nves t m ent s w oul d y i el d hi gherr at es of r etur n t han ot heri nves t m ent
o p ti o n s— as lo n g as th e v iat o r died w ith in the li fe ex p ec tanc yq u o ted to the in v esto r. L i feTi m e C api t al w as i ncorpor at ed bySvet e i n 1997, and w as s ol d i n 1998 t o anot her
com pan yw ho se pri ncipal w as al l eged l yun der Sv et e’s con t rol
. O ver t he n ext s everal y ears , Svet e for m ed and c ont r ol l ed a numberof ot herent i t i es as s oci at ed w i t h L i feTi m e’ s vi at i cal i nves t m entbus i nes s , w hi ch w er e al l egedl y u sed t o di s gui s e Svet e’ s cont r ol , m i s l ead i nves t or s , and fa ci l i t at e t he di ver s i on of i nves t ed funds
. For exampl e, one company( M edi cal U nder w r i t er s , I nc. ) al l egedl ym i s r epr es ent ed and e ven for ged t he purpor t edl yi ndepende nt
m edi cal eval uat i on of t he vi at or ’ s l i fe e xpect ancy . A not hercompany , t out ed as an i ndepende nti nves t m ents er vi ci ng company , al l egedl yunder funded the pr emi um r es er ve
a c c o u n t an d f

a c ili tate d th e d iv e rsio n o f f u n d s f ro m th a t a c c o u n t to S v e te. M a n yin v e stm e n tsNo. 07-3549 3

Svete andco-defend ant Ron ald Girard ot were c onvictedin Florid a on federal charges of 1 c o ns p i r a c y , m a i l f

r aud, mo ne y

launde r i ng , andint e r s t at e tr ans p o rt at i o n o f m o ne y o b t a i ne d b y

f r aud ar i s i ng out of Life Tim e’s viatical investmen ts. Unite d States v. Sve te , 5 21 F .3d1 30 2 (1 1th Cir. 20 08 ), vac ated in pa rt , 55 6 F
. 3d 1157 , 11 59 ( 11th C i r . 2 009) ( e n b anc ) , and reinsta ted in pa rt , 565 F.3d 1363 (11th Ci r. 20 09 ), reh’g . denied , _ F.3 d_(J un e 18 , 200 9) (T able, No. 05 -13 80 9-H H), petiti on for cert. filed (No v . 11 , 2009 ) (No
. 09-7576). fa il ed to m ature w h en ex p ec ted, a n d ad d it ion al p rem ium p ay m en ts w ere req u ir ed
. Inv esto rs al s o cl ai m ed t hat s al es agent s m ade fal s e st at ement s conce r ni ng l i fe e xpect ancy , t he s t atus of l i fe i ns ur ance pol i ci es , and t he r i s ks as s oci at ed w i t h t he i nves t m ent s . O ver al l , compani es cont r ol l ed by Svet e obt ai ned more t han $100 mi l l i on i n i nves t m ent s fr om m or e t han 3, 000 i nves t or s . Svet e w as conv ict ed o f fede r al char ges ar i s i ng outof t he al l egedl yfr audul ent i nves t m ent s , and pr ocee ded pr o s e bef or e t he di s t r i ctcour ti n t hi s cas e. 1 T h e Re c e i v e r ’ s a p p o i n t me n t , a s we l l a s t h i s a c t i o n , g r e w o u t o f a l a ws u i tf i l e d b yH. T hayne D avi s , a Li feTi m e i nves t or , agai ns tbot h L i feTi m e and Svet e forfr aud and br eac h
o f c o n tr a c t. ( D avis v. Li

f eTi m e C api t al

, I nc. , S
. D
. O hi o N o. 3: 04- cv- 00059)
. M or an w as appoi nt ed as R ece i ver for L i feTi m e C api t al and w as expr es s l yaut hor i zed “ t o t ake a nyand al l act i on as t he R ece i verm aydeem nece s s ar y or pr udent for t he pr es er vat i on, m ai nt enanc e, and admi ni s t r at i on of t he Li feTi m e Po rt fo li o compri s ed of vi at i cal and l i fe s et t l ement p o li cies a n d b en ef

ici al i n terests t h ere in[
. ]” In re lian c e o n th e d istric t co u rt’s o r d e r s g ra n tin g a n d c lar if y in g th e re a c h o f

h is
a u t h o r i t y, t h e R e c e i v e r c o m m e n c e d t h i s a c t i o n i n F e b r u a r y 2 0 0 5 a g a i n s tS v e t e , i n d i v i d u a l l y,
a s s e r t i n g s i x t e e n c l a i m s f o r r e l i e f i n c l u d i n g : f

r a u d , b r e a c h o f

f i d u c i a r y d u t y, c i v i l c o n s p i r a c y,
m i s r epr es en t at i on, br eac h of contr act , fr audul entt r ans fer , unj us tenr i chment , al t erego,No. 07-3549 4

Sevenother entities allegedlycontrolled by Svete were nam ed as defen dan ts but later dismissed 2 with out prej ud ice for failure to effect service. co n stru cti v e trust, co rrup t acti v it ies i n v iolatio n o f s ta te law (O h io R ev . C o d e § 2 9 3 4
. 3 4 ), f e d e ra l R a c k e te e ri n g In f lu e n c e d a n d C o rr u p t O rg a n iz a tio n (R IC O ) A c t c la im s (1 8 U .S .C . § 1962( a)
- ( d) ) , and vi ol at i ons of t he S arbanes
- O xl eyA ctof 2002 ( Pub. L
. N o. 107- 204, 116 St at . 745)
. T he ca s e pr ocee ded and Svet e fi l ed a num ber of i nt er l ocut or yappea l s t hathave

2 large lyb ee n d ism issed eit h er v o lun tari lyo r by o rde r of this c o u rt . A lth o u g h interl o cu tory in n a tu re , the d e c isio n d e n y in g S v e te’ s m o tio n to d ism iss a n d c o m p e l a rb itratio n is im m e d ia te ly a p p e a la b le p u rs u a n t to 9 U .S .C
. § 1 6
. Si m on v. P f iz erI nc. , 398 F. 3d 765, 772 (6th C ir
. 2 0 0 5 ). S v e te’ s p ro se m o tio n to d ism iss th e c o m p lain t an d e n f o rc e a rb itratio n , file d in Sept ember 2006, as s er t ed t hatt he R ece i ver “i s s ubj ectt o B i ndi ng A rbi t r at i on w i t h t he D efe ndant , as pera mul t i t ude of c ont r act s t hat cont ai n t he A rbi t r at i on Pr ovi s i on” and thatt he “mul t i t ude of c ont r act s w i t h L i feTi m e C api t al , I nc. cl ear l ys peci fyt hatanydi s put es m us tbe
r es ol ved t hr ough B i ndi ng A rbi t r at i on. ” R ecomm endi ng t hat t hi s m ot i on be deni ed, t he
m a g istra te ju d g e c o n c lu d e d th a t:

D ef endant ’ s M ot i on t o D i s m i s s i s uns uppor t ed byanyE xhi bi t s or s peci fi c r efe r ence t o document s of r ecor ds i n t hi s cas e, and the M o t i on does n o t all eg e t h at the R ec eive r (or L ifeT im e C ap it al) ag ree d to m a n d atory a rb i t r a t i o n o f

c l a i m s a g a i n s tD e f

e n d a n ti n h i s i n d i v i d u a l o rp e r s o n a l c a p a c i t y. A lth o u g h th e C o m p lain t alle g e s th a t D e f e n d a n t f o rm e rlyh e ld a n o w n e rsh ip i nt er es ti n L i feTi m e C api t al , I nc. , and t hathe w as f o rm erlyan off

i cerof L if e T im e C a p ital, I n c ., th e R e c e iv e r’s c laim s in th e p re se n t ca se se e k to h o ld D efen dan tpersonall yl i able, rather t han l i able i n h i s corpora te capacityas a f o r me r o wn e r o r o f

f i c e r o f Li f

e Ti me Ca p i t a l
. Th e a l l e g a t i o n t h a t Li f e Ti meNo. 07-3549 5

Sv e t e ’ s m o t i o n a l s o a s s e rt e d—wi tho utar g um e nt —thatthe R e c e i v e r

l a c k s s t andi ngt o “r e p r e s e nt 3 the 3 ,00 0 p lus L CI customers.” Th ere is some disagreemen t about wh ether the Receiver is asserting breach o f co ntr a c tcl a i ms unde r

co ntr a c t s be twe e n L i f

e Ti me andi t s i nv e s t o r s , and whe the r he w o ul d h av e s t andi ng to do so. Se eW

ul i ge r v . M f r s . Li f eI ns . C o. , 5 67 F.3d 787, 793-96 (6th Ci r. 2009); Li be r teC api tal G roup LLC v. Capwill , 24 8 F
. Ap p ’ x 6 50, 65 6-5 7 ( 6th C i r . 20 07) ( ho l di ngthat , r e g ar dl e s s o f the s c o p e o f

the court’s auth orization, the Receive r only had stand ing to bring claims belo ngin g to the receivership entities, and no t c la ims b el ong ingto thi rd p arti es ). The se is sue s ar e be y ond the s co pe o f this a pp ea l. C api t a l e n t e r e d i n t o c o n tr a c t s c o n t ai ni ng m andat or yarbi t r at i on pr ovi s i ons does notes t abl i s h t hatD efe n d an t ent er ed i nt o s uch contr act s i n hi s i ndi vi dual or p e r s o n a l c a p a c i t y. Svet e fi l ed obj ect i ons t o t he r ep o rt an d r ecomm endat i on and a s econd mot i on t o s t ayand compel arbi t r at i on, bot h of w hi ch pr ovi ded copi es of th ree d o cum ent s t hathad notbeen at t ache d t o t he i ni t i al m ot i on. T hos e document s , al l fr om 1999, w er e: ( 1) L i feTi m e’ s L et t er of I nt entt o Pur chas e Svet e’ s excl us i ve r i ght t o m ar ketvi at i cal s et t l ement s al es pr oduct s ; ( 2) t he r es ul t i ng Pur chas e A gr eementbet w een Li feTi m e C api t al and “D avi d W
. Svet e, an i ndi vi dual ”; and ( 3) t he r el at ed C o ns ul t antA gr eementbet w een Li feTi m e C api t al and

“ D A V ID W . S V E T E , a p e rs o n o f f u ll a g e o f m a

jo ri ty a n d a re s id e n t o f th e S ta te o f F lo ri d a .” T h e se d o c u m e n ts, S v e te a rg u e d , d e m o n stra te th a t h e a c tu a lly h a d e n ter e d in to a c o n tra c t w ith L if e T im e in h is in d iv id u a l o r p e r s o n a l c a p a c ity . H e a rg u e d th a t cla im s a risin g o u t o f h is
r el at i ons hi p w i t h L i feTi m e w er e s ubj ectt o m andat or yarbi t r at i on pur s uantt o t he arbi t r at i on cl aus e i n t he C ons ul t antA gr eement . A ddi t i onal l y , Svet e cl ai m ed t hathe coul d compel
a rb itrati o n u n d e r th e “ m u lti tu d e ” o f a g re e m e n ts b e tw e e n L if e T im e C a p ital a n d e a c h o f its i nv est ors, al l of w hich w ere purport ed to con t ai n arbi t rat i on cl auses. 3 In tw o b ri ef

o rde rs en tered D ec em b er 12 an d 1 8 , 2 0 0 6 , resp ec ti v ely , the d istri ct co u rtNo. 07-3549 6

Alth ough this rationale was discard ed, to the exten t that it can be re ad to conclud e that nonparties 4 may not enforce arbitration agreemen ts we note that non signatories may be boun d to an arbitration agreement un der ordi nary state law co ntr act and agency principles. Javitch v. First U nio n Sec., Inc. , 31 5 F.3d 619, 629 (6th Ci r. 2003); se e als o A rt h u r A n dersen, LLP v
. Carl is le , 12 9 S
. C t . 18 96, 19 02 ( 2009 ) ( s t at i ngthatal i t i g antw ho w a s no tap arty t o an ar b i tr at i o n a g r e e me ntm ay

i nv o k e the s t ay

p r o v i s i o ns i f

the re le vant s tate c ontra ct

law wo uld a ll ow him t o enf or ce the arb itrati on agre eme nt). over r ul ed Svet e’ s obj ect i ons bas ed on “a d e n o v o r evi ew of t he r ecor d i n t hi s cas e” a nd deni ed S vet e’ s s econd mot i on t o compel arbi t r at i on beca us e i t“pr ovi de[d] no val i d r eas on t o al t ert he C our t ’ s pr i orr ej ect i on of m andat or yarbi t r at i on i n t hi s cas e. ” Svet e moved for
r e c o n s i d e r a t i o n , a g a i n a t t a c h i n g t h e Co n s u l t a n tAg r e e me n tb e t we e n h i ms e l f a n d Li f e Ti me C api t al and ar gui ng t hat the C o ns ul t antA gr eementw as ent er ed i nt o i n hi s i ndi vi dual
c a p a c ity . T h e m o tio n f

o r re c o n sid e ra tio n , a tim e -to lli n g m o tio n f o r pu rp o se s o f

th is a p p e a l,
w as deni ed al ong w i t h s ever al ot her of S vet e’ s obj ect i ons and m ot i ons i n an or derent er ed M ar ch 28, 2007. T hator der , i n per t i nent par t , emphasi zed thatSvet e had a l r eadyuns ucce s s ful l yr ai s ed t he i s s ue of a rbi t r at i on t w i ce i n t hi s cas e and tw i ce i n D avis v. Li f eTi m e C api t al , N o. 04- cv0059. Speci fi cal l ynot i ng t hati thad r evi ew ed t he C ons ul t antA gr eement , how ever , t he d istric t co u rt n o lo n g e r re lied o n th e f in d in g th a t S v e te h a d n o t en ter e d in to th e a g re e m e n ts i n hi s i ndi vi dual or per s onal capa ci t y . I ns t ead, t he di s t r i ct cour t s t at ed t hatt he “Consul t ant 4 A gr eementw as ent er ed i nt o ata t i m e w hen Svet e w as i n cont r ol of Li feT i m e. ” The
s i gni fi canc e of thi s pr opos i t i on appea r s t o be t hat t he C ons ul t antA gr eementw as t he pr oduct of fr aud. A s t he di s t r i ctcour tpr ocee ded t o expl ai n:

E nt r yi nt o t he C ons ul t antA gr eementw as one par t of Svet e’ s ext ens i veNo. 07-3549 7

Cl a i m pr e c l us i onbar s a s ub s e qu e ntac t i onwhe n the r e is : “ ‘ ( 1) a f i na l de c i s i ononth e m e r i t s by a 5 court of co m

petent j urisdiction ; (2) a subseque nt action between the sam e parties or their “p riv ies”; (3) an issue in the sub seque nt actio n which was litig ated o r which shou ld hav e be en litig ated in the prior a ction; and (4) an identityof the ca uses of ac tion.’” Bech erer v . Merrill Lync h, Pierce, Fe nner, an d S mith, Inc. , 1 93 sch em es to rem o v e sig n ifi ca n t fu n d s fro m the trea su ryo f L ifeT im e f o r S v ete’s i ndi vi dual benef

i t . Svete’s ext ens i ve s chemes t o r emove si gni fi cantfunds fr om L i feTi m e w er e t he bas i s for h is c onvi ct i on forfr aud, cons pi r acyand m oneyl aunder i ng. Si nce Svet e s eeks t o enfor ce a n arbi t r at i on cl aus e i n a cont r a c t t h a t i s t h e r e s u l t o f f r a u d o r c o e r c i o n , a rb i t r a t i o n wi l l n o t be c o m p e lle d
. See Pri t

z ker v. Mer r i l lLynch, P i er ce, F enner& Sm i t h, I nc. , 7 F. 3d 1110, 1118 ( 3d C i r . 1993) ( i ti s w el l s et t l ed t hata par t ym aynotbe compel l ed t o arbi t r at e i t s cl ai m s w her e t he arbi t r at i on agr eement s ar e a r es ul t of fr aud or co erc ion ). T h e d istric t co u rt sta ted , in c lo sin g , th a t a rb itratio n w o u ld n o t b e c o m p e lled b e c a u se “ S v e te
s e e k s to e n f

o rc e a n a rb itr a tio n c la u s e in a c o n tr a c t t h a t i s th e re s u lt o f f ra u d o r c o e rc io n .” D efe ndantappea l ed. II. A. R e s J

u dica ta W e dec l i ne t he R ece i ver ’ s i nvi t at i on t o aff i r m on gr ounds not r eac hed byt he di s t r i ct
cour t ; namel y , t hatSvet e’ s r eques tforarbi t r at i on i s b arr ed byt he pr ecl us i ve ef fec tof t he i nt er l ocut or yr ul i ngs i n D a v is r e j e c t i n g Sv e t e ’ s e f

f o r t s t o c o mpe l a rb i t r a t i o n i n t hat cas e. Fi r s t , t he R ece i verr el i es expl i ci t l yon t he doctr i ne of re s ju d ica ta , orcl ai m pr ecl us i on, but appea r s t o confus e i tw i t h col l at er ales t oppel , ori s s ue pr ecl us i on. I ti s i s s ue pr ecl us i on t hat

“ b a rs ‘su c c e ss iv e lit ig a tio n o f a n iss u e o f f a c t o r la w a c tu a llylit ig a ted a n d re so lv e d in a v a lid
cour tdet er m i nat i on es s ent i al t o the pr i orj udgm ent , ’ even i f t he i s s ue r ecur s i n t he cont ext of a di ffe r entcl ai m . ” T a y lo r v . S tu rg e ll , 1 2 8 S
. C t. 2 1 6 1 , 2 1 7 1 (20 0 8 ) (cit ati o n o m it ted). 5No. 07-3549 8

F
. 3d 4 15 , 4 22 ( 6th C ir
. 1 99 9) ( en b an c) ( ci tati on

o mitte d)
. Second, even c ur s or y cons i der at i on of t he r el evantpl eadi ngs i n D avis s ugges t s t hat t he r equi r ement s fori s s ue pr ecl us i on ar e pr obabl ynotm et . I s s ue pr ecl us i on r equi r es t hat( 1)

“ th e p re c ise iss u e ra ise d in th e p re se n t c a se m u st h a v e b e e n ra ise d a n d a c tu a llylit ig a ted in t he pr i orpr ocee di ng”; ( 2) “det er m i nat i on of t he i s s u e m u s thave be en nec es s ar yt o t he out come of t he pr i orpr ocee di ng; ” ( 3) “t he pr i orpr oce ed ing m us thave r es ul t ed i n a fi nal j udgm enton t he mer i t s ; ” and ( 4) “t he par t yagai ns tw hom es t oppel i s s oughtm us thave ha d a ful l and fa i roppor t uni t yt o l i t i gat e t he i s s ue i n the pr i orpr ocee di ng. ” N A A C P , D e tro it B r anch v. D etr oi tP ol i ce O f f i cer s A s s’n , 8 2 1 F .2 d 3 2 8 , 3 3 0 (6 th C ir. 1 9 8 7 ); see al so Rybar cz yk v
. TR W

, I nc. , 2 3 5 F
. 3 d 9 7 5 , 9 8 2 (6th C ir
. 2 0 0 0 ). I n D a v is , an i nv est or fi l ed suitagainstbo t h S vete and L i feT i m e C apit al
. S vete’ s fi rs t
m ot i on t o compel arbi t r at i on s oughtt o r eal i gn t he par t i es s o t hatL i feTi m e w oul d be dee m ed a pl ai nt i ff and Svet e coul d s eek t o compel arbi t r at i on under t he C ons ul t antA gr eement . T he
m agi s t r at e j udge, pr es i di ng by cons ent of t he par t i es , deni ed t he mot i on i n a s um m ar yor der bas ed on her“due cons i der at i on of t he ar gum ent s s et for t h i n t he m ot i on and i n cons i der at i on
o f th e f a c t th a t th e in sta n t ac tio n is a n e q u itab le p ro c e e d in g .” S v e te ’ s s e c o n d m o tio n to di s m i s s s oughtt o compel arbit rati o n undert he cus t om eragr eementent er ed i nt o bet w een D avi s and Li feTi m e C api t al
. T he m agi s t r at e j udge, gi vi ng t he r eas ons t hatw oul d be r epea t ed i n t hi s cas e, deni ed t hi s m ot i on bot h beca us e Svet e had notpr oduced a nydocument at i on and b e c a u se th e a lleg a tio n th a t L if eTim e’s cont r actw i t h D avi s i ncl uded an a rbi t r at i on pr ovi s i onNo. 07-3549 9

A f e d e r a l
- c o urt ju d gm e nt ’ s p r e c l u s i v e e f f e c t i s d e t e rmi n e d b y f

e d e r a l c o m

m o n l aw , w hi chin 6 div ersity case s “inc orporate s the rules o f preclu sion applied by the State in whic h the renderin gcourt sits.” Taylo r , 1 28 S. Ct. at 2 171, n. 4. d id n o t es tab lish th a t Svet e had ent er ed i nt o any s uch agr eementi n hi s i ndi vi dual orper s onal
c a p a c i t y. (D a v is , Doc
. 6 6 3 , p p . 2
- 3
. ) I f n o t h i n g e l s e , i t a p p e a r s t h a t t h e i s s u e o f t he
e n f o r c e a b i l i t yo f

t h e a rb i t r a t i o n p r o v i s i o n i n t h e Co n s u l t a n tAg r e e me n tb e t we e n Li f e Ti me and Svet e w as ei t hernotr ai s ed ornotactual l yl i t i gat ed i n D a v is
. In a d d iti o n , as th e R e c e iv e r a c k n o w led g e s, n o f in a l ju d g m e n t h a s b e e n e n ter e d in D a v is
. U nder O hi o l aw , w hi ch w oul d appl yt o t he ext entt hatj ur i s di ct i on i n D avis i s bas ed
o n d iversit yo f c it izen sh ip, i n te rl o cu toryo rde rs ca n n o t be th e b asis fo r r es j udi cat a or col l at er ales t oppel
. See Pi eperv. A m . A r bi t r at i on A s s ’ n, I nc. , 3 3 6 F
. 3 d 4 5 8 , 4 6 4 (6th C ir
. 2 0 0 3 ). T h e R ec eive r reli es o n the T en th C ir cu it’s stat em en t th at “interloc u toryo rde rs

6 d en y ing arb itrati o n h av e b ee n d ee m ed fin al an d p rec lusive fo r r es j udi cat a purpos es ” w hen t he or der eff

ect i vel y and concl us i vel ydet er m i nes t he arbi t r at i on i s s ue. St i f el , Ni col aus & Co.
v. W ool s ey & C o. , 8 1 F
. 3 d 1 5 4 0 , 1 5 4 5 (10 th C ir
. 1 9 9 6 ) (cit ing ca ses). St i f el r el i ed, i n t ur n, on T

o we rs , Pe r r i n , Fo rs t e r& Cr o s by , I nc . v . Br o wn , 732 F. 2d 345, 349- 50 ( 3d C i r . 1984) , fort he pr opos it ion that t he pr ecl us i ve ef fec tdepends on t he fi nal i t y of t he deci s i on. T he T hi r d C i r cui t has s i nce e xpl ai ned t hati tw as s i gni fi cantt o t he deci s i on i n T

ow ers t hat , al t hough i nt er l ocut or y , t he orde rdeny i ng arbi t r at i on had bee n
a f f i r me d o n a p p e a l i n t h e s t a t e c ou r t a n d c o u l d n o tb e r e v i e we d a g a i n o n a p p e a l f r o m a d e te rm in a tio n o n th e m e ri ts . Ge n . E l e c . Co
. v . Deu t z AG , 2 7 0 F
. 3 d 1 4 4 , 1 5 8 -59 (3d C ir
.No. 07-3549 10

The Rec eiv er also asserts that the lapse in tim e betw een Sv ete’s first and seco nd m otions for a stay 7 in Dav is waiv ed any

right to seek

arbitration in the instant ca se. This is a fact-based determination that w as not d ev eloped , o r ruled

up on in the district court. This c laim is n ot pro perly

befo re us. 2 0 0 1 ). T h is co u rth as y e t to ad d ress this li n e o f a u tho ri ty , an d w e n ee d n o t do so h ere b e c a u s e S v e t e wa s d i s mi s s e d f r o m D avis w i t hout pr ej udi ce and w i t h t he admoni t i on t hatno jud g m en t b e en tered ag ains t him
. T h e R ec eive r ha s n o t sho w n that the in terl o cu toryo rde rs i n D avis presenta si m i l arl yfi nal and co nclusi ve d eci si on on t he m eri t s. 7 B . A rbi t rat i on T h e F e deral A rbi t rat i on A ct (FA A ) pr ov i des t hat a w ri t t en ag reem ent t o arbi t rat e di s put es ar i s i ng outof a t r ans act i on i n i nt er s t at e com m er ce “s hal l be val i d, i r r evoca bl e, and enfor cea bl e, s ave upon s uch gr ounds as exi s tatl aw ori n equi t yfort h e rev ocat i on of any
con t ract . ” 9 U
. S
. C
. § 2
. B efore com pell i ng an u nw i l l i ng part yt o arbi t rat e, t he co urtm ust
e n g a g e in a lim ited re v iew to d e ter m in e w h e th e r th e d isp u te is a rb itrab le, in c lu d in g , firs t,
w h e th e r th e p a rties a g re e d to a rb itrate ; a n d , s e c o n d , w h e th e r th e sp e c if ic d isp u te f

a lls w ith in th e s u b s ta n tiv e s c o p e o f th a t a g re e m e n t. Faz i o v. Lehm an B r os . , I nc. , 3 4 0 F .3 d 3 8 6 , 3 9 2 (6 th C i r . 2003)
. A di s t r i ct cour t ’ s deci s i on r efus i ng t o compel arbi t r at i on orr efus i ng t o s t ayan
a c tio n p e n d in g a rb itr a tio n is re v ie w e d d e n o v o . Id
. T he onl yarbi t r at i on cl aus e Svet e s peci fi cal l yi dent i fi ed i s found i n t he C ons ul t ant A g re e m e n t, S e c tio n 1 5 , w h ich p ro v id e d , in p a rt, th a t: A ll d isp u tes a n d c o n tro v e rsie s o f e v e ryk in d a n d n a tu re b e tw e e n th e p a rties to t hi s A gr eementar i s i ng outof ori n connec t i on w i t h t hi s A gr eementi ncl udi ng, butnotl i m i t ed to, i t s exi s t ence , cons t r uct i on, val i di t y , i nt erpr et at i on or me a n i n g , p e r f

o r ma n c e , n o n - p e r f

o r ma n c e , e n f

o r c e me n t , o p e r a t i o n , b r e a c h,No. 07-3549 11

cont i nuance , ort er m i nat i on there of s hal l be s ubm i t t ed and s et t l ed by arbi t rati o n in a ccor dance w i t h t he C om m er ci al R ul es of t he A m er i can A rbi t r at i on A s s oci at i on. T he C ons ul t antA gr eement w as exec ut ed bySvet e, i ndi vi dual l y , and byR ogerW
. L ange, as Pr es i dentof L ifeT im e C api t al
. I ti s undi s put ed t hatt he R ece i ver , as s er t i ng t he cl ai m s of L i feTi m e, i s bound t o arbi t r at e t o t he same ext ent t hatL i feTi m e w oul d have be en abs entt he
a p p o in tm e n t o f a r e c e iv e r. Javi t ch v. F i rs tU ni on Sec. , I

nc. , 3 1 5 F
. 3 d 6 1 9 , 6 2 7 (6th C ir
. 2003)
. A s out l i ned above , t he di s t r i ct cour t ul t i m at el y concl uded t hatt he R ece i vercoul d not be com pel l ed t o arbi t r at e becaus e “Svet e see ks t o enfor ce a n arbi t r at i on cl aus e i n a contr act th a t is th e re s u lt o f

f ra u d o r c o e rc io n .” 1. Fra ud A s t he S upr eme C our t expl ai ned mostr ece nt l yi n P r es t on v. F er r er , 552 U
. S. 346, 353 ( 2008) , “[a ] r ecurri n g q u esti on under§ 2 [of the FA A ] i s w ho s houl d deci de w het her

‘ gr ounds
. . . exi s t at l aw or i n equi t y ’ t o i nval i dat e an arbi t r at i on agr eement . ” R es t at i ng t he hol di ng i n P r i m a P ai nt , th e C o u rt e x p lain e d th a t “a ttac k s o n th e v a lid ityo f a n e n tire c o n tra c t,
as di s t i nctfr om at t acks ai m ed at t he arbi t r at i on cl aus e, ar e w i t hi n t he arbi t r at or ’ s ken. ” Id
. ( ci t i ng P r i m a P ai nt C or p. v. F l ood & Conkl i n M f g. C o. , 388 U
. S. 395, 403- 04 ( 1967) )
. T he C our ti n P r i m a P ai nt , g u id e d b yth e lan g u a g e o f § 4 o f th e F A A , h e ld th a t “‘ if th e c laim is fr aud i n t he i nducement of t he arbi t r at i on cl aus e i t s el f— an i s s ue w hi ch goes t o t he maki ng of t he agr eementt o arbi t r at e— t he fe der al cour tm aypr o ce ed to adj udi cat e i t . ’ ” B ucke ye C heck C as hi ng, I

nc. v. C ar degna , 546 U
. S. 440, 445 ( 2006) ( quot i ng P r i m a P ai nt , 38 8 U. S.No. 07-3549 12

The c o urti n Ca rro deni ed arb itrati on of a ll the c la ims , includingthe fraud cl ai m, bec aus e cl ai ms 8 didnot “ arise un der” the co ntr acts contain ing the arbitration agreements. Th e court conclu ded as well th at the fr aud c la ims we re no t arb itra bl e under Pri ma Paint because th e plain tiff h ad alleged that th e arb itration c l aus e w a s p arto f

the s c he me t o de f

r aud c r e di t o r s . Witho utmo r e dis c us s i o n, the c o urts t at e d that , a c c e p t i ng the pl ai ntif

f’ s al le gati ons a s tr

ue, “th e arbit rati on cl aus e was int egra l t o [the] sc heme to def raud si nce it ensu red th at defrau dedcreditors, who were generally small business per s on s i n P u erto Rico, wouldbe un able to pursue th eir claims in a distant foru m [ in K ansas] .” Id
. at403- 04)
. O t her w i s e, “‘ t he s t atut or yl anguage does not per m i tt he fe der al cour tt o cons i der cl ai m s of fr aud i n t he i nducementof t he contr actgener al l y . ’ ” Id
. T he R ece i ver , ur gi ng us t o aff i r m , cont ends t hatt he di s t r i ctcour t ’ s deci s i on r es t ed on a fi ndi ng t hatt he al l egat i ons of fr aud w er e di r ect ed at t he arbi t r at i on cl aus e i t s el f. I ti s not cl earatal l , how ever , t hatt hi s w as t he cas e. T he di s t r i ct cour t ’ s or der di d nots ayas m uch. T he com plai nt did no t ob viousl y al l ege fr aud i n t he i nd ucem ent of t he arb itratio n c l ause its e lf
. Fa zio , 340 F. 3d at394 ( quot i ng A rnold v. A rnold C orp. -Pri nted C om m c’ns. f or B us. , 9 2 0 F .2 d 1 2 6 9 , 1 2 7 8 (6 th C ir. 1 9 9 0 )). N o r d id th e R e c e iv e r ’ s a rg u m e n ts in o p p o sitio n to
a rb itrat i on cl earl yasser tt hat the fraud pert ai ned speci fi cal l yt o the arbitrat i on agreem e n t. T he R ece i veras ks t hatw e i nfert hathe di d fr om hi s r efe r ence t o “t he C ons ul t antA gr eement and r el at ed t r ans act i ons ” and hi s ci t at i on t o C ar r o R i ver a v. P ar ade of Toys , I nc. , 95 0 F. Supp. 449, 453 ( D
. P. R
. 1996)
. T he R ece i vers t at es t hatt he di s t ri ct cour tal s o r el i ed on C arro , butw e ca nnotconcl ude as m uch s i nce t he di s t r i ctcour tdi d notci t e ordi s cus s t hat
cas e. 8 N o n e th e les s, to th e e x ten t th a t C ar r o m ay be re ad t o s uppor tt he R ece i ver ’ s pos i t i on, itis i n co n sist en t w ith this co u rt ’s pro n o u n ce m en t th at “u n d er P r i m a P ai nt , al l egat i ons ofNo. 07-3549 13

fr audul ents chemes ar e ‘no l onger s uffi ci ent t o over come t he st r ong fede r al pol i cy i n favor of arbi t r at i on. ’ ” Fa zio , 340 F. 3d at394 ( quot i ng A rn o ld , 920 F. 2d at1281)
. T hi s cour thas sp e c if ica ll y reje c ted a s in su f

f icie n t alle g a tio n s th a t th e a rb itratio n a g re e m e n t w a s u se d to fur t hera fr audul ents cheme, w her e t he p lai nt i ff f ai l ed t o i dent i fyanym i s r epr es ent at i ons p a rt ic u la r t o th e a rb itr a t i o n a g re e m e n t s e p a ra te f ro m th e c o n tr a c t a s a w h o le
. See, e. g. , Bur de n v . Chec k

I nt o Cas h o

f Ky. , LLC , 267 F. 3d 483, 491 ( 6t h C i r . 2001) ( “A l l egat i ons t hat t he arbi t r at i on agr eement s fur t her ed t he fr audul ent s cheme ar e neve r t hel es s arbi t r abl e under P r i m a P ai nt . ”)
. W e fi nd t hat t he di s t r i ctcour ter r ed byr efus i ng t o compel arbi t r at i on on t he gr ounds t hatt he C ons ul t antA gr eementas a w hol e w as t he pr oductof fr aud. 2 . E x ist en ce o r V a li d it y Seeki ng t o avoi d t he P r i m a P ai ntru le, th e R e c e iv e r a lso a rg u e s th a t h is c h a llen g e is actual l yt o t he ex ist en ce— as oppos ed t o t he val i di t y
— of t he contr act . I n ot herw or ds , t he R ece i ver ar gues t hat t her e i s an i s s ue w het her t he par t i es agr eed t o arbi t r at e t hei rdi s put es at al l
. A l t hough s om e ci r cui t s vi ew ed P rim a P a in t as notr equi r i ng arbi t r at i on of a c l ai m t hat t he ent i r e contr actw as voi d fr om i t s i ncept i on, t he Supr eme C our ts peci fi cal l ydi s avow ed t he voi d/ voi dabl e di s t i nct i on i n B ucke ye . 546 U
. S. at446. A ti s s ue i n B ucke

ye w er e cl ai m s t hatt he l enderm ade i l l egal us ur i ous l oans di s gui s ed
as chec k cas hi ng t r ans act i ons . T he pl ai nt i ffs oppos ed arbi t r at i on of t hei r c l ai m s undert he cont r act s ’ arbi t r at i on pr ovi s i ons on t he gr ounds t hatt he contr act s vi ol at ed s t at e s t atut es and
w er e t her efor e voi d a b in itio
. T h e S u p re m e C o u rt e x p lain e d th a t c h a llen g e s to th e v a lid ityNo. 07-3549 14

Similarly , this court’s pre- Buck eye decision s rej ected efforts to av oid arbitration on the ground s that 9 the arb itration c lause was unen forceable bec ause the co ntract it was part o f w as v oid fo r illeg ality , fin ding that the cha lleng e was to the substanc e, rather than the existence, of the contract. See Burd en , 2 67 F.3 d at 487; Ma tc h-E-B e-N

as h- Sh e- W

is h B an d of

Potta w atom i I

n d i a n sv . K e a n - A r g ov it z R es or ts , 3 83 F.3 d 5 12, 51 6- of arbi t r at i on agr eement s ar e di vi ded i nt o t w o t ypes : t hos e t hatchal l enge the val i di t yof t he agr eementt o arbi t r at e i t s el f; and t hos e t hatchal l enge the contr actas a w hol e on gr ounds t hat aff ect t he ent i r e agr eement ( s uch as fr aud) , oron t he gr ound t hatone pr ovi s i on r ender s t he
w h o le c o n tr a c t in v a lid
. Id
. at444. B eca us e t he cl ai m i n B ucke ye t hatt he w hol e contr act ( i ncl udi ng t he arbi t r at i on cl aus e) w as r ender ed i nval i d w as one of the s econd type, t he
a rb itr a tio n a g re e m e n t w a s e n f o rc e a b le a n d th e c h a lle n g e w a s s u b je c t to a r b i t ra tio n . Id
. at 4 4 6
. In a f

o o tn o te, ho w e v e r, th e C o u rt c ited se v e ra l o f th e c a se s tha t d re w th e v o id /v o id a b le d istin c tio n a n d e x p lain e d th a t:

T he i s s ue of t he cont r act ’ s val i di t yi s di ffe r entfr om t he i s s ue w het her anyagr eementbet w een the al l eged obl i gorand obl i gee w as everconcl uded. O uropi ni on t oday addr es s es onl yt he for m er , and does nots peak t o t he i s s ue d ec ided in the ca ses cit ed b yresp o n d en ts ( an d b ythe F lori d a S u p rem e C o u rt ), w hi ch hol d t hati ti s forcour ts to d ec i de w het hert he al l eged obl i gorever sign e d th e c o n tr a c t, C has t ai n v. R obi ns on- H um phr ey Co. , 9 5 7 F
. 2 d 8 5 1 ( C A 11 1 9 9 2 ), w h e th e r th e sig n o r l a c k e d a u th o rity to c o m m it th e a lleg e d p rin c ip a l, Sandvi k A B v. A dvent

I nt ’ lC or p. , 2 2 0 F .3 d 9 9 (C A 3 2 0 0 1 ), Sp here D rake Ins. Lt d. v. A l lA m er i can I

ns . C o. , 256 F. 3d 587 ( C A 7 2001) , and w het h ert he s ig n o r l a c k e d th e m e n ta l c a p a c ity to a s s e n t, Spahrv. Secc o , 33 0 F
. 3 d 1 2 66 (C A 1 0 2 0 0 3 ). Id
. 444, n. 1. T he R ece i ver r el i ed on s ever al of t hes e s ame cas es i n s uppor tof t he cont ent i on t hathi s chal l enge t o t he C ons ul t antA gr eements houl d be dec i ded byt he cour tand n o tan
arbi t r at or . W e fi nd, as i n B ucke ye , t hatt he R ece i veri s chal l engi ng t he val i di t y , r at hert han th e e x iste n c e , o f

th e C o n su ltan t A g re e m e n t. 9No. 07-3549 15

17 ( 6th C ir
. 2 00 4)
. T hi s i s nota ca s e i n w hi ch i ti s al l eged t hat t he s i gnor di d not s i gn t he cont r act , w as
a n a g e n t w ith o u t au th o rityto b in d h is p rin c ip a l, or lac k e d th e m e n tal c a p a c ityto a ss e n t. R at her, t he R ecei ver ar gu es t hat t he si gn or act ed “u l t ra vi res , ” or outs i de h i s express aut hor i t y , beca us e hi s act i ons w er e al l egedl y t aken i n br eac h of t he fi duci ar ydut i es he ow ed t o t he corpor at i on. R el y i ng on O hi o l aw , w hi ch w e as s um e forpurpos es of appe al w oul d be th e a p p lica b le s tate law , the R e c e iv e r a rg u e s th a t L a n g e ’s a lleg e d b re a c h o f f id u c iar yd u ty
s t r i pped hi m of expr es s orappar entaut hor i t yt o ent eri nt o t he contr act . T he case cit ed for t hi s pr opos i t i on, how ever , di d nots o hol d. I n Johns t ow n M

anuf act ur i ng, I

nc. v. H aynes , 5 5 7 N. E. 2 d 1 2 2 1 , 1 2 2 3 ( Ohi o A pp. 1988) , an empl oy ers ued i t s bank forcas hi ng a check si gned by an em pl oy ee w ho pocket ed the m o n ey . A s t he cour texpl ai ned, t he ques t i on w as w het hert he empl oy erort he bank
s houl d be l i abl e fort he ac t s of an unf ai t hful s er vantunderO hi o ’s c o m m erc ial code. T he empl oy ee w as notaut hor i zed t o condu ct the s peci fi c t r ans act i on, butw as an author i zed
s i gnors uch t hatt he code pr ovi s i ons deal i ng w i t h unaut hor i zed s i gnatur es di d notappl y . T he
cour t hel d t hatbeca us e t he bank w as a hol deri n due cour s e, t he empl oy erw as bar r ed fr om
a s s e rt in g a n e g lig e n c e c la im a g a in s t th e b a n k
. Id . a t 1 2 2 3 -2 4
. Johns t ow n do es not s ug gest th a t a c laim th a t a c o n tra c t e x e c u ted b y o n e a u th o riz e d to d o so b u t alle g e d lyin b re a c h o f h is f id u c ia ry d u tie s is a n a tta c k o n th e e x is te n c e a s o p p o s e d to th e v a lid ity o f th e c o n tr a c t. See als o B d. of C ou nty C om m ’rs v . L . R o b e rt K i m ba l l& A ssocs. , 8 6 0 F
. 2 d 6 8 3 , 6 8 5 (6th C ir
.No. 07-3549 16

1988) ( hol di ng cl ai m s t hat cont r act s w er e ul t r a vi r es w as a l egal defe ns e t o enfor cea bi l i t yt hat
w as p rop erlyarb itrated u n d er P r i m a P ai nt ); Scot t s C o. LLC v. Li ber t

y Mut . I ns . C o. , 60 6 F. S u p p .2 d 7 2 2 , 7 3 4 (S .D . O h io 2 0 0 9 ) (n o tin g c o n tra c t m a y b e v o id f o r re a so n s p e rta in in g to b rea ch o f f

idu ciaryd u ty ). I n t hi s cas e, t he R ece i veral l eged thatL ange, as Pr es i dent of Li feTi m e, exec ut ed an

“ o u tra g e o u s” c o n s u lt in g a g re e m e n t w h ile L if e T im e w a s e f

f e c tiv e lyu n d e r S v e te’ s c o n tro l, byw hi ch L i feTi m e purc has ed S vet e’ s excl us i ve ri ght s as a mar ket i ng agentfor$2 m i l l i on and agr eed t o paySvet e atl eas t$500, 000 perm ont h. T hi s , i ti s ar gued, w as in b rea ch of L a n g e ’s f

id u c iar yd u ties b e c a u se th is c o n tra c t c o n trib u ted to th e f ra u d b ya llo w in g S v e te to
m a in tain c o n tro l o v e r L if e T im e w h ile a p p e a rin g to h a v e re m o v e d h im se lf f ro m its go v ern an ce , b yp rov iding S v ete c o m p en sati o n that h ad n o rati o n al relat ion sh ip to the s ervi ces h e p ro v id e d , an d b yse rv in g a s a m e a n s f o r S v e te to d iv e rt a ss e ts f ro m L if e T im e f o r h is per s onal benef

i t . W e have no di ffi cul t yconcl udi ng t hatt he R ece i ver ’ s chal l enge i s t o t he val i di t y or s ubs t ance of t he contr acts uch t hathe maynotavoi d appl i cat i on of P r i m a P ai nt
on t his basi s. I m por t ant l y , t he ques t i on befor e us i s not w het her t he al l egat i ons can be pr oved, but
w het hert he cha l l enge t o t he enfor cea bi l i t y of t he contr acti s t o be dec i ded byt he cour toran
a rb itr a to r. See Pre s t on , 128 S. C t . at987. E ven s o, t hi s appea l does notr es ol ve t hati s s ue ent i r el y . A s not ed ea r l i er , befor e compel l i ng arbi t r at i on, t he cour t m us tengage i n a l i m i t ed
r evi ew t o det er m i ne notonl yw het hert her e i s an agr eement t o arbi t r at e, butal s o w het hert heNo. 07-3549 17

s p e c if ic d is p u te f

a lls w ith in th e s u b s ta n tiv e s c o p e o f th a t a g re e m e n t. For t he re as ons s etfor t h above, w e R EV ER SE t he di s t r i ctcour t ’ s deci s i on r efus i ng t o compel arbi t r at i on and RE M AND forfur t herpr ocee di ngs cons i s t entw i t h t hi s opi ni on.No. 07-3549 18

R O G E R S, J
. , di s s ent i ng. D efr auded i nves t or s w ho have notent er ed i nt o arbi t r at i on agr eement s pr es um abl ydo
n o t h a v e to a rb itrate th e ir f ra u d u len t c o n v e y a n c e c laim s ag a in st th ird -p a rty re c ip ien ts of th e ir
m o n e y , ev e n if

th e f ra u d u le n t c o n v e yan c e (b yth e f ra u d f e a so r to th e th ird p a rty ) itse lf i nvol ved a cont r act w i t h an arbi t r at i on cl aus e. A s s um i ng t hatt hi s i s s o, t he s ame shoul d be t r ue fora r ece i verappoi nt ed t o r ecove ron cl ai m s agai ns tt hi r d- par t y rec i pi ent s w her e t he bas i s fort he r ece i ver ’ s act i on i s fr aud on t he i nves t or r at her t han s om e obl i gat i on t hatr uns fr om t he t hi r d par t yt o t he r ece i ver ’s p ri n cipal
. I am t her efor e notabl e t o concl ude t hat
arbi t r at i on s houl d be r equi r ed i n t he pr es entcas e. C as es l i ke P r i m a P ai nt C or p. v. F l ood & Conkl i n Manuf act ur i ng C o. , 388 U
. S. 395 ( 1967) , and Fa zio v. Lehm an B r os . , I nc. , 340 F. 3d 386 ( 6t h C i r . 2003) , ar e di ffe r ent . W hen an i nves t or cont r act s w i t h a fr audfe as or ( e. g. , a broke r ) , w i t h an arbi t r at i on cl aus e, and t hen
su e s th e b ro k e r (e .g . fo r f ra u d u len t in d u c e m e n t to c o n tra c t), th o se c a se s m a k e c lea r th a t a g e n e ra l f ra u d -in -th e -in d u c e m e n t c laim w ill n o t b e e n o u g h to a v o id a rb itratio n . T h is s h o u ld b e c o n tra ste d w ith , fo r in sta n c e , a h yp o th e tica l situ a tio n in w h ich a n in v e sto r c o n tra c ts w ith a br okert o i nves ti nves t or ’ s m oneyi n vi at i cal s , and t he br okerfr audul ent l y gi ves t he money t o s om eone he i s i n cahoot s w i t h ( e. g. , hi s br ot her ) , l et ’ s s aybym eans of a “ cont r act ” t o pay t he br ot herm i l l i ons fors om e w or t hl es s i t ems. A n arbi t r at i on cl aus e i n t he la tter cont r act
s houl d notbe enf

or cea bl e aga i ns tt he i nves t orw hen t he i nves t ors ues t he br ot hert o gett he i nves t or ’ s m oneyback. I ts houl d be no di ffe r ent i f t he brother i s s ued bya r ece i verfort heNo. 07-3549 19

Th atthe re ceive r may

be asse rtingthe intere sts of the investors does not af fec t the 10 rec eiver ’s standingto bringclaims as re ceive r of L ifeTime, which was inj ured by the depletion of its assets. See Sc holes v. Lehman , 56 F.3d 750, 753- 55 (7th Cir. 1995). br oker , r at her t han by t he i nves t or , i f t he r ece i ver i s as s er t i ng t he i nt er es t s of t he i nves t or , not the b rok er. It is tr u e th a t in a s o m e w h a t s im ila r c a s e , Javi t ch v. F i rs tU ni on Secur i t i es , 315 F. 3d 6 1 9 ( 6 t h Ci r . 2 0 0 3 ) , we h e l d t h a t a r e c e i v e rwa s b o u n d b ya rb i t r a t i o n a g r e e me n t s “ t o t h e s a me ext entt hatt he r ece i ver s hi p ent i t i es [i
. e. , t he br oker i n t he above exa m pl e] w oul d have be en abs ent t he appoi nt m ent of t he r ece i ver . ” I d. a t 6 2 7
. Javi t ch appea r s t o be di ffe r enti n an i m por t ant r es pect , how ever , i n t hatt he r ece i veri n Javi t ch w as found t o have be en as s er t i ng
o n ly cl a im s th a t b e lo n g e d to th e re c e iv e rs h ip e n titie s . In d e e d , Javi t ch r e c o g n ize d th a t a
rec eive r m ay s ta n d in th e s h o e s o f th e c re d ito r a s w e ll a s o f th e d e b to r, i d. at626, al t hough the di s t r i ctcour ti n Javi t ch h a d p r o p e r l yf o u n d t h a tt h e r e c e i v e ra s s e r t e d o n l yc l a i ms belonging to t he recei vershi p en t i t i es, i d. at62 7
. T h is c oncl us i on w as bas ed on an
a s s e s s me n to f b o t h t h e c l a i ms b e i n g a s s e r t e d b y t h e r e c e i v e r a n d t h e a u t h o r i t yg r a n t e d t o h i m. I f t he r ece i ver( M or an i n t hi s cas e) coul d b e asc er t ai ned t o be br i ngi ng s ui tt o as s er tt he i nt er es t s of t he def

r auded i nves t or s ( by exami nat i on of t he natur e of t he cl ai m s and t he or der appoi nt i ng t he r ece i ver ) , t hen t he r ece i verw oul d notnece s s ar i l y be bound byt he arbi t r at i on
a g re e m e n t, i d. at626. T h e rece iver’s cl aim s in th e i n stan t ca se do n o t ap p ea r to be ba sed so m u ch o n S v ete’s obl i gat i ons t o L i feTi m e as upon Svet e’ s obl i gat i o n s to the def r auded i nves t or s . See, for 10No. 07-3549 20

exampl e, t he exc erpt s bel ow . L i feTi m e w oul d r eal l yhave no c l ai m agai ns tSvet e w er e i tnot th a t th e c o n tra c ts a g a in st S v e te a lleg e d lyc o n stitu ted f ra u d o n th e in v e sto rs. It f o llo w s th a t, undert he cont i ng en cy p rese r ved i n Javi t ch , t he r ece i veri s bound byt he arbi t r at i on
a g re e m e n t n o m o re th a n th e in v e sto rs w o u ld b e in a su it ag a in st S v e te f o r re c e iv in g th e ir
m o n e y k n ow i ng i t w as ri gh t full y t heir s. I w ou l d t herefore rem and for t he di st ri ct cou rt to det er m i ne, bas ed on an a s s es s m entof bot h t he cl ai m s bei ng as s er t ed byt he r ece i verand t he aut hor i t ygr ant ed t o hi m , w het hert he r ece i veri s br i n g ing s ui tt o as s er tt he r i ght s of t he defr auded i nves t or s . I f s o, arbi t r at i on s houl d notbe r equi r ed. B elow are so m e e x ce rpts fro m the C o m p lai n t su g g esti n g that the righ ts asserted are t h o s e o f p e r s o n s b u y i n g v i a t i c a l c o n t r a c t s t h r o u g h Li f e Ti me , a s c o n t r a s t e d t o r i g h t s of L ifeT im e a g ains t Sv ete (em p h ase s ad d ed ): 3. Fol l ow i ng hi s appoi nt m ent , t he R ece i ver has l earned, among ot hert hi ngs , of t he exi s t ence of ce r t ai n t r ans act i ons w hi ch r es ul t ed i n t he di ver s i on of s i gni fi cantfunds fr om L i feT i m e acco un t s t o the det ri m ent of L i f eT i m e’s i nvest ors .

. . . 26. T he O r derof A ppoi nt m ent gr ant ed t he R ece i ver t he aut hor i t y t o, among ot her th in g s, ta k e e x c lu siv e c o n tro l an d p o s s e s sio n o f a ll rec e iv e rsh ip a ss e ts a n d “ tak e a n ya ll act i on as t he R ece i verm ay d ee m n ece s s ar yorpr udent ” t o “pr ot ectt he i nt er es t s of t he benef i ci al ow ner s ” of the Li feTi m e Por t fol i o of l i fe i n su rance pol i ci es ( O r derof A ppoi nt m ent , ¶ 12)
. Such benef i ci al ow ner s ar e pr i m ar i l y t hos e i ndi vi dual s and ent i t i es w hoNo. 07-3549 21

i nves t ed moneyw i t h L i feTi m e os t ens i bl yfort he purc has e of one or m or e vi at i cal s et t l ement
con t ract s. 27. T he O r derof A ppoi nt m ent w as m odi fi ed and/ orcl ar i fi ed on M ay5 and D ece m ber2, 2004. E ach of t hes e modi fy i ng or der s cl arifi ed t he expa ns i ve s cope of t he R e c e i v e r ’ s a u t h o r i t y t o t a k e t h e s t e p s n e c e s s a r y to p ro tect th e intere sts of L if eTim e’s i nvest ors .

. . . 52. I n 1997 and cont i nuous l yt hr ough t he pr es ent , D efe ndant s have c ont i nued t he fr audul ents cheme des cr i bed above t hr ough cont i nued mis r e p r e s e n t a t i o n s t o L i

f e T i me i nvest ors .

. . . 6 7
. D e f

e n d a n ts o w e d , at a ll t im e s p e rtin e n t to P lain tiff ’s C laim s fo r R e lief se t f o rth i n t hi s act i on a f

i duci ar y dut y t o inves t ors of

Li f eTi m e t o ens ur e t hatt he l i fe e xpect anci es
w er e ac curat e, t hatt he i nt egr i t yof t he pr emi um r es er ve ac countand t he funds depos i t ed t her ei n w er e mai nt ai ned, t hatt he Por t fol i o w as pr es er ved and notdepl et ed, t hatact i ons not be t aken r ender i ng L i feTi m e i ns ol ventorunabl e t o pay it s o b li gat i ons as and w hen t hey beca m e due, and t hat al l t r ans act i ons ent er ed i nt o by L i feTi m e w er e r eas onabl e and prudent and i n t he bes ti nt er es t s of Li feTi m e an d it s i nvest ors and not m er el y Svet e orhi s aff i l i at ed enti t i es and/or busi ness ass ociat es.