Opinion ID: 3160802
Heading Depth: 3
Heading Rank: 2

Heading: Direct benefits estoppel

Text: The Agents also argue that USHealth should be estopped from suing the Agents in federal court rather than arbitrating its claims because USHealth embraced the SBIA Agreements. “[A] nonparty may be compelled to arbitrate ‘if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provisions.’” See In re Weekley Homes, L.P., 180 S.W.3d 127, 131 (Tex. 2005) (quoting Kellogg, 166 S.W.3d at 741). “Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract or must be determined by reference to it. On the other hand, 7 The Agents attempt to create a conflict of laws with their arguments on this point, but we conclude that neither Texas nor federal law would support using this theory to compel arbitration here. 9 Case: 15-10117 Document: 00513298704 Page: 10 Date Filed: 12/08/2015 No. 15-10117 claims can be brought in tort (and in court) if liability arises from general obligations imposed by law.” Id. at 132 (footnote omitted). Direct benefits estoppel is meant to prevent a non-signatory plaintiff who is seeking or has reaped the benefits of a contract “from simultaneously attempting to avoid the contract’s burdens, such as the obligation to arbitrate disputes.” Carr v. Main Carr Dev., LLC, 337 S.W.3d 489, 497–99 (Tex. App.— Dallas 2011, pet. denied) (citing Kellogg, 166 S.W.3d at 739). A non-signatory may be compelled to arbitrate if it either (1) “seeks through the claim, to derive a direct benefit from the contract containing the arbitration provision,” or (2) “deliberately seeks and obtains substantial benefits from the contract outside the context of its claim.” Id. The state court held in Carr that non-signatories may not be compelled to arbitrate when their claims “merely ‘touch matters’ covered by a contract or ‘are dependent upon’ a contract; instead, the claims must rely on the terms of the contract.” Id. at 498 (emphasis added) (quoting Hill v. G.E. Power Sys., Inc., 282 F.3d 343, 348–49 (5th Cir. 2002)). The district court examined the evidence in the record and found that nothing showed USHealth’s “claims against defendants arise from the [SBIA] Agreements or must be determined by reference to them”; therefore, it refused to compel arbitration based on the direct benefits estoppel theory. We find no legal error or abuse of discretion in this determination. The Agents cite Carr and In re Weekley Homes to support the application of their direct benefits estoppel theory, but those cases do not support compelling arbitration here. In re Weekley Homes is distinguishable. In that case, the non-party who was compelled to arbitrate directly relied on and derived significant benefits from a contract. 180 S.W.3d at 129–30. The non-signatory plaintiff directed construction of the home in which she lived according to the construction contract and by demanding repairs, reimbursement, and other benefits based on the contract. Id. at 132–33. After she developed asthma that she attributed 10 Case: 15-10117 Document: 00513298704 Page: 11 Date Filed: 12/08/2015 No. 15-10117 to the construction, she attempted to sue the construction company for negligence. Id. at 129–30. The Supreme Court of Texas estopped the plaintiff from relying on her status as a non-signatory to avoid arbitrating a claim that arose from home repairs completed pursuant to a contract from which she directly and purposefully benefitted. Id. at 135. Similar to this case, Carr involved a corporate entity, MCD, suing Carr, another entity, for breach of fiduciary duties. See 337 S.W.3d at 497–98. Part of the breach of fiduciary duty claim relied on Carr’s alleged usurpation of “contracted-for business opportunities from MCD” in violation of a “Development Agreement” that Carr had signed with an alleged corporate affiliate of MCD. Id. at 492–93, 497–98. MCD argued its general fiduciary duty claim may have related and referred to the Development Agreement but was not dependent on that agreement, and the Dallas Court of Appeals agreed. Id. at 498. This was despite Carr’s contentions that the substance of the claim could not be determined without reference to whether Carr violated the Development Agreement and that damages would have to be determined based on the structural arrangement for calculating rent contained in the Development Agreement. Id. The court found that MCD could show breaches of independent fiduciary duties even absent breaches of the Development Agreement to which MCD was not a party. Id. at 499. USHealth avers that the Agents made false representations concerning their qualifications to participate in the EIP and that USHealth detrimentally relied on these representations in issuing to the Agents stock to which they were not entitled. The SBIA Agreements were executed in 2011, while the EIP was consummated based on representations made from 2006 to 2010. The EIP also authorized stock repurchase if the Agents’ relationships with USHealth Career terminated for any reason. USHealth argues its claims are not based on the SBIA Agreements, but on the allegedly fraudulent conduct of the Agents 11 Case: 15-10117 Document: 00513298704 Page: 12 Date Filed: 12/08/2015 No. 15-10117 in making sworn statements about their qualifications for the EIP in the Conditional Offer Letters and affidavits. The sworn representations the Agents were required to make for participation in the EIP concerned their contractual relationships with USCare/SBIA. Each of the Agents had to certify that he was an “exclusive Regional Marketing Director of USHEALTH’s subsidiary, USHEALTH Career insurance agency, and . . . he was not in breach or violation of any of the terms of his agent contract with USHEALTH Career insurance agency, or . . . derived more than 50% of his annual income . . . from USHEALTH Career insurance agency or the other subsidiaries of USHEALTH.” Accordingly, at least some of USHealth’s claims relate to the Agents’ work for SBIA and USHealth Career and their performance, income, and adherence to USHealth Career’s agent contract. The Agents argue from these facts that USHealth sought a benefit from the SBIA Agreements because it hoped to incentivize high performance and compliance with those Agreements through the EIP. Even if USHealth derived this indirect benefit, the attenuation between the EIP and the SBIA Agreements and the indirect nature of the benefit precludes applying direct benefit estoppel under Carr, In re Weekley Homes, or other relevant precedents. See, e.g., In re Weekley Homes, 180 S.W.3d at 131– 32. The Agents’ liability to USHealth need not be determined by reference to the SBIA Agreements, nor does it solely arise from those contracts. Instead, liability may derive from representations the Agents made about their compliance with their USHealth Career contracts and their annual income. The Agents have not established a sufficient link between these contracts to show that USHealth derived benefits from the SBIA Agreements with one hand and then sought to reject the Agreements’ arbitration provisions with the other. See, e.g., In re Weekley Homes, 180 S.W.3d at 131–32; Carr, 337 S.W.3d at 498–99; see also In re Merrill Lynch, 195 S.W.3d at 817 (noting that under 12 Case: 15-10117 Document: 00513298704 Page: 13 Date Filed: 12/08/2015 No. 15-10117 Texas law, the party seeking to compel arbitration has the evidentiary burden to prove it may enforce the agreement). The district court did not abuse its discretion in declining to apply direct benefits estoppel in this case.