Opinion ID: 1035949
Heading Depth: 3
Heading Rank: 2

Heading: Best Buy

Text: The district court determined that, although Best Buy is not a signatory to the Customer Agreement or any other arbitration agreement with Plaintiffs,6 nevertheless Plaintiffs must submit their claims against Best Buy to arbitration. The district court relied on the doctrine of equitable estoppel, which “‘precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes.’” Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th Cir. 2006) (quoting Wash. Mut. Fin. Grp., LLC v. Bailey, 364 F.3d 260, 267 (5th Cir. 2004)). The district court reasoned that because Plaintiffs alleged in their complaint “concerted action on the part of DirecTV and Best Buy, the lawsuit against Best Buy is inseparable from the lawsuit against DirecTV.” Thus, the distirct court found it “necessary to compel arbitration of Plaintiff’s claims against Best Buy.” Best Buy argues that arbitration of Plaintiffs’ claims against it is required under three alternative theories: (1) equitable estoppel; (2) agency; and (3) third-party beneficiary. None of these arguments is availing.
“The United States Supreme Court has held that a litigant who is not a party to an arbitration agreement may invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement.” Kramer, 6 Although Weiss is the only Plaintiff with claims remaining against Best Buy we use the plural “Plaintiffs” throughout this opinion for consistency. MURPHY V. DIRECTV, INC. 17 705 F.3d at 1128 (discussing Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 632 (2009)); accord Rajagopalan v. NoteWorld, LLC, — F.3d —, 2013 WL 2151193, at  (9th Cir. May 20, 2013). We therefore examine the contract law of California to determine whether Best Buy, as a nonsignatory, may seek arbitration under the theory of equitable estoppel. Because generally only signatories to an arbitration agreement are obligated to submit to binding arbitration, equitable estoppel of third parties in this context is narrowly confined. Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1046 (9th Cir. 2009). Under California law, a party that is not otherwise subject to an arbitration agreement will be equitably estopped from avoiding arbitration only under two very specific conditions. Our recent decision in Kramer adopted as a controlling statement of California law the equitable estoppel rule set forth in Goldman v. KPMG LLP, 92 Cal. Rptr. 3d 534 (Cal. Ct. App. 2009): Where a nonsignatory seeks to enforce an arbitration clause, the doctrine of equitable estoppel applies in two circumstances: (1) when a signatory must rely on the terms of the written agreement in asserting its claims against the nonsignatory or the claims are intimately founded in and intertwined with the underlying contract, and (2) when the signatory alleges substantially interdependent and concerted misconduct by the nonsignatory and another signatory and the allegations of interdependent misconduct are founded in or intimately connected with the obligations of the underlying agreement. 18 MURPHY V. DIRECTV, INC. Kramer, 705 F.3d at 1128–29 (internal alteration, citations, and quotation marks omitted). This rule reflects the policy that a plaintiff may not, “on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration’s applicability because the defendant is a non-signatory.’” Goldman, 92 Cal. Rptr. 3d at 543 (quoting Grigson v. Creative Artists Agency, LLC, 210 F.3d 524, 528 (5th Cir. 2000)); see also Metalclad Corp. v. Ventana Envtl. Organizational P’ship, 1 Cal. Rptr. 3d 328, 337 (Cal. Ct. App. 2003) (reasoning that equitable estoppel applies where a plaintiff “agreed to arbitration in the underlying written contract but now, in effect, seeks the benefit of that contract in the form of damages . . . while avoiding its arbitration provision”). We must analyze whether Best Buy satisfies either of the two Kramer/Goldman exceptions to the general rule precluding nonsignatories from requiring arbitration of their disputes.
Under the first Goldman prong, equitable estoppel applies when the plaintiff’s claims “are ‘intimately founded in and intertwined’ with the underlying contract obligations.” Jones v. Jacobson, 125 Cal. Rptr. 3d 522, 538 (Cal. Ct. App. 2011) (quoting Boucher v. Alliance Title Co., 25 Cal. Rptr. 3d 440, 446 (Cal. Ct. App. 2005)). “This requirement comports with, and indeed derives from, the very purposes of the doctrine: to prevent a party from using the terms or obligations of an agreement as the basis for his claims against a nonsignatory, while at the same time refusing to arbitrate with the nonsignatory under another clause of that same agreement.” Goldman, 92 Cal. Rptr. 3d at 543–44. MURPHY V. DIRECTV, INC. 19 Plaintiffs’ claims against Best Buy do not rely on, and are not intertwined with, the substance of the DirecTV Customer Agreement or Lease Addendum. Best Buy argues that, in addition to governing the general contours of the customerprovider relationship, the Customer Agreement clarifies that the leased equipment is not the property of the customer, cannot be transferred, and must be returned, rendering the existence of the Customer Agreement a necessary precondition for Plaintiffs’ claims. But the Customer Agreement itself merely provides that, if a customer is leasing his DirecTV equipment, it is non-transferable and must be returned upon cancellation. The Customer Agreement is factually irrelevant to Plaintiffs’ claims against Best Buy, which charge misrepresentations to customers at the point of sale. The complaint is replete with allegations of deceit by Best Buy that have nothing to do with the Customer Agreement. Among other allegations, Plaintiffs claim that Best Buy “sold DirecTV Equipment at Best Buy stores in a manner that reasonable consumers would find indistinguishable from any other sale which occurs at Best Buy”; that “Best Buy receipts given to customers memorializing the transaction contained the word ‘SALE’ at the top of the receipt in bold, capitalized letters”; and that oral “[r]epresentations were made to some purchasers that the DirecTV Equipment was for sale.” None of these allegations rely on the Customer Agreement or attempt to seek any benefit from its terms. Even if Best Buy is correct that Plaintiffs’ claims on some abstract level require the existence of the Customer Agreement, the law is clear that this is not enough for equitable estoppel. In California, equitable estoppel is inapplicable where a plaintiff’s “allegations reveal no claim of any violation of any duty, obligation, term or condition 20 MURPHY V. DIRECTV, INC. imposed by the [customer] agreements.” Id. at 551. Applying this principle in Kramer, we held that Toyota could not compel arbitration of a consumer class action on the basis of arbitration clauses contained in the Purchase Agreements customers entered into with their dealerships. See 705 F.3d at 1124–25. We expressly rejected Toyota’s argument that the plaintiffs’ claims were necessarily intertwined with the Purchase Agreements merely because the lawsuit was predicated on the bare fact that a vehicle purchase occurred. Id. at 1130–31. Rather, we held that the plaintiffs’ causes of action, which, as here, largely arose under California consumer protection law, were not sufficiently intertwined with the Purchase Agreements to trigger equitable estoppel. Id. at 1130–32. Likewise, here, the Customer Agreement proves at most the existence of a transaction; Plaintiffs’ claims do not depend on the Agreement’s terms. The UCL and CLRA allow Plaintiffs to sue Best Buy for misleading consumers regardless of whether or not they signed largely unrelated contracts with DirecTV.7 See Rajagopalan, — F.3d 7 We also note that many of the California cases permitting nonsignatories to compel arbitration under an equitable estoppel theory involve contract-based causes of action, such as tortious interference or breach of contract. See, e.g., Boucher, 25 Cal. Rptr. 3d at 447 (applying equitable estoppel where plaintiff relied on an employment agreement containing an arbitration clause to allege failure to pay accrued wages, breach of contract, and other claims that were intimately bound up with the substance of the contract); Metalclad, 1 Cal. Rptr. 3d at 337–38 (applying equitable estoppel where plaintiff’s claims turned on an alleged breach of the underlying contract and fraud in obtaining it). Here, in contrast, Plaintiffs do not seek any contract-related damages; rather, their claims are for violations of consumer protection laws. While we need not foreclose the possibility that a consumer class action might satisfy the requirements for equitable estoppel, the obvious contrast between these cases and Kramer suggests that equitable estoppel is particularly inappropriate where plaintiffs seek the protection of consumer protection MURPHY V. DIRECTV, INC. 21 at —, 2013 WL 2151193, at  (rejecting equitable estoppel theory under Washington law where the plaintiff’s lawsuit stated “statutory claims that are separate from the contract itself” (internal alteration and quotation marks omitted)). In short, Plaintiffs rely not on the Customer Agreement, but on Best Buy’s’ alleged words and deeds in the course of transactions leading to the acquisition of equipment they believed they purchased, but in fact leased. “Plaintiffs do not seek to simultaneously invoke the duties and obligations of [Best Buy] under the [Customer] Agreement, as it has none, while seeking to avoid arbitration. Thus, the inequities that the doctrine of equitable estoppel is designed to address are not present.” Kramer, 705 F.3d at 1134.
underlying agreement Under the second Goldman prong, the doctrine of equitable estoppel may apply in certain cases where a signatory to an arbitration agreement attempts to evade arbitration by suing nonsignatory defendants for “claims that are based on the same facts and are inherently inseparable from arbitrable claims against signatory defendants.” Metalclad, 1 Cal. Rptr. 3d at 334 (internal quotation marks omitted). However, under Goldman: [M]ere allegations of collusive behavior between signatories and nonsignatories to a contract are not enough to compel arbitration laws against misconduct that is unrelated to any contract except to the extent that a customer service agreement is an artifact of the consumerprovider relationship itself. 22 MURPHY V. DIRECTV, INC. between parties who have not agreed to arbitrate: those allegations of collusive behavior must also establish that the plaintiff's claims against the nonsignatory are intimately founded in and intertwined with the obligations imposed by the contract containing the arbitration clause. It is the relationship of the claims, not merely the collusive behavior of the signatory and nonsignatory parties, that is key. 92 Cal. Rptr. 3d at 545 (internal alteration and quotation marks omitted). The district court concluded equitable estoppel required arbitration against Best Buy because the allegations in the complaint charged “substantially interdependent and concerted” misconduct. While that is undeniably true, Goldman makes clear “that allegations of collusive behavior by signatories and nonsignatories, with no relationship to the terms of the underlying contract,” does not justify application of equitable estoppel to compel arbitration. Id. at 549. Mere allegations of collusion are insufficient to trigger equitable estoppel. Even where a plaintiff alleges collusion, “[t]he sine qua non for allowing a nonsignatory to enforce an arbitration clause based on equitable estoppel is that the claims the plaintiff asserts against the nonsignatory are dependent on or inextricably bound up with the contractual obligations of the agreement containing the arbitration clause.” Id. at 537. As we have already explained, Plaintiffs’ claims do not bear the requisite relationship to the Customer Agreement to warrant application of equitable estoppel. MURPHY V. DIRECTV, INC. 23 Thus, under California law, Plaintiffs are not equitably estopped from litigating their claims against Best Buy.
Best Buy also argues that we may affirm the district court’s order compelling arbitration on a theory of agency. In California, “[a] nonsignatory to an agreement to arbitrate may be required to arbitrate, and may invoke arbitration against a party, if a preexisting confidential relationship, such as an agency relationship between the nonsignatory and one of the parties to the arbitration agreement, makes it equitable to impose the duty to arbitrate upon the nonsignatory.” Westra v. Marcus & Millichap Real Estate Inv. Brokerage Co., 28 Cal. Rptr. 3d 752, 756 (Cal. Ct. App. 2005).8 However, the district court in this case did not find that Best Buy was acting as DirecTV’s agent when it sold the equipment, and the record does not reflect that an agency relationship in fact existed. Even assuming that Best Buy “represents [DirecTV] . . . in dealings with third persons,” Cal. Civ. Code § 2295, Best Buy is not entitled to compel arbitration based merely on the fact that it sells DirecTV products in its stores. Agency requires that the principal maintain control over the agent’s actions. DeSuza v. Andersack, 133 Cal. Rptr. 920, 924 (Cal. Ct. App. 1976) (“The right of the alleged principal to control 8 Best Buy relies on certain of our cases suggesting that agents of a signatory to an agreement that contains an arbitration provision may compel arbitration if the claims arise out of the agency relationship and relate to the underlying agreement. However, after Carlisle, it is clear that state law, not substantive federal law, governs the inquiry. Kramer, 705 F.3d at 1128. 24 MURPHY V. DIRECTV, INC. the behavior of the alleged agent is an essential element which must be factually present in order to establish the existence of agency, and has long been recognized as such in the decisional law.”); accord Batzel v. Smith, 333 F.3d 1018, 1035–36 (9th Cir. 2003). Generally, retailers are not considered the agents of the manufacturers whose products they sell. See Restatement (Third) of Agency § 1.01 cmt. g (2006) (“A purchaser is not ‘acting on behalf of’ a supplier in a distribution relationship in which goods are purchased from the supplier for resale. A purchaser who resells goods supplied by another is acting as a principal, not an agent.”); Alvarez v. Felker Mfg. Co., 41 Cal. Rptr. 514, 522 (Cal. Dist. Ct. App. 1964) (“One who receives goods from another for resale to a third person is not thereby the other’s agent in the transaction: whether he is an agent for this purpose or is himself a buyer depends upon whether the parties agree that his duty is to act primarily for the benefit of the one delivering the goods to him or is to act primarily for his own benefit.” (internal quotation marks omitted)). Thus, the supplier-retailer relationship is insufficient to render Best Buy DirecTV’s agent. Best Buy has presented no evidence, on appeal or before the district court, that DirecTV controlled its behavior in ways relevant to Plaintiffs’ allegations. Indeed, to the extent the record contains any evidence that is probative of the nature of the arrangement between the two companies, it suggests that an agency relationship was expressly disavowed by DirecTV and Best Buy in the “Independent Retailer Agreement” they entered. The “Independent Retailer Agreement” recites that Best Buy is DirecTV’s independent sales representative. Paragraph 2 of the agreement recites that “DIRECTV hereby appoints Best Buy as its independent commissioned sales representative to solicit Subscriptions, on the terms and conditions herein, MURPHY V. DIRECTV, INC. 25 from its Locations.” In paragraph 4.1 of the agreement,9 the parties expressly provide: Best Buy shall conduct all of its DIRECTV System sale, lease, warranty, maintenance, and repair business (“DIRECTV System Business”) for its own account and not as an agent for DIRECTV. At the reasonable request of DIRECTV, Best Buy shall display notices to its customers, in such form, places and manner as mutually agreed by Best Buy and DIRECTV, of such fact and that Best Buy and not DIRECTV shall be responsible for all of Best Buy’s actions in this regard. DIRECTV disclaims any control over Best Buy’s DIRECTV System Business except to the limited extent expressly provided herein and to support and protect its 9 Although the agreement was filed under seal in the district court, we conclude that Best Buy waived any claim of confidentiality as to these portions of the document when its counsel affirmatively represented at oral argument that Best Buy acted as DirecTV’s agent in these transactions. The agreement, the contents of which are highly probative of the question at hand, makes clear that the companies agreed that exactly the opposite was true. Cf. In re Sealed Case, 676 F.2d 793, 807 (D.C. Cir. 1982) (“Where society has subordinated its interest in the search for truth in favor of allowing certain information to remain confidential, it need not allow that confidentiality to be used as a tool for manipulation of the truth-seeking process.”). We leave it to the district court to consider on remand whether sanctions are an appropriate response to counsel’s apparent violations of the duty of candor toward the tribunal. See Model Rules of Prof’l Conduct R. 3.3(a) (“A lawyer shall not knowingly . . . make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer.”). 26 MURPHY V. DIRECTV, INC. activities as an independent commissioned sales representative for DIRECTV’s Service. We see no reason to conclude to the contrary, and therefore hold that Best Buy is not entitled to compel arbitration as DirecTV’s agent.
Finally, Best Buy argues that it is a third-party beneficiary of the Customer Agreements, and is therefore entitled to arbitration. In California,10 “[e]xceptions in which an arbitration agreement may be enforced by or against nonsignatories include where a nonsignatory is a third party beneficiary of the agreement.” Nguyen v. Tran, 68 Cal. Rptr. 3d 906, 909 (Cal Ct. App. 2007). Best Buy’s argument that it meets this exception is unpersuasive. Best Buy bears the burden of proving that it is a thirdparty beneficiary of the Customer Agreement. See Garcia v. Truck Ins. Exch., 682 P.2d 1100, 1105 (Cal. 1984) (in bank). A third party may only assert rights under a contract if the parties to the agreement intended the contract to benefit the third party; “[t]hus, the circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement.” Hess v. Ford Motor Co., 41 P.3d 46, 51 (Cal. 2002) (internal alteration and quotation marks omitted); see also Cal. Civ. Code § 1559 (“A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.”). In other words, “[t]he mere fact 10 Again, Best Buy primarily relies upon federal law. However, under Carlisle the relevant authority is California state contract law. MURPHY V. DIRECTV, INC. 27 that a contract results in benefits to a third party does not render that party a ‘third party beneficiary’”; rather, the parties to the contract must have expressly intended that the third party would benefit. Matthau v. Super. Ct., 60 Cal. Rptr. 3d 93, 99 (Cal. Ct. App. 2007). The record here does not reflect such an intent. The terms of the Customer Agreement do not demonstrate that DirecTV intended to benefit Best Buy through the contract, let alone that its customers did. For one thing, the Customer Agreement never mentions Best Buy. Cf. Hess, 41 P.3d at 51 (“‘[T]he intention of the parties is to be ascertained from the writing alone, if possible.’” (quoting Cal. Civ. Code § 1639)). In fact, the Customer Agreement contains an entire subsection, Section 7(h), entitled “ThirdParty Beneficiary,” which specifies that TiVo, Inc. is a thirdparty beneficiary of the agreement. That subsection does not mention Best Buy. The California Supreme Court has observed that “the rule of construction expressio unius est exclusio alterius; i.e., that mention of one matter implies the exclusion of all others” is “an aid to resolve the ambiguities of a contract.” Steven v. Fid. & Cas. Co. of New York, 377 P.2d 284, 289 (Cal. 1962). To the extent the Customer Agreement is ambiguous with respect to the parties’ intent to benefit Best Buy, that rule of construction militates against concluding that Best Buy is a third-party beneficiary, in light of the fact that DirecTV clearly knew how to provide for a third-party beneficiary if it wished to do so. Thus, we conclude that Best Buy is not entitled to enforce the arbitration agreement as a third-party beneficiary. Because we conclude that neither equitable estoppel nor the third-party beneficiary doctrine permit Best Buy to enforce DirecTV’s arbitration agreement, and determine that 28 MURPHY V. DIRECTV, INC. the Independent Retailer Agreement between them expressly disavows an agency relationship, we reverse the district court’s order compelling Plaintiffs to arbitrate with Best Buy.