Opinion ID: 195334
Heading Depth: 2
Heading Rank: 3

Heading: Appellant's Agency Theory.

Text: 20 Appellant's most heralded claim is that, as a disclosed agent of Theta II, he is entitled to enforce the arbitration provision included in his principal's agreement with the plaintiff. He buttresses this claim by citation to authority from several other courts of appeals. See Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, 7 F.3d 1110, 1121 (3d Cir.1993); Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1360 (2d Cir.), cert. denied, --- U.S. ----, 114 S.Ct. 385, 126 L.Ed.2d 333 (1993); Arnold v. Arnold Corp., 920 F.2d 1269, 1282 (6th Cir.1990); Letizia, 802 F.2d at 1188. We think appellant's reading of these cases is overly sanguine and that his claim is insupportable for several reasons. 21 1. Comparing Apples to Oranges. To put appellant's theorem into focus, we first must clarify the animating principles that drive the cases on which the theorem rests. Doing so persuades us that appellant is comparing apples to oranges. 22 To be sure, there is a superficial similarity between the precedents on which appellant relies and the situation at hand. In each of the four cited cases, the court gave a nonsignatory the benefit of an arbitration clause signed by the corporate entity for which he or she worked. In three of these cases, however, the defendant was sued qua employee and the court specifically found that, as a matter of contract interpretation, the parties intended the arbitration provision to cover employees. See Roby, 996 F.2d at 1360 (observing that the parties fully intended to protect the individual Chairs to the extent they are charged with misconduct within the scope of the agreements); Arnold, 920 F.2d at 1282 (explaining that the language of the arbitration agreement indicates that the parties' basic intent was to provide a single arbitral forum to all disputes arising under the stock purchase agreement); Letizia, 802 F.2d at 1188 (determining that the company clearly indicated its intention to protect its employees by means of the arbitration provision). The fourth case also rested largely on contract language. See Pritzker, 7 F.3d at 1114 (noting the breadth of language used in formulating the arbitration clause). 23 Here, however, as opposed to the cases marshalled by appellant, the arbitration clause fails to indicate the corporate signatory's intention to protect employees through arbitration, see Letizia, 802 F.2d at 1188, and the very nature of the Purchase Agreement, as contrasted to the agreements underlying the other cases, explains why, in this situation, one would naturally expect such protection to be absent. 24 For the most part, the cases hawked by appellant involve disputes growing out of service contracts between individuals and financial institutions. 6 See Pritzker, 7 F.3d at 1114 (involving handling of cash management account); Roby, 996 F.2d at 1357 (involving insurance underwriting); Letizia, 802 F.2d at 1186 (involving handling of securities account). The claims diverted to arbitration in those cases--and in other cases that appellant could have, but did not, rely upon, see, e.g., Lee v. Chica, 983 F.2d 883, 887 (8th Cir.1993); Scher v. Bear Stearns & Co., 723 F.Supp. 211, 216 (S.D.N.Y.1989)--were, without exception, in the nature of professional malpractice. Thus, each related directly to the essence of the service contract that the consumer-plaintiff had signed. 7 The Purchase Agreement is at a considerable remove; it is primarily concerned with a transfer of assets. 8 The distinction is an important one. A person who enters into a service contract with a firm contemplates an ongoing relationship in which the firm's promises only can be fulfilled by future (unspecified) acts of its employees or agents stretching well into an uncertain future. A person who contracts to transfer assets to a company faces a much different prospect: a one-shot transaction in which the purchaser's obligations are specified and are, essentially, performed in full at the closing, or soon thereafter. So it is here. And because the Purchase Agreement cannot easily be construed to refer to the operations of, or services rendered by, Theta II, that company's employees cannot plausibly be included by implication within the ambit of either the agreement or its arbitration clause. 9 25 2. The Scope of the Arbitration Clause. Close textual analysis supports the conclusion that the Purchase Agreement's arbitration clause should be read more narrowly than the clauses in the cases upon which appellant relies. The Purchase Agreement provides that disputes arising under the agreement will be subject to arbitration. This language is considerably more confining than that employed in other contracts to which appellant alludes. 10 See Pritzker, 7 F.3d at 1114 (agreeing to arbitrate all controversies which may arise between us, including but not limited to ... this or any other agreement between us, whether entered into prior, or subsequent to the date hereof); Roby, 996 F.2d at 1361 (agreeing to arbitrate any dispute, difference, question or claim relating to  the agreements for all purposes of and in connection with  them) (emphasis in original); Letizia, 802 F.2d at 1186 (agreeing to arbitrate disputes arising out of or relating to plaintiff's securities account). 26 The circumscribed nature of the Purchase Agreement's arbitration provision stands out in bold relief when one compares it with the arbitration provision in the Confidentiality Agreement. Whereas the former directs arbitration only of [d]isputes arising under [the agreement] (emphasis supplied), the latter directs arbitration of [a]ny controversy or claim arising out of or relating to [the agreement] (emphasis supplied). Although the Purchase Agreement's arbitration clause might arguably be read more broadly if it were the only provision extant, see, e.g., Arnold, 920 F.2d at 1271; Martin Marietta Alum., Inc. v. General Elec. Co., 586 F.2d 143, 145, 147-48 (9th Cir.1978), the use of significantly different language in two clauses, sculpted by the same parties during the same negotiations as part of the same overall transaction, strongly suggests that the signatories intended the arbitration provisions to be of different scope. See Appalachian Ins. Co. v. McDonnell Douglas Corp., 214 Cal.App.3d 1, 262 Cal.Rptr. 716, 725 (Ct.App.1989) (holding that [t]o ignore the differences in language used in the two agreements would violate a fundamental rule of contract interpretation, that is, the words of a contract, if clear, must govern its interpretation); see also Triple-A Baseball Club Assoc. v. Northeastern Baseball, Inc., 832 F.2d 214, 221-22 (1st Cir.1987) (adopting narrow construction where a contract did not include relatively broad language found in the parties' earlier drafts), cert. denied, 485 U.S. 935, 108 S.Ct. 1111, 99 L.Ed.2d 272 (1988); C & M Realty Trust v. Wiedenkeller, 133 N.H. 470, 578 A.2d 354, 357 (1990) (declaring that a court's role is to interpret contracts in accordance with the parties' intent discernible at the time of agreement, as measured by objective criteria). 27 The intent to limit arbitral rights to signatories is also made manifest by the inclusion of an integration clause in the Purchase Agreement. The integration clause states that the written agreement represents the entire understanding of the parties and supersedes all other understandings, arrangements and negotiations. We, and other courts, routinely have declined to read unwritten terms into agreements containing similar declarations. See, e.g., Bidlack v. Wheelabrator Corp., 993 F.2d 603, 608 (7th Cir.) (explaining that an integration clause is an indication of the parties' desire to limit a free-ranging judicial discretion to interpolate terms), cert. denied, --- U.S. ----, 114 S.Ct. 291, 126 L.Ed.2d 240 (1993); Northern Heel Corp. v. Compo Indus., Inc., 851 F.2d 456, 466 (1st Cir.1988) (similar). Applying that time-honored principle here, it would be wrong to widen the arbitration clause to include the signatories' agents and employees. 28 In short, the Purchase Agreement itself is the best indicator of the parties' intent. We must honor that intent--an intent which, for our purposes, translates into a direction to read the arbitration clause set forth in the Purchase Agreement straightforwardly rather than expansively. Operating in this mode, it is difficult to see how a lawsuit between the seller and a nonsignatory who is not a successor in interest to the buyer's rights can be said to aris[e] under the Purchase Agreement. 11 Thus, appellant's effort to compel plaintiff to arbitrate cannot succeed, for, as a matter of contract, no party can be forced to arbitrate unless that party has entered an agreement to do so. Painewebber, 921 F.2d at 511. 29 3. The Individual Capacity/Official Capacity Schism. For present purposes, we regard the distinction between Azure, in his personal capacity, and Azure, in his representative capacity, as possessing decretory significance. 12 Not coincidentally, in each of the four cases relied on by appellant the court confronted a situation in which the claim asserted related to actions undertaken by a corporate representative in his or her official, rather than personal, capacity; and each of the courts based its holding on this circumstance. See Roby, 996 F.2d at 1360 (concluding that the complaints against the individual Chairs are completely dependent on the complaints against the [principals] ... [and] arise[ ] out of the same misconduct charged against the [principals]); Arnold, 920 F.2d at 1282 (similar); see also Pritzker, 7 F.3d at 1114 (reciting facts demonstrating that the nonsignatory was being sued for acts within the scope of her role as an agent of the signatory corporation); Letizia, 802 F.2d at 1188 (finding that all the individual defendants' allegedly wrongful acts related to their employment responsibilities). 30 Here, in contradistinction, plaintiff asserts claims against Azure in his personal, rather than his corporate, capacity. See supra note 4. This is no mere semantic quibble. An official capacity suit is, in essence, another way of pleading an action against an entity of which an officer is an agent. Kentucky v. Graham, 473 U.S. 159, 165, 105 S.Ct. 3099, 3105, 87 L.Ed.2d 114 (1985) (citations omitted). Consequently, such a suit is, in all respects other than name, to be treated as a suit against the entity. Id. at 166, 105 S.Ct. at 3105. By contrast, personal capacity suits proceed against the individual, not against the entity with which the individual is affiliated. 31 In the corporate context, personal capacity actions can take several forms, including by way of illustration claims alleging ultra vires conduct, see, e.g., Expomotion, Ltd. v. Heidepriem-Santandrea Inc., 101 Misc.2d 593, 421 N.Y.S.2d 520, 521 (Civ.Ct.1979); tort suits in which a corporate officer or agent, though operating within the scope of corporate authorization, through his or her own fault injures another to whom he or she owes a personal duty, 3A William M. Fletcher, Fletcher Cyclopedia of the Law of Private Corporations Sec. 1135, at 66-67 (1986 ed. & Supp.1992); 13 and, of more immediate applicability, suits alleging that a person affiliated with a corporation created or manipulated it as part of a larger (fraudulent) scheme, see, e.g., Dietel v. Day, 16 Ariz.App. 206, 492 P.2d 455, 457-58 (1972) (explaining that [i]f a corporation was formed or is employed for fraudulent purposes, personal liability may be imposed). 32 It is, therefore, apparent that drawing a distinction between individual capacity and representative capacity claims is to draw a distinction that portends a meaningful legal difference. Indeed, the distinction between claims aimed at a defendant in his individual as opposed to representative capacity can be found across the law. See, e.g., Stafford v. Briggs, 444 U.S. 527, 544, 100 S.Ct. 774, 784-85, 63 L.Ed.2d 1 (1980) (distinguishing between individual and official capacity claims for purposes of venue determination); Ex Parte Young, 209 U.S. 123, 159, 28 S.Ct. 441, 453-54, 52 L.Ed. 714 (1908) (distinguishing between individual and official capacity acts for Eleventh Amendment purposes); Northeast Fed. Credit Union v. Neves, 837 F.2d 531, 534 (1st Cir.1988) (distinguishing between individual and official capacity claims for jurisdictional purposes); Pelkoffer v. Deer, 144 B.R. 282, 285-86 (W.D.Pa.1992) (applying same distinction in bankruptcy context); see also Graham, 473 U.S. at 165, 105 S.Ct. at 3104-05 (indicating differences between individual and official capacity claims for purposes of suit under 42 U.S.C. Sec. 1983); Estabrook v. Wetmore, 129 N.H. 520, 529 A.2d 956, 958 (1987) (applying doctrine that acts of a corporate employee performed in his corporate capacity generally do not form the basis for personal jurisdiction over him in his individual capacity). The ubiquity of the distinction is a reflection of the reality that individuals in our complex society frequently act on behalf of other parties--a reality that often makes it unfair to credit or blame the actor, individually, for such acts. At the same time, the law strikes a wise balance by refusing automatically to saddle a principal with total responsibility for a representative's conduct, come what may, and by declining mechanically to limit an injured party's recourse to the principal alone, regardless of the circumstances. 33 Appellant suggests that policy considerations counsel against giving credence to the distinction between a corporate officer's personal and representative capacities. He asserts that, by honoring the distinction, we will enable wily plaintiffs to circumvent arbitration provisions to which they previously had agreed. To prevent such end runs, appellant says, agents and employees must be allowed to stand in the principal's stead for the purpose of invoking arbitration clauses. See Arnold, 920 F.2d at 1281. We believe that policy considerations, placed in proper perspective, tilt in the opposite direction. 34 For one thing, to the extent that appellant's professed fear of artful pleading is genuine, the best preventative is to act before, rather than after, the fact; to be blunt, judicial juggling is a far less effective anodyne than skillful drafting of contract documents in the first instance. A corporation that wishes to bring its agents and employees into the arbitral tent can do so by writing contracts in general, and arbitration clauses in particular, in ways that will specify the desired result. See, e.g., Roby, 996 F.2d at 1361. 35 For another thing, whether a claim properly lies against a party in his personal capacity or in his official capacity is ultimately a function of the facts, not of pleading techniques alone. Mechanisms exist for dealing with groundless, overstated, or elliptical claims. See, e.g., Fed.R.Civ.P. 11; 28 U.S.C. Sec. 1927 (1988) (granting courts the power to charge excess costs, expenses, and attorneys' fees reasonably incurred due to unreasonabl[e] and vexatious[ ] conduct); Cruz v. Savage, 896 F.2d 626, 631-32 (1st Cir.1990); see also Chambers v. NASCO, Inc., 501 U.S. 32, ---- - ----, 111 S.Ct. 2123, 2131-38, 115 L.Ed.2d 27 (1991) (discussing federal court's inherent power to impose sanctions for abusive litigation practices); Foster v. Mydas Assocs., Inc., 943 F.2d 139, 141-45 (1st Cir.1991) (discussing range of sanctions available for prosecution of frivolous claims). 36 Third, we are doubtful that the incentive to plead deceitfully exists at all. Arbitration is almost invariably a creature of contract, and an agent is not ordinarily liable for his principal's breach of contract. See, e.g., Mastropieri v. Solmar Constr. Co., 159 A.D.2d 698, 553 N.Y.S.2d 187, 188 (1990) (It is well settled that when an agent acts on behalf of a disclosed principal, the agent will not be personally liable for a breach of the contract, unless there is clear and explicit evidence of the agent's intention to be bound.); see also Restatement (Second) of Agency Sec. 328 (1958) (An agent, by making a contract only on behalf of a competent disclosed ... principal whom he has power so to bind, does not thereby become liable for its nonperformance.). Thus, manipulating the reality of events in order to bring suit against the agent holds only marginal promise of financial reward. 37 Perhaps most important from a policy standpoint, adopting appellant's proposal would introduce a troubling asymmetry into the law. It is common ground that [s]igning an arbitration agreement as agent for a disclosed principal is not sufficient to bind the agent to arbitrate claims against him personally. Flink v. Carlson, 856 F.2d 44, 46 (8th Cir.1988); 14 accord Interocean Ship. Co. v. Nat'l Ship. & Trading Corp., 523 F.2d 527, 538 (2d Cir.1975), cert. denied, 423 U.S. 1054, 96 S.Ct. 785, 46 L.Ed.2d 643 (1976); see also Restatement (Second) of Agency Sec. 320. In appellant's scenario, then, the agent, though he could not be compelled to arbitrate, nonetheless could compel the claimant to submit to arbitration. In other words, an agent for a disclosed principal would enjoy the benefits of the principal's arbitral agreement, but would shoulder none of the corresponding burdens. He would have found a way, contrary to folklore, to run with the hare and hunt with the hounds. In our view, judges should think long and hard before endorsing a rule that will allow a party to use the courts to vindicate his rights while at the same time foreclosing his adversary from comparable access. 38 Here, for instance, appellant insists that the law empowers him to shunt McCarthy's claims into an arbitral forum, despite the fact that, if the shoe were on the other foot, McCarthy could not force appellant to arbitrate those claims--or any other claims, for that matter. Though the law is not always perfectly proportional, this lack of mutuality of obligation is disturbing, particularly as it arises in a contractual context. See generally Crellin Technologies, Inc. v. Equipmentlease Corp., 18 F.3d 1, 7 (1st Cir.1994) (discussing rule that mutuality of obligation is a prerequisite to a binding bilateral contract; citing numerous cases and other authorities); Smith, Batchelder & Rugg v. Foster, 119 N.H. 679, 406 A.2d 1310, 1312 (1979). 39 4. The Nature of the Claims. It is also worth noting, for the sake of completeness, that the bulk of plaintiff's claims are litigable in any event simply because they fall outside the ambit of the Purchase Agreement's closely tailored arbitration clause. For example, the claims for breach of contract and wrongful discharge concern plaintiff's employment rights. Those rights are not mentioned at all in the Purchase Agreement. To the contrary, they come within the purview of the Employment Letter--a document that conspicuously omits any arbitration provision. Similarly, many aspects of plaintiff's claims of fraud, misrepresentation, emotional distress, unfair trade practices, and racketeering relate to his employment rights, and, to that extent, also do not implicate the Purchase Agreement's arbitration provision. And while the remaining claims touch upon the Purchase Agreement, they do not uniformly aris[e] under it. 40 No useful purpose would be served by reciting book and verse. It suffices to say that, even if Azure were a party to the contract that contains the operative arbitration provision, he would not be entitled as of right to an order staying litigation of all--or even most of--McCarthy's claims. See 9 U.S.C. Sec. 3. 15 D. Appellant's Third-Party Beneficiary Theory. 41 Appellant next posits that, as a third-party beneficiary of the Purchase Agreement's arbitration clause, he can compel plaintiff to arbitrate. This claim also fails. 42 As is generally the case in matters of contract interpretation, [t]he crux in third-party beneficiary analysis ... is the intent of the parties. Mowbray v. Moseley, Hallgarten, Estabrook & Weeden, 795 F.2d 1111, 1117 (1st Cir.1986). Because third-party beneficiary status constitutes an exception to the general rule that a contract does not grant enforceable rights to nonsignatories, see, e.g., Arlington Trust Co. v. Estate of Wood, 123 N.H. 765, 465 A.2d 917, 918 (1993), a person aspiring to such status must show with special clarity that the contracting parties intended to confer a benefit on him. See Mowbray, 795 F.2d at 1117; Arlington Trust, 465 A.2d at 918; Tamposi Assocs. v. Star Mkt. Co., 119 N.H. 630, 406 A.2d 132, 134 (1979); see generally 3 E. Allan Farnsworth, Farnsworth on Contracts Sec. 10.3, at 22-23 (1990); 4 Arthur Corbin, Contracts Sec. 776 (1951). 43 In this instance, we are unable to discern any indication in the Purchase Agreement that the parties meant to make their respective agents or employees third-party beneficiaries. Neither Azure nor any other employee of Theta II is mentioned explicitly in the Purchase Agreement; there are no meaningful categorical references; the critical provision in the contract, see supra note 11, omits any mention of agents and employees; and we can find no principled basis for including Azure by necessary implication (especially since the contract contains an integration clause). These facts strongly militate against conferring third-party beneficiary status upon a corporate officer with respect to arbitration rights. See Shaffer v. Stratton Oakmont, Inc., 756 F.Supp. 365, 369 (N.D.Ill.1991) (refusing to find a third-party beneficiary relationship generating an obligation to arbitrate in analogous circumstances); Lester v. Basner, 676 F.Supp. 481, 484-85 (S.D.N.Y.1987) (refusing to find an obligation to arbitrate under a third-party beneficiary theory when the contract itself is silent as to whether [its] terms apply to the purported third-party beneficiaries). 44 The record is equally devoid of anything that might intimate a course of dealing between McCarthy, Theta II, and Azure from which an intent to create third-party beneficiaries plausibly could be inferred. See Mowbray, 795 F.2d at 1117. And, finally, the Purchase Agreement neither calls for any performance by the promisor (McCarthy) that will satisfy some obligation owed by the promisee (Theta II) to the putative third party, nor is it so expressed as to give the promisor reason to know that a benefit to a third party is contemplated by the promisee as one of the motivating causes of his making the contract. Tamposi, 406 A.2d at 134. 16 45 To say more would be to polish a star. For the reasons indicated, appellant's thrust for relief on the ground that he is a third-party beneficiary of Theta II's agreement to arbitrate falls short. See Mowbray, 795 F.2d at 1117; Shaffer, 756 F.Supp. at 369; Lester, 676 F.Supp. at 485; Tamposi, 406 A.2d at 134. 46 E. Appellant's Alter Ego Theory. 47 McCarthy's complaint alleges, at one point, that Azure is the alter ego of Theta II. The last shot in appellant's sling derives from this allegation: he asseverates that he should be accorded the right to demand arbitration based on the asserted equivalence between him and his corporate principal. This shot exhibits a basic misunderstanding of the weapon appellant has selected. Not surprisingly, it misses the mark. 48 The alter ego doctrine is equitable in nature. See, e.g., Harrell v. DCS Equip. Leasing Corp., 951 F.2d 1453, 1458 (5th Cir.1992); St. Paul Fire & Marine Ins. Comp. v. Pepsico, Inc., 884 F.2d 688, 697 (2d Cir.1989); 1 Fletcher, supra, Sec. 41.25. As such, the doctrine can be invoked only where equity requires the action to assist a third party. 1 Fletcher, supra, at Sec. 41.10; see also In re Rehabilitation of Centaur Ins. Co., 238 Ill.App.3d 292, 179 Ill.Dec. 459, 464, 606 N.E.2d 291, 296 (1992) (barring a subsidiary from piercing its own corporate veil in order to reach its parent because the equitable remedy lies with third parties), aff'd, 158 Ill.2d 166, 198 Ill.Dec. 404, 632 N.E.2d 1015 (1994); Village Press, Inc. v. Stephen Edward Comp., Inc., 120 N.H. 469, 416 A.2d 1373, 1375 (1980) (holding that, to employ the alter ego doctrine, the plaintiff must establish that the corporate entity was used to promote an injustice or fraud). 49 The case law that appellant touts earns him no indulgence. Without exception, these cases involve instances in which an allegedly aggrieved party has sought to compel a person or entity thought to be a corporate signatory's alter ego to abide by an arbitration clause. Typical of the genre is Fisser, a case holding that if the parent is bound to the contract, then its marionette [the alleged alter ego] is bound to submit to arbitration. 282 F.2d at 234-35. 50 We are confronted with a much different situation. In this case, the supposed wrongdoer seeks to invoke the alter ego doctrine in order to hide behind the corporate entity, that is, to avail himself of the corporation's right to repair to an arbitral forum and thereby avoid a jury trial. As appellant is not even arguably an innocent third party disadvantaged by someone else's blurring of the line between a corporation and the person who controls it, but, rather, is himself the one who is claimed to have obscured the line, he cannot be permitted to use the alter ego designation to his own behoof. 17