Court Opinion

ID: 4709826
Source: CourtListenerOpinion
Date Created: 2021-08-07 00:03:02.815698+00
Date Added: 2024-06-11T08:06:59.672827
License: Public Domain

Case: 20-50721     Document: 00515969079          Page: 1     Date Filed: 08/06/2021

              United States Court of Appeals
                   for the Fifth Circuit                         United States Court of Appeals
                                                                          Fifth Circuit

                                                                        FILED
                                                                   August 6, 2021
                                   No. 20-50721                    Lyle W. Cayce
                                                                        Clerk

   Noble Capital Group, L.L.C.; Noble Capital Fund
   Management, L.L.C.,

                                                            Plaintiffs—Appellants,

                                       versus

   US Capital Partners, Incorporated; Jeffrey Sweeney;
   Charles Towle; Patrick Steele,

                                                         Defendants—Appellees.

                  Appeal from the United States District Court
                       for the Western District of Texas
                           USDC No. 1:19-CV-01255

   Before Ho, Oldham, and Wilson, Circuit Judges.
   Per Curiam:*
          Plaintiffs entered into an agreement containing an arbitration
   provision, which included a clause delegating all disputes regarding the
   enforceability of that agreement to the arbitrator. Because Plaintiffs fail to

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 20-50721      Document: 00515969079           Page: 2    Date Filed: 08/06/2021

                                     No. 20-50721

   challenge that delegation clause specifically, we affirm the district court’s
   judgment granting Defendants’ motion to compel arbitration.
                                          I.
          Plaintiff Noble Capital Group (“Noble Group”) is an Austin-based
   private lending organization that specializes in making loans to real estate
   entrepreneurs in Texas. Plaintiff Noble Capital Fund Management (“Noble
   Management”) is a subsidiary of Noble Group and serves as its “operations
   arm.” We refer to these entities collectively as “Noble.” Defendant US
   Capital Partners (“US Capital”) is a San Francisco-based corporation that
   provides financial advisory services related to capital formation. Defendants
   Jeffrey Sweeney, Charles Towle, and Patrick Steele (“individual
   defendants”) are partners and principals of US Capital.
          Noble Management and US Capital entered into a series of
   agreements establishing an investment fund, whereby US Capital would
   administer the fund and drum up investors while Noble would make the
   loans. The agreements contained arbitration provisions requiring the parties
   to arbitrate any dispute arising out of or related to the agreements. The
   agreements also provided that California law applies to any dispute.
   Although the agreements stated that they applied to Noble Management and
   its “affiliates,” “subsidiaries,” “associated companies,” “comanaged
   entities,” “successors,” and “assigns,” Noble Group did not sign the
   agreements.
          Noble alleges that Defendants “made a whole host of fraudulent
   representations” relating to their ability to raise capital in order to get Noble
   to do business.     Noble further alleges that, soon after the fund was
   established, Defendants failed to deliver on their promise to raise capital and
   that they “began efforts to string Noble along so they could continue to
   extract fees from the Fund.”

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                                      No. 20-50721

          In December 2019, Noble filed this suit alleging that Defendants
   engaged in fraud. When Defendants moved to compel arbitration, Noble
   amended their complaint and added a new cause of action alleging that
   Defendants fraudulently induced them to assent to the arbitration clauses.
   Noble alleged that Defendants falsely represented that they had been subject
   to only minimal litigation in the past, failing to disclose that they had a history
   of confidential arbitrations. The magistrate judge granted Defendants’
   motion to compel arbitration, and the district court adopted the magistrate
   judge’s report and recommendation over Noble’s objections. Noble appeals.
                                           II.
          Noble argues that the district court erred by granting Defendants’
   motion to compel arbitration. We review this ruling de novo. See, e.g., Kubala
   v. Supreme Prod. Servs., Inc., 830 F.3d 199, 201 (5th Cir. 2016).
          When determining whether to compel arbitration, “we first look to
   see if an agreement to arbitrate was formed”—that is, whether the parties
   actually entered into an agreement to arbitrate. Edwards v. Doordash, Inc.,
   888 F.3d 738, 744 (5th Cir. 2018). “[W]here the ‘very existence of a
   contract’ containing the relevant arbitration agreement is called into
   question, the federal courts have authority and responsibility to decide the
   matter.” Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 429 (5th Cir. 2004)
   (quoting Will-Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 218 (5th Cir.
   2003)).
          Each of the parties’ agreements contained arbitration clauses
   providing that:
          Any dispute, claim, or controversy arising out of or relating to
          [the] Agreement, including the negotiation, breach, validity or
          performance of the Agreement, the rights and obligations
          contemplated by the Agreement, any claims of fraud or fraud

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                                         No. 20-50721

           in the inducement, and any claims related to the scope or
           applicability of this agreement to arbitrate, shall be resolved [by
           arbitration pursuant to JAMS/FINRA rules and procedures]. 1
    Noble Management does not dispute that it entered into agreements
   containing arbitration clauses. Noble Group, however, argues that because
   it was not a signatory to any of the agreements containing arbitration
   provisions, it cannot be compelled to arbitrate. But in its complaint, Noble
   Group claimed that Defendants fraudulently induced it to assent to the
   arbitration clauses. So Noble Group cannot now claim that it never assented
   to the arbitration clauses. See Cohen v. TNP 2008 Participating Notes Program,
   LLC, 243 Cal. Rptr. 3d 340, 358 (Ct. App. 2019) (recognizing that a non-
   signatory may be bound to arbitrate by estoppel).
           Next, we “determine if [the agreement to arbitrate] contains a
   delegation clause.” Edwards, 888 F.3d at 744. A delegation clause exists if
   there is “clear and unmistakable evidence” that the parties “agreed to
   arbitrate arbitrability.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,
   944 (1995) (brackets and quotation omitted).
           We agree with the district court that such evidence exists here. The
   agreements delegate to the arbitrator the exact challenges that Noble brings
   in this case: claims of “fraud or fraud in the inducement.” The agreements
   also delegate to the arbitrator questions relating to the “validity” of any part
   of the agreements.
           Because we conclude that there is a delegation clause, we next ask
   whether there is a “challenge to the delegation clause itself.” Edwards, 888
   F.3d at 744. In Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), the

           1
            The clauses are substantially the same, except that two of the agreements provide
   that the arbitration is to be conducted under JAMS rules, and one of the agreements
   provides that it is to be conducted under FINRA rules.

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   Supreme Court held that delegation clauses—even those that are contained
   within an arbitration provision or a broader agreement—are severable. Id. at
   71–72. See also id. at 72 (“Application of the severability rule does not depend
   on the substance of the remainder of the contract.”). Because delegation
   clauses are severable, they must be challenged “specifically.” Id. at 71.
   Accordingly, “absent a challenge to the delegation clause itself, [courts] will
   consider that clause to be valid and compel arbitration.” Edwards, 888 F.3d
   at 744. “Challenges to the arbitration agreement as a whole are to be heard
   by the arbitrator.” Id.
          The district court correctly concluded that Noble’s fraudulent
   inducement claim fails to challenge the delegation clauses in particular, and
   as a result their enforceability challenges must be sent to the arbitrator. Just
   like the employee in Rent-A-Center failed to challenge the specific delegation
   clause by arguing that the entire arbitration agreement was unconscionable,
   Noble similarly fails to challenge the specific delegation provision by arguing
   that the entire arbitration provision was procured by fraud. “Nowhere in
   [their] opposition to [Defendants’] motion to compel arbitration did [Noble]
   even mention the delegation provision.” Rent-A-Center, 561 U.S. at 72.
          Accordingly, the district court correctly granted Defendants’ motion
   to compel arbitration. See Arnold v. Homeaway, Inc., 890 F.3d 546, 554 (5th
   Cir. 2018) (“[Noble’s] contention is that the arbitration provision as a whole
   is unenforceable under [California] law. Because [their] challenge is not
   specific to the delegation clause, [Noble] must present it to an arbitrator.”).
          Finally, Noble argues that even if the arbitration provisions are
   enforceable, they cannot be compelled to arbitrate against individual
   defendants Sweeney, Towle, and Steele because those parties did not sign
   the agreements in their personal capacity and are therefore not entitled to
   enforce them. The district court held that equitable estoppel prevented

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   Noble from arbitrating its claims against US Capital, while litigating in court
   its claims against the individual defendants.
          We review the district court’s decision to apply equitable estoppel for
   abuse of discretion. See, e.g., Grigson v. Creative Artists Agency L.L.C., 210
   F.3d 524, 528 (5th Cir. 2000). We hold that the district court did not abuse
   its discretion because Noble alleges that US Capital and the individual
   defendants acted together as a single unit to defraud Noble and because such
   allegations are connected with the obligations of the parties’ agreements. See
   Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1128–29 (9th Cir. 2013)
   (holding that equitable estoppel applies “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’”) (alteration in original) (quoting Goldman v. KPMG
   LLP, 92 Cal. Rptr. 3d 534, 541, 544 (Ct. App. 2009)).
                                        ***
          For the foregoing reasons, we affirm.

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