Court Opinion

ID: 2968285
Source: CourtListenerOpinion
Date Created: 2015-09-22 04:42:39.722158+00
Date Added: 2024-06-11T15:28:31.681088
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

WACHOVIA BANK, NATIONAL               
ASSOCIATION,
               Plaintiff-Appellant,
                v.
DANIEL G. SCHMIDT, III; PRIAG LLC;
DGS INVESTMENTS, INC.,                         No. 03-2061
             Defendants-Appellees.

OFFICE OF THE COMPTROLLER OF THE
CURRENCY,
       Amicus Supporting Appellant.
                                      
    On Remand from the Supreme Court of the United States.
                    (S. Ct. No. 04-1186)
                  Submitted: February 21, 2006
                     Decided: April 25, 2006
         Before LUTTIG and KING, Circuit Judges, and
         Robert R. BEEZER, Senior Circuit Judge of the
       United States Court of Appeals for the Ninth Circuit,
                      sitting by designation.

Affirmed by published opinion. Judge King wrote the opinion, in
which Judge Luttig and Senior Judge Beezer joined.

                           COUNSEL

Robert W. Fuller, III, Stephen M. Cox, ROBINSON, BRADSHAW
& HINSON, P.A., Charlotte, North Carolina, for Appellant. James R.
2                     WACHOVIA BANK v. SCHMIDT
Gilreath, Greenville, South Carolina; John P. Freeman, Columbia,
South Carolina; T. English McCutchen, III, L. Susan Foxworth,
McCUTCHEN BLANTON JOHNSON & BARNETTE, LLP,
Columbia, South Carolina, for Appellees. Daniel P. Stipano, Horace
G. Sneed, Larry J. Stein, OFFICE OF THE COMPTROLLER OF
THE CURRENCY, Washington, D.C., for Amicus Supporting Appel-
lant.

                              OPINION

KING, Circuit Judge:

   In June 2003, Daniel G. Schmidt, III, Priag LLC, and DGS Invest-
ments, Inc. (together, the "Schmidt Defendants"), filed a civil action
in the Court of Common Pleas of Greenville County, South Carolina,
asserting that Wachovia Bank, National Association, and others had
wrongfully induced them to participate in an illegitimate tax shelter.
Soon thereafter, Wachovia filed a separate petition in the District of
South Carolina, seeking to compel the Schmidt Defendants to arbi-
trate their state-court claims against Wachovia under the arbitration
clauses found in two separate agreements to which Schmidt was a
party. By its order of August 1, 2003, the district court denied
Wachovia’s petition to compel arbitration. See Wachovia Bank, N.A.
v. Schmidt, CA-03-2005-6-20 (D.S.C. Aug. 1, 2003) (the "Order").
Wachovia has appealed from the Order and, as explained below, we
affirm.

                                   I.

   In May 1998, Schmidt incurred a very substantial capital gain
through the sale in South Carolina of his physical therapy businesses.
Soon thereafter, representatives of Wachovia approached Schmidt and
advised him of a potentially advantageous investment strategy involv-
ing KPMG LLP, and QA Investments, LLC ("Quadra").1 His interest
    1
   Although at all relevant times the Schmidt Defendants dealt with First
Union National Bank, we refer to First Union as Wachovia, First Union’s
successor by virtue of a 2001 merger.
                     WACHOVIA BANK v. SCHMIDT                       3
piqued, Schmidt soon thereafter attended a meeting conducted by rep-
resentatives of Wachovia, KPMG, and Quadra. At that meeting,
Schmidt was informed that the investment strategy, called a Foreign
Leveraged Investment Program, i.e., a FLIP, involved highly lever-
aged investments in stock of the United Bank of Switzerland (the
"UBS FLIP"). He was advised at the meeting that the UBS FLIP was
a "slam dunk" — not only would the investors enjoy substantial prof-
its, but the investment strategy would provide a so-called "basis
shift," which would serve to shelter from federal taxation the capital
gains Schmidt had made in the sale of his businesses. Wachovia,
KPMG, and Quadra assured Schmidt that the UBS FLIP strictly com-
plied with the rules and regulations of the Internal Revenue Service
(the "IRS"). According to the Schmidt Defendants’ state-court com-
plaint, however, Wachovia, KPMG, and Quadra knew or should have
known that the IRS was likely to oppose the use of the UBS FLIP as
a tax shelter.

   At some point, Schmidt decided to participate in the UBS FLIP and
created defendant Priag LLC to carry out the necessary transactions.2
Wachovia’s role in the UBS FLIP was to provide financial advice
concerning the investments. KPMG (a major accounting firm), on the
other hand, was to provide tax planning services and prepare
Schmidt’s tax returns, while Quadra was to control and direct the
investments. The UBS FLIP was comprised of both direct and indi-
rect purchases of UBS stock. The indirect purchases were accom-
plished through the purchase of a warrant in the stock of Sandpiper
Capital, Inc., a Cayman Islands company which had previously made
leveraged purchases of UBS stock.

  Wachovia’s role as Schmidt’s financial advisor concerning the
UBS FLIP was formalized on September 10, 1998, in a Financial
Advisory Services Contract between Wachovia and Schmidt under
which Schmidt paid Wachovia $100,000 for its services. Later, on
September 21, 1998, Wachovia loaned Schmidt $3.5 million for his
use in connection with the UBS FLIP, in exchange for a promissory
  2
  Schmidt formed Priag LLC on the advice of either KPMG or Quadra.
He owns ninety-eight percent of Priag, and defendant DGS Investments
owns the remaining two percent.
4                     WACHOVIA BANK v. SCHMIDT
note executed by Schmidt to Wachovia (the "Note").3 The Note con-
tained an arbitration clause providing that either party could compel
arbitration of "any claim or controversy arising out of, or relating to"
the Note or other documents executed in connection with the loan.4
Schmidt fully satisfied the Note, by payment of the principal and
interest, sometime in 1999, and the Note was thereafter cancelled.

   The investments comprising the UBS FLIP were directed by Qua-
dra, for whose services Schmidt paid $1.75 million. As relevant here,
Quadra arranged for Schmidt to purchase a warrant from Sandpiper
for eighty-five percent of Sandpiper’s stock (the "Warrant"). The
Warrant was issued on September 24, 1998, and included a provision
requiring arbitration of "[a]ny dispute, controversy or claim arising
out of or relating to" the Warrant. Schmidt ultimately executed the
Warrant, through what was called an "election to put," on December
23, 1998.

   The UBS FLIP was apparently a disaster all the way around. Not
only did the investment fare poorly as a profit-generating enterprise,
but its use as a tax shelter caught the attention of the IRS. On July
26, 2001, the IRS issued its Notice 2001-45, advising that "Basis
Shifting Tax Shelters" could be subject to disallowance for tax pur-
poses, interest on unpaid taxes, and potentially penalties as well. At
the time Wachovia took this appeal, the Schmidt Defendants were
engaged in negotiations on the matter with the IRS and expected to
be liable for back taxes in excess of $3 million, in addition to interest
and possible penalties.

  The IRS investigation of the matter prompted the Schmidt Defen-
dants to file their state-court lawsuit, against Wachovia, KPMG, and
    3
     Although the copy of the Note filed in the Joint Appendix is dated
October 13, 1998, it appears that the loan was actually made, and the
Note executed, on September 21, 1998. A security agreement was exe-
cuted in connection with the loan on September 21, 1998, and it refer-
ences the Note as being executed on that date. Moreover, a portion of the
loan proceeds were used to purchase a warrant from Sandpiper on Sep-
tember 24, 1998.
   4
     Wachovia does not assert that the Schmidt Defendants’ state-court
claims relate to any loan document other than the Note.
                      WACHOVIA BANK v. SCHMIDT                         5
Quadra, on June 2, 2003, seeking restitution and damages. As relevant
here, the Schmidt Defendants’ state-court complaint alleged the fol-
lowing claims against Wachovia: civil conspiracy, fraud, constructive
fraud, negligent misrepresentation, promissory estoppel, unfair trade
practices, and breach of fiduciary duties. Each of the claims in the
state-court complaint derived from the same primary allegation: that
Wachovia, in conjunction with KPMG and Quadra, wrongfully
induced Schmidt to participate in the UBS FLIP.

   On June 18, 2003, Wachovia filed its petition for an order compel-
ling arbitration in the district court, invoking the court’s diversity
jurisdiction under 28 U.S.C. § 1332. By its petition, Wachovia
asserted, pursuant to the Federal Arbitration Act (FAA), that the
Schmidt Defendants were required to arbitrate their state-court claims
under the arbitration clauses found in both the Note and the Warrant.
By its Order of August 1, 2003, the district court declined to compel
arbitration, concluding that the Schmidt Defendants’ state-court
claims bore no significant relationship to the Note, and that
Wachovia, as a nonsignatory to the Warrant, had failed to establish
that it was entitled to enforce the arbitration clause in the Warrant.
See Order at 7-9.

   Wachovia promptly appealed the Order to this Court and, by opin-
ion of November 1, 2004, a divided panel remanded the matter to the
district court with instructions to dismiss Wachovia’s petition for lack
of subject matter jurisdiction. See Wachovia Bank, N.A. v. Schmidt,
388 F.3d 414, 432 (4th Cir. 2004). Wachovia thereafter successfully
petitioned the Supreme Court for certiorari, and the Court reversed
our jurisdictional ruling and remanded the matter to us for further pro-
ceedings. Wachovia Bank, N.A. v. Schmidt, 126 S. Ct. 941, 952
(2006). We are thus now obliged to assess the merits of Wachovia’s
contentions that the Schmidt Defendants are required to arbitrate their
state-court claims against Wachovia.

                                   II.

   Because a district court’s determination concerning the arbitrability
of a dispute is ordinarily a matter of contract interpretation, we gener-
ally review such determinations de novo. See Cara’s Notions, Inc. v.
Hallmark Cards, Inc., 140 F.3d 566, 569 (4th Cir. 1998). Where a
6                     WACHOVIA BANK v. SCHMIDT
district court’s ruling rests on an application of the doctrine of equita-
ble estoppel, however, we review for an abuse of discretion only. See
Brantley v. Republic Mortgage Ins. Co., 424 F.3d 392, 395 (4th Cir.
2005).

                                   III.

   The Supreme Court has long recognized that the purpose of the
FAA was "‘to reverse the longstanding judicial hostility to arbitration
agreements . . . and to place arbitration agreements upon the same
footing as other contracts.’" EEOC v. Waffle House, Inc., 534 U.S.
279, 289 (2002) (quoting Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20, 24 (1991)). Thus, our task in assessing the arbitrability
of a dispute "primarily is one of contract interpretation," Summer Rain
v. Donning Co., 964 F.2d 1455, 1460 (4th Cir. 1992), and we are
obliged to give effect to the intentions of the parties as expressed in
their agreement, see Cara’s Notions, Inc. v. Hallmark Cards, Inc.,
140 F.3d 566, 569 (4th Cir. 1998) (observing that "a court may not
require a party to submit to arbitration any dispute which he has not
agreed so to submit" (internal quotation marks omitted)). Any
ambiguities regarding the scope of an arbitration clause, however, are
to be resolved in favor of arbitration. See Volt Info. Sci., Inc. v. Bd.
of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 475-76 (1989).
Against the backdrop of these controlling principles, we assess in turn
Wachovia’s contentions that the arbitration clauses contained in the
Note and the Warrant oblige the Schmidt Defendants to arbitrate their
state-court claims.

                                   A.

   As explained above, the Note’s arbitration clause permits either
party to compel arbitration of "any claim or controversy arising out
of, or relating to" the Note. We have consistently held that an arbitra-
tion clause encompassing all disputes "arising out of or relating to"
a contract embraces "every dispute between the parties having a sig-
nificant relationship to the contract regardless of the label attached to
a dispute." Am. Recovery Corp. v. Computerized Thermal Imaging,
Inc., 96 F.3d 88, 93 (4th Cir. 1996) (quoting J.J. Ryan & Sons v.
Rhone Poulenc Textile, S.A., 863 F.2d 315, 321 (4th Cir. 1988)); see
also Long v. Silver, 248 F.3d 309, 316-17 (4th Cir. 2001) (ruling that,
                      WACHOVIA BANK v. SCHMIDT                           7
where agreement required arbitration of any dispute "arising out of or
relating to" agreement, the "governing standard" is whether claims
have "significant relationship" thereto). Thus, the initial question we
face in this appeal is whether the Schmidt Defendants’ state-court
claims are significantly related to the Note.5

   As described above, Wachovia and Schmidt had two distinct rela-
tionships. On the one hand, as memorialized by the Financial Advi-
sory Services Contract, Wachovia served Schmidt as a financial
advisor in connection with the UBS FLIP. For these services Schmidt
paid Wachovia the sum of $100,000. On the other hand, as evidenced
by the Note, Wachovia served as a lender to Schmidt. Although the
funds loaned to Schmidt by Wachovia were invested in the UBS
FLIP, Wachovia’s two roles as lender and adviser were distinct.

   Importantly, the Schmidt Defendants’ state-court claims against
Wachovia derive exclusively from the adviser-advisee relationship
between Wachovia and Schmidt. Although the state-court claims
asserted by the Schmidt Defendants vary, they share a single factual
premise: that Wachovia wrongfully induced Schmidt to participate in
the UBS FLIP. At the latest, Schmidt’s decision to participate in the
UBS FLIP was formalized by September 10, 1998, the date on which
Schmidt entered into the Financial Advisory Services Contract and
agreed to pay Wachovia $100,000 for its advisory services in connec-
tion with the UBS FLIP. The alleged wrongful inducement, therefore,
  5
   We recognize that requiring a significant relationship in order to com-
pel arbitration of the Schmidt Defendants’ state-court claims appears to
be at odds with the language of the Note’s arbitration clause, which only
requires that the Schmidt Defendants’ claims "relate to" the Loan Docu-
ments. We recognize as well that to require such a significant relation-
ship may appear to be in tension with the Supreme Court’s mandate that
we apply the ordinary tools of contract interpretation in construing an
arbitration agreement, and resolve any ambiguities in favor of arbitration.
See Volt, 489 U.S. at 475-76. We, however, are constrained to adhere to
our precedent in Long and American Recovery. And in those decisions
we construed arbitration agreements that are materially indistinguishable
from the one found in the Note to require, before referring a matter to
arbitration, the existence of a significant relationship between the claims
asserted and the contract containing the arbitration clause. See Long, 248
F.3d at 316-17; Am. Recovery, 96 F.3d at 93.
8                    WACHOVIA BANK v. SCHMIDT
had occurred by September 10, 1998, eleven days before the Note
was executed on September 21, 1998. Moreover, a court’s resolution
of the Schmidt Defendants’ state-court claims will require no inquiry
into the Note’s terms, nor even knowledge of the Note’s existence.
Indeed, Schmidt satisfied the Note in full in 1999, more than three
years before the Schmidt Defendants filed suit against Wachovia in
the South Carolina state court.

   Nevertheless, Wachovia asserts that the Schmidt Defendants’ state-
court claims are significantly related to the Note because the UBS
FLIP and the loan evidenced by the Note were part of a "single, inte-
grated course of dealing" between the parties. Appellant’s Br. at 14.
In so asserting, Wachovia ignores the fact that the core of the Schmidt
Defendants’ claims is not the UBS FLIP itself, but Wachovia’s role
in inducing Schmidt to participate therein. And according to the
Schmidt Defendants’ state-court complaint, that inducement consisted
of representations concerning the probable success and legitimacy of
the UBS FLIP, not any promise by Wachovia to loan Schmidt the
funds necessary for his participation in the UBS FLIP. Furthermore,
although the loan evidenced by the Note enabled the Schmidt Defen-
dants to participate in the UBS FLIP, we would be speculating to
assert that the loan was a necessary condition of Schmidt’s participa-
tion in the UBS FLIP; that is, we are unable to say that Schmidt
would have abstained from participating in the UBS FLIP without the
loan from Wachovia.

   In support of its position, Wachovia relies primarily on three deci-
sions of this Court: J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile,
S.A., 863 F.2d 315 (4th Cir. 1988), Cara’s Notions, Inc. v. Hallmark
Cards, Inc., 140 F.3d 566 (4th Cir. 1998), and Long v. Silver, 248
F.3d 309 (4th Cir. 2001). None of those precedents, however, applies
here. Although in both Long and J.J. Ryan, we interpreted arbitration
clauses materially identical to the one in the Note to encompass
claims that did not arise directly from the agreement containing the
clauses, each of those decisions involved claims that derived from the
specific relationship created by the relevant agreement. See Long, 248
F.3d at 317-19 (concluding that arbitration clause in shareholder and
employment agreement encompassed tort and contract claims that
arose from shareholder and employment relationships created by
agreement); J.J. Ryan, 863 F.2d at 318-19 (ruling that arbitration
                     WACHOVIA BANK v. SCHMIDT                         9
clause in exclusive distribution contract encompassed claims involv-
ing enforcement of ancillary agreements that were necessary to imple-
ment distribution contract). Our decision in Cara’s Notions, on the
other hand, involved an arbitration clause far broader than the one in
the Note — one that embraced all claims "arising out of or relating
to . . . any aspects of the relationship between" the parties (including
those aspects not created or governed by the agreement containing the
arbitration clause) — and thus bears no relevance to this case. See
Cara’s Notions, 140 F.3d at 568.

   In sum, the Schmidt Defendants’ state-court claims derive solely
from actions Wachovia took as a financial advisor to induce Schmidt
to participate in the UBS FLIP. Moreover, the events giving rise to
these claims occurred before the Note was even executed. In these cir-
cumstances, the Schmidt Defendants’ state-court claims are not sig-
nificantly related to the Note.

                                  B.

   Wachovia, as an additional basis for compelling the Schmidt
Defendants to arbitrate, also contends that the Warrant’s arbitration
clause requires the arbitration of the Schmidt Defendants’ state-court
claims. Although not a signatory to the Warrant, Wachovia maintains
that the Schmidt Defendants are equitably estopped from denying the
applicability of the Warrant’s arbitration clause to their state-court
claims against Wachovia. The Schmidt Defendants respond that the
principles of equitable estoppel have no application in this case. They
alternatively contend that their claims are not significantly related to
the Warrant.

   "Equitable estoppel precludes a party from asserting rights he oth-
erwise would have had against another when his own conduct renders
assertion of those rights contrary to equity." Int’l Paper Co. v. Schwa-
bedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 417-18 (4th
Cir. 2000) (internal quotation marks omitted). We have recognized
that where a signatory relies on the terms of, and seeks benefits from,
a contract in a suit against a nonsignatory, the signatory is estopped
from asserting that the nonsignatory is precluded from enforcing the
contract’s arbitration clause. Long, 248 F.3d at 320-21; see also
Brantley v. Republic Mortgage Ins. Co., 424 F.3d 392, 395-96 (4th
10                    WACHOVIA BANK v. SCHMIDT
Cir. 2005) (observing that a signatory can be estopped from repudiat-
ing arbitration clause where its claims are "intertwined" with terms of
contract containing arbitration clause). This legal principle rests on a
simple proposition: it is unfair for a party to "rely on [a] contract
when it works to its advantage, and repudiate it when it works to its
disadvantage." Hughes Masonry Co. v. Greater Clark County Sch.
Bldg. Corp., 659 F.2d 836, 839 (7th Cir. 1981) (internal quotation
marks and alteration omitted). Thus, in Long, where the plaintiff
sought, through his lawsuit, to claim the benefit of his status as a
shareholder — status which derived from a shareholder agreement to
which he was a signatory — he was estopped from asserting that the
nonsignatory defendant possessed no right to enforce the agreement’s
arbitration clause. See 248 F.3d at 320-21 (observing that "[a]llowing
Long to avoid the consequences of the [shareholder agreement] while
invoking its benefits . . . would both disregard equity and contravene
the FAA" (internal quotation marks and alterations omitted)); see also
Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757
(11th Cir. 1993) (ruling that party is estopped from denying applica-
tion of agreement’s arbitration clause where party "rel[ies] on the
terms of the . . . agreement in asserting [its] claims"); Hughes
Masonry, 659 F.2d at 840-41 (concluding that where signatory
attempts to hold nonsignatory to terms of contract, nonsignatory is
estopped from repudiating arbitration clause in contract).

   According to Wachovia, the Schmidt Defendants are estopped
from repudiating the Warrant’s arbitration clause because they have
made the Warrant a "central feature of their allegations." Reply Br.
at 13. As an initial matter, it is far from clear whether a close factual
connection between claims and a contract is sufficient in itself to
estop a signatory from denying the applicability of the contract’s arbi-
tration clause. In any event, no such close connection exists here. To
be sure, the Warrant forms part of the factual foundation underlying
the Schmidt Defendants’ state-court claims. Their central assertion is
that Wachovia and others wrongfully induced Schmidt to participate
in the UBS FLIP, and the Warrant comprised part of the UBS FLIP.
The terms of the Warrant, however, are only tangentially related to
the heart of the Schmidt Defendants’ state-court claims. They are rel-
evant only insofar as they help to demonstrate that the UBS FLIP as
a whole was an illegitimate basis-shifting tax shelter that the IRS has
opposed. The meat of the Schmidt Defendants’ claims, on the other
                     WACHOVIA BANK v. SCHMIDT                        11
hand, is that Wachovia and others knew or should have known, at the
time the UBS FLIP was implemented, that the IRS would take the
position that the UBS FLIP was an illegal tax shelter. And the terms
of the Warrant are largely irrelevant to proof of that fact.

   Wachovia also asserts, in a manner more consistent with our prece-
dent, that the Schmidt Defendants are attempting in their state-court
lawsuit to obtain a benefit under the Warrant by seeking to recover
the cost of the Warrant. The Schmidt Defendants’ state-court com-
plaint, however, does not specifically seek recovery of the Warrant’s
cost; rather, it prays generally for restitution and damages. The resti-
tution sought from Wachovia is presumably the $100,000 paid to
Wachovia under the Financial Advisory Services Contract. And while
any damages awarded to the Schmidt Defendants may include the
cost of the Warrant if such cost is an element of their loss, the
Schmidt Defendants are not invoking the terms of the Warrant against
Wachovia in such a way as to render it inequitable to deny Wachovia
the benefit of the Warrant’s arbitration clause. Moreover, the Schmidt
Defendants do not invoke any rights under the terms of the Warrant,
nor do they seek to impose any of the Warrant’s obligations on
Wachovia. Indeed, they assert that the Warrant was "properly con-
structed, executed and surrendered" in 1998, more than four years
before they initiated their state-court suit against Wachovia. Appel-
lee’s Br. at 26.

   Finally, Wachovia maintains that the Schmidt Defendants should
be estopped from denying the applicability of the Warrant’s arbitra-
tion clause because they received valuable benefits from the Warrant,
including the ability to claim large capital losses on their federal tax
returns and to invoke certain favorable provisions of the Internal Rev-
enue Code. See Appellant’s Br. at 23-24. As an initial matter, it is not
clear that the Schmidt Defendants received the tax benefits referred
to by Wachovia. In support of its claim that such benefits were
received, Wachovia relies on a law firm’s opinion letter that the
Schmidt Defendants assert to be fraudulent. And, according to the
Schmidt Defendants’ allegations, the IRS has taken the position that
any tax "benefits" they received were illegitimate. In any event, the
decision on which Wachovia primarily relies for this point — Am.
Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349 (2d Cir.
1999) — is inapposite because that decision involved the reverse situ-
12                    WACHOVIA BANK v. SCHMIDT
ation from that presented here: a signatory to a contract seeking to
estop a nonsignatory from repudiating the contract’s arbitration
clause. See 170 F.3d at 353 (estopping nonsignatory where nonsigna-
tory received "direct benefits" from contract); see also Thomson-CSF,
S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 778 (2d Cir. 1995)
(observing that nonsignatory is estopped where it "knowingly
exploit[s]" contract). In Tencara, the contract at issue imposed no
legal obligations on the nonsignatory, yet the nonsignatory enjoyed
substantial benefits from the contract. In such circumstances, it was
deemed inequitable for the nonsignatory to receive the contract’s ben-
efits without shouldering the burden of the contract’s arbitration
clause. See 170 F.3d at 353. Where a signatory is sought to be estop-
ped, however, the equities are much different, for a signatory is neces-
sarily bound by the terms of a valid contract for which he has
bargained. In other words, a contract signatory does not enjoy the
pure windfall experienced by a nonsignatory who receives only a con-
tract’s benefits.

   The fact that a signatory receives benefits from a contract is there-
fore insufficient, in and of itself, to estop it from asserting that a non-
signatory is not entitled to invoke the contract’s arbitration clause.
And Wachovia has failed to establish any other inequitable conduct
on the Schmidt Defendants’ part that justifies an estoppel. The district
court, by its Order, thus properly exercised its discretion in denying
Wachovia’s claim to compel arbitration under the principles of equi-
table estoppel.6

                                   IV.

   Pursuant to the foregoing, the judgment of the district court is
affirmed.

                                                             AFFIRMED

  6
   Because Wachovia is not entitled to the benefit of an equitable estop-
pel, we need not reach the Schmidt Defendant’s alternative contention
that their state-court claims are not significantly related to the Warrant.