Court Opinion

ID: 4169166
Source: CourtListenerOpinion
Date Created: 2017-05-17 19:04:10.750722+00
Date Added: 2024-06-11T07:47:01.237536
License: Public Domain

FILED
                                                               United States Court of Appeals
                                     PUBLISH                           Tenth Circuit

                      UNITED STATES COURT OF APPEALS                   May 17, 2017

                                                                   Elisabeth A. Shumaker
                             FOR THE TENTH CIRCUIT                     Clerk of Court
                         _________________________________

JACQUELYNN (JACKIE) L. JACKS;
STUART L. REES, Wife and Husband;
HARLEY J. JACKS; JACQUELYNN
(JACKIE) L. JACKS, as Next Friend for
T.J.M., a minor, and A.J.J., a minor,                    No. 15-6197

      Plaintiffs - Appellees,

v.

CMH HOMES, INC., d/b/a Oakwood
Homes Oklahoma City, and d/b/a Clayton
Manufactured Homes; CMH
MANUFACTURING, INC., a/k/a Karsten
Homes,

      Defendants - Appellants,

and

VANDERBILT MORTGAGE AND
FINANCE, INC.,

      Defendant.

                         _________________________________

           APPEAL FROM THE UNITED STATES DISTRICT COURT
              FOR THE WESTERN DISTRICT OF OKLAHOMA
                       (D.C. NO. 5:15-CV-00044-M)
                   _________________________________

W. Scott Simpson of Simpson, McMahan, Glick & Burford, PLLC, Birmingham,
Alabama (Jonathan E. Beling of Simpson, McMahan, Glick & Burford, PLLC,
Birmingham, Alabama, and Joseph R. Farris, Sarah Buchan, and Brynna Schellbar of
Franden, Farris, Quillin, Goodnight + Roberts, Tulsa, Oklahoma, with him on the briefs)
for Defendants–Appellants.

Michael M. Reynolds of DeBois, Sherrill & Reynolds, Duncan, Oklahoma, for Plaintiffs–
Appellees.
                      _________________________________

Before MATHESON, McKAY, and MORITZ, Circuit Judges.
                 _________________________________

McKAY, Circuit Judge.
                         _________________________________

       In 2009, Jacquelyn Jacks bought a manufactured home from CMH Homes, Inc.,

on installment. The purchase was financed through CMH Homes under a manufactured-

home retail installment contract. The contract contains an arbitration agreement, which

provides that all disputes arising from, or relating to, the contract would be resolved by

binding arbitration. By its terms, “[t]his Arbitration Agreement also covers all co-signors

and guarantors who sign this Contract and any occupants of the manufactured Home (as

intended beneficiaries of this Arbitration Agreement).” (Appellants’ App. at 31.) Ms.

Jacks was the only “buyer” to sign the contract; there were no cosigners or guarantors.

Ms. Jacks, along with her husband and their children, moved into the manufactured home

soon after it was delivered and installed by CMH Homes.

       About five years later, Ms. Jacks and her family brought suit in state court against

CMH Homes and CMH Manufacturing, which had manufactured the home, and

Vanderbilt Mortgage and Finance, which is not a party to this appeal. They claimed: (1)

CMH negligently installed and repaired the manufactured home’s water system, which

caused toxic mold to grow; (2) the manufactured home was unreasonably dangerous at

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the time it left the control of CMH; (3) the manufactured home was not fit for habitation.

Ms. Jacks also sought to rescind her purchase of the manufactured home, along with her

agreement to pay Vanderbilt Mortgage and Finance the indebtedness incurred to purchase

the home.

       The CMH defendants removed the case from state to federal court and moved to

compel arbitration and stay the court proceedings. Defendants argued that Ms. Jacks,

having signed the contract, was barred by the arbitration agreement from pursuing her

claims in court. The district court agreed and granted the motion to compel as to the

claims of Ms. Jacks.

       The district court denied the motion as to the remaining plaintiffs who were not

parties to the installment contract. Defendants had argued that Ms. Jacks’ husband and

their children were likewise bound by the arbitration agreement, even though they never

signed the contract. Because “all Plaintiffs were occupants of the Home and intended

third party beneficiaries to the Arbitration Agreement,” Defendants maintained below, “a

valid agreement to arbitrate exists between all Plaintiffs and CMH Homes under

Oklahoma contract law.” (Id. at 18.)

       The district court did not agree. It held that “the single sentence in the Arbitration

Agreement generically referencing ‘any occupants of the Manufactured Home (as

intended beneficiaries of this Arbitration Agreement)’ is not sufficient to make the non-

signatory plaintiffs, who are occupants of the home, third party beneficiaries of the

Arbitration Agreement and subject to being compelled to arbitration.” (Id. at 83.)

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       The district court also rejected Defendants’ contention that the nonsignatory

plaintiffs were “bound to arbitrate their claims” under “the doctrine of equitable estoppel”

(id. at 24), holding that “Defendants have not satisfied any of the elements of equitable

estoppel,” (id. at 84):

       There have been no false representations or concealment of facts by the non-
       signatory plaintiffs. Further, the Court finds no equitable reason why the non-
       signatory plaintiffs should be bound by the Arbitration Agreement; the non-
       signatory plaintiffs have engaged in no conduct which would equitably warrant
       that they be bound by the Arbitration Agreement.

(Id. at 84.)

       Defendants timely appealed the district court’s partial denial of their motion to

stay and to compel arbitration. We have jurisdiction under the Federal Arbitration Act,

which authorizes an interlocutory appeal of an order “refusing a stay of any action under

section 3 of this title” or “denying a petition under section 4 of this title to order

arbitration to proceed.” 9 U.S.C. § 16(a)(1)(A), (B).

       On appeal, Defendants tell us “[i]t is well-established that the standard of appellate

review of a district court order denying a motion to compel is de novo.” (Appellants’

Opening Br. at 10.) That is generally true. See Hancock v. Am. Tel. & Tel. Co., 701 F.3d

1248, 1261 (10th Cir. 2012). But it is also incomplete: “We have not yet decided

whether the de novo standard that generally applies to our review of a denial of a motion

to compel arbitration also applies to a denial of such a motion based on equitable

estoppel, or whether some other standard of review applies.” Bellman v. i3Carbon, LLC,

563 F. App’x 608, 612–13 (10th Cir. 2014) (unpublished) (citing Lenox MacLaren

Surgical Corp. v. Medtronic, Inc., 449 Fed. App’x 704, 707 (10th Cir. 2011)

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(unpublished)). As we have recognized, “[o]ther circuits are split on this issue, with

some courts reviewing such decisions de novo, and others for an abuse of discretion.” Id.

In any event, we need not decide which to apply here because Defendants’ estoppel

argument fails under either standard.

       Defendants also note that “any doubts concerning the scope of arbitrable issues

should be resolved in favor of arbitration.” (Appellants’ Opening Br. at 10 (quoting

Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983))).

Again, that is generally true, but the presumption in favor of arbitration does not apply

here: “[W]hen the dispute is whether there is a valid and enforceable arbitration

agreement in the first place, the presumption of arbitrability falls away.” Riley Mfg. Co.

v. Anchor Glass Container Corp., 157 F.3d 775, 779 (10th Cir. 1998); see also Dumais v.

Am. Golf Corp., 299 F.3d 1216, 1220 (10th Cir. 2002) (recognizing that “this

presumption disappears when the parties dispute the existence of a valid arbitration

agreement”). Defendants, as the parties seeking to compel arbitration, have the burden to

show that the arbitration agreement applies to the nonsignatory plaintiffs. Hancock, 701

F.3d at 1261.

       “[A]rbitration is a matter of contract.” AT&T Techs., Inc. v. Commc’ns Workers of

Am., 475 U.S. 643, 648 (1986). “[T]o determine whether a party has agreed to arbitrate a

dispute,” we “apply ordinary state-law principles that govern the formation of contracts.”

Walker v. BuildDirect.com Techs., Inc., 733 F.3d 1001, 1004 (10th Cir. 2013). As every

first-year law student knows, “[a]n agreement or mutual assent is of course essential to a

valid contract.” Lucy v. Zehmer, 84 S.E.2d 516, 522 (Va. 1954). This basic rule of

                                            -5-
contracts was axiomatic in Oklahoma even before its admission to the Union: “The gist

and meaning of the word ‘contract’ is that the minds of the parties must meet and agree

upon a given proposition.” McCormick v. Bonfils, 60 P. 296, 299–300 (Okla. 1900). In

present-day Oklahoma, a contract is defined by statute as “an agreement to do or not to

do a certain thing.” Okla. Stat. Ann. tit. 15, § 1. In short, without an agreement, there is

no contract.

       Arbitration agreements are no different: “An agreement for the submission of an

issue to arbitrators is a prerequisite to the commencement of a valid arbitration

agreement.” Voss v. City of Okla. City, 618 P.2d 925, 928 (Okla. 1980). “[A] party

cannot be required to submit to arbitration any dispute which he has not agreed so to

submit.” AT&T Techs., 475 U.S. at 648 (internal quotation marks omitted); see also

Boler v. Sec. Health Care, L.L.C., 336 P.3d 468, 477 (Okla. 2014) (“Consent to arbitrate

is an essential component of an enforceable arbitration agreement.”).

       Defendants would have us turn this basic principle of contract law on its head.

They concede that the nonsignatory plaintiffs are not third-party beneficiaries to the

contract as a whole. (Appellants’ Reply Br. at 10 n.9.) Defendants focus instead on the

arbitration agreement itself, which designates “any occupants of the Manufactured

Home” as “intended beneficiaries of this Arbitration Agreement.” (Appellants’ App. at

31.) The “benefit,” according to Defendants, is the right to compel arbitration. But

Defendants have not cited authority, and we are not aware of any, that says a contract

(here, the arbitration agreement) can be enforced against an intended third-party

beneficiary who has not accepted the benefit (here, the right to compel arbitration) or

                                            -6-
otherwise sought to enforce the terms of the contract. Cf. Restatement (Second) of

Contracts § 306 cmt. b (1981) (“[A] beneficiary is entitled to reject a promised benefit.”).

Such a rule would make no sense: unwitting third parties could be bound to a contract

without knowing its terms or ever realizing some benefit.

       At bottom, Defendants’ argument reduces to the following syllogism:

       Major premise: A third-party beneficiary to an arbitration agreement is bound by
       the agreement.

       Minor premise: Here, the nonsignatory plaintiffs are third-party beneficiaries of
       the arbitration agreement.

       Conclusion: Therefore, the nonsignatory plaintiffs are bound by the arbitration
       agreement.

       Defendants spend most of their briefing on the minor premise but then fail to cite

to a single case to support the major premise. As the parties seeking to compel

arbitration, Defendants have the burden to establish that the nonsignatory plaintiffs can

be held to the arbitration agreement. See Hancock, 701 F.3d at 1261. Here, it is simply

not enough to show that the nonsignatory plaintiffs are third-party beneficiaries.

       Next, Defendants argue that the nonsignatory plaintiffs are bound to the arbitration

agreement, which they never agreed to, “under the doctrine of equitable estoppel.”

(Appellants’ Opening Br. at 23.) At different stages of these proceedings, Defendants

seemingly advance two different theories of equitable estoppel. Below, Defendants

advanced a theory of integrally-related-claim estoppel, sometimes referred to as the

“intertwined claims” theory. (See Appellants’ App. at 84 (arguing that “[b]ecause the

non-signatories’ claims are identical to Jackie Jacks’ claims and are ‘integrally related’ to

                                            -7-
the [contract] setting forth the Arbitration Agreement, all Plaintiffs are subject to the

Arbitration Agreement.”)). In some jurisdictions, this theory permits a nonsignatory to

estop a signatory from eschewing arbitration when the claims are integrally related to a

contract that contains an arbitration agreement. See Janvey v. Alguire, 847 F.3d 231, 242

(5th Cir. 2017). Insofar as Defendants continue to press this theory of estoppel on appeal,

it “does not govern the present case, where a signatory-defendant seeks to compel

arbitration with a nonsignatory-plaintiff.” Id.; see also Carter v. Schuster, 227 P.3d 149,

156 (Okla. 2009) (distinguishing between “estop[ping] a signatory from avoiding

arbitration with a nonsignatory where the nonsignatory was seeking to resolve issues in

arbitration that were intertwined with the agreement the estopped party had signed,” and

estopping a nonsignatory (emphasis in original)).

       On appeal, Defendants also argue for the “direct-benefit estoppel doctrine,” which

“applies when a nonsignatory knowingly exploits the agreement containing the

arbitration clause.” (Appellants’ Opening Br. at 28-29 (quoting Hellenic Inv. Fund, Inc.

v. Det Norske Veritas, 464 F.3d 514, 517–18 (5th Cir. 2006))). “Under ‘direct benefits

estoppel,’ a non-signatory plaintiff seeking the benefits of a contract is estopped from

simultaneously attempting to avoid the contract’s burdens, such as the obligation to

arbitrate disputes.” In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005).

Some states have embraced the doctrine of direct-benefits estoppel. See, e.g., id.

Oklahoma has not.

       In any event, this direct-benefit-estoppel argument is waived. “We have held that

an appellant waives an argument if she fails to raise it in the district court and has failed

                                             -8-
to argue for plain error and its application on appeal.” Campbell v. City of Spencer, 777

F.3d 1073, 1080 (10th Cir. 2014). Defendants did not raise direct-benefit estoppel below

and have not argued for plain error on appeal. Though Defendants did argue integrally-

related-claim estoppel before the district court, direct-benefit estoppel is not the same

thing. See supra; see also Janvey, 847 F.3d at 242 (recognizing “two theories of

equitable estoppel”: (1) “[t]he ‘intertwined claims’ theory”; (2) “[t]he ‘direct benefits’

theory.”). And our forfeiture-and-waiver rule applies even “when a litigant changes to a

new theory on appeal that falls under the same general category as an argument presented

at trial.” See Schrock v. Wyeth, Inc., 727 F.3d 1273, 1284 (10th Cir. 2013).

       We find no compelling reasons to reach this argument. See Crow v. Shalala, 40

F.3d 323, 324 (10th Cir. 1994) (“Absent compelling reasons, we do not consider

arguments that were not presented to the district court.”). To the contrary, there is good

reason not to depart from our rule: Defendants fail to cite Oklahoma law supporting their

direct-benefits-estoppel theory. “As a federal court, we are generally reticent to expand

state law without clear guidance from its highest court.” Schrock, 727 F.3d at 1284.

       We AFFIRM.

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