USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
_________________________
No. 93-1842
WALTON W. McCARTHY,
Plaintiff, Appellee,
v.
LEO L. AZURE, JR.,
Defendant, Appellant.
_________________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Shane Devine, Senior U.S. District Judge]
__________________________
_________________________
Before
Selya, Cyr and Boudin, Circuit Judges.
______________
_________________________
David R. Goodnight, with whom Patrick D. McVey, Howard A.
___________________ ________________ _________
Coleman, Riddell, Williams, Bullitt & Walkinshaw, D. Donald
_______ ___________________________________________ __________
Dufresne, and Devine, Millimet & Branch were on brief, for
________ ___________________________
appellant.
Charles A. Szypszak, with whom Richard B. Couser and Orr and
___________________ _________________ _______
Reno, P.A. were on brief, for appellee.
__________
_________________________
April 28, 1994
_________________________
SELYA, Circuit Judge. This appeal presents intriguing
SELYA, Circuit Judge.
_____________
questions anent the rights of a corporate officer who, having
signed an agreement containing an arbitration clause in his
official capacity, seeks to compel arbitration of claims lodged
against him as an individual. The district court refused to
order arbitration under these circumstances. We affirm.
I. BACKGROUND
I. BACKGROUND
For purposes of this appeal, the facts can be taken
essentially as alleged. In 1987, plaintiff-appellee Walton W.
McCarthy, a renowned inventor of underground shelter technology,
incorporated T.H.E.T.A. Technologies, Inc. (Theta I), a New
Hampshire corporation, for the purpose of manufacturing
underground storage tanks and personal shelters. McCarthy owned
fifty percent of the corporation's stock and served as its
principal operating officer. Three passive investors held the
remaining shares.
In the fall of 1989, McCarthy met defendant-appellant
Leo L. Azure, Jr., a member of a Montana-based religious
organization, Church Universal & Triumphant (C.U.T.). Azure soon
entered into negotiations for the acquisition of both McCarthy's
company and patented technology. Azure formed a Washington
corporation, Theta Corporation (Theta II), to serve as a vehicle
for the planned purchase.
On December 29, 1989, McCarthy, Theta II, and others
2
entered into a contract (the Purchase Agreement).1 Azure signed
the Purchase Agreement on behalf of Theta II, but he did not sign
it in his personal capacity. Leaving to one side special
arrangements with various creditors, see supra note 1, this
___ _____
contract delineated a two-phase transaction: McCarthy was to
sell his equity interest, including the patents, to the passive
investors, and transfer certain residual rights to Theta II;
then, Theta II was to buy all the outstanding stock of Theta I
for cash, payable over a period of no more than three years. The
Purchase Agreement expressly provided that "[d]isputes arising
under this Agreement shall be resolved by arbitration. . . ."
Though not mentioned in the Purchase Agreement, the parties
apparently understood that Theta II, in addition to paying
McCarthy a prescribed sum of money for the transferred rights,
would offer him employment under a separate long-term contract.
On January 11, 1990, McCarthy and Theta II executed a
second agreement (the Confidentiality Agreement). Azure signed
the Confidentiality Agreement, as he had signed the Purchase
Agreement, on behalf of Theta II, but not otherwise; indeed,
neither document contained a line for Azure's personal signature.
Pursuant to the Confidentiality Agreement, McCarthy promised to
keep all past and future information pertaining to the patents in
the bosom of the lodge, and to take certain related actions on
____________________
1Apart from McCarthy and Theta II, other parties to the
Purchase Agreement included the passive investors and three major
creditors of Theta I. For present purposes, nothing turns on the
involvement of the other parties.
3
behalf of Theta II. This agreement included a somewhat more
expansive arbitration clause, which stated that "[a]ny
controversy or claim arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration. . .
." At a closing held the next day, Theta II delivered a letter
(the Employment Letter) engaging McCarthy as its president, chief
engineer, and chief executive officer at a stipulated annual
salary. The Employment Letter also provided for stock options.
It did not include an arbitration clause.
A little over two weeks after the closing, matters took
a turn for the bizarre (or, at least, for the mystical). On
January 28, 1990, Elizabeth Clare Prophet, Azure's spiritual
leader, informed him, on the advice of a "dead ascended master"
of C.U.T., that his newly acquired business was incompatible with
his "divine plan" and that he should not devote further energy to
the enterprise. Azure dutifully directed McCarthy to cashier all
the employees of Theta II, and then proceeded to terminate
McCarthy's employment. McCarthy never obtained any ownership
interest in Theta II, notwithstanding the promises contained in
the Employment Letter.
Apparently, Azure's religious convictions took him so
far, and no further. He not only continued operating the Theta
corporations, but also formed a third company, Omega Corporation.
In October of 1990, after Azure merged Theta I into Theta II,
Omega acquired the surviving entity. The following July, it
began selling shares to the public. For all intents and
4
purposes, Omega's business seemed indistinguishable from that of
Theta I and Theta II; Omega styled itself as a leader in
underground storage and marketed tanks manufactured pursuant to
McCarthy's patented technology.
Unwilling to turn the other cheek, McCarthy sued Azure,
Theta II, Omega, C.U.T., and Prophet in the United States
District Court for the District of New Hampshire.2 Azure, Theta
II, and Omega filed a motion to stay proceedings pending
arbitration, contending that the serial agreements obligated
plaintiff to arbitrate all claims. The district court granted
the motion with respect to Theta II, but denied it as to the
remaining movants. Azure appeals the district court's order
refusing to stay the action against him. We have jurisdiction by
virtue of 9 U.S.C. 16(a)(1) (Supp. 1992).
II. DISCUSSION
II. DISCUSSION
The court below reasoned that the source of appellant's
purported right to compel arbitration must be found, if at all,
in the Purchase Agreement.3 It then denied appellant's motion
____________________
2The complaint asserted claims against Azure, Theta II, and
Omega for, inter alia, breach of contract, wrongful discharge,
_____ ____
fraud, negligent misrepresentation, intentional infliction of
emotional distress, unfair trade practices, federal and state
securities violations, and racketeering. It also asserted claims
against Azure, C.U.T., and Prophet for tortious interference with
contractual relationships. Jurisdiction was premised on the
existence of both federal questions, 28 U.S.C. 1331 (1988), and
diversity of citizenship, 28 U.S.C. 1332(a)(1) (1988).
3Because the Confidentiality Agreement granted legal rights
only to Theta II and not to McCarthy, we agree with the district
court's conclusion that it could not furnish a basis for
precluding access to a judicial forum in respect to claims
asserted by McCarthy against Azure. For that reason, and for the
5
to stay on the ground that he was not a party to the Purchase
Agreement and, therefore, could not compel arbitration of claims
lodged against him personally, whether or not those claims
related to that agreement. Azure's appeal tests this thesis.
Because the appeal presents a question of law, appellate review
is plenary. See United States v. Gifford, ___ F.3d ___, ___ (1st
___ _____________ _______
Cir. 1994) [No. 93-1645, slip op. at 20]; Liberty Mut. Ins. Co.
______________________
v. Commercial Union Ins. Co., 978 F.2d 750, 757 (1st Cir. 1992).
_________________________
A. General Principles.
A. General Principles.
__________________
We start with bedrock: "arbitration is a matter of
contract and a party cannot be required to submit to arbitration
any dispute which he has not agreed so to submit." AT&T
____
Technologies, Inc. v. Communications Workers, 475 U.S. 643, 648
__________________ ______________________
(1986), quoting United Steelworkers v. Warrior & Gulf Navig. Co.,
_______ ___________________ _________________________
363 U.S. 574, 582 (1960). Thus, a party seeking to substitute an
arbitral forum for a judicial forum must show, at a bare minimum,
that the protagonists have agreed to arbitrate some claims.
____
This imperative is in no way inconsistent with the
acknowledged "federal policy favoring arbitration." Moses H.
________
Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24
____________________ ______________________
(1983); see also Shearson/American Express, Inc. v. McMahon, 482
___ ____ ________________________________ _______
U.S. 220, 226 (1987). The federal policy presumes proof of a
preexisting agreement to arbitrate disputes arising between the
protagonists. Once that agreement has been proven and the
____________________
added reason that appellant, individually, was not a signatory to
the Confidentiality Agreement, our analysis revolves around the
Purchase Agreement.
6
protagonists identified, cases such as Cone and McMahon instruct
____ _______
courts to use a particular hermeneutical principle for
interpreting the breadth of the agreement; that is, if the
contract language chosen by the parties is unclear as to the
nature of the claims to which an agreement to arbitrate extends,
a "healthy regard" for the federal policy favoring arbitration
requires that "any doubts concerning the scope of an arbitrable
issue be resolved in favor of arbitration." Moses H. Cone, 460
______________
U.S. at 24-25. The federal policy, however, does not extend to
situations in which the identity of the parties who have agreed
to arbitrate is unclear. See Painewebber, Inc. v. Hartmann, 921
___ _________________ ________
F.2d 507, 511 (3d Cir. 1990) (holding that "[a]s a matter of
contract, no party can be forced to arbitrate unless that party
has entered into an agreement to do so"). Thus, requiring that
arbitration rest on a consensual foundation is wholly consistent
with federal policy.
The requirement also makes perfect sense. Subject
matter jurisdiction over an action or series of claims can be
conceptualized as conferring a personal right on the parties to
have that action, or those claims, adjudicated in a judicial
forum. See, e.g., Pacemaker Diag. Clinic of America, Inc. v.
___ ____ _________________________________________
Instromedix, Inc., 725 F.2d 537, 541 (9th Cir. 1984) (en banc)
__________________
(recognizing that the "federal litigant has a personal right,
subject to exceptions in certain classes of cases, to demand
Article III adjudication of a civil suit"); accord Glidden Co. v.
______ ___________
Zdanok, 370 U.S. 530, 536 (1962). Though a person may, by
______
7
contract, waive his or her right to adjudication, see 9 U.S.C.
___
2, there can be no waiver in the absence of an agreement
signifying an assent.
B. Framing the Issue.
B. Framing the Issue.
_________________
Viewed against this backdrop, the question before us
reduces to a matter of contract interpretation: Did plaintiff,
in executing the Purchase Agreement, agree to arbitrate disputes
he might have with Azure personally concerning Theta-related
____ _____ __________
transactions?4 This question, which involves the interpretation
of an arbitration provision touching upon matters of interstate
commerce, must be resolved according to federal law. See
___
McGregor v. Industrial Excess Landfill, Inc., 856 F.2d 39, 46 n.2
________ ________________________________
(6th Cir. 1988); Letizia v. Prudential Bache Securities, Inc.,
_______ __________________________________
802 F.2d 1185, 1187 (9th Cir. 1986); see also 9 U.S.C. 2. As
___ ____
under general principles of contract law, the final answer to
such a question is ordinarily a function of the parties' intent
as expressed in the language of the contract documents. See NRM
___ ___
Corp. v. Hercules, Inc., 758 F.2d 676, 681 (D.C. Cir. 1985)
_____ ______________
(explaining that contract interpretation, under federal law,
"dovetails precisely with general principles of contract law,"
____________________
4Although plaintiff originally sued Azure in two capacities
(individual and official), plaintiff agreed, following oral
argument in this court, to abandon his "official capacity" claims
against Azure. Given this agreement, plaintiff henceforth will
be disabled from pursuing any such claims. See United States v.
___ _____________
Levasseur, 846 F.2d 786, 792-93 (1st Cir.) (explicating doctrine
_________
of judicial estoppel), cert. denied, 488 U.S. 89 (1988); Patriot
_____ ______ _______
Cinemas Inc. v. General Cinema, Corp., 834 F.2d 208, 211-15 (1st
_____________ _____________________
Cir. 1987) (similar). Consequently, we deal in this opinion only
with plaintiff's "individual capacity" claims against Azure.
8
such that, under both, "the judicial task in construing a
contract is to give effect to the mutual intentions of the
parties"); see also Local 1199 v. Brooks Drug Co., 956 F.2d 22,
___ ____ __________ _______________
25 (2d Cir. 1992) (determining the parties' intent is the
essential inquiry); S.A. Mineracao da Trinidade-Samitri v. Utah
____________________________________ ____
Int'l, Inc., 745 F.2d 190, 193 (2d Cir. 1984) (similar).
___________
This does not mean that state law is an irrelevancy.
In general, federal courts developing federal common law are free
to borrow from state law, unless there is either a demonstrated
need for a uniform national rule or a significant conflict
between state law and some discernible federal policy.5 See
___
United States v. Kimbell Foods, Inc., 440 U.S. 715, 728-30
_____________ _____________________
(1979).
____________________
5When state law is likely to prove an appropriate model, but
different states have an interest in the claim, it is reasonable
for a federal court to apply the choice-of-law principles of the
forum in order to ascertain what state's substantive law should
be consulted. Cf., e.g., Klaxon Co. v. Stentor Elec. Mfg. Co.,
___ ____ __________ _______________________
313 U.S. 487, 496-97 (1941); Crellin Technologies, Inc. v.
____________________________
Equipmentlease Corp., ___ F.3d ___, ___ (1st Cir. 1994) [No. 93-
_____________________
1615, slip op. at 7-8]. Here, our task is simplified: the
Purchase Agreement contains a provision directing the reader to
New Hampshire law. Because a reasonable choice-of-law provision
in a contract generally should be respected, see Restatement
___
(Second) of the Conflict of Laws 187 (1971); see also
___ ____
Ferrofluidics Corp. v. Advanced Vacuum Components, Inc., 968 F.2d
___________________ ________________________________
1463, 1467 (1st Cir. 1992) (applying New Hampshire choice-of-law
principles); Allied Adjustment Serv. v. Heney, 484 A.2d 1189,
________________________ _____
1190-91 (N.H. 1948) (stating that the parties' selection of the
law of a particular jurisdiction will be honored so long as "the
contract bears any significant relationship to that
jurisdiction"), we will from time to time consult New Hampshire
law for guidance. Where New Hampshire law is recondite, we will
turn to the types of materials that we believe the New Hampshire
Supreme Court would look to in formulating new law. See Moores
___ ______
v. Greenberg, 834 F.2d 1105, 1107 (1st Cir. 1987) (describing
_________
materials); see also Kathios v. General Motors Corp., 862 F.2d
___ ____ _______ _____________________
944, 949 (1st Cir. 1988).
9
In this case, there is no overt indication that the
parties intended to commit claims against appellant, as an
__ __
individual, to an arbitral forum. After all, appellant signed
__________
the Purchase Agreement solely in his capacity as an agent for a
disclosed principal that is, as "Chairman" of Theta II and
not in his personal capacity; and it is settled beyond
peradventure that a person signing a contract only in a corporate
capacity, and unambiguously indicating that fact on the face of
the contract documents, does not thereby become a party to the
agreement. See, e.g., New York Ass'n for Retarded Children, Inc.
___ ____ __________________________________________
v. Keator, 606 N.Y.S.2d 784, 785 (App. Div. 1993) (finding
______
corporation, but not individual, bound when president of
corporation signed contract only on a line indicating his
official capacity); Central Ill. Pub. Serv. Corp. v. Molinarolo,
______________________________ __________
585 N.E.2d 199, 203 (Ill. App. Ct. 1992) (holding company, but
not individual, liable "[w]hen an agent signs a document and
indicates next to his signature his corporation affiliation");
Salzman Sign Co. v. Back, 176 N.E.2d 74, 76 (N.Y. 1961) (finding
_________________ ____
no individual liability where defendant signed only as president
of corporation and did not otherwise explicitly indicate in the
contract an intent to be bound personally); cf. Dulik v. Amante,
___ _____ ______
570 N.Y.S.2d 590, 591 (App. Div. 1991) (finding that a party, by
signing the agreement twice, intended to bind both his
corporation and himself).
To be sure, the law recognizes certain contract and
agency principles under which nonsignatories sometimes can be
10
obligated by, or benefit from, agreements signed by others, and
these principles can apply to arbitration provisions. See, e.g.,
___ ____
In re Oil Spill by Amoco Cadiz, 659 F.2d 789, 795-96 (7th Cir.
________________________________
1981); Fisser v. International Bank, 282 F.2d 231, 233-34 (2d
______ ___________________
Cir. 1960) (collecting cases). Thus, appellant's failure to sign
the Purchase Agreement individually does not in and of itself
settle the somewhat different question of whether he can invoke
the arbitration clause contained therein. Seizing on this
possibility, appellant charts three routes by which he, as a
nonsignatory, might achieve the sanctuary he desires. In the
succeeding sections, we trace these routes and explain why we
find them to be blind alleys.
C. Appellant's Agency Theory.
C. Appellant's Agency Theory.
_________________________
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, 114 S. Ct. 385 (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.
1. Comparing Apples to Oranges. To put appellant's
1. Comparing Apples to Oranges.
_____________________________
theorem into focus, we first must clarify the animating
11
principles that drive the cases on which the theorem rests.
Doing so persuades us that appellant is comparing apples to
oranges.
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).
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,
12
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.
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
____________________
6The solitary exception is Arnold. Yet, as we point out
______
subsequently, see infra note 10, that case is distinguishable on
___ _____
other grounds and, in all events, does not possess great
persuasive force.
7This is not to suggest that similarity of claims alone
suffices to clear the decks for arbitration. As we have made
pellucid, see supra p. 7, the basic prerequisite is the parties'
___ _____
agreement to arbitrate, or, put another way, the existence of an
actual waiver of the right to litigate. But similarity of claims
sometimes may help to clarify what the parties intended when they
included an arbitration provision in an instrument.
13
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
2. The Scope of the Arbitration Clause. Close textual
2. The Scope of the Arbitration Clause.
___________________________________
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
____________________
8While one section of the Purchase Agreement describes the
sellers' retention of a right to purchase products from Theta II
at preferential prices and to distribute those products in New
England, appellant has not argued that any of McCarthy's claims
implicate this distribution provision.
9Although we do not decide the point, we note that even an
implied reference likely would not suffice as a predicate for
enforced arbitration. See Salzman Sign, 176 N.E.2d at 76
___ _____________
(requiring "direct and explicit evidence of actual intent" as a
prerequisite to finding an obligation to arbitrate).
14
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).
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
____________________
10Once again, the sole exception is Arnold, a case in which
______
the arbitration clause is virtually identical to the provision
contained in the Purchase Agreement. See Arnold, 920 F.2d at
___ ______
1271. But in Arnold, unlike in this case, the stated clause
______
comprised the only arbitration provision at issue, thus making it
much easier to read the language broadly. See infra pp. 15-16
___ _____
(discussing interpretive significance of dual agreements) and
cases cited. At any rate, to the extent that Arnold can be read
______
to support a result at odds with the result that we reach today,
we respectfully decline to follow it.
15
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., 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 (1988); C & M Realty Trust v.
_____ ______ __________________
Wiedenkeller, 578 A.2d 354, 357 (N.H. 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).
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
16
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, 114 S.
_____ ______
Ct. 291 (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.
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.
___________
3. The Individual Capacity/Official Capacity Schism.
3. The Individual Capacity/Official Capacity Schism.
_________________________________________________
____________________
11By its terms, the Purchase Agreement "shall be binding
upon and inure to the benefit of the [parties'] successors and
assigns. . . ." There is no comparable provision anent the
parties' agents, servants, or employees. We think the omission
is telling.
17
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).
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
____________________
12We use the terms "individual capacity" and "personal
capacity" interchangeably, and we use the terms "official
capacity," "representative capacity," and "corporate capacity" in
the same manner.
18
agent." Kentucky v. Graham, 473 U.S. 159, 165 (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. By contrast, personal capacity suits proceed against the
individual, not against the entity with which the individual is
affiliated.
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., 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 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, 492 P.2d 455, 457-58 (Ariz. Ct. App. 1972)
____ ______ ___
(explaining that "[i]f a corporation was formed or is employed
for fraudulent purposes," personal liability may be imposed).
It is, therefore, apparent that drawing a distinction
between individual capacity and representative capacity claims is
____________________
13In this type of situation, the "officer or agent is
personally liable to the injured third party regardless of
whether the act resulting in injury is committed by or for the
corporation." 3A Fletcher, supra, 1135, at 67.
_____
19
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 (1980) (distinguishing between individual and
official capacity claims for purposes of venue determination); Ex
__
Parte Young, 209 U.S. 123, 159 (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 (indicating differences between individual and official
capacity claims for purposes of suit under 42 U.S.C. 1983);
Estabrook v. Wetmore, 529 A.2d 956, 958 (N.H. 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
20
mechanically to limit an injured party's recourse to the
principal alone, regardless of the circumstances.
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.
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.
___ ____ ____
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;
___ ____
21
28 U.S.C. 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., 111 S. Ct. 2123, 2131-38 (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).
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., 553 N.Y.S.2d 187, 188 (App. Div. 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 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.
Perhaps most important from a policy standpoint,
adopting appellant's proposal would introduce a troubling
22
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 (1976); see also Restatement (Second) of Agency 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.
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,
____________________
14We reject Azure's contention that the Eighth Circuit
significantly narrowed Flink's rule in Lee, 983 F.2d at 887. As
_____ ___
we read these cases, an agent's signature on behalf of a
disclosed principal "is not sufficient" to bind the agent to
__________
arbitrate claims against him personally. Flink, 856 F.2d at 46
_____
(emphasis supplied). Lee left this legal rule fully intact.
___
Lee, unlike Frank, merely involved the by-now routine investment
___ _____
service contract context, a situation where additional factors,
__________
including "the plain language of the arbitration clause," showed
that claims against the agent appropriately were subject to
arbitration. Lee, 983 F.2d at 887.
___
23
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.,
___ _________ __________________________ ____________________
___ F.3d ___, ___ (1st Cir. 1994) [No. 93-1615, slip op. at 15]
(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, 406 A.2d 1310,
________________________ ______
1312 (N.H. 1979).
4. The Nature of the Claims. It is also worth noting,
4. The Nature of the Claims.
________________________
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.
No useful purpose would be served by reciting book and
24
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. 3.15
D. Appellant's Third-Party Beneficiary Theory.
D. Appellant's Third-Party Beneficiary Theory.
__________________________________________
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.
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, 465 A.2d 917, 918 (N.H. 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., 406 A.2d 132, 134 (N.H. 1979);
_______________ _____________
see generally 3 E. Allan Farnsworth, Farnsworth on Contracts
___ _________ _______________________
____________________
15Of course, the district court in its discretion could stay
litigation of nonarbitrable claims pending the outcome of an
arbitration proceeding. See Moses H. Cone, 460 U.S. at 20 n.23;
___ ______________
see also Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 856
___ ____ _____________ __________________
(2d Cir. 1987) (recommending stay of nonarbitrable claim when the
arbitrable claim predominates and the nonarbitrable claim is of
questionable merit).
25
10.3, at 22-23 (1990); 4 Arthur Corbin, Contracts 776 (1951).
_________
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).
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
26
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
_______
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.
E. Appellant's Alter Ego Theory.
E. Appellant's Alter Ego Theory.
____________________________
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.
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,
____ _____
____________________
16These requirements are not satisfied merely because a
third party will benefit from performance of the contract. See
___
Arlington Trust, 465 A.2d at 918-19.
_______________
27
41.25. As such, the doctrine can be invoked "only where equity
requires the action to assist a third party." 1 Fletcher, supra,
_____
at 41.10; see also In re Rehabilition of Centaur Ins. Co., 606
___ ____ _______________________________________
N.E.2d 291, 296 (Ill. App. Ct. 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,
_____
1994 WL 28672 (Feb. 3, 1994); Village Press, Inc. v. Stephen
____________________ _______
Edward Comp., Inc., 416 A.2d 1373, 1375 (N.H. 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").
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.
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
28
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
III. CONCLUSION
III. CONCLUSION
We need go no further. Although the Purchase Agreement
does contain an arbitration clause, it is narrow in scope and
does not extend the right to compel arbitration to agents or
employees of the corporate signatory. By like token, the
Purchase Agreement does not make manifest an intention to confer
third-party beneficiary status on any such agents or employees.
And, finally, appellant cannot rely on plaintiff's alter ego
claim to draw an equivalence between himself and his corporate
principal for his own benefit. In sum, there is no contractual
or other legal lever by which appellant can force plaintiff to
arbitrate the "individual capacity" claims that are the subject
of the underlying suit. Because this is so, the district court
appropriately refused to grant the relief that appellant
requested.18
____________________
17We note that, although plaintiff has alleged that
appellant is the alter ego of Theta II, appellant has never
admitted the truth of the allegation. While not necessary to our
decision, we are impelled to remark the obvious: it would be
strange if an equitable doctrine could be construed to allow a
party, on one hand, to resist the characterization that he is a
corporation's alter ego, and, on the second hand, to allow him
simultaneously to use that characterization as a device to
sidetrack the characterizer's suit.
18On remand, the district court, by appropriate order,
should conform plaintiff's complaint to the representations made
in this court, see supra note 4, dismissing any claims asserted
___ _____
against Azure in a representative capacity and striking all
related references from the complaint.
29
The order appealed from is affirmed and the case is
The order appealed from is affirmed and the case is
_______________________________________________________
remanded to the district court for further proceedings. The
remanded to the district court for further proceedings. The
__________________________________________________________ ___
motions pending in this court are denied without prejudice to
motions pending in this court are denied without prejudice to
_________________________________________________________________
their renewal below. Costs in favor of appellee.
their renewal below. Costs in favor of appellee.
___________________ __________________________
30
