A Case of Missing Identity

The Court of Appeals has affirmed the district court’s order denying two motions to compel arbitration. The plaintiffs had sued for breach of fiduciary duty, fraud, and negligent misrepresentation, arising out of a bad investment promoted by the defendants. The brokerage account documents signed by the plaintiffs contained an arbitration clause, but that clause only required arbitration of claims against “Introducing Firm, Clearing Agent, and any Sub-Advisor” — terms that were not defined in the agreement. While it may have been reasonable to conclude that the arbitration clause was intended to cover claims against the defendants, there was no abuse of discretion by the trial court in failing to find that they were within the scope of the arbitration clause. The Court of Appeals also rejected the defendants’ attempt to invoke “direct benefits estoppel,” a doctrine that allows non-signatory defendants to compel arbitration “if the nature of the underlying claims requires the signatory to rely on the terms of the written agreement containing the arbitration provision in asserting its claims against the non-signatory.” That doctrine did not apply here because the plaintiffs were not seeking any direct benefit under the contracts that contained the arbitration provisions. The order denying arbitration was therefore affirmed.

VSR Financial Services, Inc. v. McLendon, No. 05-12-01016