United States District Court, District of Columbia
MEMORANDUM OPINION AND ORDER
P. Mehta, United States District Judge
Memorandum Opinion and Order sets forth the reasons for the
court's oral ruling, entered at the hearing held on
September 15, 2017, denying Defendants Cesar de Armas and
Heidi Schultz's (“Individual Defendants”)
Application for Stay Pending Arbitration
(“Motion”). See Ind. Defs.' Appl.
for Stay, ECF No. 41 [hereinafter Appl. for Stay]; Hr'g
Tr. (draft), Sept. 15, 2017. When denying that Motion, the
court also deemed Individual Defendants' Application for
Stay and any subsequent appeal to be “frivolous”
and, thus, retained jurisdiction over the case.
Defendants' Motion, filed more than ten months after this
action began, seeks to invoke an arbitration clause in the
contract underlying this litigation (the
“Contract”) and stay further proceedings in this
court pending the results of arbitration. Appl. for Stay at
3-6; see also 9 U.S.C. § 3. The court
previously denied a similar motion filed by the
organizational Defendant, Dream Catcher LLC, on the ground
that Dream Catcher had forfeited its right to arbitrate by
failing to invoke the right at the “earliest available
opportunity, ” as required under Zuckerman
Spaeder, LLP v. Auffenberg, 646 F.3d 919,
923-24 (D.C. Cir. 2011). Individual Defendants, taking a
different tack than Dream Catcher, argue that they did not
forfeit their right to arbitrate despite their ten-month
filing delay because they are not named parties to the
Contract, and thus did not have a right to invoke the
Contract's arbitration clause until the court ruled that
Plaintiff Stephen Kelleher had successfully pleaded a claim
of alter ego liability against them, thereby subjecting them
to potential liability under the Contract. See Appl.
for Stay at 4. Thus, Individual Defendants maintain, they in
fact invoked their arbitration rights at the “earliest
available opportunity” by invoking the Contract's
arbitration clause after the court made its veil-piercing
finding, thereby satisfying Zuckerman.
court concludes Individual Defendants misunderstand when the
“earliest available opportunity” to invoke the
Contract's arbitration clause arose in this matter. Like
Defendant Dream Catcher, Individual Defendants were fully
able to invoke their right to arbitration upon filing of
Plaintiff's Complaint and failed to do so. Accordingly,
Individual Defendants clearly forfeited their right to
arbitrate the claims against them. Moreover, the court finds
that any appeal of such a straightforward application of
Zuckerman would be frivolous. Thus, Individual
Defendants' Motion is denied, and the court will retain
jurisdiction over this matter.
underlying premise of Individual Defendants'
position-that their ability to invoke the Contract's
arbitration clause hinged on Plaintiff first pleading a
plausible alter-ego liability claim against them-is simply
wrong. “[A] litigant who [is] not a party to the
relevant arbitration agreement may invoke § 3 [of the
Federal Arbitration Act] if the relevant state contract law
allows him to enforce the agreement.” Arthur
Andersen LLP v. Carlisle, 556 U.S. 624, 632 (2009). The
Contract is governed by the law of the District of Columbia.
See Def. Dream Catcher's Mot. to Stay, ECF No.
21 [hereinafter Dream Catcher Mot.], Ex. 1, ECF No. 21-1
[hereinafter Contract]. Applying District of Columbia law
here, it is plain that Individual Defendants could have
invoked the Contract's arbitration clause at the time
they were named in the Complaint (1) under the theory that
they are third-party beneficiaries to the Contract, or (2)
under equitable principles of estoppel.
Individual Defendants could have invoked the Contract's
arbitration clause at the time Plaintiff filed his Complaint
because they are third-party beneficiaries of the Contract.
Although the D.C. Court of Appeals has not squarely addressed
whether arbitration agreements can be enforced by
non-signatories, it is clear under District of Columbia law
that a third party may sue to enforce contract provisions if
the contracting parties intended for the third party to
benefit directly from the contract. See Hossain v. JMU
Props., LLC, 147 A.3d 816, 820 (D.C. 2016). A third
party need not be named in the contract itself to qualify as
an intended beneficiary, but his or her identity must be
ascertainable from either the terms of the contract or the
circumstances surrounding its creation. See id. In
circumstances similar to those present here, the D.C. Court
of Appeals held, in Hossain v. JMU Properties, that
the sole owner of a closely-held business was a third-party
beneficiary of an agreement and could sue to enforce its
terms. See id. In Hossain, the defendant
was the sole owner of a tax preparation franchise, JMU Tax,
who had negotiated and signed a franchise agreement with the
plaintiff on behalf of JMU Tax. The defendant also was the
sole owner of a real estate company, JMU Properties, and, in
a transaction related to the franchise agreement, negotiated
and signed a commercial lease with the plaintiff on behalf of
JMU Properties. See id. at 818. After the plaintiff
fell behind on lease payments, the defendant, acting on
behalf of JMU Properties, changed the locks on the leased
office space, and the plaintiff sued for wrongful eviction.
Id. The defendant proceeded to countersue the
plaintiff for, among other things, breaching the franchise
agreement, and the plaintiff, in turn, moved to dismiss the
counter-claim on the ground that the defendant, in his
individual capacity, could not sue for breach of the
franchise agreement because he was not a signatory to the
agreement-JMU Tax was the “real party in interest for
claims arising under the franchise agreement.”
Id. The D.C. Court of Appeals disagreed, holding
that the defendant was a third-party beneficiary of the
franchise agreement because, as the sole owner of both JMU
Tax and JMU Properties, he “clearly stood to
benefit” from the commercial arrangements between his
businesses and the plaintiff franchisee. Id. at 820.
Further, the court explained, the defendant's
“involvement plainly [was] ascertainable from the four
corners of the contract” because he had negotiated and
signed both the franchise agreement and the related lease.
Id. at 820. Accordingly, the non-signatory defendant
could counterclaim to enforce the franchise agreement as an
ascertainable third-party beneficiary. See id.
on the allegations in the Amended Complaint, which the court
must accept as true at this stage in the litigation,
Individual Defendants are third-party beneficiaries of the
Contract. First, Individual Defendants'
“involvement was plainly ascertainable” from the
“four corners” of the Contract; after all,
Defendant De Armas signed the Contract on behalf of Dream
Catcher and was listed as its “authorized
representative.” See Contract at 1, 9. Second,
Plaintiff was clearly aware that Individual Defendants
“stood to benefit” from the Contract's
creation. According to Plaintiff's own Amended Complaint,
Individual Defendants are the sole owners of Dream Catcher,
“controlled Dream Catcher, made all material decisions
affecting Dream Catcher, and dominated the conduct of Dream
Catcher.” Am. Compl., ECF No. 13 [hereinafter Am.
Compl.], ¶ 73. Moreover, Defendant Schultz obtained a
home improvements salesperson's license on behalf of
Dream Catcher, see id. ¶ 30. Thus, much like
the defendant in Hossain, Individual Defendants
“clearly stood to benefit” from the Contract.
Hossain, 147 A.3d at 820. Accordingly, as third-
party beneficiaries to the contract between Dream Catcher and
Plaintiff, Individual Defendants were entitled to enforce the
arbitration clause contained therein at the time they were
named in the Complaint.
and in addition to their status as third-party beneficiaries
of the Contract, Individual Defendants also could have
compelled Plaintiff to arbitrate his claims under the
doctrine of estoppel. Courts in this jurisdiction have
recognized that the doctrine of estoppel permits “a
non-signatory . . . [to] compel arbitration with a signatory
when the non-signatory is seeking to resolve issues that are
intertwined with an agreement that the signatory has
signed.” Riley v. BMO Harris Bank, N.A., 61
F.Supp.3d 92, 99 (D.D.C. 2014). For example, where there
would be no claim against the non-signatory defendant but for
the contract, applying the doctrine of estoppel is
appropriate. See id. (collecting cases). That is
precisely the situation here. Plaintiff's claims against
Individual Defendants exist only because of the Contract.
Indeed, Plaintiff asserts the exact same claims, based on the
same operative set of facts, against the Individual
Defendants as he does against Dream Catcher. See Am.
Compl. ¶¶ 8-80. The only thing distinguishing
Defendant Dream Catcher from Individual Defendants is that
Plaintiff alleges that Defendant Dream Catcher is directly
liable for damages, whereas he alleges that Individual
Defendants are liable based on an alter ego theory.
Plaintiff's claims against Individual Defendants,
therefore, are plainly “intertwined” with those
against the signatory to the contract, Defendant Dream
Catcher. Thus, under the doctrine of estoppel, Individual
Defendants could have moved to compel Plaintiff to arbitrate
the claims against them at the time the Complaint was filed,
and they did not need to await a threshold determination from
this court concerning their potential liability under the
Contract before doing so.
* * *
the court finds that Individual Defendants could have
compelled Plaintiff to arbitrate his claims upon filing of
the Complaint on two separate grounds. First, as third-party
beneficiaries of the Contract, District of Columbia law
permitted Individual Defendants to invoke the Contract's
arbitration clause. See Hossain, 147 A.3d at 820.
Second, Individual Defendants could have relied on the
doctrine of estoppel to compel arbitration. See
Riley, 61 F.Supp.3d at 99. Instead of promptly moving to
compel Plaintiff to arbitrate his claims against them upon
filing of the Complaint, though, Individual Defendants waited
over ten months to do so. Even more inexplicably, Individual
Defendants allowed five months to pass after
Defendant Dream Catcher invoked the Contract's
arbitration clause before filing the present Motion.
Compare Dream Catcher Mot. (filed April 10, 2017),
with Appl. for Stay (filed August 29, 2017).
Accordingly, like Defendant Dream Catcher, Individual
Defendants failed to invoke their right to arbitrate at the
“earliest available opportunity” and, thus,
forfeited that right. See Zuckerman, 646 F.3d at
court also finds that Individual Defendants' Motion to
Stay is “frivolous.” In the D.C. Circuit,
“a non-frivolous appeal from the district court's
order [denying a motion to compel arbitration] divests the
district court of jurisdiction over those aspects of the case
on appeal.” Bombardier Corp. v. Nat'l R.R.
Passenger Corp., No. 02-7125, 2002 WL 31818924, at *1
(D.C. Cir. Dec. 12, 2002). A motion is
“frivolous” when its disposition is obvious and
the legal arguments are wholly without merit. See
Reliance Ins. Co. v. Sweeney Corp.,792 F.2d 1137, 1138
(D.C. Cir. 1986) (quoting Gattuso v. Pecorella, 733
F.2d 709, 710 (9th Cir. 1984)). Individual Defendants'
argument for their belated filing is not only predicated on a
flawed legal theory derived from plainly inapposite case law,
see supra n.2, but their Motion wholly ignored
controlling Supreme Court precedent and pertinent cases from