The Second Circuit recently affirmed the denial of motions to compel arbitration filed by, inter alia, the Trump Corp. and a nonparty from whom the plaintiffs sought discovery.
Several anonymous plaintiffs filed a putative class action against the Trump Corp., former President Donald J. Trump, and members of his family asserting federal and state claims alleging that the defendants had fraudulently induced them to enter into business relationships with nonparty ACN Opportunity LLC. More specifically, the plaintiffs claimed that the defendants publicly represented that they were independent of ACN when they were actually allegedly accepting large payments from ACN. When the plaintiffs entered their business relationships with ACN, they signed arbitration agreements agreeing to arbitrate disputes.
When the plaintiffs filed suit, the defendants moved to dismiss the plaintiffs’ complaint and then the plaintiffs’ amended complaint. The defendants also filed a motion to compel arbitration pursuant to the arbitration clauses in the agreements between the plaintiffs and ACN.
The plaintiffs subsequently served ACN with a subpoena seeking various documents. In response, ACN objected and sought to compel arbitration of the discovery dispute.
The district court denied the motions to compel arbitration by the defendants and ACN, both of whom then appealed to the Second Circuit Court of Appeals.
The Second Circuit affirmed the denial of the motions to compel arbitration.
On appeal, the defendants primarily argued that arbitrability should have been decided by the arbitrator, not the district court, and that they were entitled to compel arbitration under equitable estoppel principles. ACN meanwhile principally argued that the district court had erred when the court concluded that it lacked jurisdiction to entertain ACN’s motion to compel.
With respect to the defendants, the Second Circuit first concluded that the defendants “did not adequately raise before the district court their argument that, under Contec [Corp. v. Remote Solution Co., 398 F.3d 205 (2d Cir. 2005)], the issue of arbitrability was for the arbitrator to determine or, more broadly, that the questions of equitable estoppel and waiver should have been determined by an arbitrator.” The Second Circuit noted that the defendants had asked the district court to resolve those questions and had only included a “casual citation,” “without further explanation or argument” on this issue.
On the merits, the Second Circuit held that the defendants were not entitled to compel arbitration under principles of equitable estoppel. To invoke equitable estoppel, the court explained that “there must be a close relationship among the signatories and non-signatories such that it can reasonably be inferred that the signatories had knowledge of, and consented to, the extension of their agreement to arbitrate to the non-signatories.” That standard was not met here. “There was no corporate relationship between the defendants and ACN of which the plaintiffs had knowledge, the defendants [did] not own or control ACN, and the defendants [were] not named in the  agreements between ACN and the plaintiffs.” Indeed, the plaintiffs had alleged that the defendants had concealed their relationship with ACN and held themselves out as independent.
Turning to ACN’s motion, the court explained that there was “no actual case or controversy between the plaintiffs and ACN . . . and therefore no subject-matter jurisdiction.” The only “controversy” was a discovery dispute, which was insufficient to compel arbitration.
The Second Circuit also rejected ACN’s alternative argument that it was entitled to invoke arbitration under principles of equitable estoppel, explaining that ACN had not properly raised that argument before the district court and that ACN had therefore forfeited it.
Doe v. Trump Corp., Nos. 20-1228 & 20-1278 (2d Cir. July 28, 2021).