Al Rushaid v. National Oilwell Varco, Inc., No. 15-20260 (5th Cir. Feb. 17, 2016)
The relationship between the parties in this case was that of buyer and seller, as set forth in a series of contracts (price quotations and corresponding purchase orders) between certain plaintiffs and defendants. Plaintiffs asserted breaches of these contracts and also alleged that Defendants bribed key employees of plaintiff Al Rushaid Parker Drilling, Ltd. (“ARPD”).
The first time this case came before the court, the Fifth Circuit held that defendant National Oilwell Varco Norway (“NOV Norway”) had a contractual right to arbitration before the International Chamber of Commerce (“ICC”) based on an arbitration clause in a price quotation issued by NOV Norway to plaintiff ARPD.
On remand, the remaining defendants, who, with the exception of National Oilwell Varco LP (“NOV LP”), did not have arbitration clauses in their own contracts with Plaintiffs, sought to compel arbitration under either the NOV Norway or NOV LP arbitration clauses. Defendants each argued an entitlement to arbitration under the NOV Norway arbitration clause based on equitable estoppel. In the alternative, NOV LP asserted a contractual right to arbitration under the arbitration clause in its own contract.
The lower court rejected all of the equitable estoppel arguments, but held that NOV LP was contractually entitled to compel arbitration of Plaintiffs’ claims under its own arbitration clause. Because the NOV LP arbitration clause did not specify a forum, the district court ordered that arbitration occur within the Southern District of Texas.
NOV LP was thus successful on its motion to compel arbitration under its own contract, but unsuccessful in compelling arbitration under the NOV Norway contract. Because it preferred to avoid having two different arbitrations, it appealed the part of the decision that denied its motion to compel under the NOV Norway contract. The other defendants appealed as well.
On appeal, the Fifth Circuit held that it had appellate jurisdiction to review the order denying Defendants’ motion to compel arbitration, but that it did not have jurisdiction to review interlocutory orders compelling arbitration. The Fifth Circuit thus rejected NOV LP’s argument that the court should exercise jurisdiction to review the lower court’s denial of its motion to compel arbitration under the NOV Norway arbitration clause.
The court acknowledged that the lower court’s ruling would lead to fragmented arbitration (with claims against NOV Norway arbitrated under the NOV Norway arbitration clause before the ICC and claims against NOV LP arbitrated pursuant to the NOV LP arbitration clause within the Southern District of Texas) but held, consistent with all other circuits that have considered the issue, that section 16 of the Federal Arbitration Act (the “FAA”) forbids appellate review unless the court rules that the parties must settle their dispute outside of arbitration. Here, NOV LP’s case was going to be determined in arbitration. The fact that it was not the arbitration forum preferred by NOV LP was not a basis for appellate jurisdiction. The court also held that it could not exercise jurisdiction under the collateral order doctrine. The court further declined to exercise pendent appellate jurisdiction over NOV LP’s appeal.
Turning to the denial of the other defendants’ motions to compel arbitration, the court held that, under the FAA, state law may allow an arbitration contract to be enforced by or against nonparties through equitable estoppel or other state law contract theories. Looking to Texas law, the Fifth Circuit found that Texas law allows nonparties to be bound to a contract under traditional contract rules such as agency or alter ego, but did not support compelling arbitration based on a “concerted misconduct” theory. The court thus rejected Defendants’ estoppel arguments under the concerted misconduct theory.
The court found that Texas law supported a “direct benefits theory,” under which estoppel applies when nonsignatories seek a direct benefit from a contract containing an arbitration clause. The claim here was that Plaintiffs’ employees were corrupted by Defendants and accepted bribes and kickbacks in exchange for overprices, contracts and payment of inflated invoices. Thus, although the action related to contracts that included arbitration clauses, Plaintiffs were not seeking to enforce those contracts against the nonsignatory defendants. Since Plaintiffs were not seeking the direct benefits of the contract, the “direct benefits” theory did not apply.