Plaintiffs-Appellants brought federal court action alleging breach of contract, breach of guaranty, unjust enrichment, quantum meruit, and fraudulent conveyance arising from contracts and guaranties between Plaintiffs-Appellants and various of Defendants-Appellees. The District Court for the District of Connecticut (Bryant, J.) dismissed each of Plaintiffs-Appellants' claims in favor of arbitration despite the facts: (1) that neither signatory to the relevant arbitration agreement sought arbitration; and (2) that the nonsignatory Defendants-Appellees who did move to dismiss in favor of arbitration disclaimed any interest in participating in the arbitration or any obligation on their part to do so. Plaintiffs-Appellants timely appealed.
Before: KEARSE and LIVINGSTON, Circuit Judges, and MAUSKOPF,*fn1 District Judge.
Plaintiffs-Appellants Baker & Taylor, Inc. and Baker & Taylor Fulfillment, Inc. (together, "Baker & Taylor") appeal from an August 6, 2008 decision and order of the United States District Court for the District of Connecticut (Bryant, J.) dismissing their claims against Defendants-Appellees AlphaCraze.com Corp. ("AlphaCraze"), Allan and Laura Avery ("Avery defendants"), Michael Shelton, Brandi Shelton, Miguel Jaime ("Jaime"), and Matthew Foy in favor of arbitration. The district court erred in dismissing Baker & Taylor's claims. Neither Baker & Taylor Fulfillment nor AlphaCraze, the only signatories to the arbitration agreement at issue here, sought arbitration. The nonsignatory Defendants-Appellees who did move to dismiss in favor of arbitration, moreover, disclaimed any interest in participating in the arbitration and have stated that they cannot be compelled to arbitrate the Plaintiffs-Appellants' claims. Whatever rights to arbitrate that these parties may once have asserted, such rights have now been waived. We vacate and remand for adjudication of the Plaintiffs-Appellants' claims against the Defendants other than the Sheltons.*fn2
This appeal does not require us to review the district court's decision on a dispositive motion, but rather presents the question whether the district court correctly held that Baker & Taylor's claims should be heard in an arbitral forum. "Properly considered, this question takes no account of the merits of claims asserted in the complaint." Ragone v. Atl. Video at the Manhattan Ctr., 595 F.3d 115, 118 (2d Cir. 2010). The background facts are straightforward.
AlphaCraze is an online retailer. Baker & Taylor is in the Internet "fulfillment" business in that it supplies goods and services for companies like AlphaCraze by filling these companies' customer orders for items such as books, calendars, audio products, and video games. Baker & Taylor, Inc. and AlphaCraze began their relationship as relevant to this dispute on February 1, 1999 when they entered into a Drop Ship agreement pursuant to which Baker & Taylor, Inc. filled customer orders on behalf of AlphaCraze. On July 14, 1999, AlphaCraze and Baker & Taylor, Inc. executed a Distribution Agreement that replaced the Drop Ship Agreement and contained many of the same provisions. Neither agreement contains an arbitration clause.
According to allegations in Baker & Taylor's First Amended Verified Complaint (the "Complaint"), including the attached exhibits, after execution of the Distribution Agreement, Baker & Taylor, Inc. obtained guaranties from officers, directors and affiliates of AlphaCraze to protect Baker & Taylor, Inc. "in the event that AlphaCraze did not honor its obligations." Miguel Jaime, AlphaCraze's Chief of Operations, executed a personal guaranty without a monetary cap on July 16, 1999. Allan Avery, one of AlphaCraze's directors, executed three personal guaranties on or before August 23, 2000, on May 17, 2001, and on December 5, 2001 in the amounts of $250,000, $350,000, and $600,000 respectively. Laura Avery, Allan Avery's spouse, was also a signatory on the December 5, 2001 Avery guaranty. The Avery guaranties, made in favor of Baker & Taylor, Inc., provide that they are given in consideration of that corporation's extension of credit to AlphaCraze and each guarantor "unconditionally and absolutely guarantee[s]" AlphaCraze's punctual payment of obligations "now or hereafter incurred." Each guaranty states that it represents "an absolute, present and continuing guaranty of payment . . . and is in no way conditioned or contingent upon an attempt to collect from [AlphaCraze]." The Jaime guaranty is similar, and states that Jaime "personally guarantees the payment [by AlphaCraze] to Baker & Taylor, Inc. . . . of all amounts due and owning now, and from time to time hereafter from [AlphaCraze] to Baker & Taylor[, Inc.]." None of these various guaranties includes an arbitration provision.
The Complaint alleges that Baker & Taylor, Inc. established a wholly-owned subsidiary, Baker & Taylor Fulfillment, in 2002, partly for the purpose of affording "lawful sales tax advantages to customers such as AlphaCraze."
Baker and Taylor, Inc. next allegedly assigned "[a]ll prior Agreements between AlphaCraze and Baker & Taylor, Inc." to Baker & Taylor Fulfillment. On September 22, 2004, Baker & Taylor Fulfillment and AlphaCraze executed the Fulfillment Agreement pursuant to which Baker & Taylor, Inc.thereafter provided goods and services to fulfill AlphaCraze's online transactions, but provided those goods and services through its subsidiary, Baker & Taylor Fulfillment.
The Fulfillment Agreement contains terms and conditions governing the relationship between Baker & Taylor Fulfillment and AlphaCraze. Relevant to this dispute, the Fulfillment Agreement contains an arbitration provision stating, in relevant part, as follows:
The parties agree to submit to mediation in Charlotte, North Carolina any dispute, controversy or claim arising out of this Agreement or the matters provided for in this Agreement and which has not been resolved by the parties through an informal process within fifteen (15) days after either party notifies the other that a matter is in dispute. If the matter is not resolved through mediation, within 45 days thereafter the parties will submit the matter for arbitration and ...