United States District Court, S.D. Texas, Houston Division
MEMORANDUM AND OPINION
Rosenthal Chief United States District Judge
Oilwell Varco sued three former employees, alleging that they
committed fraud, breach of contract, and breach of fiduciary
duties by causing NOV to enter into inflated contracts that
gave them kickbacks and handsome profits. (Docket Entry No.
97). The defendants allegedly conspired with a former
coworker, FM, who is not a party to this case. FM had an
employment contract that required any disputes with NOV to be
resolved in arbitration. The defendants did not have
contracts with NOV that contained arbitration clauses. FM
timely invoked the arbitration clause in his employment
contract and began confidential arbitration proceedings.
them, the defendants have filed motions challenging this
court's personal jurisdiction over them and seeking
dismissal or transfer under forum non conveniens. The parties
engaged in, and filed motions contesting, discovery targeted
to the threshold issues. The court found that it had
jurisdiction over the three former employees and that venue
was proper in this district. (Docket Entry No. 77).
the former employees, Majed Hamdan and Khaled Zantout, have,
with new counsel, recently decided that they are entitled to
arbitrate rather than litigate the claims NOV asserts against
them. (Docket Entry No. 109). The third former employee,
Sadeesh Sadagopan, has moved to join the motion to dismiss or
stay in favor of arbitration. (Docket Entry No. 110). His
motion to join is granted. The defendants assert that
although they are not parties to the contract between NOV and
FM that contained the arbitration clause, NOV's claims
against them are so intertwined with the claims against FM
that the doctrine of intertwined-claims equitable estoppel
entitles them to compel NOV to arbitrate. (Docket Entry No.
109 at 8-13). NOV opposes dismissal or stay in favor of
arbitration. (Docket Entry No. 111).
motion and response, the record, and the applicable law lead
the court to conclude that it, rather than an arbitrator,
must decide whether these nonsignatories can compel a
signatory to an arbitration contract that they are not
parties to; that these nonsignatories cannot use equitable
estoppel to compel NOV to arbitrate claims it did not agree
to resolve against these parties in that forum; and that the
employees' litigation conduct waived any right to invoke
arbitration they may have had. The motion to dismiss or stay
in favor of arbitration is therefore denied. (Docket Entry
No. 109). The reasons are set out below.
The Arbitration Provisions in NOV's Contract with
employment contract with FM contains several provisions
relevant to arbitration.
contract, FM and NOV:
hereby agree that any dispute, controversy, or claim arising
out of or relating to this Agreement, the employment
relationship between [FM] and [NOV] or the termination
thereof or the arbitrability of any controversy or claim,
will be finally settled by confidential and binding
arbitration . . . conducted in accordance with the
Arbitration Rules of the American Arbitration Association.
(Docket Entry No. 109. Ex. 3-A, § 10(a)).
NOV agreed to be bound by the results of the arbitration
. . . [FM] and NOV agree that this Section 10 has been
adopted by [FM] and NOV to rapidly and inexpensively resolve
any disputes between them and that this Section 10 will be
grounds for dismissal of any court action commenced by either
party arising out of or relating to this Agreement, the
employment relationship between [FM] and [NOV] or the
termination thereof or the arbitrability of any controversy
or claim, other than (i) post-arbitration actions by either
party seeking to enforce an arbitration award. . . .
Id. at § 10(b). Section 10(c) requires NOV to
pay FM for arbitration expenses if the award is in FM's
favor; and § 10(d) requires NOV and FM to keep the
details of an arbitration proceeding ...