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United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
____________ FILED
March 11, 2025
No. 23-20140 Lyle W. Cayce
____________ Clerk
Scott Sullivan; Frank Dellacroce; St. Charles
Surgical Hospital, L.L.C.; St. Charles Holdings, L.L.C.;
Center for Breast Restorative Surgery, L.L.C.; Sigma
Delta Billing, L.L.C.; Cerberus Insurance Corporation;
Janus Insurance Corporation; Orion Insurance
Corporation,
Plaintiffs—Appellees,
versus
Stewart A. Feldman; The Feldman Law Firm, L.L.P.;
Capstone Associated Services (Wyoming), Limited
Partnership; Capstone Associated Services, Limited;
Capstone Insurance Management, Limited; Jeff
Carlson,
Defendants—Appellants,
______________________________
Scott Sullivan; Frank Dellacroce; St. Charles
Surgical Hospital, L.L.C.; St. Charles Holdings, L.L.C.;
Center for Breast Restorative Surgery, L.L.C.; Sigma
Delta Billing, L.L.C.; Cerberus Insurance Corporation;
Janus Insurance Corporation; Orion Insurance
Corporation,
Defendants—Appellees,
versus
Case: 23-20140 Document: 271-1 Page: 2 Date Filed: 03/11/2025
Stewart A. Feldman; The Feldman Law Firm, L.L.P.;
Capstone Associated Services (Wyoming), Limited
Partnership; Capstone Associated Services, Limited;
Capstone Insurance Management, Limited; Jeff
Carlson,
Plaintiffs—Appellants,
______________________________
Scott Sullivan; Frank Dellacroce; St. Charles
Surgical Hospital, L.L.C.; St. Charles Holdings, L.L.C.;
Center for Breast Restorative Surgery, L.L.C.; Sigma
Delta Billing, L.L.C.; Cerberus Insurance Corporation;
Janus Insurance Corporation; Orion Insurance
Corporation,
Plaintiffs—Appellees,
versus
Stewart A. Feldman; The Feldman Law Firm, L.L.P.;
Capstone Associated Services (Wyoming), Limited
Partnership; Capstone Associated Services, Limited;
Capstone Insurance Management, Limited; Jeff
Carlson,
Defendants—Appellants.
______________________________
Appeal from the United States District Court
for the Southern District of Texas
USDC Nos. 4:20-CV-2236, 4:21-CV-658,
4:21-CV-682
______________________________
Before Jones, Smith, and Ho, Circuit Judges.
Edith H. Jones, Circuit Judge:
On appeal is a district court’s judgment confirming four arbitration
awards resulting from four arbitrations between the same parties. The
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awards, however, contradict one another, and each confirmed award reflects
a different amount owed by Defendants-Appellants to the Appellees. We
AFFIRM in part, REVERSE in part, VACATE in part, and REMAND.
To be clear, we AFFIRM the Glasser, Baker, and Kutcher arbitration
awards because no grounds exist under the Federal Arbitration Act to vacate
them. We AFFIRM in part the Jones arbitration award but REVERSE in
part insofar as the Jones award pertains to defendant Jeff Carlson, because
Carlson did not sign the arbitration agreement and was not otherwise bound
by it. We VACATE and REMAND the district court’s March 22, 2021,
order staying further arbitrations between the parties so that the
inconsistency among the awards can be arbitrated.
BACKGROUND
I. Underlying Facts
Doctors Scott Sullivan and Frank DellaCroce are surgeons at the
Center for Restorative Breast Surgery in New Orleans, Louisiana. The
Doctors own several business entities (the “Doctor Entities”), including
Cerberus Insurance Corp., Janus Insurance Corp., and Orion Insurance
Corp. (the “Captive Insurers”), as well as St. Charles Surgical Hospital,
L.L.C., St. Charles Holdings, L.L.C., Center for Breast Restorative Surgery,
L.L.C., and Sigma Delta Billing, L.L.C. Seeking to pool their risks through
certain insurance arrangements, the Doctors entered a turnkey agreement
with Stewart Feldman and the Feldman Law Firm, LLP (the “Feldman
Parties”), by way of an Engagement Letter dated October 22, 2015. Attached
to that Engagement Letter is a “Capstone Services Agreement.” Allegedly
at the direction of Feldman, who also signed the Capstone Services
Agreement, the Doctors contracted with Capstone Associated Services
(Wyoming), LP, Capstone Associated Services, Ltd., and Capstone
Insurance Management, Ltd. (the “Capstone Parties”).
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The Doctors allege that Feldman encouraged them to form the
Captive Insurers and have them participate in “third party insurance and
reinsurance through PoolRe.” The Engagement Letter describes PoolRe as
a “risk pooling arrangement involving sets of generally similar policies
covering generally similar risks of closely held businesses, wherein each
[Captive Insurer] assumes reinsurance on policies covering other clients of
Capstone.” The Doctors claim that Feldman did not disclose that he used
the insurance pool to underwrite malpractice and breach of fiduciary duty
claims against Feldman himself and Capstone. The Doctors further allege
that, although the Engagement Letter entitled them to demand that Feldman
and Capstone wind down the Captive Insurers at any time, Feldman and
Capstone failed to do so even after several requests by the Doctors. They
made these requests after learning of a United States Tax Court judgment
holding “that PoolRe was not a bona fide insurance company.” See Rsrv.
Mech. Corp. v. Comm’r, 115 T.C.M. (CCH) 1475 (T.C. 2018), aff’d
34 F.4th
881 (10th Cir. 2022).
II. The Arbitration Provision
The Engagement Letter contains an extensive arbitration provision.
The Engagement Letter provides:
[E]ither party may submit the dispute to any recognized,
neutral . . . arbitrator for final resolution in an arbitration
proceeding to be concluded within four months, except that the
American Arbitration Association (AAA) shall not administer
the arbitration. Submission of the dispute under this
agreement shall be the sole and exclusive forum for resolving
any and all disputes between the parties, except for attorneys’
fees for services previously rendered.
The Engagement Letter requires that all arbitrations be conducted pursuant
to Texas Law and the Rules of the American Arbitration Association
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(“AAA”), “with only a single arbitrator hearing the dispute.” It further
states that the arbitrator “shall have the sole and exclusive ability to rule on
all aspects of the arbitrator’s appointment.” And it provides that the
“arbitration provision shall be effective notwithstanding any actions that may
later take place.”
The Engagement Letter then discusses the issue of arbitrability:
The parties agree that the issue of arbitrability shall likewise be
decided by the arbitrator, and not by any other person. That is,
the question of whether a dispute itself is arbitrable shall be
decided solely by the arbitrator and not, for example, by any
court. The parties agree that the arbitrator has exclusive
authority to resolve all disputes and challenges to the
enforceability of the parties’ agreements as a whole. The
parties agree that their intent is to divest the courts of all
powers in disputes involving the parties, except to compel
arbitration, and to confirm, vacate or enforce award.
And, finally, the Engagement Letter provides, if the four-month timeline to
complete an arbitration is not met, “any party then may file another written
demand for arbitration of the dispute with another” arbitrator, “with the
prior arbitrator . . . then being immediately divested of jurisdiction,” and the
four-month timeline starting afresh for the new arbitration. The Capstone
Services Agreement incorporates these provisions of the Engagement Letter.
III. Bleak House
The numerous arbitrations that followed led the district court to call
this case “the Bleak House of arbitration.” Sullivan v. Feldman (Dist. Ct.
Op.), H-20-2236, 2022 WL 17822451, at *4 (S.D. Tex. Dec. 20, 2022). In
May 2020, the Feldman and Capstone Parties initiated arbitration before
former state District Judge Grant Dorfman, who is now a judge of the Texas
Business Court. That arbitration only concerned the winding up of the
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Captive Insurers. The Doctors and the Doctor Entities (collectively, “the
Doctors”) then initiated arbitration in New Orleans before retired United
States District Judge Stanwood Duval. And in July 2020, the Feldman and
Capstone Parties initiated another arbitration before former Texas state
District Judge Caroline Baker. The parties filed motions in federal court to
compel their respectively initiated arbitrations. In August 2020, the district
court granted the Feldman and Capstone motions to compel the Dorfman1
and Baker arbitrations and, until their resolution, it stayed the Duval
arbitration. Sullivan v. Feldman, H-20-2236, 2020 WL 4734982 (S.D. Tex.
Aug. 14, 2020). The Doctors appealed but voluntarily withdrew their appeal
in February 2021.
In late July 2020, the Doctors initiated another arbitration before
arbitrator Robert Kutcher, another in August 2020 before former Orleans
Parish, Louisiana, Civil District Court Judge Lloyd Medley, and yet another
in November 2020 before former Orleans Parish Civil District Court Judge
Carolyn Gill-Jefferson.
In November 2020, the Feldman and Capstone parties moved to stay
the Kutcher, Medley, and Gill-Jefferson arbitrations. Sullivan v. Feldman, H-
20-2236, 2020 WL 7129879, at *10–11 (S.D. Tex. Dec. 4, 2020). The district
court denied the motion to stay, reasoning that nothing in the Engagement
Letter prohibited simultaneous arbitrations and that inefficiency concerns
were not within the court’s purview but were instead for the arbitrators to
resolve.
Id. at *9–10.
In December 2020, the Feldman and Capstone Parties initiated
arbitration before arbitrator Mark Glasser and the Doctors initiated
_____________________
1
The Dorfman arbitration ended with an award, albeit after the four-month
deadline, and that award is no longer challenged.
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arbitration before former Louisiana Fourth Circuit Court of Appeal Judge
Charles Jones. The Feldman and Capstone Parties also initiated an
arbitration before arbitrator James Doyle, although the record does not make
clear precisely when that occurred.
Then, in March 2021, the district court enjoined the Feldman and
Capstone Parties “from initiating yet more state, federal, or arbitration
proceedings involving the same parties, underlying contract, or the same or
related disputes.” Sullivan v. Feldman, No. 4:20-cv-02236 (S.D. Tex. Mar.
22, 2021) (order consolidating cases and enjoining further arbitrations).
In August 2021, Baker, Kutcher, Jones, and Glasser together presided
over a single evidentiary hearing, where the same evidence and witnesses
were presented. The hearing took place at a five-star resort, resulting in room
fees in excess of $300,000. At various points during the hearing, the
arbitrators issued conflicting evidentiary rulings. And on the hotly disputed
subject of class arbitrability, Judge Jones and Arbitrator Glasser disagreed
with each other vocally from the bench.
IV. Final Four Awards
Only the four arbitrators who presided over the shared evidentiary
hearing issued final awards. The district court summarized:
Judge Duval has stayed the arbitration proceedings before him.
Judge Medley determined that his jurisdiction had expired.
Judge Gill-Jefferson declined her appointment. And the
Feldman and Capstone Parties voluntarily dismissed the
arbitration they initiated before Mr. Doyle. The remaining four
arbitrators (Judge Baker, Mr. Kutcher, Mr. Glasser, and Judge
Jones) issued the awards that are disputed here. All four
arbitrators issued final awards in favor of the Doctors . . .
finding that Feldman and his related entities breached their
fiduciary duties, committed malpractices, and converted funds
belonging to the Doctors.
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Dist. Ct. Op., 2022 WL 17822451, at *5. All four awards were issued after the
contractual four-month deadline to complete arbitration had expired. In a
joint order, the arbitrators all agreed that the deadline was unenforceable as
unconscionable and inconsistent with due process. But the amounts awarded
by each arbitrator differed:
Arbitrator Merits Fees & Costs Total Award
Baker $1,471,949.21 $126,383.75 $1,598,332.96
Kutcher $4,415,847.63 $143,703.07 $4,559,550.70
Glasser $1,471.949.21 $0.00 $1,471.949.21
Jones $70,336,224.60 $18,348,294.60 $88,684,519.20†
Id. at *6. Each award bears 5 percent pre- and post-judgment interest.
Besides differing in amounts awarded, the arbitrators’ decisions do
not agree on other significant issues. Judge Jones permitted class arbitration,2
_____________________
This amount includes $17,319.32 in unpaid sanctions.
†
This amount does not include the $31,090,964.45 in class damages that Judge
Jones granted in a second award issued on November 1, 2022, nor does it include the
additional fees and costs Jones awarded in the second award. The district court explicitly
“left the claims for damages of Class Members still outstanding” until after this court’s
judgment on appeal. Sullivan v. Feldman, H-20-2236, 2023 WL 2392746, at *1 (S.D. Tex.
Mar. 7, 2023); Sullivan v. Feldman, H-20-2236,
2023 WL 2391009, at *2 (S.D. Tex. Mar.
7, 2023). Accordingly, the Jones arbitration’s class damages award is not before this court
in this appeal.
2
Judge Jones adopted Judge Medley’s order certifying the class after Judge Medley
withdrew pursuant to the four-month provision. Judge Jones questionably used “opt-out
notices” to handle the certification of the class, even though “where absent class members
have not been required to opt in, it is difficult to see how an arbitrator’s decision to conduct
class proceedings could bind absent class members who have not authorized the arbitrator
to decide on a classwide basis which arbitration procedures are to be used.” Oxford Health
Plans LLC v. Sutter, 569 U.S. 564, 574–75,
133 S. Ct. 2064, 2071–72 (2013) (Alito, J.,
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but arbitrator Glasser, the only other arbitrator to consider that issue,
concluded that the Engagement Letter did not permit class arbitration.3 The
Jones arbitration held liable defendant Jeff Carlson, who became President of
Capstone Associated Services, Ltd., after the Engagement Letter was signed
by the parties. But the Baker, Kutcher, and Glasser arbitrations all dismissed
individual claims against Carlson.
Before the district court, the parties filed several cross-motions to
vacate and confirm the respective awards. The district court confirmed all
four awards. The Feldman Parties, the Capstone Parties, and Carlson moved
for “clarification,” which the district court characterized as a motion to
reconsider and denied. Sullivan v. Feldman, H-20-2236, 2023 WL 2391009
(S.D. Tex. Mar. 7, 2023). The district court then entered a Partial Final
Judgment embodying all four awards in their riotously varying glory. Sullivan
_____________________
concurring). Judge Jones’s approach was also in tension with required federal court
practices, which protect the constitutional due process rights of defendants. A class can
only be certified in federal court when, inter alia, “there are questions of law or fact
common to the class.” Fed. R. Civ. P. 23(a)(2). Then, in cases like this one, the
prospective class must show that “questions of law or fact common to class members
predominate over any questions affecting only individual members.” Fed. R. Civ. P.
23(b)(3). A prospective multi-state class bears the burden of refuting that “the variations
in the laws of the states . . . ‘may swamp any common issues and defeat predominance.’”
Spence v. Glock, Ges.m.b.H., 227 F.3d 308, 311 (5th Cir. 2000) (quoting Castano v. Am.
Tobacco Co.,
84 F.3d 734, 741 (5th Cir. 1996)). Accordingly, if this controversy had been
litigated in federal court, the class needed to provide “‘an extensive analysis of state law
variations’ so that the district court could ‘consider how those variations affect[ed]
predominance.’” Elson v. Black,
56 F.4th 1002, 1006–07 (5th Cir. 2023) (quoting Cole v.
Gen. Motors Corp.,
484 F.3d 717, 724 (5th Cir. 2007)). Not so in Judge Jones’s arbitration.
In stark contrast, Judge Medley’s order certifying the class, which was adopted by Judge
Jones, was a mere eight pages, including his analysis of whether the agreement even allowed
class arbitration, and with only two conclusory paragraphs addressing predominance.
3
In June 2021, before issuing an award, Judge Jones ordered another arbitration to
resolve the conflict between him and Arbitrator Glasser on the subject of class arbitrability.
No such arbitration took place.
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v. Feldman (Partial Final Judgment), H-20-2236, 2023 WL 2392746 (S.D.
Tex. Mar. 7, 2023). The district court also entered judgment against Carlson
jointly and severally with other defendants based on the Jones award, which
amounted at that date to $94,542,659.80, with daily accruing post-judgment
interest of nearly $13,000.
The district court certified the Partial Final Judgment pursuant to
Federal Rule of Civil Procedure 54(b). This court has appellate jurisdiction.
The district court retained jurisdiction separately to confirm and enforce the
class damages award that resulted from the Jones arbitration. The Feldman
and Capstone Parties and Carlson appealed.
V. Post-Appeal Attempt to Initiate a Tenth Arbitration
In July 2023, after filing their appeal, the Feldman and Capstone
Parties initiated another arbitration before arbitrator Jay Madrid. They
argued that another arbitration could resolve the conflicting confirmed
awards because the district court stated that the “arbitrators are authorized
to determine whether and when earlier decisions or awards have preclusive
effects.” Dist. Ct. Op., 2022 WL 17822451, at *16. The Doctors promptly
requested the district court to enforce its earlier injunction barring further
arbitration and to issue another injunction prohibiting any further activity in
the post-judgment arbitration. See Sullivan v. Feldman, No. 4:20-cv-02236
(S.D. Tex. Mar. 22, 2021) (order consolidating cases and enjoining further
arbitrations). Following an emergency hearing on the motion on July 20,
2023, the court maintained that there were to be no further attempts to
arbitrate until a decision from the court. The court further suggested that it
would be best to prevent any further arbitration until a decision issued from
this court. After additional briefing, on November 30, 2023, the district court
formally took the parties’ respective motions under advisement. Thus far,
the parties’ cross-motions are unresolved.
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STANDARD OF REVIEW
“Appellate review of an order confirming an arbitration award
proceeds de novo, using the same standards that apply to the district court.”
21st Fin. Servs., L.L.C. v. Manchester Fin. Bank, 747 F.3d 331, 335 (5th Cir.
2014) (quoting Brown v. Witco Corp.,
340 F.3d 209, 216 (5th Cir. 2003)).
DISCUSSION
On appeal, the Feldman and Capstone Parties levy numerous
challenges against the district court’s judgment.4 First, they dispute whether
the Engagement Letter delegated to the arbitrators the right to decide
whether the Engagement Letter permitted class arbitration. Second, they
contend that the district court erred in permitting multiple arbitrations to
proceed simultaneously. Third, they argue that the district court erred in
confirming multiple, inconsistent arbitration awards. Finally, they assert that
the district court erred in confirming an arbitration award against Carlson
individually.
We first address the questions of class arbitrability, the four-month
deadline, and whether simultaneous arbitrations were permissible. These
issues all turn on the interplay between federal courts’ scope of review and
arbitrators’ delegated authority under arbitration contracts. Here, the
_____________________
4
One is the mistaken assertion that this case lacks diversity jurisdiction. “A federal
court may entertain an action brought under the [Federal Arbitration Act (“FAA”)] only
if the action has an independent jurisdictional basis.” Badgerow v. Walters, 596 U.S. 1, 8,
142 S. Ct. 1310, 1316 (2022) (quotation marks and citations omitted). Badgerow holds that,
when dealing with sections 9 and 10 of the FAA, courts cannot “look through . . . to the
underlying substantive dispute” to find jurisdiction, but instead must apply “the usual
jurisdictional rules” to the “face of the FAA application itself.”
Id. at 15–17, 142 S. Ct. at
1320–21. Here, diversity of citizenship is complete because the Doctors and Captive
Insurers are all citizens of Louisiana or Delaware while none of the Feldman or Capstone
Parties are. The amount in controversy requirement is satisfied. Federal courts have
jurisdiction.
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appropriate deferential standards compel us to reject all three of these
challenges. Next, we examine the district court’s judgment that purports to
confirm all four awards, while entering an amount that reflects the single
highest award. We conclude that the district court misapplied a years-old
stay order in an overbroad manner to prevent the parties from arbitrating the
remaining two awards’ irreconcilability. Finally, we agree with Carlson’s
objections to the district court’s confirmation of the Jones award and vacate
the judgment against him.
I. Class Arbitrability, the Four-Month Deadline, and Simultaneous
Overlapping Arbitrations
The Feldman and Capstone Parties contend that the Engagement
Letter did not authorize Judge Jones to proceed with class arbitration; the
arbitrators could not conclude that the four-month time limit to complete the
arbitrations was unconscionable; and the arbitrations could not proceed
simultaneously to adjudicate the same controversies. These issues depend
on the interplay between federal courts’ review of agreements to arbitrate
under the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1–16, and the scope
of authority committed to arbitrators. Overarching this discussion is the
express intent stated in the Engagement Letter (drafted by Feldman) “to
divest the courts of all powers in disputes involving the parties, except to
compel arbitration and confirm, vacate or enforce the award.”
“Under the Federal Arbitration Act, parties to a contract may agree
that an arbitrator rather than a court will resolve disputes arising out of the
contract.” Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63, 65,
139 S. Ct. 524, 527 (2019). On issues that “grow out of the dispute and bear
on its final disposition,” courts “will sustain an arbitration award as long as
the arbitrator’s decision ‘draws its essence’ from the contract—even if we
disagree with the arbitrator’s interpretation of the contract.” John Wiley &
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Sons, Inc. v. Livingston, 376 U.S. 543, 557,
84 S. Ct. 909, 918 (1964) (first
quote); Timegate Studios, Inc. v. Southpeak Interactive, L.L.C.,
713 F.3d 797,
802 (5th Cir. 2013) (quoting Executone Info. Sys., Inc. v. Davis,
26 F.3d 1314,
1320 (5th Cir. 1994)) (second quote). In those cases, “the sole question for
us is whether the arbitrator (even arguably) interpreted the parties’ contract,
not whether he got its meaning right or wrong.” Oxford Health Plans LLC v.
Sutter,
569 U.S. 564, 569,
133 S. Ct. 2064, 2067 (2013).
In addition, the Supreme Court has “held that parties may agree to
have an arbitrator decide not only the merits of a particular dispute but also
‘gateway questions of arbitrability, such as whether the parties have agreed
to arbitrate or whether their agreement covers a particular controversy.’”
Henry Schein, 586 U.S. at 67–68, 138 S. Ct. at 529 (quoting Rent-A-
Center, W., Inc. v. Jackson, 561 U.S. 63, 68–69,
130 S. Ct. 2772, 2777 (2010)).
But “[c]ourts should not assume that the parties agreed to arbitrate
arbitrability unless there is clear and unmistakable evidence that they did so.”
First Options of Chicago, Inc. v. Kaplan,
514 U.S. 938, 944,
115 S. Ct. 1920,
1924 (1995) (quotations and alterations omitted). “[A]ny doubts concerning
the scope of arbitrable issues should be resolved in favor of arbitration.”
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24–25,
103
S. Ct. 927, 941 (1983); see also Timegate Studios,
713 F.3d at 802. But once a
court finds that the parties did agree to arbitrate questions of arbitrability, the
arbitrator’s answers to those questions are reviewed under the deferential
FAA standard and will be affirmed if “the arbitrator (even arguably)
interpreted the parties’ contract.” Oxford Health Plans,
569 U.S. at 569,
133
S. Ct. at 2067.
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A. The Engagement Letter Left Class Arbitrability to the Arbitrator.
1.
Whether an arbitration agreement permits class-action-style claims to
be arbitrated requires additional background. The foundational principle is
that “courts may not . . . reshape traditional individualized arbitration by
mandating classwide arbitration procedures without the parties’ consent.”
Epic Sys. Corp. v. Lewis, 584 U.S. 497, 509,
138 S. Ct. 1612, 1623 (2018).
Accordingly, “a party may not be compelled under the FAA to submit to
class arbitration unless there is a contractual basis for concluding that the
party agreed to do so.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,
559 U.S.
662, 684,
130 S. Ct. 1758, 1775 (2010). Because of “the differences between
bilateral and class-action arbitration,” it cannot be “that the parties’ mere
silence on the issue of class-action arbitration constitutes consent to resolve
their disputes in class proceedings.”
Id. at 687,
130 S. Ct. at 1776. Moreover,
as the Supreme Court explained recently, “[l]ike silence, ambiguity does not
provide a sufficient basis to conclude that parties to an arbitration agreement
agreed to” class arbitration. Lamps Plus, Inc. v. Varela,
587 U.S. 176, 185–86,
139 S. Ct. 1407, 1416–17 (2019).
In light of Lamps Plus, this court concluded that class arbitrability is a
gateway issue that courts leave to arbitrators only when the agreement
evinces that the parties “clearly and unmistakably” intended that result.
20/20 Commc’ns, Inc. v. Crawford, 930 F.3d 715, 718–19 (5th Cir. 2019).
Neither silence nor ambiguity satisfies that standard. Id.; see also Stolt-Nielsen,
559 U.S. at 684,
130 S. Ct. at 1775; Lamps Plus, 587 U.S. at 185–86,
139 S. Ct. at 1416–17. However, as with other gateway questions, when a
court determines that the delegation of class arbitrability to the arbitrator was
clear and unmistakable, then the arbitrator’s determination as to whether to
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certify a class is reviewed deferentially pursuant to the FAA. Oxford Health
Plans, 569 U.S. at 573, 133 S. Ct. at 2070–71.
2.
Based on this court’s application of the above authorities, we are
reluctantly bound to conclude that the Engagement Letter’s mere
incorporation of the AAA Commercial Arbitration Rules constitutes
sufficiently clear and unmistakable evidence that the parties intended to
delegate class-wide arbitrability to the arbitrator.
When an arbitration agreement “explicitly refers to the AAA rules,
those rules become ‘incorporated’ into the agreement between the parties.”
Commc’ns Workers of Am., AFL-CIO v. Sw. Bell Tel. Co., 953 F.3d 822, 827
(5th Cir. 2020) (quoting Petrofac, Inc. v. DynMcDermott Petroleum Operations
Co.,
687 F.3d 671, 675 (5th Cir. 2012)). And an “agreement to the AAA’s
Commercial Rules also constitutes consent to the Supplementary Rules.”
Reed v. Fla. Metro. Univ., Inc.,
681 F.3d 630, 635 (5th Cir. 2012), abrogated on
other grounds by Oxford Health Plans,
569 U.S. at 568,
133 S. Ct. at 2068. One
of the Supplementary Rules provides that “the arbitrator shall determine as
a threshold matter . . . whether the applicable arbitration clause permits the
arbitration to proceed on behalf of or against a class.”
This court recently held that an arbitration agreement’s incorporation
of a generic rule can be sufficiently clear and unmistakable under 20/20
Communications to delegate class arbitrability inquiries to the arbitrator. See
Work v. Intertek Res. Sols., Inc., 102 F.4th 769 (5th Cir. 2024). In Work, this
court considered an incorporated JAMS rule providing that “[j]urisdictional
and arbitrability disputes, including disputes over the . . . interpretation or
scope of the agreement under which Arbitration is sought, and who are
proper Parties to the Arbitration, shall be submitted to and ruled on by the
Arbitrator.” Id. at 772. Language in the JAMS Employment Rules that
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broadly referenced the arbitrator’s duties was thus held sufficient to commit
the arbitration of a collective action, an employment claim similar to a class
action, to the arbitrator. In contrast with the generic language in Work, the
AAA Supplemental Rule incorporated here specifically delegates the
question of class arbitrability. Therefore, because the AAA Supplemental
Rule is clearer than that found in Work to satisfy 20/20 Communications, we
must hold that the Engagement Letter unambiguously5 delegated the
question of class-wide arbitrability to the arbitrators and authorized Judge
Jones to resolve that question. Because Judge Jones allowed class arbitration
to go forward based on his interpretation of the Engagement Letter, although
Glasser’s refusal to permit class-wide arbitration was equally permissible,
this court will not upset Jones’s conclusion. See Sun Coast Res., Inc. v.
Conrad, 956 F.3d 335, 337–38 (5th Cir. 2020).
_____________________
5
The Feldman and Capstone Parties attempt to engineer ambiguity by citing to
other agreements among some of the parties that contain provisions barring class
arbitration. Texas contract law maintains that “separate instruments or contracts executed
at the same time, for the same purpose, and in the course of the same transaction are to be
considered as one instrument, and are to be read and construed together” even if the
agreements do not have all the same signatories. But that “does not mean that all are bodily
consolidated into one instrument so that every provision in one instrument thereby
becomes a part of every other instrument.” Jones v. Kelley, 614 S.W.2d 95, 98 (Tex. 1981)
(first quote); Lawrence v. United States,
378 F.2d 452, 461 (5th Cir. 1967) (second quote).
The parties’ later agreements cannot be read together with the Engagement Letter for at
least three reasons. First, they were executed years after the Engagement Letter. Second,
their purposes differed. Speedemissions, Inc. v. Bear Gate, L.P.,
404 S.W.3d 34, 44–46 (Tex.
App.—Houston [1st Dist.] 2013); Amerisource Funding, Inc. v. GrandSouth Bank, No. 4:15–
CV–03569,
2017 WL 4479190, at *5–6 (S.D. Tex. 2017). Third, the Engagement Letter
and Capstone Services Agreement by their express terms formed the “complete
agreement,” which could “be amended, modified, or supplemented only by written
agreement executed by the parties hereto with specific, written reference to this
Agreement.” The later agreements neither referred to the Engagement Letter or Capstone
Services Agreement, nor were they signed by all the parties to the initial agreements.
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3.
Further discussion of Work is warranted. That decision seems
questionable in holding that the incorporation of a general rule delegating
arbitrability,6 but silent as to class arbitrability, clearly and unmistakably
delegates class arbitrability to the arbitrator under this court’s 20/20
Communications and the Supreme Court’s Lamps Plus precedents. See 20/20
Commc’ns, 930 F.3d 715 (5th Cir. 2019); Lamps Plus,
587 U.S. 176,
139 S. Ct.
1407 (2019).
Although all circuits agree that class arbitrability presents a gateway
question, they disagree on whether an agreement’s incorporation of generic
rules permitting class arbitration can ever constitute clear and unmistakable
consent to class arbitration. Compare Spirit Airlines, Inc. v. Maizes, 899 F.3d
1230, 1233–34 (11th Cir. 2018) (“The parties’ agreement plainly chose the
AAA rules . . . . this is clear and unmistakable evidence that the parties chose
to have an arbitrator decide whether their agreement provided for class
arbitration.”); Wells Fargo Advisors, LLC v. Sappington,
884 F.3d 392, 398–
99 (2d Cir. 2018) (same); Dish Network L.L.C. v. Ray,
900 F.3d 1240, 1247–
48 (10th Cir. 2018) (same); with Catamaran Corp. v. Towncrest Pharm.,
864
F.3d 966, 972–73 (8th Cir. 2017) (“Incorporation of AAA rules by reference
is insufficient evidence that the parties intended for an arbitration to decide
substantive questions of class arbitration. When dealing with class
arbitration, we seek clear and unmistakable evidence of an agreement to
arbitrate the particular question of class arbitration.”) (citation omitted);
_____________________
6
Arguably, it is possible to construe the rule incorporated in Work to include class
arbitrability because the rule delegated the question of “who are proper Parties to the
Arbitration” to the arbitrator. That interpretation seems to be less than clear and
unmistakable under 20/20 Communications, but the Work court did not rely on that clause
of the JAMS rule.
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Chesapeake Appalachia, L.L.C. v. Scout Petroleum, L.L.C., 809 F.3d 746 (3d
Cir. 2016) (same); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett,
734
F.3d 594, 599–600 (6th Cir. 2013) (same); Dell Webb Cmtys., Inc. v. Carlson,
817 F.3d 867, 876–77 (4th Cir. 2015) (same).
Work, however, is an apparent outlier even among the circuits in
which incorporation of rules suffices clearly and unmistakably to delegate the
gateway question of class arbitrability to arbitrators. No other circuit court
has held that a rule generally delegating arbitrability questions carries with it
a delegation of class arbitrability. Work implicitly mirrors pre-Lamps Plus and
20/20 Communications cases, which held that general arbitrability delegations
also include delegations of class arbitrability. See, e.g., Robinson v. J & K
Admin. Mgmt. Servs., Inc., 817 F.3d 193, 197 (5th Cir. 2016) (“[I]f parties
agree to submit the issue of arbitrability to the arbitrator, then the availability
of class or collective arbitration is a question for the arbitrator instead of the
court.” (citing Pedcor Mgmt. Co., Inc. Welfare Benefit Plan v. Nations Pers. of
Tex., Inc.,
343 F.3d 355 (5th Cir. 2003))); compare Reed v. Fla. Metro. Univ.,
Inc.,
681 F.3d 630, 635 (5th Cir. 2012) (“agreement to the AAA’s
Commercial Rules also constitutes consent to the Supplemental Rules,”
including those rules’ class arbitrability delegation), with
id. at 646 (Dennis,
J., concurring) (opining that Reed’s holding that an incorporated rule
“referring the issue of class arbitration vel non to the arbitrator” was
“required by our circuit precedent in Pedcor”).
It is not obvious that such precedents remained good law after 20/20
Communications and after the Supreme Court admonished in Lamps Plus that
ambiguity as to class arbitrability is insufficient. The 20/20 Communications
court described some of the general delegation language at issue in that case
as “arguably capacious enough under this court’s previous rulings to include
disputes over class arbitrability.” 930 F.3d at 720 (citing Robinson,
817 F.3d
at 196); see also JPay, Inc. v. Kobel,
904 F.3d 923, 935 (11th Cir. 2018)
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(characterizing Pedcor and Robinson as predicated on class arbitrability’s not
being a gateway question). Still, the 20/20 Communications court did not
expressly address whether Robinson and Pedcor remained viable, and based its
holding instead on an express class arbitration bar in the arbitration
agreement. And Lamps Plus involved a broad agreement submitting “any and
all disputes, claims, or controversies” to arbitration, which the dissent
viewed as sufficient to delegate the dispute over class arbitrability. 587 U.S.
at 206, 139 S. Ct. at 1428 (Kagan, J., dissenting). The Supreme Court
necessarily rejected the dissent’s interpretation in holding the agreement
ambiguous on class arbitrability. Id. at 182–83, 139 S. Ct. at 1414–15.
The Work court perfunctorily answered the question whether a broad
arbitrability delegation includes class arbitrability in reliance on a single pre-
20/20 Communications case: Cooper v. WestEnd Capital Management, L.L.C.,
832 F.3d 534 (5th Cir. 2016). Cooper held only that the incorporation of an
earlier version of the same JAMS rule at issue in Work was enough to
delegate general arbitrability clearly and unmistakably to the arbitrator.
Id. at
546. But Cooper did not concern class arbitrability, nor, because Cooper also
preceded 20/20 Communications and Lamps Plus, did it address the viability
of Pedcor and Pedcor’s progeny. Work likely misinterpreted Lamps Plus by
extending Cooper to find a generic delegation rule unambiguous. Work, 102
F.4th at 771. In sum, this court inadvertently became an outlier on the far
side of a circuit split.
But, because we are bound by Work, we must hold that the
Engagement Letter’s incorporation of the AAA Rules, and by extension the
AAA Supplementary Rules, including one that delegates class arbitrability to
the arbitrator, is clear and unmistakable evidence supporting the parties’
clear intent to arbitrate the issue.
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B. The Four-Month Deadline’s Enforceability was for the Arbitrators.
Under the parties’ agreement, the enforceability of the four-month
deadline to complete arbitration was also delegated to the arbitrators.7 The
Engagement Letter states that “the arbitrator has exclusive authority to
resolve all disputes and challenges to the formation and enforceability of this
arbitration agreement.” AAA Rule 7(a) provides that the arbitrator “shall
have the power to rule on his or her own jurisdiction, including any objections
with respect to the existence, scope, or validity of the arbitration agreement.”
That rule is unambiguous, is unambiguously incorporated into the
agreement, and is not even supplementary. The four-month deadline is
_____________________
7
Regarding both the four-month deadline and the next section discussing
simultaneous arbitrations, the Feldman and Capstone Parties argue that this court must
review the arbitrators’ conclusions de novo, and that vacatur is the appropriate remedy for
“an award granted by an arbitrator selected in a manner inconsistent with the arbitration
agreement.” PoolRe Ins. Corp. v. Organizational Strategies, Inc., 783 F.3d 256, 262–64 (5th
Cir. 2015) (citing Brook v. Peak Int’l, Ltd.,
294 F.3d 668, 672–73 (5th Cir. 2002)). Both
Brook and PoolRe vacated awards by arbitrators appointed contrary to unambiguous clauses
in the parties’ agreements. Brook, 284 F.3d at 673; PoolRe,
783 F.3d at 264. Accordingly,
these cases have been limited to evaluating “deviations from contract provisions describing
the method for selecting arbitrators.” Bulko v. Morgan Stanley DW Inc.,
450 F.3d 622, 625
(5th Cir. 2006). For instance, “we have treated arbitrator-selection cases like PoolRe as
‘distinguishable’ from arbitrator-qualifications cases.” OOGC Am., L.L.C. v. Chesapeake
Expl., L.L.C.,
975 F.3d 449, 456 (5th Cir. 2020).
Here, “we cannot say [the arbitrators’] selection violated a specific method of
selection.” Bulko, 450 F.3d at 625 (emphasis in original). The Feldman and Capstone
Parties do not challenge the method by which the arbitrators were appointed, but whether
more than one arbitrator could be appointed pursuant to that method and the enforceability
of the four-month deadline. Neither issue is governed by the selection-method case law.
To be sure, the Feldman and Capstone Parties suggest that Judge Jones was improperly
appointed to replace Judge Medley, who had resigned. But the arbitration agreement
expressly stated that, after the expiration of the four-month period, “any party then may
file another written demand for arbitration of the dispute with another” arbitrator, “with
the prior arbitrator . . . then being immediately divested of jurisdiction.” This contention
is meritless.
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thereby governed by AAA Rule 7(a) because the Engagement Letter confirms
that the four-month deadline is “jurisdictional” when it explains that if the
deadline expires, “any party then may file another written demand for
arbitration . . . with the prior arbitrator . . . then being immediately divested
of jurisdiction.” The enforceability of the four-month deadline was therefore
delegated to the arbitrator under the Engagement Letter and AAA Rule 7(a).
In deciding that the four-month provision was “inconsistent with due
process” and unconscionable, the arbitrators were unpersuaded by the
Feldman and Capstone Parties’ arguments that the four-month provision
must be strictly construed. They stated: “The simple fact is that the four
month period does not allow due process to be ignored. To insist on its strict
compliance elevates form over substance and encourages discovery delays to
run out the clock and [encourages] further arbitrations.” “[T]he sole
question for [this court] is whether the arbitrator[s] (even arguably)
interpreted the parties’ contract, not whether [they] got its meaning right or
wrong.” Oxford Health Plans, 569 U.S. at 569,
133 S. Ct. at 2067. Under this
lenient standard, this court cannot upend the arbitrators’ rejection of a strict
interpretation of the four-month provision, and in turn its enforceability was
for the arbitrators to decide.
C. The Validity of Simultaneous Arbitrations Was for the Arbitrators.
The Engagement Letter also delegated the permissibility of
simultaneous arbitrations to the arbitrators. The Engagement Letter makes
clear that “[t]he arbitrator or arbitral association appointed to resolve the
dispute shall have the sole and exclusive ability to rule on all aspects of the
arbitrator’s appointment.” Neither party argues that simultaneous
arbitrations pose a gateway issue presumptively reserved for courts.
Accordingly, whether the Engagement Letter permitted multiple,
simultaneous arbitrations is a matter of contract interpretation.
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The Engagement Letter states that “either party may directly appoint
the single arbitrator or the arbitral association who/which shall proceed to
resolve the dispute.” This provision creates a limit of one arbitrator per
“dispute.” The scope and meaning of “dispute” under the Engagement
Letter raises an issue on which this court defers to the arbitrators if they
“(even arguably) interpreted the parties’ contract.” Oxford Health Plans,
569 U.S. at 569,
133 S. Ct. at 2067. The arbitrators who concluded that
multiple arbitrations could proceed simultaneously did so because they
considered each arbitration to be a different “dispute” under the
Engagement Letter.
While the Feldman and Capstone Parties point out that the underlying
arbitrations all concern the same “dispute” with the Doctors, the arbitrators’
different conclusion is not unmoored from the agreement. The Feldman and
Capstone Parties also argue that the arbitrators impermissibly considered the
district judge’s own, earlier interpretation that simultaneous arbitrations
were permissible. But that is inapposite: neither principle nor precedent
suggests that arbitrators’ favorable consideration of the district court’s view
undermines the deference owed by the courts. Further, the district court
interpreted this provision only after the Feldman and Capstone Parties
themselves raised it, and a “party cannot complain on appeal of errors which
he himself induced the district court to commit.” United States v. Lopez-Escobar, 920 F.2d 1241, 1246 (5th Cir. 1991).
For these reasons, we may not second-guess the arbitrators’ decisions
to proceed simultaneously, not to enforce the four-month provision, and to
allow class arbitration.
II. Inconsistent Arbitration Awards
All four confirmed awards differ in total amounts. Insofar as the
court’s judgment only reflected the largest (Jones) award, it rendered
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meaningless the other three confirmed awards. This conundrum, however,
may be resolved indirectly by addressing the district court’s overbroad stay
enjoining the parties from untangling the conflicting awards through further
arbitration.
Section 10 of the FAA lists four grounds for vacating an arbitration
award:
(1) where the award was procured by corruption, fraud, or
undue means;
(2) where there was evident partiality or corruption in the
arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing
to postpone the hearing, upon sufficient cause shown, or in
refusing to hear evidence pertinent and material to the
controversy; or of any other misbehavior by which the rights of
any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite
award upon the subject matter submitted was not made.
See 9 U.S.C. § 10. The grounds are “exclusive.” Citigroup Glob. Mkts., Inc.
v. Bacon,
562 F.3d 349, 352 (5th Cir. 2009) (quoting Hall St. Assocs., L.L.C.
v. Mattel, Inc.,
552 U.S. 576, 581,
128 S. Ct. 1396, 1401 (2008)). Inconsistency
among awards, without more, is not among the exclusive grounds for judicial
vacatur.8
_____________________
8
Extensive research has not shed light on precedent helpful to resolving courts’
authority in the face of inconsistent awards. The Feldman and Capstone parties primarily
point to two cases, which are inapposite.
In Roughneck Concrete Drilling & Sawing Co. v. Plumbers’ Pension Fund, Loc. 130,
UA [United Ass’n], 640 F.3d 761 (7th Cir. 2011), Judge Posner opined that to enforce one
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But the district court committed an error that unnecessarily led to the
internally inconsistent judgment now on appeal. Specifically, the district
court erred in orally applying its March 22, 2021, stay order to prohibit
further arbitration to resolve the conflicting confirmed awards. After the
Partial Final Judgment was entered, the parties disputed whether any of the
other much lower arbitration awards has any res judicata effect on the Jones
award. The possibility of post-judgment arbitration to reconcile the
confirmed Jones and Glasser awards is not precisely before this court, but the
continuing propriety of the stay order is. See Fed. R. App. P. 3(c)(4)
(“The notice of appeal encompasses all orders that, for purposes of appeal,
merge into the designated judgment or appealable order.”).
At the time it was entered, the stay order properly enjoined the
commencement of new state court and arbitral proceedings temporarily,
until the awards were issued in the already-compelled arbitrations, to protect
_____________________
award but not the other would establish that one “was ultra vires and therefore cannot be
enforced.” Id. at 768. Roughneck is inapposite for two reasons. First, the FAA does not
apply to LMRA arbitrations.
9 U.S.C. § 1; see Int’l Chem. Workers Union v. Columbia
Chems. Co.,
331 F.3d 491, 494 (5th Cir. 2003). Second, Roughneck’s holding was unique to
its facts, which involved more than one union’s arbitrations against a single employer. The
Roughneck court opted to enforce one award over the other because the arbitrator whose
award the court enforced was authorized “to determine whether there was a jurisdictional
dispute,” and that arbitrator concluded that the other arbitration was invalid.
640 F.3d at
769. No arbitrator here had sole authority to review the jurisdiction of the others.
And in an earlier labor case, the court held that if the inconsistent awards are each
independently valid, “the reviewing court must . . . select that interpretation which most
nearly conforms to the intent of the parties.” Conn. Light & Power Co. v. Loc. 420, Int’l
Brotherhood of Elec. Workers, AFL-CIO, 718 F.2d 14, 21 (2d Cir. 1983) (Winter, J.). The
court enforced the award that it “believe[d] . . . to be the better reasoned decision.”
Id. at
21. In recent years, Connecticut Light has been described as inconsistent with the Supreme
Court’s precedent in Oxford Health Plans because it delved into the merits of the underlying
controversy. See 23andMe, Inc. v. Davis-Hudson, No. 5:15-CV-01323-PSG,
2015 WL
6094303, at *3–4 (N.D. Cal. Oct. 16, 2015). We resist the urge to second-guess the merits
of the various awards.
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both those arbitrations and the district court’s jurisdiction. All Writs Act, 28
U.S.C. § 1651(a). The court’s opinion justifying a stay presciently explained
why the stay must be discontinued now. Sullivan v. Feldman, No. 4:20-cv-
02236 (S.D. Tex. Mar. 22, 2021) (order consolidating cases and enjoining
further arbitrations). Referencing “its earlier order that multiple arbitrations
could proceed” simultaneously, the district court explained that the
“arbitrators are authorized to determine whether and when earlier decisions
or awards have preclusive effects.” Dist. Ct. Op.,
2022 WL 17822451, at *16.
As the district court explained, “[t]he parties applied their contract to make
this mess but agreed that arbitration would resolve their disputes, no matter
how messy. This court will not step in to clean it up and risk making it
worse.”
Id. The court recognized that the engagement Letter gave the
Feldman and Capstone Parties the right to pursue arbitration to resolve any
conflicting awards, with any new arbitrator “determin[ing] whether and
when earlier decisions or awards have preclusive effects.”
Id.
Maintaining the stay at this juncture, however, thwarts the parties’
bargain, “messy” as it is. The stay is now overbroad because “it enjoins a
defendant from engaging in legal conduct.” Missouri v. Biden, 83 F.4th 350,
395 (5th Cir. 2023). Moreover, “[i]njunctions must be narrowly tailored
within the context of the substantive law at issue to address the specific relief
sought.” E.T. v. Paxton,
19 F.4th 760, 769 (5th Cir. 2021). The district
court’s temporary stay is no longer viable to prevent the parties, if they so
choose, from exercising their contractual right to engage in further
arbitration.
III. Individual, Non-Signatory Defendant Jeff Carlson Was Not Bound
to Arbitrate.
Among the four awards confirmed by the district court, only the Jones
Award held Carlson individually liable to the Doctors. The other arbitrators
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dismissed claims against him.9 The Jones award cannot be upheld as to
Carlson, who was neither a party to the Engagement Letter nor subject
to direct-benefits estoppel. This court decides the identity of parties that are
bound by an arbitration agreement. See Howsam v. Dean Witter Reynolds, Inc.,
537 U.S. 79, 84,
123 S. Ct. 588, 592 (2002) (citing First Options of Chicago,
514 U.S. at 943–46, 115 S. Ct. at 1923–25; John Wiley & Sons, Inc.,
376 U.S.
543, 546–47,
84 S. Ct. 909, 912–13).
A. Carlson Is Not Bound by the Engagement Letter.
Carlson became President of Capstone Associated Services, Ltd.,
after the Engagement Letter was executed. Accordingly, he was a non-signatory to the contract. As a non-signatory, Carlson is not within the
express compass of the Engagement Letter’s arbitration provision. State
contract law controls “the scope of agreements (including the question of
who is bound by them).” Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630,
129 S. Ct. 1896, 1902 (2009); see also Crawford Prof’l Drugs v. CVS Caremark
Corp.,
748 F.3d 249, 255 (5th Cir. 2014). Under Texas law, “[o]rdinary
principles of contract and agency law may be called upon to bind a
nonsignatory to an [arbitration] agreement whose terms have not clearly done
so.” DK Joint Venture 1 v. Weyand,
649 F.3d 310, 314 & n.4 (5th Cir. 2011)
(quoting Bridas S.A.P.I.C. v. Gov’t of Turkmenistan,
345 F.3d 347, 356 (5th
Cir. 2003)) (alterations in original). Ordinarily, “defendant corporations
enter[ing] into” arbitration agreements do “not cause their agents . . . who
acted only as officers on behalf of the corporations, to be personally bound by
those agreements.” Id. at 314.
_____________________
9
In so holding, Glasser “den[ied] any and all claims of liability lodged against Mr.
Carlson as being without legal or factual support here”; Judge Baker found “that there is
no factual or legal support for any claims of liability against Jeff Carlson”; and Kutcher
found that “there is no basis for finding Mr. Carlson personally liable.”
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But the Doctors contend that direct-benefits estoppel nevertheless
binds Carlson to arbitrate. Simply put, that doctrine prevents a non-signatory
to a contract from seeking benefits from the contract while objecting to its
arbitration provision. In re Weekley Homes, L.P., 180 S.W.3d 127, 131–33
(Tex. 2005); In re Kellogg Brown & Root, Inc.,
166 S.W.3d 732, 739 (Tex.
2005). Consequently, if a non-signatory seeks a benefit from a contract that
contains “an arbitration clause, then the nonsignatory must arbitrate all
claims that fall within the scope of that arbitration clause.” Taylor Morrison
of Tex., Inc. v. Ha,
660 S.W.3d 529, 533 (Tex. 2023). “A nonsignatory can
seek the benefits of a contract either by suing based on the contract, or by
conduct that ‘deliberately seeks and obtains substantial benefits from the
contract itself.’”
Id. (quoting Weekley Homes,
180 S.W.3d at 132).
Carlson invoked the Engagement Letter’s arbitration provision to
intervene in the Dorfman and Baker arbitrations, but only to seek his own
exoneration. The issue here is whether that qualifies as a direct benefit that
estops his objection to being included in the Jones arbitration. The district
court confirmed the Jones award as to Carlson, but although Carlson
strenuously objected to being held liable under any theory, the district court
curiously failed to consider his arguments. Be that as it may, we hold that
Carlson is not estopped from objecting to the Jones arbitration. Carlson only
joined two arbitrations to assert defenses and did not attempt to enforce a
different part of the Engagement Letter against the Doctors. No Texas cases
cited by the Doctors or uncovered in our research involve comparable facts.
Especially because “the boundaries of direct-benefits estoppel are not always
clear,” we decline to extend the doctrine to this context. See In re Vista Ins.
Grp., Inc., 192 S.W.3d 759, 761 (Tex. 2006).
The Doctors highlight the Texas Supreme Court’s recent comment
that it “ha[s] yet to specifically address whether a non-signatory claimant
may likewise be required to arbitrate any related counterclaims asserted
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against it in the course of compelled arbitration proceedings.” Lennar Homes
of Tex. Land & Constr., Ltd. v. Whiteley, 672 S.W.3d 367, 377 n.8 (Tex. 2023).
The Doctors assert that this court must resolve the open issue. But this case
does not involve “related counterclaims,” because Carlson never claimed a
benefit from a provision of the Engagement Letter. See
id.
The Doctors’ reliance on Ruff v. Ruff, No. 05-18-00326-CV, 2020 WL
4592794 (Tex. Ct. App.—Dallas 2020), is also misplaced. In Ruff, a non-signatory initiated an arbitration and sought a declaration that a contract
validly released him from certain liability. Id. at *2. In other words, he
initiated arbitration to get the benefit of that contract. When the opposing
party brought tort counterclaims in the same arbitration, the arbitrator found
the non-signatory liable for the torts. Id. at *2–3. Only when the arbitrator
opted to adjudicate the counterclaims did the non-signatory object. Id. at *3.
Both Carlson and the Ruff non-signatory were attempting to eliminate claims
against them, but the fact that the contract in Ruff contained a release
provision makes all the difference. Whereas Carlson’s interventions in two
earlier arbitrations did not seek a benefit from the Engagement Letter, the
Ruff non-signatory’s arbitration was principally intended to enforce a release
agreement.
The Doctors invoke the equitable nature of direct-benefits estoppel,
averring that Carlson’s allegedly inconsistent positions as to whether he was
subject to the arbitration provision support binding him to the Jones
proceeding. See, e.g., Jody James Farms, JV v. Altman Grp., 547 S.W.3d 624,
637 (Tex. 2018). The record refutes this contention. Equity militates in favor
of Carlson for at least three reasons. First, Carlson’s litigation conduct was
less an assertion of inconsistent positions than of alternative defenses: that
he could not be bound to arbitrate, or if he could be, he was innocent. Second,
if Carlson’s positions were inconsistent, then so were the Doctors’ positions,
because they succeeded in persuading Judge Dorfman that Carlson was a
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non-signatory who could not participate. See also DK Joint Venture 1, 649
F.3d at 318 (emphasizing, with respect to judicial estoppel, the relevance of a
party’s taking inconsistent positions as to whether it is bound to arbitrate).
Third, as Carlson persuasively argues, he was hardly on notice that he
remained a party to the Jones arbitration until the nearly $100 million award
was issued against him. Specifically, Carlson was initially a party to the
Medley arbitration, but he obtained a state court order temporarily
restraining that arbitrator from continuing against him. The Doctors then
amended their complaint in the Medley arbitration to omit any claims against
Carlson so that their arbitration could proceed. Further, when Medley was
replaced by Judge Jones, the Doctors did not name Carlson in the caption or
elsewhere except by incorporating earlier, since-superseded pleadings in the
Medley arbitration. Because Carlson could not be bound as a non-signatory
anyway, and given the convoluted nature of the subsequent proceedings, we
do not reach whether Carlson was sufficiently noticed that he was a party to
the Jones arbitration and whether he even was a party to it. Even so, we can
safely conclude that the highly questionable nature of Carlson’s “notice”
was such that equity cannot bolster the Doctors’ direct-benefits estoppel
arguments.
Finally, contrary to the Doctors’ argument, Carlson did not waive his
objection to Judge Jones’s authority because he timely objected in the Medley
arbitration. Especially if all of the Doctors’ claims against Carlson carried
over from the Medley to the Jones arbitration, as the Doctors contend, then
Carlson’s objections before Judge Medley also carried over. Nor did Carlson
“invite error” for essentially the same reason that direct-benefits estoppel
does not apply: that Carlson appealed to arbitration defensively in the other
proceedings did not “invite” Judge Jones’s erroneous inclusion of him in
that single award.
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B. Reversal of the Jones Award as to Carlson.
Carlson seeks vacatur of the entire Jones award because Judge Jones
“exceeded [his] powers” under 9 U.S.C. § 10(a)(4) by including him. But
that error only warrants modification, not vacatur. “If an [arbitrator] exceeds
[his] authority, it provides grounds for a court to vacate that aspect of [his]
decision.” Smith v. Transp. Workers Union of Am., AFL-CIO Air Transp.
Local 556,
374 F.3d 372, 375 (5th Cir. 2004) (per curiam) (emphasis added).
Vacating the whole award may be warranted where the ultra vires action
“taint[s] the entire process.” PoolRe,
783 F.3d at 265. In PoolRe, this court
found a “taint[ on] the entire process” where the arbitrator allowed an
impermissible plaintiff to intervene, necessarily affecting the amount and
form of the arbitration award. Id.; see also PoolRe Ins. Corp. v. Organizational
Strategies, Inc., H-13-1857,
2014 WL 1320188, at *19 (S.D. Tex. Mar. 31,
2014). But Carlson is a defendant, not a plaintiff, and Judge Jones held him
jointly and severally liable with the Feldman and Capstone Parties. Carlson’s
presence had no bearing on the amount of damages suffered by the Doctors.
The improper award against Carlson did not “taint[] the entire process.”
PoolRe,
783 F.3d at 265.
CONCLUSION
The parties remain free to arbitrate another day. For the sake of
sanity, judicial efficiency, and litigation economics, this court hopes their
disagreements will be finally resolved. We AFFIRM in part, REVERSE in
part, VACATE in part, and REMAND. We AFFIRM the Glasser, Baker
and Kutcher arbitration awards. We AFFIRM in part the Jones arbitration
award but REVERSE in part insofar as the Jones award pertains to
defendant Jeff Carlson. We VACATE and REMAND the district court’s
March 22, 2021, order staying further arbitrations between the parties.
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