IN THE SUPREME COURT OF TEXAS
In re: Deutsche Bank AG, Deutsche Bank Securities Inc. d/b/a
Deutsche Bank Alex. Brown, Inc., and David Parse,
PETITION FOR WRIT OF MANDAMUS
Original Proceeding from Cause No. 0 17-212033-05
in the 17th Judicial District Court of Tarrant County, Texas
TO THE HONORABLE JUSTICES OF THE SUPREME COURT:
Relators Deutsche Bank AG, Deutsche Bank Securities Inc. d/b/a Deutsche
Bank Alex. Brown, Inc., and David Parse (collectively, "Deutsche Bank") file this
petition for writ of mandamus and respectfully show the Court as follows:
STATEMENT OF THE CASE
The underlying proceeding is a suit for declaratory judgment and damages
brought by Plaintiffs, Real Parties in Interest, complaining of a tax-motivated investment
strategy. This original proceeding arises out of Deutsche Bank's request to have
Plaintiffs' claims against it referred to arbitration. Deutsche Bank filed its Motion to Stay
Proceedings Pursuant to Section 3 of the Federal Arbitration Act ("FAA") in the trial
court on November 18, 2005. The Respondent, Honorable Judge Fred Davis in the 17th
Judicial District Court of Tarrant County, Texas, held a hearing on the motion on
January 27, 2006, and on March 2, 2006, entered a written order denying Deutsche
Bank's motion. On March 22, 2006, Deutsche Bank filed its Petition for Writ of
Mandamus with the Court of Appeals, Second District of Texas, Fort Worth. Deutsche
Bank also filed its Emergency Motion to Stay District Court Proceedings pending
resolution of the mandamus proceeding, which was granted on March 23,2006. App. E.
On April 25, 2006, the Court of Appeals denied Deutsche Bank's Petition for Writ of
Mandamus (without explanation) in an unpublished memorandum opinion issued by the
Honorable Justices Dauphinot, Holman, and Gardner. App. F. Deutsche Bank now seeks
to preserve its arbitration rights by filing this original proceeding with the Texas Supreme
Court. Contemporaneously with this petition for writ of mandamus, Deutsche Bank is
filing its Emergency Motion to Stay District Court Proceedings pending resolution of this
STATEMENT OF JURISDICTION
This Court has jurisdiction over this original proceeding pursuant to
Article V, Section 6 of the Texas Constitution and Section 22.22I(b) of the Texas
Government Code. TEX. CONST. V,
art. 5 6; TEX.GOV'TCODEANN. 22.221(b).
STATEMENT OF ISSUES PRESENTED
Whether the trial court committed a clear error of law and/or a clear abuse
of discretion for which there is no adequate remedy at law by denying Deutsche Bank's
Motion to Stay pursuant to Section 3 of the FAA because:
(1) Plaintiffs are subject to mandatory arbitration provisions under
Engagement Agreements they entered with their financial and tax
advisors, Ernst & Young LLP ("E&YW);
(2) Plaintiffs' claims against Deutsche Bank rely on the express terms of
the E&Y Engagement Agreements;
(3) Plaintiffs allege substantially interdependent and concerted
misconduct by and between non-signatory Deutsche Bank and
signatory E&Y; and
(4) The FAA and Texas law required Respondent to compel Plaintiffs to
arbitrate with Deutsche Bank based on equitable estoppel, and stay
the proceedings pending arbitration.
STATEMENT OF FACTS
This lawsuit arises out of Plaintiffs' execution of a tax-motivated
investment strategy that sought to avoid liability on taxes from substantial gains realized
in 1999 from sales of their businesses and exercise of stock options. Plaintiffs are three
groups of wealthy investors and their affiliated entities' that pursued a tax-oriented
investment strategy referred to as '"COBRA' (i.e., Currency Options Bring Reward
Alternatives)" the ("Strategy"). R2: 77 39, 127, 130, 141-42, 148. Plaintiffs allege that
E&Y, Deutsche Bank, and others jointly conspired, associated and acted in concert to
fraudulently develop, market, and implement the Strategy pursuant to an "Arrangement"
and "game plan" designed "for the purpose of receiving and splitting millions of dollars
in fees." R2: 77 35,41-42, 53,213-15,314-15.
According to the petition: the Camferdam and Arnold Plaintiffs were
approached in late 1999 by E&Y, their long-time accountants and advisors, regarding the
Strategy. R2:'77 130, 148. Walter Parmer contacted E&Y seeking "the best tax advice
on how to save on his taxes" following the exercise of lucrative stock options. R2:7 141.
During the course of several meetings and conference calls, Plaintiffs claim E&Y told
The "Camferdam Plaintiffs" include Henry N. Camferdam, Jr., Jeffrey M. Adams, Jay
Michener, Carol Trigilio, HNC Ditch Investments LLC, JMA Sedgemoor Investments LLC, J M
Walnut Investments LLC, CT Oak Tree Investments LLC, Cannel Partners and BAMC, Inc.
R2: intro. 7, 7 127, 164. The "Parmer Plaintiffs" include Walter P. Parmer, Argenia Ida Parmer,
WPP Farrahs Calvary Investments, LLC, WSWP Partners and WSWP Virginia Investors Inc.
R2: intro. 1, 143. The "Arnold Plaintiffs" include Neal D. Arnold, H. Jane Arnold, Victor A.
Rice, Corrine F. Rice, Vincent D. Laurenzo, Sherrill S. Laurenzo, NDA Dauphin Investments
LLC, VAR Tudor Place Investments LLC, VDL Gulfshore Blvd. Investments LLC, VAR
Partners and VAR Investors, Inc. R2: intro. $ 7 148.
References to the "Petition" refer to Plaintiffs' First Amended Petition filed July 5, 2005. R2.
them that by forming a partnership and various other entities to engage in foreign
exchange digital option transactions, Plaintiffs could legitimately create large tax losses
that would eliminate or offset their expected substantial gains in 1999. R2: 77 134-35,
138, 142, 148, 152, 157, 162. Purportedly in reliance upon the allegedly fraudulent
conduct of E&Y, Deutsche Bank, and others, Plaintiffs engaged in the Strategy.
R2: 77 41-43. Plaintiffs subsequently utilized the losses from engaging in the Strategy to
offset considerable gains on their 1999 tax returns -prepared by E&Y. R2: 77 203-07.
At the outset of engaging in the Strategy, representatives of each Plaintiff
group entered into an Engagement Agreement with E&Y (the "Engagement Agreement"
or "~~reement").'In those Agreements, E&Y confirmed its engagement to:
provide tax advice to [Plaintiffs] concerning the implementation of the
COBRA strategy [E&Y has] discussed with [Plaintiffs]. ... [E&YYs] work
will include assisting in the tax planning aspects of this transaction,
working with counsel and other third parties in reviewing the tax aspects of
the entities and other consulting services as required.
App. A: p.1. The Engagement Agreements also contain a broad, mandatory arbitration
provision providing that:
[alny controversy or claim arising out of or relating to tax and tax-related
services now or hereafter provided by [E&Y] to [Plaintiffs] ... shall be
submitted first to voluntary mediation, and if mediation is not successful,
then to binding arbitration.. . .
App. A: p.2. Plaintiffs are currently pursuing their claims against E&Y in arbitration
after being referred to arbitration in an earlier-filed NY lawsuit. Camferdam v. Ernst &
Each Engagement Agreement entered into by representatives of each Plaintiff group contains
the same material terms and arbitration provision. The Engagement Agreement entered into by
Henry N. Camferdam, Jr., is provided in the Appendix as an example. App. A.
Young Int '1, Inc., No. 02 Civ. 10100 (BSJ), 2004 WL 307292, at *1 (S.D.N.Y. Feb. 13,
2004). App. B. In Camferdam, certain Plaintiffs here attempted to litigate against
various non-Deutsche Bank defendants complaining of the same exact injury - their
alleged damages in connection with their decision to implement the Strategy. Id.
Ultimately, Plaintiffs were forced to arbitrate their dispute against all of the named
defendants, which included both signatories and non-signatories to the E&Y arbitration
agreement. Id. However, the Plaintiffs in Camferdam had not yet received court
approval to add Deutsche Bank as another defendant; and as a result, the order requiring
arbitration did not include Deutsche Bank.
On June 22, 2005, long after E&Y and its codefendants had been sent to
arbitration, Plaintiffs filed this action against Deutsche Bank and others seeking to
litigate, rather than arbitrate, their disputes arising out of Plaintiffs' decisions to enter into
the Strategy. R2. On August 19, 2005, Deutsche Bank filed its answer maintaining that
"Plaintiffs are subject to mandatory arbitration provisions they signed with Ernst &
Young L.L.P. These arbitration provisions govern all claims against Deutsche Bank in
this lawsuit and must be arbitrated." R3: 7 4. Thereafter, on November 18, 2005,
Deutsche Bank filed its Motion to Stay Proceedings Pursuant to Section 3 of the FAA
("Motion to Stay"). R4. Plaintiffs' filed their opposition on December 20, 2005, R5, to
which Deutsche Bank filed a reply in further support of its Motion to Stay on January 24,
A hearing was held on Deutsche Bank's Motion to Stay on January 27,
2006, at which time the Respondent took the motion under advisement. See Transcript
from January 27, 2006 hearing. R7: p. 26. On March 2, 2006, the Respondent issued a
written order denying Deutsche Bank's Motion to Stay. R1; App. D. On March 22,
2006, Deutsche Bank filed its petition for writ of mandamus with the Fort Worth Court of
Appeals. Deutsche Bank also filed an Emergency Motion for Temporary Relief pending
mandamus review which was granted on March 23, 2006. App. E. However, on April
25, 2006, the Court of Appeals denied Deutsche Bank's mandamus petition without
explanation. App. F. Deutsche Bank now seeks to preserve its arbitration rights by filing
this proceeding with the Texas Supreme Court. Contemporaneously with the filing of
this original proceeding, Deutsche Bank is requesting emergency temporary relief staying
lower court proceedings pending mandamus review.
SUMMARY OF THE ARGUMENT
This case turns on Respondent's erroneous application of the well-
established legal principle of equitable estoppel, which permits a non-signatory to an
arbitration agreement to have its dispute referred to arbitration. A non-signatory is
entitled to arbitrate when either of two independent tests are met: (1) the signatory's
claims rely on the terms of the contract containing the arbitration agreement; or (2) the
signatory plaintiff alleges substantially interdependent and concerted misconduct by and
between the non-signatory and one or more of the signatories to the contract containing
the arbitration clause. Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th Cir.
2000). Deutsche Bank is entitled to arbitration under either test.
Mandamus review is crucial because Respondent's denial of Deutsche
Bank's right to arbitration undermines Texas' strong policy favoring arbitration as well as
the fundamental purpose of arbitration -to provide a rapid, less expensive alternative to
traditional litigation. Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 269-73 (Tex. 1992)
(orig. proceeding) (main benefits of arbitration lie in expedited and less expensive dispute
resolution). A party entitled to arbitrate a dispute, but who is forced to incur the effort
and expense of a full trial before being able to eventually have the right to arbitration
affirmed, cannot be made whole by an eventual appeal.
I. STANDARDOF REVIEW
Mandamus is the appropriate relief to review an order denying a motion to
compel arbitration under the FAA.' In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125,
128 (Tex. 1999) (orig. proceeding). When a trial court erroneously denies a party's right
to arbitration under the FAA, the movant has no adequate remedy at law and is entitled to
a writ of mandamus. In re Kellogg Brown & Root, 80 S.W.3d 61 1, 615 (Tex. App. -
Houston [lst. Dist.] 2002, orig. proceeding) (citing In re FirstMerit Bank, N.A., 52
S.W.3d 749, 753 (Tex. 2001) (orig. proceeding)). This Court reviews the trial court's
order for abuse of discretion, and mandamus issues to correct a clear abuse of discretion
when the abuse or violation of duty imposed by law cannot be remedied by appeal.
Walker v. Packer, 827 S.W.2d 833,840 (Tex. 1992) (orig. proceeding).
The FAA is part of the substantive law of Texas. See Southland Corp. v. Keating, 465 U.S. 1 ,
1. ERRED DENYING
RESPONDENT IN BANK'S
DEUTSCHE RIGHT ARBITRATE
Both Texas and federal law greatly favor agreements to resolve disputes
through arbitration. Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) (orig.
proceeding) ("Indeed, a presumption exists in favor of agreements to arbitrate under the
FAA [and] courts must resolve any doubts about an agreement to arbitrate in favor of
arbitration.") (internal citations omitted). An eventual appeal of the Respondent's order
denying Deutsche Bank's arbitration rights would be meaningless as the primary purpose
of arbitration is to avoid the time and expense associated with traditional litigation. Jack
B. Anglin, 842 S.W.2d at 272-73. Respondent's order denying Deutsche Bank's
arbitration rights is an abuse of discretion andlor clear error of law.
A. DEUTSCHE BANK IS ENTITLED A MANDATORYSTAY UNDER
SECTION OF THE FEDERAL
Plaintiffs' claims against Deutsche Bank are "referable to arbitration"
pursuant to the broad, mandatory arbitration provisions contained in the E&Y
Agreements. By its terms, the FAA "leaves no place for the exercise of discretion by a
district court, but instead mandates that district courts shall direct the parties to proceed to
arbitration on issues as to which an arbitration agreement has been signed." Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213,218 (1985) (emphasis in original).
Section 3 of the FAA requires courts to stay cases where the claims are
referable to arbitration by written agreement. Specifically, Section 3 provides that:
If any suit or proceeding be brought in any of the courts of the United
States upon any issue referable to arbitration under an agreement in writing
for such arbitration, the court in which such suit is pending, upon being
satisfied that the issue involved in such suit or proceeding is referable to
arbitration under such an agreement, shall on application of one of the
parties stay the trial of the action until such arbitration has been had in
accordance with the terms of the agreement, providing the applicant for the
stay is not in default in proceeding with such arbitration.
9 U.S.C. 5 3. (emphasis added).
he rationale for this rule is evident: the FAA strongly favors arbitration
over litigation and, accordingly, courts must resolve any doubts about an agreement to
arbitrate in favor of arbitration. See Moses H. Cone Mem'l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24-25 (1983). Moreover, the loss of an arbitration right irreparably
damages a litigant. See, e.g., City o Meridian, Miss. v. Algernon Blair, Inc., 721 F.2d
525, 529 (5th Cir. 1983) (injunction staying arbitration constituted irreparable harm,
deprived party of the "swift and less costly" dispute resolution via arbitration).
In determining the arbitrability of a dispute, a court must decide:
(1) whether a valid agreement to arbitrate between the parties exists; and (2) whether the
dispute in question falls within the scope of that arbitration agreement. See OPE Int 'I L P
v. Chet Morrison Contractors, Inc., 258 F.3d 443, 445 (5th Cir. 2001). Plaintiffs' claims
against Deutsche Bank are "referable to arbitration" because: (I) the E&Y Engagement
Agreements contain a valid agreement to arbitrate that Deutsche Bank is entitled to
enforce under principles of equitable estoppel; and (2) Plaintiffs' claims fall within the
scope of those arbitration provisions.
Plaintiffs do not dispute that a valid, binding arbitration agreement exists
between them and E&Y. R2: p.7, n.3. Instead, the issue erroneously ruled on by
Respondent was whether Deutsche Bank, a non-signatory to the arbitration agreement,
may also enforce the arbitration provision under principles of equitable estoppel. As
explained by the Fifth Circuit in Grigson v. Creative Artists Agency, L.L.C., non-
signatories may compel signatories to arbitrate their claims:
Existing case law demonstrates that equitable estoppel allows a
nonsignatory to compel arbitration in two different circumstances. First,
equitable estoppel applies when the signatory to a written agreement
containing an arbitration clause must rely on the terms of the written
agreement in asserting its claims against the nonsignatory. When each of a
signatory's claims against a nonsignatory makes reference to or presumes
the existence of the written agreement, the signatory's claims arise out of
and relate directly to the written agreement, and arbitration is appropriate.
Second, application of equitable estoppel is warranted when the signatory
to the contract containing an arbitration clause raises allegations of
substantially interdependent and concerted misconduct by both the
nonsignatory and one or more of the signatories to the contract. Otherwise
the arbitration proceedings between the two signatories would be rendered
meaningless and the federal policy in favor of arbitration efectively
2 10 F.3d at 527. (emphasis in original).
Under Grigson, a non-signatory can estop a signatory from avoiding
arbitration by showing either: (1) that the signatory's claims rely on the express terms of
the contract containing the arbitration agreement; or (2) that the signatory has alleged
substantially interdependent and concerted misconduct by both the non-signatory and one
or more of the signatories to the contract containing the arbitration clause. Id. Deutsche
Bank is entitled to enforce the arbitration provisions in the E&Y Agreements under either
circumstance articulated under ~ r i ~ s o n . '
1. Plaintiffs' Claims Rely On The E&Y Engagement Agreements
Plaintiffs' claims against Deutsche Bank rely on the "tax and tax-related
services" that are the subject of Plaintiffs' agreements with E&Y. The gravamen of
Plaintiffs' suit is their allegation that financial and tax advisors (including E&Y) schemed
with others, including Deutsche Bank, to deceive them into investing in an illegal tax
shelter. Plaintiffs allege that "Emst & Young identified the Plaintiffs as potential
COBRA participants based on their intimate knowledge of the Plaintiffs' finances,"
R2: 7 214, and that "before meeting with the Plaintiffs, Defendants, Ernst & Young and
Jenkens devised a game plan that included Ernst & Young identifying their own clients
for the COBRA Strategy. The game plan also included a scheme wherein Ernst & Young
and Deutsche Bank solicited potential clients and made the aggressive presentation."
R2: 7 215; T[ 41. According to Plaintiffs the first step of the "game plan" was their
retention of E&Y and execution of the E&Y Agreements "to start the implementation of
the tax strategy" that underlies their claims against Deutsche Bank. R2: 7 136.
As set out in the Petition, Plaintiffs' alleged dealings with Deutsche Bank
after executing the E&Y Agreements, including Plaintiffs' purchase of the foreign
exchange digital options contracts, were not independent events but rely solely on E&Y's
provision of tax advice to Plaintiffs concerning the implementation of the Strategy. For
Grigson holds, and subsequent courts have uniformly interpreted it to hold, that non-signatories
need only meet one of the two tests for equitable estoppel to apply. See Positive Software
Solutions, Inc. v. New Century Mortgage Corp., 259 F . Supp. 2d 531,540-41 (N.D. Tex. 2003).
example, after Plaintiffs decided to engage in the Strategy and entered into the
Agreements, Plaintiffs "were referred to the Deutsche [Bank] Defendants" to open
accounts and enter into the foreign exchange digital option contracts that were a part of
the Strategy. R2: 77 167-68. In other words, without the "tax and tax-related services"
provided by E&Y to Plaintiffs pursuant to the E&Y Agreements, there would have been
no transactions for Deutsche Bank to participate in, no purported injury to Plaintiffs, and
no lawsuit. As the foregoing demonstrates, Plaintiffs' claims against Deutsche Bank rely
on the terms of the E&Y Agreements. Grigson, 210 F.3d at 527 ("When each of a
signatory's claims against a non-signatory makes reference to or presumes the existence
o the written agreement, the signatory's claims arise out of and relate directly to the
written agreement.. . .") (emphasis added).
Indeed, prior to bringing this lawsuit, in December 2002, the same
Camferdarn Plaintiffs filed suit in the United States District Court for the Southern
District of New York against E&Y, Sidley Austin Brown and Wood, R.J. Ruble, and
others alleging claims under RICO, breach of fiduciary duty, fraud, negligence, breach of
contract constituting professional malpractice, conspiracy to breach fiduciary duty, and
tortious interference with contract. Camferdam v. Ernst & Young Int'l, Inc., No. 02 Civ.
10100 (BSJ), 2004 WL 307292, at *1 (S.D.N.Y. Feb. 13,2004). App. B. In Camferdam,
the court found that non-signatory defendants could enforce the E&Y Agreements. Id.
The court also held that the "Plaintiffs' argument [that non-signatory defendants could
not equitably enforce the arbitration provisions] is defeated by their own Complaint." Id.
at *6. The court explained that:
Plaintiffs seek to impose liability on the [non-signatory] Law Firm
Defendants for their own actions and the actions undertaken by the
[signatory] E&Y Defendants pursuant to its Letter Agreements with
Plaintiffs. Plaintiffs' theory of liability can only succeed if they prove their
allegation that all Defendants conspired and acted together to establish a
scheme to devise and promote the COBRA transactions.
The application of equitable estoppel is warranted here because the
Plaintiffs - signatories to the [E&Y] Letter Agreements - have raised
allegations of substantially interdependent and concerted misconduct by
both the non-signatory [Law Firm Defendants] and one or more of the
signatories to the contract [the E&Y Defendants]. If this Court were to
force the Law Firm Defendants to engage in litigation on the very same
issues that will be arbitrated by the Plaintiffs and the E&Y Defendants, the
arbitration proceedings between the two signatories would be rendered
meaningless and the federal policy in favor of arbitration effectively
Id. at *7. (internal quotations omitted; brackets in original).
Despite their allegations, and having lost on this same issue in Camferdam,
Plaintiffs argue Deutsche Bank should be treated differently in this lawsuit from E&Y
and the "Law Firm Defendants." Plaintiffs cannot have it both ways. They cannot, on
the one hand, seek to hold Deutsche Bank liable for allegedly scheming with E&Y
pursuant to the Engagement Agreements, and on the other hand, deny arbitration's
applicability because Deutsche Bank is a non-signatory. See Grigson, 210 F.3d at 527.
In short, if Plaintiffs had named Deutsche Bank as a defendant in the original Camferdam
case, they would have already been compelled to arbitrate with Deutsche Bank. Plaintiffs
should not get a different result here simply because they filed their claims against
Deutsche Bank in a different jurisdiction. Plaintiffs, none of whom are Texas residents,
should not be allowed to forum shop by filing in Texas. Review of the Respondent's
decision on this issue is thus critical to ensuring the uniform application of the FAA.
2. The Petition Raises Allegations Of "Substantially
Interdependent And Concerted Misconduct"
The second Grigson test is also satisfied because Plaintiffs allege
substantially interdependent and concerted misconduct between Deutsche Bank and
E&Y. The Petition is replete with allegations that E&Y, Deutsche Bank, and others
jointly conspired, associated, and acted in concert to commit the unlawful acts alleged.
For example, Plaintiffs allege that "Defendants, Ernst & Young and Jenkens knowingly
acted in concert, with each other and with others, to market and implement the fraudulent
and illegal COBRA Strategy." R2: f 314; f 35 ("A plan to market a tax strategy
involving foreign exchange digital option contracts (the 'FX Contracts') as part of a tax
strategy was developed by Jenkens & Gilchrist, Ernst & Young, and the Deutsche and the
Scheef & Stone Defendants in 1999."); R2: f 213 ("[Tlhe Defendants (along with Ernst
& Young and Jenkens) conspired to design, promote, and implement the COBRA
Strategy for the purpose of receiving and splitting millions of dollars in fees (the
'Defendants' Arrangement')."). According to Plaintiffs, "Jenkens, Ernst & Young and
the Defendants developed a marketing plan wherein Ernst & Young, with the assistance
of Jenkens and the other Defendants, would market the COBRA Strategy to wealthy
individuals and, in particular, the wealthy clients of Ernst & Young." R2: 7 53. The
Petition hrther alleges that "Emst & Young identified the Plaintiffs as potential COBRA
participants based on their intimate knowledge of the Plaintiffs' finances," R2: T( 2 14, and
that "before meeting with the Plaintiffs, the Defendants, Ernst & Young and Jenkens
devised a game plan that included Ernst & Young identifying their own clients for the
COBRA Strategy." R2: 7 215 .
The Court in Positive Sofmare Solutions, Inc. v. New Century Mortgage
Corp. addressed the application of Grigson in compelling arbitration in a similar
circumstance. 259 F.Supp.2d 531, 540-41 (N.D. Tex. 2003). The Court held the second
Grigson prong was satisfied:
Positive Software's allegations against the Nonsignatory Defendants all
concern their intertwined conduct with New Century. Positive Software
generally alleges throughout the First Amended Complaint that the
"Defendants" pirated its software, derived source code, and created new
software incorporating LoanForce. Moreover, Positive Software claims a
civil conspiracy among the Defendants to violate its intellectual property
rights. Since all of Positive Software's allegations against the
Nonsignatory Defendants concern their interdependent and concerted
misconduct with New Century, the second independent basis for equitable
estoppel is met.
Plaintiffs here make the same general claims against "Defendants" in
addition to the specific allegations of intertwined conduct between Deutsche Bank and
E&Y discussed above. R2:77 4 1-42, 44-46, 52, 2 17, 225; see also Galtney v. KPMG
LLP, 2005 W L 1214613, at "5 (S.D. Tex. 2005) (recognizing Deutsche Bank's right to
arbitrate, relying on Grigson, in another tax-motivated strategy lawsuit). Similarly, the
court in Melton, et al. v. Sidley Austin Brown & Wood LLP, et al., Chancery No.
C192922 (Va. Cir. Ct.) -involving the same Strategy and in which the pIaintiffs asserted
claims against Deutsche Bank and others, but not E&Y with whom the plaintiffs were
proceeding in arbitration - found the application of equitable estoppel warranted where
"the plaintifqs'] allegations throughout their complaint allege concerted misconduct and
interconnected facts." Melton, April 22, 2005 Hearing Tr., App. C: p. 10. After
acknowledging that the doctrine of equitable estoppel permits a non-signatory to compel
a signatory to arbitrate "when the signatory to the contract containing the arbitration
clause raises allegations of substantial[ly] interdependent and concerted misconduct by
both the nonsignatory and one or more of the signatories to the contract," the court found
the circumstances for applying the doctrine present where, among other things, the
"plaintiffs allege that Defendant Deutsche Bank conspired with Ernst & Young, and
other defendants regarding the Strategy tax shelters. Plaintiffs' allegations are generally
stated against defendants collectively and many ways undifferentiated in terms of
conduct. It's indicative of concerted misconduct and interconnectedness."
App. C: pp. 11-12.
Here, the Petition also accuses Deutsche Bank of being a member of a civil
conspiracy with E&Y. R2: 77 313-19. Because conspirators act as agents of each other
in committing acts in furtherance of the conspiracy, Plaintiffs' cannot credibly argue that
their claims against Deutsche Bank and E&Y are not intertwined and interdependent.
Pursuant to the strong presumption that "any doubts concerning the scope
of arbitrable issues should be resolved in favor of arbitration," Moses H. Cone Mem'l
Hosp., 460 U.S. at 24-25, courts must grant a party's request to arbitrate "unless it may
be said with positive assurance that the arbitration clause is not susceptible of an
interpretation that covers the asserted dispute." See United Steelworkers o Am. v.
Warrior & GulfNavigation Co., 363 U.S. 574, 582-83 (1960); see also Commerce Park
at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir. 1984). In
determining the scope of an arbitration agreement, courts focus on factual allegations in
the complaint rather than the legal causes of action asserted. See In re Tenet Healthcare,
84 S.W.3d 760,767 (Tex. App. - Houston [lst Dist.] 2002, orig. proceeding). As such,
"[ilf the allegations underlying the claims touch matters covered by the parties' contracts,
then those claims must be arbitrated, whatever the legal labels attached to them." JLM
Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 172 (2d Cir. 2004) (internal quotation
omitted). The E&Y Agreements contain broad arbitration provisions covering "[alny
controversy or claim arising out of or relating to tax and tax-related services now or
hereafter provided by [E&Y] to [Plaintiffs]." App. A: p. 2. As set forth above, Plaintiffs'
Petition establishes that the allegations underlying the claims asserted against Deutsche
Bank "touch matters" covered by the Engagement Agreements. See supra pp. 8-14.
CONCLUSION AND PRAYER
Plaintiffs' claims against Deutsche Bank rely on the E&Y Agreements and
allege "substantially interdependent and concerted misconduct" between non-signatory
Deutsche Bank and signatory E&Y. The E&Y Agreements contain broad arbitration
provisions encompassing the scope of Plaintiffs' claims. Therefore, Realtors pray this
Court grant its Petition for Writ of Mandamus and direct Respondent to: (1) withdraw his
March 2, 2006 order denying Deutsche Bank's right to arbitration; and (2) enter an
appropriate order staying proceedings pending arbitration pursuant to the FAA.
State Bar No. 0079 1729
State Bar No. 24046968
BRUNE & RICH&
Susan E. Bnme*
80 Broad Street
New York, NY 10004
700 Louisiana, Suite 2050 Telephone: (2 12) 669- 1900
Houston, Texas 77002 Facsimile: (2 12) 668-03 15
Telephone: (7 13) 445-1500 *subject to pro hac vice admission
Facsimile: (7 13) 445- 1533
BOYAR & MILLER, P.C.
BRACEWELL GIULIANI LLP David M. Bond
Gayle A. Boone Sesha Kalapatapu
State Bar No. 02628500 4265 San Felipe, Suite 1200
500 North Akard Street, Suite 4000
Houston, Texas 77027
Dallas, Texas 75201-33 87 Telephone: (7 13) 850-7766
Telephone: (2 14) 75 8- 1000
Facsimile: (7 13) 552- 1758
Facsimile: (2 14) 758-10 10
Attorneys for Relator,
Attorneys for Relators, David Parse
Deutsche Bank AG and Deutsche Bank
Securities Inc., d/b/a Deutsche Bank Alex.
THE STATE OF TEXAS 5
COUNTY OF HARRIS §
BEFORE ME, the undersigned notary, on this day appeared in person Mike
Stenglein, who is known to me as the person whose signature appears below and who
stated as follows, after having been duly sworn according to law:
1. My name is Mike Stenglein. I am over the age of twenty-one (21),
of sound mind and in all ways competent to make this verification. I am one of the
attorneys representing Relators, Deutsche Bank AG and Deutsche Bank Securities Inc.
d/b/a Deutsche Bank Alex. Brown in connection with the arbitration dispute in the case
styled, Henry N. Camferdam, Jr., et al., v. Deutsche Bank AG, et al., pending in the 17th
Judicial District Court of Tarrant County, Texas, Cause Number 017-2 12033-05. I have
personal knowledge of the facts stated in this affidavit and those facts are true and
2. I have read the foregoing Petition for Writ of Mandamus and
Supporting Brief. In my personal knowledge, the Petition truly and correctly recites the
factual allegations set forth in the pleadings and the evidence in the trial and appellate
3. Tabs A through F of the attached Appendix contain true and correct
copies of documents material to Relators' claim for relief thg are filed as part of the trial
and appellate court record.
SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned notary
on May 3,2006.
~ u b l i g n m o r the State of Texas
My Commission expires: j /' 3 6 -
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of this Petition for Writ of
Mandamus was served on the following on May 3,2006, as shown below:
Via Hand Deliverv Via Electronic Transmission and
Honorable Fred Davis Certified Mail Return Receipt Requested
17th Judicial District Court David R. Deary
401 West Belknap Street W. Ralph Canada, Jr.
Fort Worth, Texas 76 196-0402 Jeven Sloan
Alyssa M. Barreneche
Deary Montgomery DeFeo & Canada
Chateau Plaza, Suite 1565
Dallas, Texas 75201
Via Electronic Transmission and Via Electronic Transmission and
Certified Mail Return Receipt Requested Certified Mail Return Receipt Requested
Joe R. Whatley, Jr. Ernest Cory
Othni Lathram Cory, Watson, Crowder & Degaris
Whatley Drake, LLC 2 131 Magnolia Avenue
2323 2nd Avenue North Birmingham, Alabama 35205
- , Birmingham, Alabama 35203
Via Electronic Transmission and
CertifiedMail Return Receipt Requested
Thomas C . Clark
Mark J. Zimmermann
Dealey, Zimmermann, Clark Malouf
& MacFarlane, P.C.
3 131 Turtle Dr., Suite 1201
Dallas, Texas 75219
Ernst & Young Engagement Agreement (with arbitration provision).
Camferdam v. Ernst & Young IntJl, Inc., No. 02 Civ. 10100 (BSJ), 2004 WL
307292, *1 (S.D.N.Y. Feb. 13,2004).
Melton, et al. v. Sidley Austin Brown & Wood LLP, et al., Chancery No. C192922
(Va. Cir. Ct.), April 22,2005, Hearing Transcript.
Order Denying Deutsche Bank's Motion to Stay Proceedings Pursuant to Section
3 of the Federal Arbitration dated March 2, 2006, in the 17th Judicial District
Court of Tarrant County, Texas; Case No. 017-212033-05; Henry N. Camferdam,
et al. v. Deutsche Bank AG, et al.
Order by the Second Court of Appeals staying trial court proceedings pending
mandamus proceedings, dated March 23,2006.
Memorandum Opinion by the Second Court of Appeals denying Deutsche Bank's
Petition for Writ of Mandamus, dated April 25,2006.
a him sarPrd h- o egait3ble =lief of my COIL Thsy d u l l hrrvs no
dmnagc~ my athd &str not maaancd by rhs pmvJilia~ WE
~ ~ g e s , d t h o ~ e s ~ y ~ ~ ' ~ c r o o b u i o r u t h d u r u ~ m ; ~ r b ~ ~ ~
e p to be
- a ~ w ~ ~ k r ~ a r r r r S ~ ~ ~ ~ ~ ~ ~ ~ f u b t o isheld m v i r i o r r r
~ t ~ d r ~ t h P M & a o r i r r r p o r t d b y r c o r r r t b ? d s h gBczunc.jrrrisdiaioa
k R + o f t h e 4 a b c ~ p n ~ p & m d ~ m t *Qnnj~
-- m r y b e ~ i n t n y m m t * ~
- I.. c
Not Reported in F.Supp.2d Page 1
Not Reported in F.Supp.2d, 2004 WL 307292 (S.D.N.Y.)
(Cite as: 2004 WL 307292 (S.D.N.Y.))
stay of the taxpayers' claims against law firm defendants
would be granted on an equitable estoppel theory pending
Motions. Pleadines and Filinps arbitration of claims against tax advisor; and
@ counts seeking to enjoin tax advisor from disclosing
Only the Westlaw citation is currently available.
information to the Internal Revenue Service (IRS) were
United States District Court, moot
S.D. New York. Motions granted.
Henry CAMFERDAM, Jr., Jeffrey M. Adarns, Jay
Michener, Carol Trigilio, Bamc
Inc., Camel Partners. HNC Ditch Investments LLC, Jma
33k6.2 Most Cited Cases
under Indiana- law, letter agreements signed by taxpayers
LLC, J Walnut Investments, and CT Oak Tree
contained a binding contract to submit claims against a tc&
Investments LLC, Plaintiffs,
advisor and related entities to arbitration, despite their claim
that "Attachments" which the advisor alleged were attached
& 'OUNG lNTERNATIONAL' MC'' to the letter agreements were not actually attached, and that
Young LLP, Brian Upchurch, Carl +ha
Rhodes, Wayne T. Hoeing, Jenkins & Gilchrist, P.C., Paul
advisor's representative did not explain that the contract
M. Daugerdas, Sidley
included an arbitration clause; the intent to arbitrate was
Austin Brown & Wood LLP, R.J. Ruble, Defendants.
clear from the text of the letter agreement, and whether the
No. 02 Civ. 10100(BSJ).
attachment setting forth the specific procedures was actually
Feb. 13,2004. included with the agreement had no bearing on the issue.
Background: Taxpayers and their business entities sued tax I21Arbitration -7
advisor, three of its partners, two law firms, and two of their 3 k 7 Most Cited Cases
partners, alleging claims under the Racketeer Influenced and Under Indiana law, reference to an attachment in letter
Compt Organizations Act (RICO), breach of fiduciary agreements between taxpayers and a tax advisor w s a
duty, fraud, negligence, breach of contract constituting insufficiently specific to incorporate the terms of the
professional malpractice, conspiracy to breach fiduciary attachment to govern arbitration; without referring to the.
duty, and tortious interference with contract in connection advisor's affidavits, the court would have been unable to
with advice they received. identify profered attachments as the attachments identified
in the letter agreements.
Holdings: On defense motions to stay litigation of seven
counts pending arbitration of such claims, and for dismissal U1 Arbitration -233(2)
of two counts as relief in aid of arbitration, the District 33k23.3(2) Most Cited Case5
Court, Jones, J., held that: Under Indiana law, tax advisor did not waive its right to
letter agreements signed by taxpayers contained a arbitrate claims asserted by taxpayers by engaging in
binding contract to submit claims to arbitration; litigation, in response to a subpoena, on the issue of whether
121 reference to an attachment in the letter agreements was it w s required to reveal the names of its clients to the
insufficiently specific to incorporate the terms of an Internal Revenue Service (IRS); the advisor did not institute
attachment to govern arbitration; the Litigation, but rather, suit w s filed against the advisor,
tax advisor did not waive its right to arbitrate; and it was bound to answer.
@) business entities created by taxpayers were covered by
the arbitration agreement;
33k7.3 Most Cited Cases
O 2006 ThornsodWest. No Claim to Orig. U.S. Govt. Works.
' Not Reported in F.Supp.2d Page 2
- Not Reported in F.Supp.2d12004 WL 307292 (S.D.N.Y.)
(Cite as: 2004 WL 307292 (S.D.N.Y.))
Under Indiana law, business entities created by taxpayers in billion in punitive damdges against their accountants and
connection with advice received from a tax. advisor were advisors, Ernst & Young and three of its partners, as well as
covered by an arbitration agreement in letter agreements two law firms. Jenkins & Gilchrist and Brown &Wood and
between the taxpayers and the advisor, even though the two of their p a h e r s (collectively "Law Firm Defendants"),
entities did not sign the letter agreements; if the entities who acted in concert with Emst & Young to allegedly
were not bound by the letter agreements, then they would promote an unlawful and unregistered tax shelter, which
have no cause of action arising out of the agreements, and they dubbed "COBRA."
moreover, it would have defeated the purpose of the
arbitration clause and the strong federal policy favoring On April 14,2003, Defendants Emst & Young LLP ("E &
arbitration to allow the entities to litigate issues that the Y"), Ernst & Young International ("E & Y International"),
individual taxpayers, who created and controlled the Brian Upchurch, Carl A. Rhoades, and Wayne T. Hoeing
entities, clearly agreed to arbitrate. (collectively the "E & Y Defendants") moved this Court (1)
to stay litigation of Counts 1-7 of Plaintiffs' First mended
U Arbitration -23.9 Complaint pending arbitration of such claims pursuant to
33k23.9 Most Cited Cases the Federal Arbitration Act ("FAA1'), 9 U.S.C. h 3. and 12)
Under Indiana law, taxpayers' claims against the law firm for dismissal of Counts 8 and 9 as relief in aid of arbitration.
defendants were intertwined with their claims against tax For the reasons set forth below, Defendants' motion is
advisor and its partners under letter agreements, and thus, a pranted.
stay of the taxpayers' claims against the law f r defendants
would be granted on an equitable estoppel theory pending Also before this Court are motions by the Law Fr im
arbitration of the claims between the taxpayers and the tax Defendants to stay these proceedings pending arbitration.
advisor defendants, even though the law firm defendants As explained below, these motions are also granted.
were non-signatories to the agreements.
Federal Courts -13 The four individual plaintiffs-Henry A. Camferdam, Jr.,
170Bk 13 Most Cited Cases Jeffrey M. Adams, Jay Michener, and Carol Trigilio
Under Indiana law, to the extent taxpayers sought to enjoin (collectively, "the Individual Plaintiffsu)-- received tax
tax advisor fiom disclosing to the Internal Revenue Service advice fiom E & Y relating to certain capital gains incurred
(IRS) information, communications, or documents that when they sold their business in 1999. (Am.Compl.fl 46,.
might impair or violate any of the taxpayers' confidentiality 48). Each Individual Plaintiff had his or her own
rights and privileges, the counts were moot; the advisor had engagement letter with E & Y (collectively "the Letter
already made disclosures to the IRS,the propriety of those Agreements"). (Defsl Exs. 2,3,4,5).
disclosures was the subject of other litigation, and there was
The six entity plaintiffs are a corporation, a partnership and
no reason to believe that the advisor would make any further
four limited liability companies ("the Entity Plaintiffs")
disclosures to the IRS or any other party.
created by the Individual Plaintiffs as part of the ,
Opinion transactions conte.mplated by the Letter Agreements.
JONES, J. To effectuate the strategy outlined in the Letter Agreements,
the Individual Plaintiffs established the Entity Plaintiffs and
*1 Plaintiffs filed this action on December 20, 2002, conducted certain additional transactions (the "1999 tax
alleging claims under RICO, breach of fiduciary duty, fraud, transactions"). (Am. Compl. at aS[ 21- 26). All Plaintiffs now
negligence, breach of contract constituting professional allege that as a result of advice they received fiom E & Y
malpractice, conspiracy to breach fiduciary duty, and with respect to the 1999 tax transactions-advice
tortious interference wt contract. The Plaintiffs seek in
ih indisputably rendered pursuant to the Letter
excess of $40 million in compensatory damages and $1 Agreements-Plaintiff have been "exposed ... to audits by
O 2006 ThomsonlWest. No Claim to Orig. U.S. Govt Works.
Not Reported in F.Supp.2d Page 3
Not Reported in F.Supp.2d, 2004 WL 307292 (S.D.N.Y.)
(Cite as: 2004 WL 307292 (S.D.N.Y.))
the IRS [Internal Revenue Service] and [have been exposed e.g., Trigilio Aff. at 7 25; Camferdam Aff. at 24). Moreover,
to] substantial tax liability." (Am. Compl. at 7 4). the Plaintiffs contend that they were not aware that the
Additionally, Plaintiffs allege that E & Y and Plaintiffs' tax Letter Agreement itself even contained an agieement to
counsel charged Plaintiffs excessive fees for their work on arbitrate because Hoeing, the E & Y partner with them at
tbe 1999 tax transactions. (Am. Compl. at 7 2). the time that they signed the Letter Agreements, did not
explain to them that the contract included an arbitration
The six Entity Plaintiffs are BAMC, Inc., clause. Based on these factual assertions, Plaintiffs now
Camel Partners, HNC Ditch Investments LLC, claim that, as a matter of law, they cannot be found to have
M A Sedgemoor Inveshcnts, LLC, JM Walnut agreed to arbitration.
Investments LLC, and CT Oak Tree Investments
LLC. (Am. Compl. at l a 2 1-26). Plaintiffs argue, in the alternative, even if an agreement to
arbitrate existed, the E & Y Defendants have waived their ..
The E & Y Defendants have nioved to compel arbitration right to demand arbitration due to their participation in
based on the Letter Agreements signed by the Individual related litigation in the Northern District of Illinois ("the
Plaintiffs. According to each Letter Agreement: Illinois Litigation"). The Illinois Litigation arose out of a
*2 Any controversy or claim arising out of or relating to subpoena that E & Y received fiom the IRS seeking
tax and tax-related services now or hereafter provided by disclosure of the identities of E & Y clients who had
us to you (including any such matter involving any parent, participated in certain tax-related transactions. Several E &
subsidiary, affiliate, successor in interest, or agent of Y clients-not including any of the Plaintiffs in this matter-
Ernst & Young LLP) shall be submitted first to voluntary sought to enjoin this disclosure, and the matter was litigated
mediation, and if mediation is not successful, then to before the district court and the Seventh Circuit. The
binding arbitration, in accordance with the dispute Plaintiffs in the Illinois Litigation did not prevail and the
resolution procedures set forth in the Attachment to this identities of E & Y clients were disclosed pursuant to the
, letter. IRS subpoena.
'(the "Arbitration Clause") (Defs' Ex. 2-5). The E & Y
Defendants have submitted to this Court each of Plaintifit The Plaintiffs also argue that the Entity PIaintiffs and the
signed two page Letter Agreements. In addition, they have Law Firm ~efendantsare not subject to the arbitration
submitted what they claim were the "Attachments" to the agreement.
~etter' Agreements referred in the above paragraph. Each
"Attachment" is a two-page document, titled "Dispute The parties agree that Indiana law controls this case.
Resolution Procedures." @efsl Exs. 2-5). Wayne T. Hoeing,
1. The Letter Agreement Contains a Binding Contract to
a partner at E & Y who was with Plaintiffs when they
Submit Claims to Arbitration.
signed these Letter Agreements, has submitted a declaration
in which he avers that the "Attachment" was attached to the *3 W The Letter Agreement signed by the Individual
Letter Agreements at the time that the Plaintiffs signed Plaintiffs states that:
those contracts. Any controversy or claim arising out of or relating to tax
and tax-related services now or hereafter provided by us
to you (icluding any such matter involving any parent,
Plaintiffs contend that their claims are not subject to
arbitration because the "Attachments," which the E & Y subsidiary, affiliate, successor in interest, or agent of
Defendants allege were attached to the Letter Agreements, Emst & .Young LLP) shall be submitted first to voluntary
were not actually attached. The plaintiffs have each mediation, and if mediation is not successful, then to
submitted affidavits in which they aver that the two-page binding arbitration, in accordance with the dispute
resolution procedures set forth in the Attachment to this
Dispute Resolution Procedures, which E & Y has filed with
the Court, were not attached the to Letter Agreements. (See,
Zlaim to Orig. U.S.Govt Works.
Not Reported in F.Supp.2d Page 4
Not Reported in F.Supp.2d, 2004 WL 307292 (S.D.N.Y.)
(Cite as: 2004 WL 307292 (S.D.N.Y.))
(Defs' Ex. 2-5). This statement indicates the clear intent of agreed to any specific arbitration procedures. Thus, Salomon
the parties to arbitrate claims such as those presented in this is inapplicable.
M2. Plaintiffs also rely on P.T. Cross. Co. v,
Plaintiffs' argument that they are not bound to arbitrate &oval Selanaor(8) PTE. Ltd.. 217 F . S U D D 229~
because they allegedly did not read the arbitration provision /D.RI.2002); however, the parties in A.T. Cross
and Mr. Hoeing did not advise them of it, is unavailing. never had a written agreement to arbitrate. Here,
These excuses do not relieve them of their duty to arbitrate Plaintiffs do not dispute that they signed the Letter
under the signed Letter Agreement. "It is a basic tenet of Agreements, which contained the Arbitration
[Indiana] contract law that a person is assumed to have read Clause.
and understood documents that they sign; a lack of
understanding or failure to read the contract's provisions Plaintiffs also argue that the agreement to
does not relieve a party from the terms of that agreement ." arbitrate should not be enforced because the
.Flr*nn 1. Aerclrem. 67c.. 102 F.Supo.2d 1055. 1 0 a agreement was unconscionable and Defendants'
[S.D.Znd.2000). promise to arbitrate was illusory. Under Indiana
law, an agreement is unconscionable if it is written
Plaintis also argue that the alleged failure to provide the "such that no sensible man not under delusion.
parties with the "Attachment" at the time the Letter duress, or in distress would make if and such as no
Agreements were signed precludes a finding of an honest and fair man would accept it" Geiacr i~,
agreement to arbitrate. This argument is not persuasive. Tfie Rvan's Farnil11 Steukhou~e.134 F . S d 985. 997
intent to arbitrate is clear from the text of the Letter IS.D.Ind.2001) (citations omitted). Notably, at least
Agreement, and whether the Attachment setting forth the one of the Plaintiffs signed subsequent agreements
specific procedures w s actually included with the Letter
a that contained a substantially similar arbitration
Agreement has no bearing on this issue. provisionand Attachment. (Defs' Exs. 7- 9). In any
case, this Court finds that this arbitration
Plaintiffs rely upon [it re Snlornon. 68 F.3d 554 (2d agreement does not even approach the threshold for
Cir.19951, to argue that no agreement to arbitrate exists a finding of unconscionability. Plaintiffs argue that
here; however, such reliance is misplaced. The Defendants' ability to attach any set of procedures
parties in Salomon had specifically agreed that "all disputes to the Letter Agreement renders the Defendants'.
were to be arbitrated by the p e w York Stock Exchange] promise illusory. However, Defendants, like
and only the NYSE." Id. at 558. When the NYSE refused to Plaintiffs, are bound to arbitrate according to the
arbitrate a dispute between the parties, the court refused to procedures set forth in the Attachment; therefore
substitute arbitrators under 5 5 of the Federal Arbitration the promise w s not illusory.
Act, finding that the agreement to arbitrate was a specific
agreement to arbitrate before the NYSE and that there was *4 While there is an undeniable agreement to arbitrate,
"no further promise to arbitrate in another forum." Id. the Court is unable to determine either the appropriate
Plaintiffs try to analogize this case to Salomon by stating arbihal forum or which procedures will govern the
that the parties agreed to arbitrate according to the "set of arbitration. Defendants urge that Plaintiffs should be
r l s contained in the missing and disputed Attachment" and
ue required to arbitrate this dispute in accordance with the
arguing that this Court cannot "sever the missing procedures set forth in the Attachment, which requires, inter
Attachment from the alleged agreement to arbitrate." (Pl. alia, that the arbitration be conducted in accordance with
Post-Arg. Br. at 17). This is disingenuous. The Plaintiffs' AAA Rules, no damages be awarded in excess of actual
contention is not that they agreed to a specific set of rules, damages, and no discovery be permitted unless expressly
but rather that, because the Attachment was not supplied to authorized upon a showing of substantial need. Defendant's
them when they signed the Letter Agreements, they never argue that because the Letter Agreement specifically
Q 2006 ThornsodWest. No Claim to Orig. U.S.Govt. Works.
Not Reported in F.Supp.2d Page 5
Not Reported in F.Supp.2d, 2004 WL 307292 (S.D.N.Y.)
(Cite as: 2004 WL 307292 (S.D.N.Y.))
incorporates the Attachment, the Plaintiffs are bound by the Agreement dated July 23, 1998. The Letter
terms of the Attachment, regardless of whether they ever Agreements at issue in this case are dated
received it. The Court agrees that if the Attachment were November 5.1999.
incorporated by reference in the Letter Agreement, then
Plaintiffs would be bound to arbitrate according to the terms This finding does not nullify the parties'
of the Attachment. See, e.g., Dimick v. First USA Bank, agreement to arbitrate this dispute. Parties can
N.A., ZOO0 U.S. Dist. LEXIS 20910 (D.N.J. Jan. 14,2000); agree to arbitrate without specifying the procedures
Hart v. Canadian Imnerial Bank of Conin~erce. 43 to govern such arbitration. CNA Reinsurunce Co. 11.
F . ~ U D D . ~ 400-01 (S.D.N.Y.19991; see also Butvin v.
393. ~ 3-~~smaark Jm. Co.. 2001 WL 648948. at *5
DoubleClick, Inc., 2001 U.S. Dist. LEXIS 2318, at '16 .
~ . D . I I lJune 5 2001) ("If the parties have agreed
(s.D.N.Y. Mar. 7, 2001) ("The law simply does not protect to arbitrate, but have not specified the location or
someone who willingly signs an agreement which mechanics of arbitration, the csurt may fill the gaps
references and incorporates other controlling documents under the FAA.").
which he or she has not seen."). However, the Court finds
Because the Attachment was not incorporated into the Letter
that the reference in the Letter Agreement to the Attachment
Agreements by reference, the Gourt is presently unable to
is insufficient to incorporate the terms of the Attachment.
resolve. the factual dispute as t o which arbitral forum or
See A.dvanced Disvlav &~,rtemns. Inc. v. Kent State
which procedures shall control the arbitration. A factfinder
Uniirer;rilv.2 12 F.3d 1272 fFed.&2000) (whether material
must determine either that no attachment was provided or
is incorporated by reference is a question of law).
that the Attachment the E & Y Defendants claim was
"Under general principles of contract law, a contract may attached to the Letter Agreements was, in fact, attached. If
incorporate another document by making clear reference to there was no attachment-and therefore a failure to specify
it and describing it in such terms that its identity may be the mechanics of the arbitration-the Court would order the
' parties to arbitration pursuant to the FAA. See 9 U.S.C. F 5
ascertained beyond doubt" New Moon S h t p ~ i n ~ v. MAN
B & W D k ~ e A.G. 121 F.3d 21. 30 (2d Cir.1997) (citing 4
l (if there is "a lapse in the naming of an arbitrator ... [then]
Williston on Contracts fj 628, at 903-04 (3d ecl.1961)); see the court shall designate and appoint an arbitrator or
also Lake Counh, T ~ u s Co. 11. Wine. 701 N.E.2d 1035. 1039
t arbitrators or umpire, as the case may require"); CNA
fInd.A~~.1998) ("a contract may incorporate mother Co.
Beznsi~mncc v. TruslnlarkIns. Co.. 2001 W L 648948. at
unsigned writing when the contract expressly incorporates "5 CN.D.111. June 5. 20011 ("If the parties have agreed to.
the terms of the writing"). Here, if we assume--as we arbitrate, but have not specified the location or mechanics of
must-that the Attachment was not attached to the Letter arbitration, the court may fill the gaps under the FAA."). If
Agreement at the time of signing, then the Letter Agreement the Attachment submitted by E & Y was attached, its tenns
fails to adequately describe the Attachment. Without shall govern.
referring to the Defendants' affidavits, the Court would be
*5 To resolve this matter, the Court directs the parties to
unable to identify these Attachments as the Attachments
brief the issue of how this question of fact should be
identified in the Letter Agreements. Thus, the reference in
decided-e.g., a hearing before the Court, a jury trial, etc.
the Letter Agreements is not specific enough to incorporate
The parties are directed to submit further briefing on this
the Attachment supplied by the E & Y Defendants into the
issue on or before March 4, 2004. If either party wishes to
agreement between the parties.
respond, any such response is due no later than March 11,
FN4. ~ndeed, the Attachment that the E & Y 2004.
Defendants have supplied to the Court contains an
2. Defendants Have Not Waived Their Right to Arbitrate
incorrect date, and purports, on the face of the
document, to have been attached to a Letter
O 2006 ThomsordWest. No Claim to Orig. U.S. Govt. Works.
Not Reported in F.Supp.2d Page 6
Not Reported in F.Supp.2d, 2004 WL 307292 (S.D.N.Y .)
(Cite as: 2004 WL 307292 (S.D.N.Y.))
I11In response to a subpoena by the IRS, E & Y engaged in and 9.
litigation in the Northern District of Illinois on the issue of
whether it was required to reveal the names of its clients to 3. The Agreement to Arbitrate Covers the Entity Plaintiffs
the IRS. Although not a party to the Illinois Litigation,
The Entity Plaintiffs that did not sign the Letter
Plaintiffs argue that E & Y's participation in this litigation
Agreements are bound to arbitrate their claims against the
waives the right to arbitrate this claim. This Court does not
Defendants. The Letter Agreement specifically states that E
find any waiver. "[There is a strong presumption in favor of
& Y provided advice and services for the benefit of the
arbitration and that waiver of the right to arbitration 'is not
Individual Plaintiffs and one Entity PlaintifE, C m e l
to be lightly inferred." ' Cotton v. Slone. 4 F.3d 176. 179 (2d
Partners, which was created by the Letter Agreement
Cir.1993) (citation omitted) (quoting ~urcicli Rederi A/B
"A party is estopped fiom denying its obligation to arbitrate
Nordie. 389 F.2d 692. 696 (2d Cir.1.968)). Here, Plaintiffs
when it receive's a 'direct benefit' from a contract containing
have failed to overcome this presumption.
an arbitration clause." Jrnericun Blweau o f Shipnine v..
E & Y did not institute the Illinois Litigation--suit was filed Terrcara Shtvvard S.P.A.. 170 F.3d. 349. 353 (2d Cir.19991.
against E & Y and they were bound to answer. Under the Plaintiff Carmel Partners is a partnership whose four general
circumstances, E &.Y1slitigation of the IRS subpoena in a partners art other Entity Plaintiffs-HNC Ditch Investments
suit that did not involve Plaintiffs is not sufficient to find a M
LLC, Sedgemoor Investments LLC, J Walnut Investments
waiver of their right to arbitrate claims against Plaintiffs. LLC; and CT Oak Tree Investments LLC-that are wholly
Perm 11. ICN Phnrmnceufirnls, . 866 F.SUDD.120. 12 L
owned by the Individual Plaintiffs. The remaining Entity
[S.D.N.Y. 19941 ("Pendency of a suit by plaintiff against ... Plainti$ BAMC, Inc., is also controlled by the Individual
others concerning overlapping subject matter cannot deprive Plaintiffs. All Entity Plaintiffs' were created for the sole
the moving defendants of the benefit of their arbitration purpose of implementing the advice given by E & Y under
agreement with plaintiff; otherwise arbitration could be the Letter Agreements.
defeated at any time when related litigation with
nonsignatories of the arbitration agreement was initiated.
PN6. Plaintiffs do not appear to dispute that
Carmel Partners is bound to arbitrate its claims.
This would destroy the usefulness of arbitration in many
complex commercial contexts, contrary to the objectives of "6 Plaintiffs argue that the Entity Plaintiffs are not bound by
the United States Arbitration Act."). the Letter Agreements-and, thus, not bound to
arbitrate-because the Entity Plaintiffs did not exist at the
Moreover, Plaintiffs have failed to demonstrate that the
time of contracting and did not sign the Letter Agreements.
litigation in the Northern District of Illinois resulted in
However, if the Entity Plaintiffs are not bound by the Letter
prejudice against them. R ~ s h Q~~enheirner Co.. 779
Agreements, then they have no cause of action against the
F.2d 885. 887 (2d Cir.1 ("waiver of the right to compel
Defendants arising out of the Letter Agreements. Moreover,
arbitration due to participation in litigation may be found
it would defeat the purpose of the Arbitration Clause and the
only when prejudice to the other party is demonstrated.").
strong federal policy favoring arbitration to allow the Entity
Plaintiffs argue that they are prejudiced by E & Y's
Plaintiffs to litigate issues that the Individual Plaintiffs-who
participation in h e Northern District of Illinois litigation
created and control the Entity Plaintiffs-clearly agreed to
because E & Y now seeks to dismiss Counts 8 and 9 of the
Complaint as moot based on the outcome of the Illinois
litigation. However, even if E & Y had not litigated the 4. The Agreement to Arbitrate Covers the ' l a w Firm
subpoena issue in'~llinois,Counts 8 and 9 would still be Defendants
subject to dismissal because, as explained in Secti,on 5
below, Plaintiffs have failed to demonstrate that they are W Although the Law Finn Defendants entered into separate
entitled to the injunctive relief that they seek in Counts 8 engagement letters with the Plaintiffs, they now seek a stay
Q 2006 ThomsonIWest. No Claim to Orig. U.S.
Not Reported in F.Supp.2d Page 7
Not Reported in F.Supp.2d. 2004 WL 307292 (S.D.N.Y.)
(Cite as: 2004 WL 307292 (S.D.N.Y.))
based upon the Arbitration Clause in the Letter Agreements. other." Poher,ron 1.1.Money Tree. 954 F.Sunn. 15 1.9. 1529 11.
A signatory to an arbitration agreement may be estopped 11 W.D.Ala. 1 9 9 3 (citing Rerzo-Wc~t Coast Dlr~ibution
from avoiding arbitration with a non-signatory when the Co.. Inc. v. Mead Coip., 613 F.2d 722. 725 n. 3 (9th Cir.1,
issues the non-signatory is seeking to resolve in arbitration cerf. denied, 444 U.S. 927. 100 S.Q. 267. 62 L.Ed.2d 183
are intertwined with the agreement containing an arbitration m.
clause that the signatory has signed, J'hornson-CSF. S.A. 1.:
Am. Ai-birration Assoc.. 64 F.3d 773. 779 f2d Cir.1995). *7 Plaintiffs' Complaint is also instructive on the second
Here, Plaintiffs' claims against the Law Firm Defendants are prong of the test. Plaintiffs seek to impose liability on the
intertwined with their claims against the E & Y Defendants Law Firm Defendants for their own actions and the actions
under the Letter Agreement, and a stay is therefore granted undertaken by the E & Y Defendants pursuant to its Letter
pending the arbitration of the claims between the Plaintiffs ih
Agreements wt Plaintiffs. Plaintiffs' theory of liability can
and the Law Firm Defendants. only succeed if they prove their allegation that all
Defendants conspired and acted together to establish..a
A nonsignatory may be bound to an arbitration agreement scheme to devise and promote the COBRA transactions.
under ordinary principles of contract and agency. The
Second Circuit has recognized five theories for binding The application of equitable estoppel is warranted here
nonsignatories to arbitration agreements: 1) incorporation because the Plaintiffs-signatories to the Letter
by reference; 2) assumption; 3) agency; 4) Agreements-have raised allegations of "substantially
veil-piercinglalterego; and 5) estoppel. Thornson-CSF. SSAAk interdependent and concerted misconduct by both the
v. America12 Arbitration A.s.voc.. & F.3d 773. 776 f2d
I non-signatory [the Law Firm Defendants] and one or more
Cir.19951. Many courts also recognize an alternative of the signatories to the contract [the E & Y Defendants]."
estoppel theory, under which a signatory may be estopped f i f l Dealer Service Corn. 11. Franklin. 177 F.3d. 942, 942
from avoiding arbitration with a nonsignatory. Id. at 779 (11th C i W (citations omitted). If this Court were to
(collecting cases). force the Law Firm Defendants to engage in litigation on the
very same issues that will be arbitrated by the Plaintiffs and
Plaintiffs argue that the Law Finn Defendants are not the E & Y Defendants, "the arbitration proceedings between
entitled to arbitrate their claims because they fail to meet the the two signatories would be rendered meaningless and tbe
applicable two prong test for the alternative estoppel theory: federal policy in favor of arbitration effectively thwarted"
(1) that there is a close relationship between the Law Firm Id.
Defendants and the E & Y Defendants, and (2) that
Plaintiffs' claims be intimately founded in and intertwined 5. Counts 8 and 9 of the First Amended Complaint Are
with the written agreement between E & Y and Plaintiffs. Dismissed.
See Fli~or Daniel Intcrcorrtineniol. Inc,v. General Elec. CQ-
1999 WL 637236. at ' 6 (S.D.N.Y. Aue.20. 19991.
161 In Counts 8 and 9 of the First Amended Cornplaint,
Plaintiffs seek to enjoin E & Y from disclosing information,
However, Plaintiffs' argument is defeated by their own
communications, documents, or otherwise committing any
Complaint. Plaintiffs themselves proclaim that an agency
act that might impair or violate any of Plaintiffs'
relationship existed between the Law Firm Defendants and
E & Y. (Arn.Comp1.J 125). An agency relationship is confidentiality rights and privileges. To the extent
that these counts seek to enjoin E & Y from disclosing
sufficient to satisfy the first prong of the alternative estoppel
information to the IRS, the-counts dismissed as moot. E
test. Plaintiffs also claim that the Law Firm Defendants and
& Y has already made disclosures to the IRS, and the
the E & Y Defendants conspired to devise and promote the
propriety of those disclosures was the subject of litigation in
COBRA transactions to the Plaintiffs and others.
the Northern District of Illinois. There is no reason to
(Am.Comp1.g 107). "A civil cons~jiracy is a kind of
believe that E & Y will make any further disclosures to the
partnership, in which each member becomes the agent of the
IRS or any other party. If Plaintiffs have reason to believe
0 2006 ThornsodWest. No Claim to Orig. U.S. Govt. Works.
c- ; i I p m -:,
V I R G I N I A .
IN THE CIRCUIT COURT OF FAIRFAX COUNTY
- _ _ _ _ _ - - _ - _ - - - - -
WILLIAM N. MELTON,
In Chancery 192922
SIDLEY AUSTIN, et al.,
- I _ _ - - _ - _ _ _ - - - - -
Friday, April 22, 2005
The above-entitled matter came on for
hearing; without a jury, before the HONORABLE
MARCUS D. WILLIAMS, a Judge i n and for the Circuit
Court of Pairfax County, in the courthouse,
Fairfax, Virginia, pursuant to notice, when there
were present on behalf of the parties:
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c o u r t Reporting, Video Depositions, Trial Presentation h Web Design
2 On Behalf of the Plaintiff :
3 Benjamin Dimuro, Esquire
DIMURO GINSBERG & MOOK
4 908 King Street
S u i t e 200
5 Alexandria, Virginia 22314
6 Maureen McGuirl, Esquire
FENSTERSTOCK & PARTNERS LLP
7 3 0 Wall Street
New York, New York 10005
On Behalf of the Defendant:
James S. Kurz, Esquire
10 WOMBLE CARLYLE SANDRIDGE & RICE
11 8065 Leesburg Pike
Tysons Corner, Virginia 22182
Seth C. Farber, Esquire
13 DEWEY BALLANTINE LLP
1301 Avenue of the Americas
14 New York, New York 10019
, 15 James R. Hart, Esquire
HART & HORAN
16 3905 Railroad Avenue
Suite 202 South
17 Fairfax, Virginia 22 03 0
18 Jay T. Smith, Esquire
COVINGTON & BURLING
19 1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
On Behalf of Jenkens & Gilcrist:
John J. Brandt, Esquire
22 WILSON ELSER MOSKOWITZ & DICKER
8444 Westpark Drive
23 Suite 510
McLean, Virginia 22102
C O N T E N T S
Proceedings ............................. Three
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F a : '703-837-8118
& ASSOCIATES, INC.
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P R O C E E D I N G S
(The court reporter was sworn.)
MR. DIMURO: Good morning, your Honor.
Ben Dimuro for the plaintiff. With me, again,
is Maureen McGuirl of t h e New Y o r k Bar, who has
already been admitted in this case.
The parties have agreed to split their
time five minutes each, and perhaps we won't
even use all of that time.
THE COURT: Thank you.
1 l2 MR. SMITH: Jay Smith, your Honor, for I
13 Defendant Sidley Austin Brown & Wood, and Thomas
14 Smith. I'm going to limit my remarks to the
l5 only new issue that's been raised since briefing
l6 was completed, which is the Steckler case, which
17 plaintiff submitted to the Court.
18 Now, as the Court is aware, our case
19 concerns the exact same Ernst and Young
arbitration clause that was at issue i the
21 Camferdam case in New York where the Southern
22 District of New York allowed Brown & Wood to
IbMs B P B P ~ ~ ~ ~ ~ ( P I
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F a x : 703-837 -8118 Court Reportino, V i d ~ oDepoaitions, Trial Presentation & Web Design firstname.lastname@example.org
' compel arbitration.
The Steckler case did not compel
arbitration. And what the Court should
appreciate is that t h e reason some of these
cases are coming out differently is that they
contain and concern different arbitration
In S t e c k l e r , on pages 7 and 9, i n
footnotes 67 and 86, t h e C o u r t specifically
distinguished t h e Camferdam case twice and s a i d
t h a t it was different because, in that case, it
concerned an Ernst and Young agreement that
contained an arbitration clause that pertained
to the provision of tax services, and that this
meant that claims at issue were more intertwined
in Camferdam than in Steckler.
In Steckler, the arbitration clause
was contained in an agreement concerning the
creation of an LLC as one part of a transaction.
And so we think it's clear that, on pages 7 and
9, the Court indicates the result would not be
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1 Steckler also says at one point that
in that case where you had an arbitration
agreement in a kind of collateral agreement, not
* the tax advice agreement, the claims couldn't be
said to be integrally related to the agreement
. that contained t h e clause.
7 In Camferdam and here, they are
integrally related. I will not go i n t o the
details of the complaint --
THE COURT: I understand.
' MR. SMITH: Okay, then, your Honor,
then I'll leave it at that. And, unless t h e
13 Court has any questions, I'll be through.
14 Thank you.
MS. MCGUIRL: Good morning, your
17 We believe t h a t t h e S t e c k l e r Court
employed the right analysis on two issues. One
was equitable estoppel and the second was the
Now, Camferdam did involve the same
E&Y agreement, but in that case, Judge Jones in
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the Southern ~ i s t x i c t
really didn't analyze how
the claims against the lawyers in Deutsche Bank
were intertwined with the contract with E&Y.
4 And Judge Sheindlin said that's what
s this Court must do. When we submit, as we
explained in our papers, that if you look at
whether or not we would have a claim against
Sidley Austin if there was no agreement with
9 E r n s t & Young, the answer is clearly yes. We
10 would have that claim because we had a separate
11 agreement with Sidley Austin.
12 Our claims for legal malpractice don't
13 depend on a contract for accounting malpractice.
14 In both cases, in Camferdam and in
15 Steckler, the Court was not asked to consider
16 and wasn't directed to consider the fiduciary
17 duties that l&yers and Deutsche Bank, which had
18 been a long-term investment for Mr. Burlow and
19 Mr. Melton, had to make full disclosure about
arbitration agreements and what the consequences
21 of arbitration agreements would be.
22 And if the Court here allows them to
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overlook their duties, duties they had as
fiduciaries, i n --
THE COURT: is
~ h i s all'the agreed
part, basicaLly. We've dealt with this.
MS. MCGUIRL : Okay. A d then with
respect to the stay, Judge Sheindlin makes the
point that the defendants in this case are faced
w i t h discovery a l l over the country. There's no
need for them to have a s t a y .
' And one thing we didn't address in our
briefs was how long an arbitration against E&Y
is likely to take. It h a s n l , t commenced yet. My
13 experience with the ~riple-Ai n complex cases is
14 that you get no more than a day or two a t a
15 time , your Honor.
16 You spread your arbitration out o.ver
17 months. So we would be looking at staying, at
18 delaying this case if there w a s a stay, I think
19 in excess of a year.
2o And then here the plaintiffs have made
21 .a number of motions attacking the pleadings.
22 So we're talking about delaying a case
1 -"mmFs%%T, a12-
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filed in November for probably several years.
Our clients have paid a significant amount of
money. Mr. Melton has paid $6 million in
penalties already to the government, and that
kindof delay causes themprejudice.
6 THE COURT: Is that everybody now?
7 I'm dividing up my ruling between two
8 sets of defendants. The attorney defendants,
the law firm defendants and the nonattorney
10 defendants. The analysis is different.
11 What we're dealing with here is a
l2 mandatory arbitration clause which is found in
13 the Ernst & Young agreement between Ernst &
l4 Young and the plaintiffs entered into on
1s November 5th, 1999.
16 This case involves nonsignatories to
17 that agreement, asking the Court to compel
18 arbitration for certain disputes that allegedly
19 arose from that agreement and staying t h e
2o pending lawsuits.
21 Mandatory arbitration provision in the
22 Ernst & Young agreement states as follows: Any
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c:-; -. .
~ : ~ A ~ ~ ~ ~ - a x a a e q r ~ - -6 ,WsS -T ~- r u b V V ^
E S ~ f i I ~ ~ ~ T P W ~ ~ WP' -- L-W ~
T ~ T
I controversy or claim arising out of or relating
to tax and tax-related services now or hereafter
provided by us to you (including any such matter
involving a parent, subsidiary, affiliate,
5 successor in i n t e r e s t or agent of Ernst & Young
LLP) shall be submitted first to voluntary
mediation. And if mediation is not successful,
then to binding arbitration in accordance with
the dispute resolution procedures set forth in
10 the agreement in support of the attachment to
11 this letter..
12 For reasons I'm about to state, I will
l3 be granting Defendant Deutsche Bank and
14 Defendant Fisk motion to compel arbitration.
15 First of a l l , we're dealing with broad
16 arbitration provision disagreement and it
17 applies to tax and tax related services.
18 It's clear from the pleadings that
19 Deutsche Bank provided tax-related services to
2o the plaintiffs and acted as their investor,
21 advisor, money manager and broker in relation to
22 t h e COBRA tax strategy.
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1 Although Defendants Deutsche Bank are
nonsignatories to the Ernst & Young agreement,
the doctrine of equitable estoppel can allow --
4 it doesn't permit a nonsignakary to compel the
signatory to arbitrate if, one, the signatory to
a written agreement containing arbitration
clause must rely on the terms of the written
* agreement in asserting its claims against the
nonsignatory or, two, when the signatory to the
10 contract containing the arbitration clause
11 raises allegations of substantial interdependent
12 and concerted misconduct by both the
13 nonsignatory and one or more of the signatories
14 to the contract.
15 In this case we're dealing with the
16 second circumstance. The second circumstance is
17 satisfied in that the plaintiff's allegations
18 throughout their complaint allege concerted
19 misconduct and interconnected facts.
2 o Specifically plaintiffs allege that
21 Defendants Deutsche Bank had an agreement with
22 Exnst & Young involving the design, development
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1 that allege: Paragraphs 57, 58, 82. 84, 87, 89
through 91, 94, 146, 147, 150, 155. It's not
meant to be exhaustive but simply as an example
of what it's referring to.
5 With regard to Defendants Brown &
Wood, Defendant Smith and Defendant Ruble's
motion to compel arbitration, the Court is going
to deny your motion to arbitrate.
9 Arbitration provision in the Ernst &
10 Young agreement is, indeed, broad and both
Virginia and New York recognize that an
attorney-client relationship is a special
relationship which is governed by professional
In Heinzman versus Fine, ~irginia
Supreme Court appears to recognize that such
attorney-client contracts are not mere
commercial contracts and are under the
classification peculiar to themselves. You'll
find this at 217 VA 9 5 8 , 1977 case.
In ~einzman,the Virginia Supreme
Court implicitly recognized that professional
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info 0 c a s ~ con
r u l e s m a y affect t h e contract between attorneys
and clients. similarly, I believe that New York
l a w recognizes the same.
In t h i s case, it appears that there
was no informed consent by the plaintiffs in
entering i n t o an agreement whereby liability
against their attorneys would be limited o r
their ability to choose a forum in which to
litigate would be constrained.
Both Virginia and New York, the
p r o f e s s i o n a l r u l e s p r o h i b i t an attorney from
including a mandatory arbitration provision
without making certain d i s c l o s u r e s and obtaining
informed consent of their c l i e n t .
Although t h e provisions of the
agreement that contained limitations on the
terms of l i a b i l i t y i n the Ernst & Young
agreement could be severed fxom the agreement
because of the severability clause, nothing
under these facts presented to the Court
indicate that the plaintiffs were ever advised
by t h e i r attorneys that they had waived their
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right to litigate their d i s p u t e s in court.
Therefore, even i f the above
provisions were severed, it would not cure t h e
fact that disclosures of consent to the clients
would be required.
If this arbitration provision were to
be enforced against attorneys or law firms, the
attorney-client relationship would be
It is noted that applying the
equitable estoppel is within the Court's
This can be found in Grigson versus
Creative Artists Agency, 210 Federal 3rd 524,
line 24, 5th Circuit. And it's also clear that
the linchpin for the application of equitable
estoppel is equitable in nature. It awards
In applying that standard here, t h e
Court .finds to apply equitable estoppel as far
as to the claims against the attorneys.
I will deny that.
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However, I will g r a n t a stay pending
arbitration without prejudice. You may have t o
come in and ask f o r a l i f t ok stay if an
unreasonable time has passed before resolution
of this matter at arbitration.
I t h i n k that concludes the issues.
Who will draft the order?
MR. DIMURO: I'll draft the order,
your Honor. Is this something that you would
permit us to do over the next several days, or
do you want -- this is a fairly complicated
THE COURT: Well, I can make it
simple. Just say that for reasons stated of
MR. DIMURO: That's obviously an
option. That way you don't have to worry about
-- I'll be the scrivener out in the hallway.
(Whereupon, the proceedings were
adjourned at 1 2 : 5 7 o'clock a.m.)
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1 THE COURT: D o you a l l need something
2 on the Melton case? I see everyone back in
4 What is the --
5 MS. MCGUIRL: If I could explain, your
7 You had compelled us to arbitrate with
8 Deutsche Bank, and the order doesn't clearly say
fi" we're supposed to arbitrate --
lo THE COURT: Not just Deutsche, but all
11 the non -- nonattorneys.
12 M S . MCGUIRL: The nonattorneys. Not
13 clear if we're arbitrating under Triple-A rules
14 or the NASD rules with that.
15 THE COURT: I don't think that was an
16 issue of the long brief, was it?
17 M S . MCGUIRL: I'm sorry?
18 THE COURT: Was that an issue of the
19 long brief?
20 MS. MCGUIRL: No, it wasn't. But if
21 we do NASD rules, the NASD will decline to hear
22 the case because there's class action pending.
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1 So either we --
2 THE COURT: That would frustrate the
4 MS. MCGUIRL: Yes. And, also, Sidley
is saying that the stay against them is as long
as we're arbitrating with E&Y or Deutsche Bank.
I could finish the E&Y arbitration. And if I
have to do NASD with Deutsche Bank, it's going
10 THE COURT: I understand what we're
11 going to be facing here. But my understanding
12 is because of the'se facts, I mean, it's still I
13 t h e same -- I!
14 You have to finish all arbitration, I I
15 would think.
16 MS. MCGUIRL: Well, if your Honor then
17 is finding the Deutsche Bank has to compel
18 arbitration under E&Y and you order them to
19 arbitration before the Triple-A, I think the
20 problemsimplygoes away.
21 THE COURT: All right. Anybody have
22 any problem with Triple-A?
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1 MR. SMITH: Well, your Honor, the -- I
think set forth on behalf of Deutsche Bank, as I
understood your Honor, you were granting our
motion to compel arbitration based on estoppel
grounds. And the estoppel arguments that w e
were making were tied to the E&Y agreement which
provides for Triple-A arbitration.
8 We had a separate motion which I think
Court didn't address, based on our own
11 THE COURT: Right, I did, and I think
12 I need t o reach it.
13 MR.SMITH: I think t h e Court doesn't
14 necessarily need to reach i t i f there's going to
15 be an arbitration.
16 THE COURT: Let's say Triple-A then.
17 All right?
18 MS. MCGUIRL: Then I think if we put
19 ~ r i p l e - Aon the Deutsche Bank, t h a t w i l l resolve
2o the issue with Sidley, your Honor.
21 MR. SMITH: Because then it would be
22 clear that the litigation with Sidley is stayed,
4 - 2 me Z
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7 'A?F~GT-.: - - = ~+ -
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having resolution of arbitration with the o t h e r
parties, include Deutsche Bank.
3 THE COURT: I like that better, y e s .
4 MS. MCGUIRL: Thank you, your Honor.
s THE COURT: Thank you.
6 MR. SMITH: Thank you, your Honor.
7 (Whereupon, the above-entitled
proceedings were concluded at 1:02 o'clock p.m.)
CAUSE NO. 017-212033-05
v. 0 TARRANT COUNTY
DEUTSCEE BANK AG,et aL, 0
DEFmmANTS. 0 17th JITDIClAL DISTRICT
ORDER DENYJNGDEUTSOREBANK AG AND DEUTSCEE BANK SEC-S,
IJ3C;'S MOTION TO STAY-PRQCEEDINGS,PURSU.ANT ,SECTION3 OF THE
PElDERAL ARBlTRATiON ACT
On January 27, 2006, came on to be heard Deutsche Bank AG and Deutsche Bank
Securities, Xnc.'s Motion to Stay Proceedings Pursuant to Section 3 of the Federal Arbitration
Act. The Court, having considered the pleadings on file and arguments of counsel, is of the
opinion that the belief sought in Deutsche Bank AG and Deutsche Bank Securities, Inc.'s Motion
to Stay the Pmceedings Pursuant to Section 3 of the Federal Arbitration Act should be DENIED.
IT IS THEREFORE ORDERED, ADJUDGED AND IXECWED that &e Court
DENIES Deutsche Bank AG and Deutsche Bank Securities, Inc.'s Motion to Stay Proceedings
Pursuant to Section 3 of the Federal Arbitration Act.
SIGNED on this the
O ~ D ED ~ N Y I N G E U T S C BANK AND D E U T S ~ SECURITIES, MO
R D ~ AG BANK INC.'S V$$8action 2
STAYPROCEEDINGS PUXSUANT TO SECTKINOF THE FEDERAL ARBITRATION ACT
copy ~ a l e d ~ o '
h rm w
Attorney Of Recod On L
NO. 222 P. 2
MAR. 23. 2006 4 : 38PM 2ND COURT OF APPE
COURT OF APPEALS
SECOND bIS7lUCT OF TEXGS
IN RE DEUTSCHE BANK AG, DEUTSCHE RELATORS
BANK SECURITIES INC. D/B/A DEUTSCHE
BANK ALEX. BROWN, INC., AND DAVID PARSE
The court has considered relators' petition for writ of mandamus and
emergency motion to stay and is of the tentative opinion that relator is entitled
t o rellef or that a serious question concerning the relief requires further
consideration. Accordingly, It is ordered that:
1. The real party in interest shall file a response wlth the court
by 5:00 p.m. on April 3, 2006.
2. Any reply shall be filed by 6:00 p.m. on April 10, 2006. .
However, the court may consider and decide the case before
a reply is filed. TEX.R. APP.P. 52.5.
MAR. 23. 2006 4:38PM 2ND COURT OF APPEALS N0.222 Po 3
3. All trlal court proceedings in cause number 017-21 styled
Henry Camferdam, et a/. v. Deutsche Bank AG, et a/,, pending in
the 17* District Court of Tarrant County, Texas, are stayed
pendlng further order of this court. See Tex. R. App. P, 62.IO(b),
The clerk of this court is directed to transmit a copy of this order t o the
attorneys of record, the trial court judge, and the trlal court clerk.
DATED March 23, 2006,
PANEL B; DAUPHINOT, HOLMAN, and GARDNER, JJ,
COURT OF APPEALS
SECOND DISTRICT OF TEXAS
IN RE DEUTSCHE BANK AG, RELATORS
DEUTSCHE BANK SECURITIES INC.
D/B/A DEUTSCHE BANK ALEX.
BROWN, INC., AND DAVID PARSE
The court has considered relators' petition for writ of mandamus and is
of the opinion that relief should be denied. Accordingly, relators' petition for
writ of mandamus is denied. In addition, this court vacates its March 23, 2006
order that stayed all trial court proceedings in cause number 0 1 7-212033-05.
'See TEX. R. APP. P. 47.4.
, Relators shall pay all costs of this original proceeding, for which let
PANEL B: DAUPHINOT, HOLMAN, and GARDNER, JJ.
GARDNER, J., would set case for oral argument.
DELIVERED: April 25, 2006