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					                                 NO.



                        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,
                                                   Relators.


                      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
                                            viii
*   .

        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        Mandamus (without explanation) in an unpublished memorandum opinion issued by the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

        mandamus proceeding.

                                  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


1
  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.
2
    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,

2006. R6.

               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
                                                3
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

                                             4
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.

                                      ARGUMENT
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 ,
14-16 (1984).
 1
1.             ERRED DENYING
      RESPONDENT   IN             BANK'S
                           DEUTSCHE     RIGHT ARBITRATE
                                            TO

              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
                                       TO
                                   ARBITRATION
              SECTION OF THE FEDERAL
                    3                        ACT
              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
                                     f

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

                                              7
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
      thwarted.
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
 f

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
       thwarted.

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.

                                              11
             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.
Id.

             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.
                                                                           f

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.

                                            15
c
DEWEY BAL
Mike Stenglein
State Bar No. 0079 1729
Brad Thompson
                    TINE LLP



State Bar No. 24046968
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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.
Brown, Inc.
                                    VERIFICATION
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
correct.

              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
court record.

              3.     Tabs A through F of the attached Appendix contain true and correct




                                          s
copies of documents material to Relators' claim for relief thg are filed as part of the trial
and appellate court record.


                                             ike Stenglein
            SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned notary
on May 3,2006.
                                                      .
                                                              a
                                                  ~ u b l i g n m o r the State of Texas
              JERl JAGQERS
                                          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



                                            9Mike Stenglein
                         APPENDIX INDEX
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.
Exhibit A
...
  I

             a him           sarPrd h-      o egait3ble =lief of my COIL Thsy d u l l hrrvs no
                                             r
                        +ti=         a
                              dmnagc~ my athd &str    not maaancd by rhs pmvJilia~     WE
        .    powts
             ~ ~ 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
             War~kdullrhc~bEuapo~crbmalceurrarrnlorinrp~amdy
                                                                                        b~b
             ~ 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
                                                ..
             ~o&.~flbs~dmittad~~withlht~iii~onbrilir-b~~th*
             ~bythrm@~a~of&staotirldbg\hcpaty~gdirq~.




                                                              h
              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
                                                                           w
Exhibit B
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
                                                                                         West Headnotes
             Michener, Carol Trigilio, Bamc
                                                                       Arbitration -6.2
  Inc., Camel Partners. HNC Ditch Investments LLC, Jma
                                                                   33k6.2 Most Cited Cases
                 Sedgemoor Investments
                                                                   under Indiana- law, letter agreements signed by taxpayers
             M
       LLC, J Walnut Investments, and CT Oak Tree
                                                                   contained a binding contract to submit claims against a tc&
               Investments LLC, Plaintiffs,
                              v
                               .
                              ,.
                                                                   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
                                                                   UIG
  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
                                                                         a
 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,
                                                                                                      a
     tax advisor did not waive its right to arbitrate;              and it was bound to answer.
 @) business entities created by taxpayers were covered by
                                                                       Arbitration -.
                                                                                    73
 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
                                                       im
        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.
                                                                                                    FACTS
             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
                            DISCUSSION
                                                                           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
                                                                           letter.
     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.
suit.
                                                                               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.
                                                                                                a
 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
                                                       Co.
     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
                                                                     These Claims
              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
                                                   \I.
                                                                    "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
                                  vL                d
                                                                     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
                                                                      arbitrate.
  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.
                                                                             Govt. Works.
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
                                                                                                        are
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.
Exhibit C
.&f.:.;vz   &:
            .>
             -
            +? a%..'.
             c-                 ; i I p m   -:,




                        V I R G I N I A .
                                    IN THE CIRCUIT COURT OF FAIRFAX COUNTY
                        - _ _ _ _ _ - - _ - _ - - - - -
                        WILLIAM N. MELTON,
                                                      Plaintiff,       .

                                                                                   In Chancery 192922

                        SIDLEY AUSTIN, et al.,
                                                      ~efendants   .
                        -   I   _   _         -   -   _   -   _    _       _   -   -   -   -   -




                                                                           Friday, April 22, 2005
                                                                                Feirfax, Virginia

                                  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:




                                                                                                                                                   I
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                                                                                                                                                   I




  I          Phone: 7 0 3 - 8 3 7 - 0 0 7 6 CASAMO & ASSOCIATES, INC.
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                                                                                                             ~ld23~7-V58-44ed451~-8f115d6c.Bbb42
           1        APPEARANCES:
           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
               8
                         On Behalf of the Defendant:
               9
                         James S. Kurz, Esquire
         10              WOMBLE CARLYLE SANDRIDGE & RICE
                         Fourth Floor
         11              8065 Leesburg Pike
                         Tysons Corner, Virginia 22182
         12
                          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
    .      20
                          On Behalf of Jenkens                 &   Gilcrist:
           21
                          John J. Brandt, Esquire
           22             WILSON ELSER MOSKOWITZ & DICKER
                          8444 Westpark Drive
               23         Suite 510
                          McLean, Virginia 22102
               24
                                                    C O N T E N T S
               25
                     Proceedings ............................. Three
                                                            ge
               26
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                                                                                           77fd23c7-fl6&-149d-851c-6fa5d3c64b42
                                             P R O C E E D I N G S
                                             (The court reporter was sworn.)
                                                                                                            Page 3

                                                                                                                     I
                                         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.
                                         Thank you.
                                         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
      2o                                               n
                 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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                                                                                                ~fd23~7-ffs84.0ed~1~-8W~~;56b42
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     '   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
           different.

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                                                                                    77W2~7-fl53~-861~-~f~5dX66b42
         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 --
        10
                                        THE COURT:              I understand.
I


i       11

        12
                                    '   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.
        15
                                        MS. MCGUIRL:                Good morning, your
        16        Honor.
         17                             We believe t h a t t h e S t e c k l e r Court
         18
                   employed the right analysis on two issues.                                                One
         l9
                   was equitable estoppel and the second was the
         20
                   stay.
         21
                                        Now, Camferdam did involve the same
         22
                   E&Y agreement, but in that case, Judge Jones in

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    I                                                                                                             e
                                                                                             7i'fd23~7-tf5844d-851 83515d3~66M2
                  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
      20
                    arbitration agreements and what the consequences
      21            of arbitration agreements would be.
      22                                And if the Court here allows them to
    -%lL-3-K   rTsZcLCr I                    ~                          X                            ~                       ~


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I                                                                                            ~fd23C7-fl58~851t-Rf~Sd3~66W2
                                                                                                    Page 7
              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
                                                                             n

                 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-
                                                .537


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                                                                                      TTld2X7-ff~94ed-Ccril~3f85d3~68td2
                 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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                  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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I                                                                                              77%2~7-i%8-PAd-1)51C-:3ia5d3cBSb42
       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
    -TrW.TCRi~,l%&i&C~~3&7   .SWlZZI@S$?* u   -     i    r                                                     -
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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
i           12
                     attorney-client relationship is a special
                     relationship which is governed by professional
            14       rules.
            15
                                           In Heinzman versus Fine, ~irginia
            16
                      Supreme Court appears to recognize that such
            17
                      attorney-client contracts are not mere
            18
                      commercial contracts and are under the
            19
                      classification peculiar to themselves. You'll
            20
                      find this at 217 VA 9 5 8 , 1977 case.
            21
                                            In ~einzman,the Virginia Supreme
            22
                      Court implicitly recognized that professional
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                     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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                                                                                                  Page 14

             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
              undermined.
                                      It is noted that applying the
              equitable estoppel is within the Court's
              discretion.
                                      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
               basic fairness.
                                       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.
          Anything else?
                                    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
      3          here.
       4                                   What is the --
       5                                   MS. MCGUIRL:                If I could explain, your

                  Honor.
       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
I
         3    arbitration.
I
         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
              tobealongtime.
     10                THE COURT:                          I understand what we're
         11   going to be facing here.                        But my understanding
                                                                                                                  I


         12   is because of the'se facts, I mean, it's still                                                      I
                                                                                                                  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
           10             arbitration.
           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,
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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.)


    10

     .
    11

    12




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Exhibit D
                                 CAUSE NO. 017-212033-05



        PLAINTIFFS,
                                                 9
v.                                               0                      TARRANT COUNTY
                                                 0
DEUTSCEE BANK AG,et aL,                          0
                                                 8
         DEFmmANTS.                              0                17th JITDIClAL DISTRICT

     ORDER DENYJNGDEUTSOREBANK AG AND DEUTSCEE BANK SEC-S,
     IJ3C;'S MOTION TO STAY-PRQCEEDINGS,PURSU.ANT ,SECTION3 OF THE
                                                 TO
                         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




                                                                                         Court's Minblfi
     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
                                             3
                                             copy ~ a l e d ~ o     '
                                                                    I      ~
                                                                        h rm w
                                             Attorney Of Recod On           L
                                                                        5 $-a9
                                                                         J
Exhibit E
                                                                        NO. 222   P. 2
MAR. 23. 2006 4 : 38PM    2ND COURT OF APPE




                                COURT OF APPEALS
                                 SECOND bIS7lUCT OF TEXGS
                                      FORT WORTH

                                       NO. 2-06-101-CV


      IN RE DEUTSCHE BANK AG, DEUTSCHE                                        RELATORS
      BANK SECURITIES INC. D/B/A DEUTSCHE
      BANK ALEX. BROWN, INC., AND DAVID PARSE



                                   ORIGINAL PROCEEDING

                                              --I-----.-"




                                              ORDER


             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
                                                                    2033-05,

                  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,

                                                        PER CURJAM



     PANEL B; DAUPHINOT, HOLMAN, and GARDNER, JJ,
Exhibit F
                        COURT OF APPEALS
                         SECOND DISTRICT OF TEXAS
                              FORT WORTH



                               NO. 2-06-101-CV


IN RE DEUTSCHE BANK AG,                                              RELATORS
DEUTSCHE BANK SECURITIES INC.
D/B/A DEUTSCHE BANK ALEX.
BROWN, INC., AND DAVID PARSE



                           ORIGINAL PROCEEDING



                       MEMORANDUM OPINION'



      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

    execution issue.

                                                  PER CURIAM


    PANEL B:    DAUPHINOT, HOLMAN, and GARDNER, JJ.

    GARDNER, J., would set case for oral argument.

    DELIVERED: April 25, 2006