Jody James Farms V Altman Group - Petition For Review

FILED
17-0062
2/27/2017 5:33:10 PM
tex-15558312
SUPREME COURT OF TEXAS
BLAKE A. HAWTHORNE, CLERK
Case No. 17-0062
IN THE SUPREME COURT OF TEXAS
JODY JAMES FARMS, JV,
PETITIONER,
v.
THE ALTMAN GROUP, INC. AND LAURIE DIAZ,
RESPONDENTS
On Petition for Review from the 110th District Court of Floyd County, Texas, No.
10,422; and the Amarillo Court of Appeals, Jody James Farms, JV v. The Altman
Grp., Inc. and Laurie Diaz, 2016 Tex. App. LEXIS 11243, (Tex. App.—Amarillo
Oct. 17, 2016, rehearing denied).
PETITION FOR REVIEW
JODY JENKINS
State Bar No. 24029634
Jenkins, Wagnon & Young, P.C.
P.O. Box 420
Lubbock, Texas 79408-0420
Ph: 806-796-7351
Fx: 806-771-8755
jjenkins@jwylaw.com
Attorneys for Petitioner

IDENTITY OF PARTIES AND COUNSEL
Judge Presiding at Trial:

The Honorable William P. Smith
Plaintiff/Appellant/Petitioner:
Jody James Farms, JV (“JJF”)
Plaintiff/Appellant/Petitioner’s Counsel at Trial:

Jody Jenkins
P.O. Box 420
Plaintiff/Appellant/Petitioner’s Counsel on Appeal:

Jody Jenkins
P.O. Box 420
Defendants/Appellees/Respondents:
The Altman Group, Inc. (“Altman”) and Laurie Diaz (“Diaz”)
Defendants/Appellees/Respondents Counsel at Trial:

J. Paul Manning
Anna McKim
Field, Manning, Stone, Hawthorne & Aycock, P.C.
2112 Indiana Ave.
Lubbock, TX 79410
Defendants/Appellees/Respondent’s Counsel on Appeal:

J. Paul Manning
Anna McKim
2112 Indiana Ave.
Lubbock, TX 79410
i
TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL ......................................................... i
TABLE OF CONTENTS ....................................................................................... ii
INDEX OF AUTHORITIES ..................................................................................iv
STATEMENT OF THE CASE ..............................................................................vi
STATEMENT OF JURISDICTION ................................................................... vii
ISSUES PRESENTED ......................................................................................... viii
1. Can a non-signatory third party invoke the proverbial guilty by
association doctrine and force arbitration when no agreement to do so
exist?
2. Whether the arbitration agreement can be enforced by Altman and
Diaz through estoppel (unbriefed).
3. Whether Altman and Diaz were third-party beneficiaries who can
enforce the arbitration agreement (unbriefed).
4. Whether a non-party to an arbitration agreement can compel
arbitration of claims that are not within the scope of the arbitration
agreement (unbriefed).
5. Whether the trial court abused its discretion in enforcing the
arbitration award that the arbitrator had no authority to enter
(unbriefed).
ii
STATEMENT OF FACTS ...................................................................................... 1
SUMMARY OF ARGUMENT ............................................................................... 3
ARGUMENT ............................................................................................................ 4
ISSUE NUMBER ONE ................................................................................ 4

ISSUE NUMBER TWO .......................................................................... 11
ISSUE NUMBER THREE ......................................................................... 11
ISSUE NUMBER FOUR ............................................................................ 11
ISSUE NUMBER FIVE ............................................................................. 11
CONCLUSION....................................................................................................... 11
PRAYER ................................................................................................................. 12
APPENDIX ............................................................................................................. 15
iii
INDEX OF AUTHORITIES
Texas Cases
1. Golden Age Senior Living of El Paso, LLC v. Atwood, 486 S.W.3d 44 (Tex.
App.—El Paso 2016, no pet.) .................................................................................. 10
2. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (Tex. 2005)..................5, 6, 9
3. In re Rubiola, 334 S.W.3d 220 (Tex. 2011) ................................................6, 9, 10
4. In re Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005)................................. 6, 7
5. Roe v. Ladymon, 318 S.W.3d 502 (Tex. App.—Dallas 2010, no pet.) ................. 6
Cases from other Jurisdictions
6. Baldwin v. Cavett, 502 F. App’x 350 (5th Cir. 2012) ......................................... 10
7. Chesapeake Appalachia, LLC v. Scout Petr., LLC, 809 F.3d 746 (3rd Cir.
2016).. .................................................................................................................... 7, 8
8. Contec Corp. v. Remote Solution Co., 398 F.3d 205 (2nd Cir. 2005) ................... 8
9. Fallo v. High-Tech Inst., 559 F.3d 874 (8th Cir. 2009) ......................................... 8
10. Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th Cir. 2000)… ..... 9
11. Marciano v. Mony Life Ins. Co., 470 F. Supp. 2d 518 (E.D. Pa. 2007) .............. 6
12. Oracle Am., Inc. v. Myriad Group, A.G., 724 F.3d 1069 (9th Cir. 2013) .......... 7
13. Petrofac, Inc. v. DynMcDermott Petr. Ops. Co., 687 F.3d 671 (5th Cir.
2012)… ...................................................................................................................... 8
14. Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366 (11th Cir. 2005) ........................ 8
15. Sherer v. Green Tree Servicing LLC, 548 F.3d 379 (5th Cir. 2008) ................... 6
16. Terminix Int’l Co., L.P. v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327 (11th Cir.
2005)... ....................................................................................................................... 8
iv
Statutes
1. Texas Government Code Annotated §22.001(a)(2) (Vernon 2017) ................... vii
2. Texas Government Code Annotated §22.001(a)(6) (Vernon 2017) ................... vii
Law Review Articles/Secondary Materials
1. Carolyn Lamm, Defining The Party – Who is a Proper Party in an International

Arbitration Before the American Arbitration Association and Other International
Institutions, 34 Geo. Wash. Int’l Rev. 711,720 (2003)............................................9
v
STATEMENT OF THE CASE
Nature of the Case: JJF filed suit against Altman and Diaz in the 110 th Judicial
District Court of Floyd County, Texas on December 10,
2012, alleging that Altman and Diaz breached their fiduciary
duties owed to JJF and violated the Texas Deceptive Trade
Practices Act. The court granted Altman and Diaz’s Motion
to Compel Arbitration on June 27, 2013, over the objection
of JJF. JJF participated in the arbitration and followed its
result with a motion to set aside the arbitration award.
Altman and Diaz filed a petition to confirm and enforce the
arbitration award which was granted.
Trial Court: The Honorable William P. Smith of the 110th District Court
of Floyd County, Texas.
Trial Court’s The trial court granted Altman and Diaz’s Motion To
Disposition: Compel Arbitration and subsequently entered its Final
Judgment based upon on the arbitration award from the
proceeding.
Court of Appeals: Seventh Court of Appeals; Justice Campbell, joined by Chief

Justice Quinn and Justice Hancock.
Court of Appeals’ The court of appeals overruled JJF’s appellate issues and
Disposition: affirmed the trial court’s judgment. JJF’s Motion for
Rehearing was denied. Jody James Farms, JV v. The Altman
Grp., Inc. and Laurie Diaz, 2016 Tex. App. LEXIS 11243,
(Tex. App.—Amarillo Oct. 17, 2016, rehearing denied).
vi
STATEMENT OF JURISDICTION
This Court has jurisdiction over this matter under Texas Government Code
Annotated §22.001(a)(2) (Vernon 2017) because the Seventh Court of Appeals has
disregarded precedent from other Texas courts of appeals and this Court on a
question of law material to a decision of this case.
Further, this Court has jurisdiction over this matter under Texas Government
Code Annotated §22.001(a)(6) (Vernon 2017) because an error of law has been
committed by the Seventh Court of Appeals at Amarillo of such importance to the
jurisprudence of this State that a decision by this Court is necessary to affect a
correction.
vii
ISSUES PRESENTED
1. Can a non-signatory third party invoke the proverbial guilty by association
doctrine and force arbitration when no agreement to do so exists?
2. Whether the arbitration agreement can be enforced by Altman and Diaz
through estoppel (unbriefed).
3. Whether Altman and Diaz were third-party beneficiaries who can enforce
the arbitration agreement (unbriefed).
4. Whether a non-party to an arbitration agreement can compel arbitration of
claims that are not within the scope of the arbitration agreement (unbriefed).
5. Whether the trial court abused its discretion in enforcing the arbitration
award that the arbitrator had no authority to enter (unbriefed).
viii
TO THE HONORABLE SUPREME COURT OF TEXAS:
Petitioner JJF submits this Petition for Review of the decision from the
Seventh Court of Appeals at Amarillo challenging the decision allowing a non-
signatory third party to compel arbitration despite the fact that no agreement to
arbitrate exists. This decision is detrimental to the jurisprudence of this State and
should be corrected.1
STATEMENT OF FACTS
Altman is an independent insurance agency who markets for Rain and Hail;
Rain and Hail is owned and controlled by ACE Property and Casualty Insurance
Company; ACE Property and Casualty Insurance Company issues crop insurance
policies. CR Supp. 21, 56. Altman has been JJF’s agent for crop insurance since
approximately 2008. CR Supp. 51-58. Diaz is a registered insurance agent
employed by Altman where she also serves at Altman’s Operations Manager; she
was employed with Altman for the entire time that Altman has been JJF’s agent.
CR Supp. 52. At some point before JJF incurred a loss, Diaz became involved with
JJF’s 2010 crop insurance policy. CR Supp. 53. Sometime thereafter, JJF incurred
a loss on its insured crop during the policy period. CR Supp. 55.
1
Citations to evidence are contained in the Appendix attached to this Petition and are
divided according to its table of contents. Citations to the Clerk’s Record and Supplemental
Clerk’s Record will be denoted as CR ____ and CR Supp. _____.
1
JJF purchased a Crop Revenue Coverage Insurance Policy (the “Policy”)
from Rain and Hail via his agent Altman and Diaz to indemnify against loss on its
2010 milo crop. CR Supp. 21, 25-50. The Policy required Rain and Hail to
indemnify JJF for any loss that arose under the Policy. CR Supp. 25-50. Although
the Policy contained an arbitration clause, neither Altman nor Diaz are signatories
to the Policy. CR Supp. 44. In November of 2010, JJF incurred a loss on an insured
milo crop and notified Diaz by telephone of the loss. CR Supp. 23. After receiving
evidence of the loss, Diaz delayed in turning in the claim, giving rise to the
common law and statutory claims asserted by JJF against Altman and Diaz. CR
Supp. 56.
Eventually, Rain and Hail denied JJF’s claim alleging it, among other things,
was untimely submitted. CR Supp. 64-68. Rain and Hail explained that because the
claim was untimely filed, it was unable “to make the necessary and required loss
determinations.” CR Supp. 64. JJF, after exhausting other remedies, filed suit
against Altman and Diaz for their inaction in submitting the claim to Rain and
Hail. CR 3-6. The trial court compelled arbitration between JJF, Altman and Diaz
and later enforced the arbitration award against JJF. CR 27, 41.
2
SUMMARY OF ARGUMENT
Although courts favor arbitration, it is not the quintessential resolution to
every dispute. Litigants have enough hurdles in their path to resolution of disputes,
which are often life changing events, without the need for further complexities.
Love it or hate it, arbitration is commonplace in contract claims. Although the path
to resolution when settlement efforts fail can be through arbitration or trial, the
fork in the path still exists and the road signs leading a dispute down the correct
path are essential to the jurisprudence of this State. Not only has the Amarillo
Court of Appeals obscured the road signs, it has created a road block forcing
litigants to arbitration when they never agreed to do so. Without an enforceable
arbitration agreement, a litigant should not be compelled to have an arbitrator
prevent their access to trial. Without the assistance of this Court, litigants across
this State will lose their fundamental right to a trial by jury by merely being
associated with an arbitration agreement they once entered regardless of the
parties. Guilty by association theories should remain tools for parents in regards to
their children, not the courts of this State.
The road block in the case at bar was a non-existent arbitration clause
between JJF and Altman and Diaz. Despite existing law to the contrary, the
Amarillo Court erected an impermissible road block on the path to resolution,
3
effectively depriving JJF of its right to have its dispute adjudicated in court and
further weakening the strength and effect of contracts in this State.
Arbitration Trial
ARGUMENT
1. Can a non-signatory third party invoke the proverbial guilty by

association doctrine and force arbitration when no agreement to do so
exists?
Although existing law makes a distinction between parties seeking to
enforce arbitration who are signatories to an enforceable arbitration agreement and
those who are not, the Amarillo Court of Appeals has changed that precedent by
issuing the opinion in this case which compelled arbitration between litigants who
had no arbitration agreement. By its ruling, the Amarillo Court has created a new
road block in the path to resolution which drastically alters a party’s right to have
its disputes adjudicated in court. Without clarification of the distinction between
compelling those who are signatories to arbitration agreements and those who are
not, arbitrability of a dispute will become the only means of resolution with no fork
in the path leading to the courthouse. Although arbitration is favored, it is not

4
automatic and should not always result in a litigant losing its right to judicial
resolution. With a myriad of decisions increasingly diminishing a party’s right to
avoid arbitration, a distinction needs to be made by this Court when there is no
agreement to arbitrate between the parties.
The arbitration clause in the case at bar stated as follows:
If you and we fail to agree on any determination made by us except

those specified in Section 20(d), the disagreement may be resolved
through mediation in accordance with Section 20(g). If resolution
cannot be reached through mediation, or you and we do not agree to
mediation, the disagreement must be resolved through arbitration.
CR Supp. 44. The Policy expressly states that the words “you” and “your”
refer to the named insured, which is James; and the words “we,” “us,” and “our”
refer to the “insurance company providing insurance,” which is Rain and Hail. CR
Supp. 25.
Under Texas law, it is well established that a party seeking to compel
arbitration must establish that (1) a valid arbitration clause exists, and (2) the
claims in dispute fall within that agreement’s scope. In re Kellogg Brown & Root,
Inc., 166 S.W.3d 732, 737 (Tex. 2005). Although this Court has held that “whether
a non-signatory can compel arbitration pursuant to an arbitration clause questions
the existence of a valid arbitration clause between specific parties and is therefore a
gateway matter for the court to decide,” the law must be clarified to inform
litigants when such gateway matters will be taken out of the court’s hand and
5
delegated to an arbitrator in situations similar to the case at bar. In re Rubiola, 334
S.W.3d 220, 224 (Tex. 2011) (citing In re Weekley Homes, L.P., 180 S.W.3d 127,
130 (Tex. 2005); Sherer v. Green Tree Servicing LLC, 548 F.3d 379, 381 (5th Cir.
2008)). Despite the Amarillo Court’s ruling, non-signatory parties attempting to
compel arbitration are burdened with proving to the court, not the arbitrator, the
existence of a valid arbitration clause before the issue of the agreement’s scope can
even be addressed. Until this initial burden of proving that a valid arbitration
agreement exists, there is no presumption in favor of arbitration. See In re Kellogg
Brown & Root, Inc., 166 S.W.3d at 737. As noted in Roe v. Ladymon, 318 S.W.3d
502, 511 n.6 (Tex. App.—Dallas 2010, no pet.) and explained in Marciano v.
Mony Life Ins. Co., the presumption in favor of arbitration:
“applies only to the scope of an open-ended arbitration agreement,
never to the existence of such an agreement or to the identity [sic] the
parties who might be bound by such an agreement. If A and B have an
agreement to arbitrate any dispute that arises between them, there is a
presumption that, if a dispute arises between them, the dispute is
within the scope of the agreement. However, if a dispute arises
between A and C, even if B and C are closely related, there is no
"presumption" that A has agreed to arbitrate its dispute with C.”
470 F. Supp. 2d 518, 526, n.12 (E.D. Pa. 2007).
6
The Seventh Court of Appeals correctly stated that “under the FAA, absent
unmistakable evidence that the parties intended the contrary, it is the courts rather
than arbitrators that must decide ‘gateway matters’ such as whether a valid
arbitration agreement exists.” Jody James Farms, JV v. The Altman Grp., Inc. and
Laurie Diaz, 2016 Tex. App. LEXIS 11243, at *6 (Tex. App.—Amarillo Oct. 17,
2016, rehearing denied) (citing In re Weekley Homes, L.P., 180 S.W.3d 127 (Tex.
2005)). However instead of recognizing the correct analytical framework applied
by sister court of appeals and this Court in regards to whether a valid arbitration
agreement existed between the non-signatories and JJF, the Seventh Court of
Appeals simply held that “incorporation of the AAA rules . . . constitute[d] clear
and unmistakable evidence that the parties to the arbitration agreement agreed to
arbitrate arbitrability” and proceeded to the second prong of the analysis of the
agreement’s scope. Jody James Farms, JV, 2016 Tex. App. LEXIS 11243, at *9.
The Seventh Court of Appeals’ holding paid little attention to the critical
distinction of Altman and Diaz’s status as non-signatories. To wit, all of the cases
quoted by the Seventh Court of Appeals in support of their holding concern cases
where disputes arose between signatory parties. Id. See Oracle Am., Inc. v. Myriad
Group, A.G., 724 F.3d 1069 (9th Cir. 2013) (dispute arose between signatory
parties who had entered into two separate agreements with one another, with the
sued upon agreement containing an arbitration clause); Chesapeake Appalachia,
7
LLC v. Scout Petr., LLC, 809 F.3d 746 (3rd Cir. 2016) (dispute arose between a
signatory party and assignee of a signatory party concerning oil and gas leases with
arbitration clauses); Petrofac, Inc. v. DynMcDermott Petr. Ops. Co., 687 F.3d 671
(5th Cir. 2012) (dispute arose between signatory parties to a subcontract which
contained an arbitration clause); Fallo v. High-Tech Inst., 559 F.3d 874 (8th Cir.
2009) (dispute arose between signatory parties to enrollment agreements with
arbitration clauses); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366 (11th Cir.
2005) (dispute arose between signatory parties to a Subscriber Unit and
Infrastructure Equipment License agreement which contained an arbitration
clause); Terminix Int’l Co., L.P. v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327 (11th
Cir. 2005) (dispute arose between signatory parties to multiple service contracts,
each containing arbitration clauses); Contec Corp. v. Remote Solution Co., 398
F.3d 205 (2nd Cir. 2005) (dispute arose between signatory parties to an agreement
which contained an arbitration clause). This holding frustrates the theory and spirit
of Texas contract law and would allow anyone with a tangential connection to a
signatory party to lose its right to have a court decide whether an arbitration
agreement exists.
In regards to the first prong of the analysis that the trial court should have
engaged in, this Court has continuously held that “under the FAA, ordinary
principles of state contract law determine whether or not a valid agreement to
8
arbitrate exists.” In re Rubiola, 334 S.W.3d at 224 (Tex. 2011) (citing In re
Kellogg Brown & Root, Inc., 166 S.W.3d at 738). Additionally, being a creature of
state contract law, arbitration generally cannot be required for a matter involving a
third party who is not a signatory to an arbitration agreement. Grigson v. Creative
Artists Agency, L.L.C., 210 F.3d 524, 532 (5th Cir. 2000). Courts prohibit
enforcement by non-signatories “where (1) the contract does not expressly grant
third parties the ability to participate in the arbitration; (2) the parties have not
contemplated the idea; and (3) non-signatory involvement would constitute an
invasion of the consensual nature of arbitration.”. In re Rubiola, 334 S.W.3d at 225
(quoting Carolyn Lamm, Defining The Party – Who is a Proper Party in an
International Arbitration Before the American Arbitration Association and Other
International Institutions, 34 Geo. Wash. Int’l Rev. 711, 720 (2003)). Taking each
in turn: (1) the Crop Revenue Coverage Insurance Policy does not expressly grant
Altman and Diaz the right to participate in arbitration; (2) no evidence was
produced that JJF and Rain and Hail contemplated Altman and Diaz participating
in arbitration; and (3) compelling arbitration would infringe upon the consensual
nature of arbitration as it is a creature of contract and JJF never signed a contract
containing an arbitration clause with Altman or Diaz. CR Supp. 25-50; CR 7-17.
Therefore, the inquiry in this dispute should not surpass the first prong of the
analysis as Altman and Diaz, as non-signatory third parties, failed to carry their
9
heavy burden to establish that a valid arbitration clause exists as to them under
ordinary principles of Texas contract law.
In addition to this precedent, the Amarillo Court also disregarded the
opinion in Golden Age Senior Living of El Paso, LLC v. Atwood, which is factually
similar to the case at bar and instructive. Golden Age Senior Living of El Paso,
LLC v. Atwood, 486 S.W.3d 44 (Tex. App.—El Paso 2016, no pet.). In Atwood,
the appellants were not parties to the arbitration agreement under ordinary contract
principles like Altman and Diaz. Atwood, 486 S.W.3d at 47. The Atwood contract
never mentioned Golden Age Senior Living of El Paso or Sunridge at Cambria by
name; rather, there were only broad definitions of the parties in the agreement that
allowed for the possibility of non-signatories to the arbitration agreement to
enforce the arbitration clause. Id. at 48. Golden Age Senior Living of El Paso and
Sunridge at Cambria, as non-signatories, based their argument upon these broad
definitions, citing In re Rubiola for support. Id. See In re Rubiola, 334 S.W.3d at
220. However, the El Paso court distinguished In re Rubiola, holding that “the
underlying principle in In re Rubiola is that non-signatories may not rely on an
arbitration agreement to compel arbitration unless they were acting on behalf of a
signatory from which they derive their arbitration rights.” Id. See also Baldwin v.
Cavett, 502 F. App’x 350, 353-54 (5th Cir. 2012).
10
Despite this precedent, the Amarillo Court held that Altman and Diaz were
entitled to enforce the arbitration clause and specifically, its incorporation of the
AAA Rules allowing an arbitrator to decide this gateway issue. This error must be
corrected.
2. Whether the arbitration agreement can be enforced by Altman and Diaz

through estoppel (unbriefed).
This Issue will not be briefed unless the Court request otherwise.
3. Whether Altman and Diaz were third-party beneficiaries who can

enforce the arbitration agreement (unbriefed).
4. Whether a non-party to an arbitration agreement can compel

arbitration of claims that are not within the scope of the arbitration
agreement (unbriefed).
5. Whether the trial court abused its discretion in enforcing the arbitration
award that the arbitrator had no authority to enter (unbriefed).
CONCLUSION
Had the Amarillo Court engaged in the correct analytical framework
established by sister courts of appeals and this Court when reviewing JJF’s
arguments and evidence, it would have concluded as a matter of law that Altman
and Diaz, as non-signatory third parties, were not entitled to compel JJF to
arbitration. Instead, the Amarillo Court erroneously interpreted the jurisprudence

11
of this State and affirmed the trial court’s improper decision to allow an arbitrator
to decide the gateway issue of whether an arbitration agreement existed between
the parties to this dispute. If this decision is allowed to stand, the trend of depriving
litigants of their right to have disputes adjudicated in court will continue to
escalate, with state contractual law continuing to wither at the hands of arbitration.
When a dispute is on the path to resolution, the fork in the path leading to
the courthouse still exists. The road signs instructing the litigants down the path to
resolution should not be obscured by the Amarillo Court’s decision and road block.
A previously signed arbitration agreement with a non-signatory third party should
not become the “Go to Jail” card instructing litigants to go directly to arbitration
without passing go or having the ability to collect the proverbial $200 (proceeding
to trial on the merits).
PRAYER
Wherefore, Petitioner JJF, prays that this Court:
1. GRANT its Petition for Review;
2. REVERSE the Seventh Court of Appeals’ decision affirming the trial
court’s final judgment entering a final arbitration award in favor of
Respondents;
3. GRANT all other relief to which it has shown itself justly entitled.
12
Respectfully Submitted,
/s/ Jody Jenkins

JODY JENKINS
JENKINS, WAGNON & YOUNG,
P.C.
P.O. Box 420
Ph: (806) 796-7351
Fx: (806) 771-8755
jjenkins@jwylaw.com
ATTORNEYS FOR PETITIONER
CERTIFICATE OF SERVICE
This is to certify that a true and correct copy of the above and foregoing
instrument has been served upon the following via the Court’s electronic filing
system, this 27th day of February, 2017.
J. Paul Manning
Anna McKim
2112 Indiana Ave.
Lubbock, TX 79410
/s/ Jody D. Jenkins

JODY JENKINS
13
CERTIFICATE OF COMPLIANCE
I hereby certify that the word count in this Brief is 4,126 when all sections are
included.
/s/ Jody D. Jenkins

Jody D. Jenkins
14
APPENDIX
Judgment from Trial Court ................................................................................ Tab 1
Seventh Court of Appeals Opinion .................................................................... Tab 2
Judgment from Seventh Court of Appeals ......................................................... Tab 3
Denial of Motion for Rehearing, Seventh Court of Appeals ............................. Tab 4
Excerpts from the Clerk’s Record...................................................................... Tab 5
Excerpts from the Supplemental Clerk’s Record .............................................. Tab 6
Baldwin v. Cavett, 502 F. App’x 350 (5th Cir. 2012) ....................................... Tab 7
Golden Age Senior Living of El Paso, LLC v. Atwood, 486 S.W.3d 44 (Tex.
App.—El Paso 2016, no pet.) ............................................................................ Tab 8
Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th Cir. 2000) ....... Tab 9
In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (Tex. 2005).................... Tab 10
In re Rubiola, 334 S.W.3d 220 (Tex. 2011) .................................................... Tab 11
In re Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005) ............................... Tab 12
Marciano v. Mony Life Ins. Co., 470 F. Supp. 2d 518 (E.D. Pa. 2007) .......... Tab 13
Roe v. Ladymon, 318 S.W.3d 502 (Tex. App.—Dallas 2010, no pet.) ........... Tab 14
Sherer v. Green Tree Servicing LLC, 548 F.3d 379 (5th Cir. 2008) ............... Tab 15
Texas Government Code Annotated §22.001(a)(2) (West 2017).................... Tab 16
Texas Government Code Annotated §22.001(a)(6) (West 2017).................... Tab 17
15
8067921048 12:38:02 p.m. 01-16-2015 2/3
No. 10,422
JODY JAMES FARMS, N

JV § IN THE
THE llOTH
110' DISTRICT
DISTRICTCOURT
COURT
§
v. § OF
§
THE ALTMAN GROUP, INC. AND §
LAURIE DIAZ
LAURIEDIAZ § FLOYD COUNTY, TEXAS
FINAL JUDGMENT
On this day came on to

to be
be heard
heard the
the above-entitled
above-entitled and
and numbered
numbered cause wherein JODY
cause wherein
JAMES FARMS, JV is Plaintiff ALTMANGROUP,
Plaintiff and THE ALTMAN GROUP,INC. andLAURIE
INC.and LAURIE DIAZ,
DIAZ, are the
Defendants in the above entitled and numbered cause. The
numbered cause. The Court
Court has read the pleadings
pleadings and the
papers on file,
papers on file, has
has considered
considered the
the announcement of the
announcement of the parties
parties and determined that it had
determined that ·had
jurisdiction over the subject matter and the parties to
to this
this proceeding.
proceeding. The Court is of
of the opinion
that upon consideration of
of Defendants' Petition
Petition to
to Confirm
Confirm and Enforce Final
Final Arbitration
Arbitration Award
and Plaintiff,
Plaintiff, JODY
JODY JAMES FARMS, JV.'s, Motion
JAMES FARMS, to Vacate
Motion to Vacate Arbitration
Arbitration Award and all
Award and all
responses, briefs in
responses, briefs in support,
support, exhibits and replies,
exhibits and replies, if any,
any, respectively thereto, itit is
respectively thereto, is hereby
hereby
ORDERED and DECREED that Defendants' Petition
Petition to
to Confirm
Confirm and Enforce Final Arbitration
Award is GRANTED and the clerk is ordered
Award ordered to enter
enter aa judgment
judgment in
in favor
favor of
ofDefendants
Defendants and
Plaintiff, JODY JAMES FARMS, JV take
against Plaintiff, JODY JAMES FARMS, JV and that Plaintiff,
nothing and all court costs are assessed against Plaintiff, JODY JAMES FARMS, JV. The judgment
is to accrue interest at the rate of
of 5.00%
5.00% per annum from the date of
of judgment until paid, plus all
costs of
of court.
ORDERED, ADJUDGED AND DECREED that Plaintiff's Motion

IT IS FURTHER ORDERED,
to Vacate the Arbitration Award is DENIED.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defendants request

for attorney's fees is DENIED.
Final Judgment Page 1
125
•. 8067921048 12:38:26 p.m. 01-16-2015 3 /3
3/3
THEREFORE, ORDERED,
IT IS, THEREFORE, ORDERED, ADJUDGED,
ADJUDGED, AND
AND DECREED
DECREED that
that Defendants,
THE ALTMANGROUP,
THE ALTMAN GROUP,INC.
INC.and
and LAURIE
LAURIE DIAZ have
have judgment against
against Plaintiff,
Plaintiff, JODY
JAMES FARMS, JV, as follows:
follows:
1.
1. Plaintiff take nothing;
Plaintiff
2.
2. costs of
All costs ofcourt
courtare
aretaxed
taxedagainst
againstPlaintiff,
Plaintiff,JODY
JODYJAMES
JAMES
FARMS,JV;and
FARMS, JV; and
3. Post judgment interest on
judgment interest on all costs
costs and
and fees
fees incurred
incurred at five
percent (5%) per year from the date of this judgment.
IT IS, FURTHER
FURTHER ORDERED,
ORDERED, ADJUDGED,
ADJUDGED, AND DECREED that Defendant shall
to enforce this Judgment.
have all writs and processes as may be necessary to
expressly granted herein is denied.

All relief not expressly denied. This judgment is final,
final, disposes
disposes of all
claims and all parties, and is appealable.
The court orders execution to issue for this judgment.

z-) /L
SIGNED on this diJ- of January, 2015.
— day of
Final Judgment Page 2
126
In The
Court of Appeals
Seventh District of Texas at Amarillo
No. 07-15-00060-CV
JODY JAMES FARMS, JV, APPELLANT
V.
THE ALTMAN GROUP, INC. AND LAURIE DIAZ, APPELLEES
On Appeal from the 110th District Court

Floyd County, Texas
Trial Court No. 10,422, Honorable William P. Smith, Presiding
October 17, 2016
OPINION
Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ.
Appellant Jody James Farms, JV (“JJF”) appeals the trial court’s order confirming
an arbitration award in favor of appellees The Altman Group, Inc. and Laurie Diaz
(“Altman and Diaz” or “appellees”). We will affirm the court’s order.
Background
In 2010, JJF purchased a Crop Revenue Coverage Insurance Policy from Rain &
Hail, L.L.C. JJF purchased the insurance through The Altman Group, an insurance
agency. Diaz is a registered insurance agent employed by The Altman Group.

The policy was one issued for the 2010 crop year under the authority of section
508(h) of the Federal Crop Insurance Act,1 and reinsured by the Federal Crop
Insurance Corporation (FCIC).2 The policy contains, within its “basic provisions,” a
section 20, entitled “Mediation, Arbitration, Appeal, Reconsideration, and Administrative
and Judicial Review.” Section 20 is lengthy, and provides for resolution, by various
means, of various categories of disputes. Some disputes are narrowly described, such
as that given in section 20(d) for reconsideration of determinations made by the insurer
or FCIC regarding whether the insured has “used a good farming practice . . . .” Others,
like the provision the parties in this case discuss, are described in broad terms.3
Section 20(a) of the policy reads in part:
If [the insured] and [the insurer] fail to agree on any determination made
by [the insurer] except those specified in Section 20(d), the disagreement
may be resolved through mediation in accordance with Section 20(g). If
resolution cannot be reached through mediation, or [the insured] and [the
insurer] do not agree to mediation, the disagreement must be resolved
through arbitration in accordance with the rules of the American Arbitration
Association . . . .4
Subsection 20(a)(1) reads in part:
1
7 U.S.C. § 1508(h); see generally Olsen v. United States, 546 F.Supp.2d 1122
(E.D. Wash. 2008), aff’d, 334 Fed. Appx. 834 (9th Cir. 2009); Greenwood v. Rural Cmty.
Ins. Servs., No. 2:02CV00047, 2005 U.S. Dist. LEXIS 29331 (E.D. Mo. Nov. 22, 2005);
7 C.F.R. § 457.2 (2004). See Wiley v. Glickman, No. A3-99-32, 1999 U.S. Dist. LEXIS
20278 (D. N.D. Sept. 3, 1999) (reciting history of crop revenue coverage policies).
2
The FCIC is managed by the United States Department of Agriculture’s Risk
Management Agency. See 7 U.S.C. § 6933 (creating USDA’s Office of Risk
Management).
3
The policy’s section 20 is much like, though not identical to, the section 20 (for
reinsured policies) contained in the policy form set out in 7 C.F.R. § 457.8.
4
Section 20(g) describes the requirements and procedures for mediation.
2
All disputes involving determinations made by [the insurer], except those
specified in section 20(d), are subject to mediation or arbitration.5
In November of 2010, JJF incurred a loss on an insured grain sorghum crop.
According to JJF, it notified Diaz of the loss in a telephone conversation. The claim was
not formally submitted to Rain & Hail until some time later. Rain & Hail eventually
denied the claim, in part because it was not timely submitted.6
After Rain & Hail denied JJF’s claim, their disagreement over its determination
was arbitrated under the policy. The arbitrator upheld Rain & Hail’s denial of the claim.7
Thereafter, JJF filed suit against Altman and Diaz asserting they breached a
fiduciary duty and violated the Texas Deceptive Trade Practices Act when they failed to
submit the claim in a timely fashion. Altman and Diaz sought an order compelling
5
Subsection 20(a)(1) continues with language requiring, however, that if a
dispute “in any way involves a policy or procedure interpretation, regarding whether a
specific policy provision or procedure is applicable to the situation, how it is applicable,
or the meaning of any policy provision or procedure,” parties must obtain “an
interpretation from FCIC in accordance with 7 C.F.R. part 400, subpart X or such other
procedure as established by FCIC.” The FCIC interpretation procedure was not initiated
in this case. JJF’s brief cites the provision in its argument that the policy’s arbitration
provisions are not suited to its claims against Altman and Diaz, but the parties do not
otherwise discuss its potential application.
6
JJF’s brief contends Rain & Hail denied JJF’s claim because it determined the
claim was untimely submitted. The statement is true, but not complete. Rain & Hail’s
letter explaining its denial of the claim detailed three reasons. It cited JJF’s failure to
submit a timely notice of loss, but it said also JJF’s manner of storing the harvested
grain sorghum precluded adjustment of the loss. The letter quoted from FCIC’s loss
adjustment manual and concluded, “Based on the claim adjustment procedures spelled
out above, your grain sorghum claim must be denied because without our
measurements of the farm-stored production, you do not have the required verifiable
records for the stored grain.” The letter also stated Rain & Hail’s belief that JJF
“intentionally misrepresented” the planting dates of its grain sorghum crop. Citing the
policy’s “concealment, misrepresentation or fraud” provisions, Rain & Hail declared the
policy coverage for grain sorghum for the 2010 crop year to be void.
7
The arbitration award recited the arbitrator’s agreement with Rain & Hail on the
claim notice issue and on its contention that JJF’s commingling of stored grain
precluded a “presentable loss.”
3
arbitration under the Federal Arbitration Act8 and, over JJF’s objection, the trial court
compelled arbitration of its causes of action. The arbitrator found in favor of Altman and
Diaz and the trial court entered an order confirming and enforcing that finding, thus
ordering that JJF take nothing. From that order, JJF now appeals.
Analysis
An arbitration award under the FAA must be confirmed unless it is vacated,
modified or corrected as prescribed in sections 10 and 11 of the FAA. 9 U.S.C. §§ 9 –
11; Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S. Ct. 1396, 170 L. Ed. 2d
254 (2008); Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 90 (Tex. 2011). One of the
grounds on which an award may be vacated is that the arbitrator exceeded the
arbitrator’s powers. 9 U.S.C. § 10(a)(4). A party moving to vacate an award has the
burden of proof. Lummus Global Amazonas, S.A. v. Aguaytia Energy Del Peru, S.R.
Ltda., 256 F. Supp. 2d 594, 604 (S.D. Tex. 2002); Petrobras Am., Inc. v. Astra Oil
Trading NV, No. 01-11-00073-CV, 2012 Tex. App. LEXIS 2458 at *46 (Tex. App.—
Houston [1st Dist.] March 29, 2012, no pet.) (mem. op.).
JJF contends on appeal the trial court erred by enforcing the arbitrator’s award
because the arbitrator exceeded his authority. It argues there was no agreement to
arbitrate between JJF and Altman and Diaz; and in any event its claims are outside the
scope of the policy’s arbitration agreement. See In re Rubiola, 334 S.W.3d 220, 223
(Tex. 2011) (orig. proceeding) (party seeking to compel arbitration under FAA must
establish there is a valid arbitration clause and claims in dispute fall within that
8
See 9 U.S.C. § 1 et seq.
4
agreement’s scope) (citing In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex.
2005)).9
In cases in which a party resists arbitration, “it matters whether the party resisting
arbitration is a signatory or not.” Merrill Lynch Investment Mgrs. v. Optibase, Ltd., 337
F.3d 125, 131 (2nd Cir. 2003); see Roe v. Ladymon, 318 S.W.3d 502, 515 (Tex. App.—
Dallas 2010, no pet.); see also DK Joint Venture 1 v. Weyand, 649 F.3d 310, 316-17
(5th Cir. 2011); Elgohary v. Herrera, 405 S.W.3d 785, 791 (Tex. App.—Houston [1st
Dist.] 2013, no pet.). Here JJF, the party resisting arbitration, was a party to the policy
containing the broad requirement that “[a]ll disputes involving determinations made by
[Rain & Hail],” with an exception not relevant here, were subject to arbitration. Altman
and Diaz, though not parties to the policy, sought to enforce JJF’s agreement to
arbitrate.10
After the trial court referred JJF’s claims against Altman and Diaz to arbitration,
JJF filed with the arbitrator a motion to dismiss the arbitration. Among other
contentions, the motion argued the claims were not arbitrable because appellees were
not parties to the policy, and because JJF’s claims against them were entirely separate
from its claim against Rain & Hail under the policy and in fact did not even arise until
JJF’s claim against Rain & Hail was finally resolved against JJF. The arbitrator denied
JJF’s motion to dismiss by written order.
9
By its over-arching sole appellate issue, JJF questions “whether a non-party to
an arbitration agreement can compel arbitration of claims that are not within the scope
of the arbitration agreement.” JJF’s argument encompasses both the existence of an
arbitration agreement between these parties and the scope of the policy’s arbitration
provision.
10
“A person who has agreed to arbitrate disputes with one party may in some
cases be required to arbitrate related disputes with others.” Meyer v. WMCO-GP, LLC,
211 S.W.3d 302, 304 (Tex. 2006)
5
In the trial court, JJF’s response to appellees’ petition to confirm the arbitration
award also addressed the arbitrator’s authority, noting that under American Arbitration
Association rules, “it is the arbitrator’s responsibility to ‘rule on his . . . jurisdiction,
including any objections with respect to the existence . . . of the arbitration agreement or
to the arbitrability of any claim.’”11
“Under the FAA, absent unmistakable evidence that the parties intended the
contrary, it is the courts rather than arbitrators that must decide ‘gateway matters’ such
as whether a valid arbitration agreement exists.” In re Weekley Homes, L.P., 180
S.W.3d 127 (Tex. 2005) (orig. proceeding). We review the issue in the manner set out
in First Options. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S. Ct.
1920, 131 L. Ed. 2d 985 (1995) (“Just as the arbitrability of the merits of a dispute
depends upon whether the parties agreed to arbitrate that dispute . . . , so the question
‘who has the primary power to decide arbitrability’ turns upon what the parties agreed
about that matter”) (internal citation omitted; italics in original); see In re Weekley
Homes, 180 S.W.3d at 130-31 (determining whether nonparty must arbitrate, Texas
courts “apply state law while endeavoring to keep it as consistent as possible with
federal law”). In this instance, the contract is one promulgated by the FCIC pursuant to
its statutory authorization. See 7 U.S.C. § 1508(h) (providing for review and approval of
policies by FCIC).
11
JJF’s response to appellees’ motion to confirm the award also constituted its
motion to vacate the award. JJF cited rule R-7 of the AAA’s Commercial Arbitration
Rules (2010), available at https://www.adr.org. JJF also quoted from rule R-8 of the
same rules, stating in its response, “The arbitrator has the power ‘to determine the
existence or validity of a contract of which an arbitration clause forms a part.’”
Commercial Arbitration Rules (2010), available at https://www.adr.org. JJF went on to
argue the merits of its contention its claims against Altman and Diaz were not arbitrable.
6
Federal courts are largely in agreement that incorporation of the AAA rules
containing language like that JJF quoted to the trial court constitutes clear and
unmistakable evidence that the parties to the arbitration agreement “agreed to arbitrate
arbitrability.” See Oracle Am., Inc. v. Myriad Group, A.G., 724 F.3d 1069, 1074 (9th Cir.
2013) (“virtually every circuit to have considered the issue” has so held); see also
Chesapeake Appalachia, LLC v. Scout Petr., LLC, 809 F.3d 746 (3rd Cir. 2016) (quoting
“virtually every circuit” language); Petrofac, Inc. v. DynMcDermott Petr. Ops. Co., 687
F.3d 671, 675 (5th Cir. 2012) (agreeing with “most of our sister circuits that the express
adoption of [AAA] rules presents clear and unmistakable evidence that the parties
agreed to arbitrate arbitrability”); Fallo v. High-Tech Inst., 559 F.3d 874, 878 (8th Cir.
2009); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1372-73 (Fed. Cir. 2006);
Terminix Int'l Co., L.P. v. Palmer Ranch Ltd. P'ship, 432 F.3d 1327, 1332-33 (11th Cir.
2005); Contec Corp. v. Remote Solution Co., 398 F.3d 205, 208 (2nd Cir. 2005).
In Haddock v. Quinn, 287 S.W.3d 158, 172 (Tex. App.—Fort Worth 2009, orig.
proceeding),12 the court recognized the “majority view,” consistent with the holdings of
the federal circuit courts, but found that a “general reference” to the AAA rules in the
arbitration agreement did not clearly and unmistakably indicate the parties’ intent to
submit issues of arbitrability to the arbitrator in that case. See also Burlington Res. Oil
& Gas Co. L.P. v. San Juan Basin Royalty Trust, 249 S.W.3d 34, 40 (Tex. App.—
Houston [1st Dist.] 2007, pet. denied) (also finding agreement’s reference to AAA rules
did not provide clear and unmistakable evidence of intention to submit arbitrability
issues to arbitrator).
12
In its opinion, the court addressed a consolidated interlocutory appeal and
mandamus proceeding.
7
We find Haddock distinguishable from our present case. The arbitrability issue
there concerned the waiver of the right to arbitration through inconsistent litigation
conduct, 287 S.W.3d at 170, and the court appropriately relied primarily on waiver
cases. Id. at 173-74. And the court noted that rule 7(a) of the AAA rules, on which the
party urging arbitration relied, did not exist at the time the arbitration agreement was
added to the parties’ contract. Id. at 175. Similarly, the court in Burlington Resources
found the agreement there limited arbitration to specifically identified audit disputes, and
did not contain “a clear and unmistakable indication that the parties authorized an
arbitrator to decide the arbitrability of claims or amounts not specifically identified” in the
agreement, notwithstanding its reference to the AAA rules. 249 S.W.3d at 41.13
We will apply the majority view to this federal crop insurance policy, 14 and thus
find its incorporation of the AAA rules15 constitutes clear and unmistakable evidence the
parties to the policy intended the arbitrator to decide whether JJF’s agreement to
arbitrate is binding on it as against its effort to litigate its claims against Altman and Diaz
13
The courts in Haddock, 287 S.W.3d at 174-75, and Burlington Resources, 249
S.W.3d at 41, also considered language in each arbitration agreement stating that its
terms controlled over any inconsistent provision of the AAA rules as indicating the
parties did not clearly and unmistakably agree to allow the arbitrator to determine
questions of arbitrability. Similar language is present in section 20(f) of JJF’s crop
insurance policy, but we do not consider its presence determinative of the parties’
intention regarding arbitrability.
14
Among the policy’s basic provisions also is its section 36, entitled “Applicability
of State and Local Statutes.” That section provides:
If the provisions of this policy conflict with statutes of the State or locality in
which this policy is issued, the policy provisions will prevail. State and
local laws and regulations in conflict with federal statutes, this policy, and
the applicable regulations do not apply to this policy.
15
See Risk Management Agency Final Agency Determination FAD-126, Nov. 2,
2010, available at http://www.rma.usda.gov/regs/533/2010.html. (2008 crop year;
generally addressing application of AAA rules incorporated by reference into policy).
8
in court. Petrofac, 687 F.3d at 675; In re Weekley Homes, 180 S.W.3d at 130-31.16 In
its motion to dismiss the arbitration, JJF contended both that it had no agreement to
arbitrate with Altman and Diaz, and that its claims against them were outside the scope
of the policy’s arbitration agreement. As noted, the arbitrator denied JJF’s motion by
written order.
JJF’s brief on appeal contends the arbitrator exceeded his authority “by entering
an award where no agreement to arbitrate existed and the scope of the arbitration
agreement did not cover the disputes.” JJF gives no other reason for its assertion the
arbitrator exceeded his authority. Because we conclude JJF agreed in the policy that
an arbitrator would have authority to determine the question of arbitrability, the arbitrator
did not exceed his authority by resolving the question contrary to JJF’s position. And,
under the narrow and deferential review standard applied to arbitration awards, JJF’s
arguments give us no basis to conclude the arbitrator acted outside his powers in his
resolution of the merits of the issues presented to him, whether issues of arbitrability or
those relating to appellees’ asserted liability to JJF. See Forsythe Int’l, S.A. v. Gibbs Oil
Co., 915 F.2d 1017, 1020 (5th Cir. 1990); Petrobras, 2012 Tex. App. LEXIS 2458 at
*30-31, *46 (standard of review of awards under FAA). The trial court did not err by
affirming the arbitration award over JJF’s contrary argument.
For the reasons discussed, we overrule JJF’s appellate issue and affirm the trial
court’s judgment.
James T. Campbell
Justice
16
We do not suggest that JJF’s act of filing its motion to dismiss with the
arbitrator and thus obtaining the arbitrator’s ruling was itself an indication of its
willingness to arbitrate the question. See First Options, 514 U.S. at 946.
9
FILE COPY
No. 07-15-00060-CV
Jody James Farms, JV § From the 110th District Court

Appellant of Floyd County
§
v. October 17, 2016
§
The Altman Group, Inc. and Laurie Opinion by Justice Campbell
Diaz §
Appellees
J U D G M E N T
Pursuant to the opinion of the Court dated October 17, 2016, it is ordered,
adjudged and decreed that the judgment of the trial court be affirmed.
It is further ordered that appellant pay all costs in this behalf expended for which
let execution issue.
It is further ordered that this decision be certified below for observance.
oOo
FILE COPY
BRIAN QUINN
Chief Justice
Court of Appeals VIVIAN LONG
Clerk
JAMES T. CAMPBELL
Justice
Seventh District of Texas MAILING ADDRESS:
MACKEY K. HANCOCK
Justice
Potter County Courts Building P. O. Box 9540
79105-9540
501 S. Fillmore, Suite 2-A
PATRICK A. PIRTLE
Justice Amarillo, Texas 79101-2449 (806) 342-2650
www.txcourts.gov/7thcoa.aspx
December 13, 2016
Anna McKim Jody D. Jenkins

J. Paul Manning JENKINS, WAGNON & YOUNG, P.C.
FIELD, MANNING, STONE P. O. Box 420
HAWTHORNE & AYCOCK, P.C. Lubbock, TX 79408
2112 Indiana Avenue * DELIVERED VIA E-MAIL *
Lubbock, TX 79410
* DELIVERED VIA E-MAIL *
RE: Case Number: 07-15-00060-CV

Trial Court Case Number: 10,422
Style: Jody James Farms, JV v. The Altman Group, Inc. and Laurie Diaz
Dear Counsel:
By Order of the Court, Appellant’s Motion for Rehearing is this day overruled.
The Court’s Opinion issued on October 17, 2016 mistakenly included an

incomplete citation for First Options of Chicago, Inc. v. Kaplan on page 6. A citation to a
website has been added to footnote 15 on page 8. Attached is the corrected opinion.
Very truly yours,

Vivian Long
VIVIAN LONG, CLERK
xc: Honorable William P. Smith (DELIVERED VIA E-MAIL)

Patty Davenport (DELIVERED VIA E-MAIL)
THE CLERK’S RECORD
No. 07-15-00060-CV
Trial Court No. 10,422
JODY JAMES FARMS, JV

VS FILED IN
7th COURT OF APPEALS
THE ALTMAN GROUP, INC. AMARILLO, TEXAS
AND LAURIE DIAZ 3/3/2015 11:18:57 AM
VIVIAN LONG
Transcript from the 110TH District Court of Floyd County, Texas
CLERK
Hon. William P. Smith, Judge Presiding
Jodie Jenkins, Attorney for Appellant

Address: P.O. Box 420
Lubbock, Texas 79408
J. Paul Manning, Attorney for Appellee

Address: 2112 Indiana Avenue
Lubbock, Texas 79410
Applied for by the Appellant

Date uploaded: March 3, 2015
Patty Davenport, District Clerk

Floyd County
Address: 105 S. Main Room 207
Floydada, Texas 79235
dcfloyd@suddenlinkmail.com
phone: 806-983-4923
Transcript fee: $ 129.00 paid: Jodie Jenkins
Appellate Court Cause No. ______________
Filed in the 7th Court of Appeals, at Amarillo, Texas this the ___ day of _________20___
___________________________Clerk by______________________Deputy
1
No. 10,422
JODY JAMES FARMS, JV § IN THE 110TH DISTRICT
VS. § COURT OF
THE ALTMAN GROUP, INC. § FLOYD COUNTY, TEXAS

AND LAURIE DIAZ
INDEX
Plaintiff’s Original Petition - - - - - - - - - - - - - - 3

Defendant’s Original Answer and Request for Disclosure - 7
Defendant’s Motion to Compel Arbitration - - - - - - - - 9
Defendant’s First Amended Answer - - - - - - - - - - - - 18
Order Setting Hearing - - - - - - - - - - - - - - - - - 24
Notice Setting Hearing - - - - - - - - - - - - - - - - - 25
Letter - - - - - - - - - - - - - - - - - - - - - - - - - 26
Order Granting Motion to Arbitrate - - - - - - - - - - - 27
Plaintiff’s Motion to Reconsider or for Clarification of the
Court’s Order to Compel Arbitration - - - - - - - - - 28
Notice of Hearing - - - - - - - - - - - - - - - - - - - 37
Defendant’s Response to Motion for Rehearing - - - - - - 38
Order on Plaintiff’s Motion to Reconsider - - - - - - - - 41
Petition to Confirm and Enforce Final Arbitration Award and for
Attorney Fees and Costs - - - - - - - - - - - - - - - 42
Order Setting Hearing - - - - - - - - - - - - - - - - - - 55
Jody James Farms, JV’s response to the Altman Group, Inc. and
Laurie Diaz’s Petition to Confirm and Enforce Final
Arbitration Award and for Costs and Attorney Fees and Motion
to Vacate and to Set Aside Arbitration Award - - - - - 57
Brief in Support of the Altman Group, Inc. and Laurie Diaz’s
Petition to Confirm and Enforce the Final Arbitration Award
and Response to Motion to Vacate Award - - - - - - - - 75
Letter - - - - - - - - - - - - - - - - - - - - - - - - 124
Final Judgment - - - - - - - - - - - - - - - - - - - - - 125
Notice of Appeal - - - - - - - - - - - - - - - - - - - - - 128
Bill of Costs - - - - - - - - - - - - - - - - - - - - - - 129
Docket Sheet - - - - - - - - - - - - - - - - - - - - - - 130
Clerk’s Certificate - - - - - - - - - - - - - - - - - - - 131
2
411
CAUSE NO.
CAUSE NO. ( 'D, 4J~
i2LOA_
§ IN THE
IN THE 110 TH JUDICIAL
I lOTH
JODY JAMES FARMS, JV §
§ DISTRICT COURT OF
v.
V. §
THE ALTMAN GROUP, INC. and LAURIE §
§ FLOYD COUNTY, TEXAS
DIAZ
PLAINTIFF'S ORIGINAL PETITION
Plaintiff, Jody James Farms, JV files this Original Petition against The Altman Group, Inc.,
Court~s
and Lauren Diaz Defendants, and in support thereof would show the Court ~~l~o.ws:
as follows:
I.
DISCOVERY
Discovery in this
this matter
matter shall
shall be
be conducted
conductedunder
underDiscovery
DiscoveryControl
ControlPlan
PlanLevel
LevelII.II. Tex.
190.2.
R. Civ. P. 190.2.
II.
PARTIES
Plaintiff Jody
Jody James
James Farms,
Farms, JV
JV is aa joint
joint venture
venture doing
doing business
business in
in Crosby
Crosby and
and Floyd
Floyd
County, Texas.
Defendants are The Altman Group,

Defendants are Group, Inc.
Inc. who
who may be served with process by serving
serving its
registered agent Barry Altman at 7005

registered agent 7005 Salem
Salem Park Drive, Suite
Suite B, Lubbock,
Lubbock, Texas 79424,
79424, and
- Laurie Diaz--·who is an individual

"' ~-"-- .--·-' -· --
who may be served with process at 5805 64th Street, Lubbock,
--
.. ___.....-.- ~ --~--
j
-)
Texas 79424.
III.
III.
JURISDICTION AND
JURISDICTION AND VENUE
VENUE
This Court has jurisdiction

jurisdiction over this matter because the amount in controversy is within the
jurisdictional limits
jmisdictional limits of
of this
this Court.
Court. Further,
Further, venue
venue isis proper
proper in
in Floyd
Floyd County,
CoUJJ.ty, Texas
Texas because
because
Defendants sold insurance

Defendants sold to Plaintiff that covered
insurance to covered real
real property located
located in Crosby
Crosby and
and Floyd
Floyd
3
substantially all
County, Texas; and, all or substantially all of
of the events giving rise to this cause of
of action occurred
in Floyd County, Texas.
IV.
FACTS
In 2010, Plaintiff received

received damages
damages to
to his
his grain
grain sorghum
sorghumcrops. Plaintiff contacted
crops. Plaintiff contacted his
of The Altman Group, Inc., to submit a claim for

insurance agent Laurie Diaz who is an employee of
damages to
damages to his
his crops.
crops. Although Plaintiffsubmitted
AlthoughPlaintiff submitted his
his claim
claim for
for loss
loss in
in accordance
accordance with
with the
customary practicesJn
customary practices in the industry and as required by the Insurance Policy sold by Defendants, his
i
&
claim was not forwarded by The Altman Group, Inc. to the underlying, insurance carrier, Rain &
Hail.~ On
Hail; OnJune
June20,
20,2011,
2011,Plaintiff
Plaintifffiled
filedan
anArbitration
ArbitrationDemand
Demand against
against Rain
Rain and
and Hail,
Hail, LLC
LLC with
with
:.
the American
the American Arbitration
Arbitration Association
Associationfor
fordenial
denialof
ofcrop
cropinsurance.
insurance. On April 10,
On April 10, 2012,
2012, the
the
American Arbitration
American Arbitration Association
Association rendered
rendered its
its decision
decision and
and found that Plaintiffs
found that Plaintiff's claim was not
timely submitted to Rain &

& Hail, LLC.
v.
V.
CAUSES OF ACTION
1. Fiduciary Duty
Defendants breached their fiduciary

fiduciary duty
duty to Plaintiff by failing to timely submit the crop
claim to
loss claim to Rain & LLC. As
& Hail, LLC. AsPlaintiff's
Plaintiffsinsurance
insuranceagents,
agents, Defendants
Defendants owed
owed aa fiduciary
fiduciary
-·duty to-their insured:~ -Defendants breached their

dutytb-theirinstited:—Defendants their fiduciary
fiduciary dutywhen-Plaintiffnotified,themofhis
duty•when-Ptaintiffnotified,themofhis .~
loss in accordance with industry custom and practice.
2. Deceptive Trade Practices Act
The Deceptive
The Deceptive Trade
Trade Practices
Practices Consumer
Consumer Protection
Protection Act (DTPA), Tex.
Act (DTPA), Tex. Bus.
Bus. & Com.
& Com.
Code Ann. §§ 17.41

17.41 et
et seq. ( 1987), prohibits false, misleading, or deceptive acts or practices in the
seq. (1987),
of trade
conduct of trade or commerce.
commerce. The elements
elements of
of a DTPA cause of action are: (l)
(1) the plaintiff is a
4
the defendant engaged in false,
consumer; (2) the false, misleading,
misleading, or deceptive
deceptive acts;
acts; and
and (3) these acts
constituted a producing
constituted cause of the
producing cause the consumer's
consumer's damages.
damages. Rove First Am.
Rove v. First Am. Title
Title Ins.
Ins. Co.,
Co.,
1.998 Tex.
1998 App LEXIS
Tex. App. LEXIS 6242,
6242, 11 (Tex.
(Tex. App.
App. Dallas Oct. 8,
Dallas Oct. 8, 11998).
998). In
Inthe
thecase
case atat bar,
bar, Plaintiff
Plaintiff
qualifies as
qualifies consumer under
as a consumer under the DTPA. Defendant
the DTPA. Defendantengaged
engaged in
in misleading
misleading and
and false
false acts by
failing to submit Plaintiff's

failing Plaintiff's claim
claim for
for coverage
coverage of
of lost
lost crops
crops and
and representing
representing that
that the
the insurance
policy had
policy had benefits
benefits that
that itit did
did not. Defendants'conduct
not. Defendants' conduct violated
violated several of the
several of the "laundry
"laundry list"
17.41 et.
items set forth in § 17.41 et. seq.
v.
V.
ATTORNEY'S FEES
of the
As a result of the Defendants'
Defendants' conduct,
conduct, Plaintiff
Plaintiff has
has been
been forced
forced to
to hire
hire the
the undersigned
undersigned
attorney to pursue
pursue collection of
of this
this matter.
matter. AAreasonable
reasonable and
and necessary
necessary attorney's
attorney's fee
fee through the
of this matter is estimated to be at least $25,000.00 with additional contingent amounts in the
trial of
event of a an
an unsuccessful
unsuccessful appeal to a Texas
Texas Court
Court of
of Appeals
Appeals or
or the
the Texas
Texas Supreme
Supreme Court by
Defendants.
VI.
CONCLUSION
· · Plaintiff
Plaintiff requests that Defendants be cited to appear and answer herein and that upon final
judgment Plaintiff
Plaintiff does have and recover:
—.-
- ·· 1.
1.-- - $68;000.00
$68;000.00 as the amount due•and
due·and owing to-Plaintiff;-"
to-Plaintiff; - . -= --o ~- ~, -· ~ ,.. . __ "'
2.
2. least $25,000.00
At least $25,000.00 as
as reasonable
reasonable and
and necessary
necessary attorney's
attorney's fees
fees with
with additional
additional
contingent amounts
contingent amounts in
in the
the event
event of an unsuccessful
unsuccessful appeal
appeal to
to a Texas
Texas Court of Appeals
Appeals or the
Texas Supreme Court by Defendants;
3.
3. Pre-judgment interest;
4.
4. Post-judgment interest at the highest rate allowed by law; and
5
5. relief to which Plaintiff
All such other and further relief itself to be justly entitled.
Plaintiff shows itself
Respectfully submitted,
ODY D. JENKINS, SB #24029634

JENKINS, WAGNON & & YOUNG, P.C.
P.O. Box 420
Texas79408
'Lubbock, Texas
796-73 51
(806) 796-7351
79408
;
Fax: (806) 771-8755 I
ATTORNEYS FOR PLAINTIFF
FILED
ialvveopPidi-
Pl
(District C rk, Floyd County, Texas
3 6
No. 10,422
I0,422
JODY JAMES
JAMES FARMS, JV § IN THE 110Th
II OTH DISTRICT COURT
§
v.
V.
§ OF
§
THE ALTMAN GROUP, INC.
INC. AND §
LAURIEDIAZ
LAURIE DIAZ § FLOYD COUNTY, TEXAS
DEFENDANTS'
DEFENDANTS' ORIGINAL
ORIGINAL ANSWER
AND REQUEST FOR DISCLOSURE
~ : : ... ~. . . . --. ----~-~- p ~ _ . ••
TO THE HONORABLE JUDGE OF SAID COURT:
NOW COMES,
NOW COMES, THE ALTMAN
ALTMAN GROUP,
GROUP, INC.
INC. AND DIAZ, (hereinafter
AND LAURIE DIAZ,
file this Original

"Defendants") Defendants herein and file Original Answer, and would respectfully show the
Court as follows:
follows:
I.
GENERAL DENIAL
1.01. Defendants
.1.01. Defendantsdeny
denyeach
eachand
andevery,
every,all
alland
andsingular,
singular, the
the allegations
allegations contained in the
Plaintiff's
Plaintiff's pleadings
pleadings and
and exercises
exercises their
their rights
rights under
under TEX. R. CIV.
TEx. R. Qv. 92 to generally
generally deny
deny each
each of the
allegations contained in such pleadings.

pleadings .
...:;-,...-~~ . -- ~ . - .. -·-· ..... ~~ -~---:_-~ ;.:~ ---.--- ~
II.
REQUEST FOR DISCLOSURES
6. 0 1. Under
6.01. UnderTexas
TexasRule
Ruleofof
Civil
CivilProcedure
Procedure194,
194,Plaintiffs
Plaintiffsrequest
requestthat
that Defendants
Defendants disclose,
within fifty (50) days of the service of

fifty (50) of this request, the information or material described in Rule
194.2.
Original Answer
Original Page 1I
LAActive Cases\Miscellaneous I JPaul
L:\Active Cases\Miscellaneous. Paul\CLIENTS\A\Aitman
\CLIENTS \A \ Altman Group\Jody James Farms,
GrouplIody James Fanns,IV
JVv.v.Altman
Altman\Pieadings\Answer.wpd
\Pleadings \Answer.wpd
7
I
WHEREFORE, PREMISES CONSIDERED, Defendants

Defendants pray that Plaintiff
Plaintiff take nothing
by this suit herein and that Defendants go hence

hence without
without day
day and
and recover
recover all
all costs
costs in
in this behalf
expended.
Respectfully submitt
J. PAUL MA
STATE BAR N I • "" ~· _. ·.,., '
FIELD, MA
FIELD, MA ING,lNG,STONE,
STONE,HAWTHORNE
HAWTHORNE &
&
AYCOCK, .C.
AYCOCK, .C.
A Professional Corporation
2112 Indiana Avenue
A venue
Lubbock,Texas79410-1499
806/792-0810 (Telephone)
806/792-9148 (Facsimile)
ATTORNEYS FOR DEFENDANTS
CERTIFICATE OF SERVICE
A
A true
true and correct 2~Y
and correct day ofofthe
theabove
aboveand foregoing DEFENDANTS'
andforegoing DEFENDANTS' ORIGINALORIGINAL
ANSWER was on this ___!ljj_
/2/9 day ofof December , 2012, served on Plaintiff
Plaintiff by forwarding same to
Plaintiffs attorney
attorney of
of record as follows:
follows:
Via Fax: 771-8755 and/or

E-Mail jjenkins@jwylaw.com
~JODY-JENKINS--o---~=· ... - ·
JENKINS, WAGNON &
-·- -·
& YOUNG, P.C.
---· -- J
P.O. Box 420
Lubbock, TX 79408
J. PAUL MA
PAULMA
FILED Page 2
Original
Original Answer .
p~~
Cases\Miscellaneous
L:\Active Cases 'Miscellaneous -I
- J Paul\CLJENTSIA\Aitman
Paul \CLIENTS \ A \Altman Group\lody
Group \Jody lames
JamesFarms,
Farms,IV
JVv.v. Altman\Pleadmgs\Answer.wpd
Altman \Pleadings\Answer.wpd
Clerk, Floyd County, Texas

District Clerk, T~
By 1 -a -9tp ·dfJ.JCJ. lo~ 20 """8

No. 10,422
10,422
JODY JAMES FARMS, JV § ININ

§ THE
THE110TH
110m DISTRICT COURT
§
v. § OF
§
LAURIE DIAZ
LAURIEDIAZ § FLOYD COUNTY, TEXAS
DEFENDANTS' MOTION TO COMPEL ARBITRATION
TO THE HONORABLE JUDGE OF SAID COURT:
COMES NOW, the Defendants, THE ALTMAN GROUP, INC. AND LAURIE DIAZ,
(collectively referred
(collectively referred to Defendants herein)
to as Defendants herein) and files this Motion
Motion to
to Compel
Compel Arbitration
Arbitration and
and
would show the Court as follows:

follows:
I. Introduction and Procedural Posture
1.
1. brought this lawsuit after initiating an arbitration proceeding styled In the
Plaintiffbrought
Plaintiff
Matter
Matter of Arbitration between:
of the Arbitration between: Jody
Jody James
James Farm,
Farm, JV
JV vs. Rain and Hail,
vs. Rain LLC, Case No.
Hail, LLC,
71430E003911 before the American Arbitration Association.

71430E003911
2.
2. Subsequently, Plaintiffinitiated
Subsequently, Plaintiff initiatedthe
theinstant
instantsuit
suit despite
despite the
the clear
clear terms
terms of the
of the original arbitration and the

arbitration clause in the crop insurance policy that is the subject of
fact
fact that Plaintiff had
had an arbitration
arbitration finding that Plaintiff was
finding that was not entitled to recover
recover under the
policy of insurance regardless of whether or not Plaintiffs claims against

Plaintiff's claims against Defendants
Defendants have merit
or not.
3.
3. The arbitration precludes Plaintiffs
arbitration precludes Plaintiff's recovery.
recovery. Defendants
Defendants have
have all
all answered
answered and
intended to seek Pleas in Abatement regarding this litigation be abated,

intended to abated, if
if not adjudicated
adjudicated in the
above-referenced arbitration pursuant to the requirements of the DTPA.

ofthe
Mntinn to Cnmnpl Arbitration Pa e 1

Page
4.
4. First, Defendant files
files this Motion to Compel the parties to Arbitration pursuant to
their agreement.
II. Arbitrability of the Claim
5.
5. called upon
A court called upon to,
to. determine
determine if arbitration should be compelled under either
either
federal law (the Federal

federal Federal Arbitration
Arbitration Act) must determine
Act) or Texas law must determine (1) whether
whether the
the parties
parties
agreed to arbitrate,
agreed if so,
arbitrate, and if so, (2)
(2) whether
whether the
the scope
scope of
ofthe
the agreement
agreement encompasses
encompasses the
the asserted
asserted
claims. See Chelsea

Chelsea Square
Square Textiles
Textiles Inc. v. Bombay Dyeing and Manufacturing Co., 189 F.3d
Inc. v.
289, 294 (2nd Cir. 1999)(FAA);

1999)(FAA); Leander Cut Stone Co.
Co. v.
v. Brazos Masonry,
Masonry, Inc. 987 S.W.2d 638,
640 (Tex.App.
(Tex.App.-—Waco
Waco 1999,
1999, no
no pet.)(FAA); In re Oakwood
Oakwood Mobile Homes,
Homes, Inc., 987 S.W.2d
S.W.2d
571, 573 (Tex.1999)(state law); Henry v.

v. Gonzalez, 18 S.W.3d 684, 688 (Tex.App.--San Antonio
2000, pet. dism'd by agmt.)(state law).
6.
6. the first
As to the first prong,
prong, the
the fact
fact that
that Plaintiff's
Plaintiffs arbitrated
arbitrated the
the underlying
underlying coverage
coverage
issue with the insurer in arbitration establishes this burden conclusively.
7.
7. second prong requires that
The second that Defendants
Defendants prove that
that the
the arbitration
arbitration provision
provision
encompasses the
encompasses the claims
claims asserted.
asserted. Defendants
Defendantswould
would show
show that
that arbitration
arbitration of
of this matter is
this matter
mandatory under federal govemi~g the

federal law governing specific policy
the specific policy at issue, that Plaintiff's
at issue, Plaintiffs attempts
attempts to
recast its policy coverage

recast coverage claims as State
State law
law finding
finding or
or false,
false, deceptive
deceptive or
or misleading
misleading claims
claims
of this matter.
should be ignored, and that strong federal policy requires arbitration of
a. Mandatory Arbitration
8.
8. The insurance policy at issue is a Federal
Federal Crop
Crop Insurance policy regulated by the
Federal Crop
Federal Crop Insurance
Insurance Act
Act ("FCIA"). The Federal
("FCIA"). The Federal Crop
Crop Insurance
Insurance Corporation
Corporation ("FCIC") was
created 1938 by the Federal

created in 1938 Federal Crop
Crop Insurance
Insurance Act
Act 7 U.S.C.
U.S.C. §1501-20. The FCIC
§1501-20. The FCIC was
was created
created
10
Mntinn to r.omnel Arbitration

Comnel Arbitration Page 2
for the purpose of
of providing national welfare "by improving the economic stability of
national'welfare of agriculture
of crop insurance.
through a sound system of insurance ...
. ."" 7 U.S.C.
U.S. C. §1502.
§ 1502.
9.
9. of the FCIA authorizes the Secretary of
Section 1516 of of Agriculture and the FCIC to
issue such
issue such regulations
regulations as necessary to carry out the
as may be necessary the provisions
provisions of
of the
the Chapter.
Chapter. These
These
regulations are binding on the insureds and all parties, Federal Crop Insurance Corp.
Corp. v.
v. Merrill,
332 U.S. 383, at 384

384-- 385. The
Theregulations
regulations which
which are
are found
found in
in the
the Code
Code of
ofFederal
Federal Regulations
Regulations
specifically set forth

specifically set forth the
the terms
terms of these
these insurance
insurance policies.
policies. The
The actual
actual provisions
provisions and
and terms
terms of
the policies are standardized and approved

approved by the FCIC.
FCIC. The terms and conditions
conditions preempt any
contrary state laws

contrary state laws that would
would apply
apply to
to other
other insurance
insurance contracts
contracts normally
normally issued
issued by private
private
insurance companies. See 7 U.S.C. §1506(1);

§1506(1); 77 C.F.R.
C.F.R. §400.352.
§400.352. Congress specifically provided
shall not apply to contracts

that "state and local laws or rules shall contracts or agreements of
of the [FCIC] or the
parties thereto
parties thereto to extent that
to the extent that such
sue? contracts
contracts or agreements
agreements provide
provide that such laws
that such laws or rules
,"
shall
shall not apply,
apply, or to the
the extent
extent that,such
tha\,such laws
laws or
or rules
rules are
are inconsistent
inconsistent with
with such
such contracts
contracts or
agreements." 77 U.S.C.
agreements." U.S.C. §§ 1506(k).
1506(k).
10.
10. of the mandated
One of mandated provisions of
of the FCIC insurance
insurance policies is the
the arbitration
arbitration
provision.
provisiOn. The
The terms
terms of
of the
the Policy
Policy ;,are
:are set
set forth
forth in the
the regulations
regulations promulgated by the Risk
promulgated by Risk
Management Agency ("RMA"),

Management Agency ("RMA"), which
which administers
administers the
the federal
federal crop
crop insurance program and
insurance program and is
regulated, reinsured, and

regulated, reinsured, and subsidized
subsidized by
by the
the FCIC.
FCIC. The
The arbitration
arbitration requirement
requirement was added to the
policy provisions by Final Rule of the

the FCI
FCIC dated August
C dated August 19,
19, 1994.
1994. In
In summarizing
summarizing the changes
to the Common Crop Insurance Regulations, the FCIC noted:
The arbitration provisions are amended to apply to all disagreements on factual

determinations and be in accordance with the Rules ofof the American
American Arbitration
Association.
Common
Common Crop Insurance Regulations;
Regulations; Regulations for the 1994 and Subsequent Crop Years, 59
Regulations for
Motion to Compel
Compel Arbitration
Arbitration Page 3
11
42751 (1994)
FR 42751 (1994) (emphasis
(emphasis added). Thus, the
added). Thus, the language
language calling
calling for
for arbitration
arbitration when "you and
and
we fail to agree on any determination made by us" is a reflection of federal

federal policy expanding the
scope of
of the arbitration provision in this case.
11.
11. In Nobles v. Rural Community
Nobles v. Community Insurance Services,
Services, 122 F. Supp.
Supp. 2d
2d 1290
1290 (M.D.
(M.D.
2000) 1 in
Ala. 2000)1
Ala. in an
an Alabama
Alabama federal
federal district
district court
court analyzed
analyzed the provisions
provisions of the FCIA
FCIA and the
Code of
of Federal Regulations determined that
Regulations and det,ermined that as
as a matter of
of law an
an aggrieved
aggrieved insured
insured must
must
submit
submit all
all disputes
disputes arising
arising from
from factual
factual determinations to binding
determinations to binding arbitration and that
arbitration and that the
the
completion of
completion arbitration proceedings
of arbitration proceedings isis a condition
condition precedent
precedent to bringing any legal
to bringing legal action
action
against the insurance company. Id, at 1296.

1296. The
The court
court in Nobles relied in part on the
the provision
of the FCIA that the insured can only bring aa legal

under the rules and regulations of legal action
action against
against
disputes to binding arbitration citing 7 C.F.R.

the insurance company after submitting disputes C.F.R. §457.8
§457.8 ~
Thelanguage
20(a). The language in
in the
the current
current regulations
regulations applicable
applicable to
to this suit
suit are
are even
even stronger
stronger than those
at issue in Nobles. §407.9 ¶~ 16(b)(2)

Nobles. 7 C.F.R. §407.9 16(b)(2) expressly
expressly provides that "if you fail
fail to
to initiate
initiate
arbitration in accordance
arbitration in with §16(b)(l)
accordance with §16(b)(1) and
and complete
complete the
the process,
process, you
you will not be able to
resolve the dispute

resolve dispute through
through judicial review." (emphasis
judicial review." (emphasis added).
added). The
The Nobles court further
further
observed that,
observed that, pursuant
pursuant to arbitration provision,
to the arbitration provision, "the insured may
"the insured bring legal
may not bring legal action
action
against the
against insurer 'unless [the
the insurer [the insured
insured has]
has] complied
complied with
with all of the
all of the policy
policy provisions.'
provisions.' This
This
command would be meaningless

command would meaningless if it allowed Plaintiffs to file suit without first
first complying
complying with
factual disputes." Nobles, 122 F. Supp. 2d at 1296.

the provision requiring arbitration of factual
12.
12. Notably, the Nobles suit,
Notably, suit, like
like the
the instant
instant suit,
suit, involved
involved farmers'
farmers' actions
actions for
for
alleged misrepresentations
alleged misrepresentationsand
andactions
actionsofofananagent. The causes
agent. The causes of action
action asserted
asserted by the
the
;j
plaintiffs in Nobles are strikingly similar to those claims asserted by Plaintiff
Plaintiff herein, e.g., breach
1
of this authority is attached for the
A copy of the Court's convenience.
convenience.
Motion to Compel Arbitration

Compel Arbitration Page 4
12
contract, misrepresentation,
of contract, misrepresentation, suppressiOn,
suppression,bad
bad faith, negligent and
faith, negligent wanton distribution
and wanton distribution of
information via
information via the
the agency,
agency, and
and negligent
negligent and
and wanton
wanton supervision
supervisionof
ofthe
the agents. Even faced
agents. Even faced
of the claims were not subject to arbitration, the Nobles court stayed
with the argument that some of
the federal
federal court proceedings and held that the completion of
of the arbitration
arbitration was mandatory and
arbitrator's findings
that the arbitrator's findings and
and conclusions
conclusions would given preclusive
would be given preclusive effect in any subsequent
subsequent
court proceedings. This isis precisely

proceedings. This precisely the
'the result
result required by the
required by the FCIA
FCIA and
and the
the Federal
Federal Arbitration
Arbitration
1296. Applying
Act. Id, at 1296. Applyingthis
this reasoning,
reasoning, the Nobles court found that the arbitration provisions
of the federal crop insurance policy were mandatory and that the Plaintiff must submit to binding
of
of whether the loss was covered by the policy.

arbitration the factual question of
13.
13. This Court should reach a similar result.
result. The crux
crux of Plaintiff's complaint is that it
did not receive an indemnity

indemnity payment because of some alleged failure of Defendants
Defendants to make a
claim under
claim under the
the policy
policy for
for Plaintiff. Ataaminimum,
Plaintiff At minimum, the
theinstant
instantlitigation
litigation should
should be
be abated
abated and
and
submitted to
submitted binding arbitration
to binding on :'the
arbitration on of whether
the issue of whether coverage
coverage existed
existed under
under the policy at
!:
!I
issue regardless of e~isted or not.

of whether a claim existed
I!
b. The Court Should Ignore Plaintiff's Efforts to Recast Claims
14.
14. Plaintiff may
Plaintiff may argue
argue that
that itit "is not
not bringing
bringing any claim
claim under
under the
the any
any terms
terms or
or
language of the contract,

language contract, i.e.
i.e. the underlying agreement". However,
However, use
use of artful
artful pleadings
pleadings to
recast claims
recast claims to avoid certain
to avoid certain legal consequences
consequences isis a familiar
familiar tactic and one
tactic and one that
that the
the Court
Court
should ignore.
should ignore. The
The essence
essence of Plaintiff's claims herein
Plaintiff's claims herein is it materially
is not that it materially relied
relied upon
upon a
representation or relied
representation or relied upon
upon actions
actions made
made or
or not
not made
made by Defendants. Rather, itit is purely a
Defendants. Rather,
disagreement with
disagreement with the denial of certain
denial of certain indemnity payments under the subject
subject insurance policy
for which
for which even if
if Plaintiff
Plaintiff were
were correct
correct on his
his assertions
assertions have
have already
already been determined
determined to
to be
denied.
Motion to Compel
Compel Arbitration
Arbitration Page
135
15.
15. Co~rts have often been confronted with Plaintiffs
Texas and Federal Courts Plaintiffs who attempt
attempt
to creatively recast their claims to avoid

avoid certain
certain legal
legal consequences.
consequences. For example, Texas Courts
have long held that aa party

have party cannot
cannot avoid
avoid the
the requirements of the
requirements of the medical
medical liability
liability act
act through
through
artful
artful pleading
pleading or recasting
recasting of
of claims.
claims. See
See e.g.
e.g. Diversicare
Diversicare Gen.
Gen. Partner,
Partner, Inc.
Inc. v.
v. Rubio,
Rubio, 185
(Tex.2005). The Texas Supreme Court addressed

S.W.3d 842, 847 (Tex.2005). addressed a similar attempt to avoid an
arbitration clause in In
arbitration clause re Kaplan
In re Kaplan Higher
Higher Educ.
Educ. Corp,
Corp, 235 S.W. 3d
235 S.W. 3d 206,
206, 209
209 (Tex.2007).
(Tex.2007). In
Kaplan, a group of
of students sought to avoid
avoid the terms of
of an
an arbitration
arbitration clause
clause by asserting
asserting their
claims against Kaplan as "fraudulent inducement." The Texas Supreme

Supreme Court
Court correctly
correctly observed
that "almost
that "almost every
every contract
contract claim
claim against
against aa corporation
corporation could
could be
be recast
recast as
as aafraudulent
fraudulent
inducement claim
inducement claim against
against the agents
agents or employees
employees who took part in
in the
the negotiations
negotiations preceding
preceding
it." In
In re
re Kaplan,
Kaplan, 235
235 S.W.
S.W. 3d
3d at
at 209.
209. Other
Other Federal
Federal Circuit
Circuit Courts
Courts have
have reached
reached aa similar
similar
conclusion: "a party cannot avoid arbitration simply by renaming

conclusion: renaming its claims so that they
they appear
appear
facially outside the scope of

facially outside of the arbitration
arbitration agreement."
agreement." See Simon v.
v. Pfizer,
Pfizer, Inc.
Inc. 398 F.3d 765,
765,
(6 1h Cir.
776 (6th Cir. 2005).
2005). InInall
allofofthese
thesecases,
cases,the
thecourts
courtslook
looktotothe
theunderlying
underlying facts
facts to
to determine
determine
whether the essence of the Plaintiff's <;:laims fall

Plaintiff's claims fall within the scope of
of the arbitration clause. !d.
Id.
16.
16. As in Kaplan, virtually
virtually all disputes relating
all disputes relating to
to the denial
denial of
of coverage
coverage under the
subject insurance
subject insurance policy
policy could
could be recast
recast or
or renamed
renamed as
as aa"misrepresentation",
"misrepresentation", negligence
negligence or
deceptive practices.
deceptive Any aggrieved
practices. Any aggrievedi,policyholder
policyholder disagreeing
disagreeing with
with denial
denial of
of coverage
coverage could
could
,,
simply
simply claim
claim that
that the terms
tenns of
of the
the policy
p?licy were
were misrepresented
misrepresented or not properly
properly presented
presented in an
an
effort to
effort avoid arbitration.
to avoid arbitration. The
The Court
Court. should,
should, therefore,
therefore, ignore Plaintiff's attempts
attempts to recast its
lj
li
claims to avoid
avoid the
the arbitration
arbitration clause
clause and
and examine
examine the
the essence
essenceof
ofthe
thePlaintiff's
Plaintiffs claims.
17.
17. by::the
The pleadings filed by the Plaintiff herein make it clear that essence of its claims
relates not to any alleged conduct or representation,

relates representation, but rather,
rather, to
to whether or not it should
should have
Motion to Compel
Compel Arbitration
Arbitration Page
146
received payment
received payment under the policy as previously denied
denied by an arbitration for issue unrelated to
any of
of Defendants' actions
actions or
or inactions.
inactions. In
In short,
short, Plaintiff
Plaintiff disagrees with the determination
determination made
made
to deny coverage during the disputed

disputed; interval and the
the determination
determination by the arbitrator
arbitrator upholding
the denial.
denial. Therefore, this matter clearly
Therefore, this clearly falls
falls within
within the terms of
of the
the arbitration
arbitration agreement
agreement at
issue and thus, the Court should compel this matter to arbitration.
c. The Federal Arbitration Act Requires Arbitration
18.
18. Even
Even if the FCIA
FCIA did
did not
not require
require arbitration,
arbitration, the
the enforcement
enforcement of
of the
the arbitration
arbitration
clause in
clause the policies
in the policies herein
herein at iss~e is
at issue is mandated
mandated pursuant
pursuant to
to the
the Federal
Federal Arbitration
Arbitration Act
Act
("FAA''), which provides, in pertinent part, that:

("FAA"),
[a] written
[a] written provision
provision inin . . .. a. contract
a contractevidencing
evidencinga atransaction
transaction involving
involving
commerce to
commerce settle by arbitration
to settle arbitration a controversy
controversy thereafter
thereafter arising
arising out such
out of such
contract or transaction . . . shall
transaction ... shall be valid,
valid, irrevocable
irrevocable and
and enforceable,
enforceable, save upon
such grounds as exist at law or in equity for the revocation of of any contract.
U.S.C. § 2.
9 U.S.C. 2. Thus,
Thus,the
theFAA
FAArequires
requiresenforcement
enforcement of
ofan
an arbitration
arbitration agreement
agreement upon proof: (1)
that a written agreement to arbitrate exists and (2) that the written agreement is contained within
contract evidencing
a contract evidencing a transaction
transaction involving
involving "commerce." is well-established
It is
"commerce." It well-established that the
the FAA
FAA
establishes
establishes "a federal
federal policy
policy favoring.
favoring: arbitration." Shearson/American
Shearson/American Exp.,
Exp., Inc. McMahon,
Inc. v. McMahon,
482 U.S. 220, 226 (1987).

(1987). Courts must rigorously enforce argeements to arbitrate, even doing so
means
means piecemeal
piecemeal litigation. See Dean
litigation. See Dean Witter
Witter Reynolds,
Reynolds, Inc. v. Byrd,
Inc. v. Byrd, 470
470 U.S.
U.S. 213,
213, 218-21
218-21
(1985).
III. Altman
III. Altman
andand Diaz
Diaz May
May Enforcethe
Enforce theArbitration
Arbitration Agreement
Agreement
19.
19. Defendants anticipate that
Defendants anticipate ,,that Plaintiff
Plaintiff will
will argue
argue that
that because
because they
they are not
not parties
parties
II
and/or signatories
signatories to the arbitration
arbitration agreement that Defendants,
Defendants, Altman and Diaz, lack standing
to enforce
enforce it, and
and thus,
thus, the
the instant
instant litigation
litigation against
against Altman
Altman and Diaz should
should continue.
continue. This
This is

Compel Arbitration Page157
clearly not the
clearly not the case.
case. Under
Under ordinary
ordinary contract
contract and
and agency
agency principles,
principles, nonsignatories
nonsignatories of an
an
arbitration agreement may

arbitration agreement may be
be bound
bound by the agreement and entitled
agreement and entitled to enforce
enforce it. In re Merrill
In re Merrill
Lynch Trust
Lynch Trust Co.
Co. FSB,
FSB, 123
123 S.W.
S.W. 3d
3d 549,
549, 557
557 (Tex.App-San
(Tex.App-San Antonio
Antonio 2003,
2003, orig.
orig. proceeding.)
proceeding.)
When
When the
the principal
principal is bound
bound by
by aavalid
validarbitration
arbitration agreement,
agreement, "its
"its agents,
agents, employees,
employees, and
and
representatives are covered

representatives are covered by that
that agreement."
agreement." McMillan
McMillan v. Computer Tranlation
v. Computer Tranlation Sys. &
Sys. &
Support,
Support, Inc.,
Inc., 66 S.W.3d
S.W.3d 447, 481
481 (Tex.App-Dallas
(Tex.App-Dallas 2001, orig. proceeding).
2001, orig. proceeding). In short, there
In short, there is
ample authority
ample authority under
under which
which Defendants,
Defendants, Altman
Altman and
and Diaz,
Diaz, as agents of the insurer,
as agents insurer, Rain
Rain &
&
of the subject arbitration agreement.

Hail, LLC, can enforce the terms of
Prayer
WHEREFORE, Defendants pray as follows:

follows:
a.
a. That Defendants'
That Defendants' Motion
to Compel Arbitration be granted and
be granted this case
and this case
dismissed or otherwise abated;
b. That all claims of Plaintiff be denied and that all costs be borne by Plaintiff;
ofPlaintiffbe
c.
c. That the Court
That Court compel
compel arbitration
arbitration of this dispute
dispute under rules
rules of
of the
the American
American
Arbitration Association;
d.
d. For such other relief
relief as the Court deems proper.
Compel Arbitration
Motion to Compel Arbitration Page16
8
...
:
Respectfully
J. PAUL M G
STATE B NO. 24002
FIELD,
FIELD, ANNING,
ANNING,STONE,
STONE,HAWTHORNE
HAWTHORNE &
&
AYCOCK, P.C.
A Professional Corporation
2112 Indiana A
Avenue
venue
806/792-0810 (Telephone)
806/792-9148 (Facsimile)
ATTORNEYS FOR DEFENDANTS
CERTIFICATE OF SERVICE ---~
A true and correct copy of

of the above and foregoing document was on this (1 ) day of
-- day A
February, 2013, served on Plaintiffbyforwarding
Plaintiff by forwarding same
same to
to Plaintiffs of record as
Plaintiffs attorney of
follows:
follows:
Via Fax: 771-8755

Via 771-8755 and/or
E-Mail iienkinsAiwylaw.com
jjenkins@jwvlaw.com"
JODY JENKINS
JENKINS, WAGNON & & YOUNG, P.C.
P.O.
P.O. Box 420
Lubbock, TX 79408
J. PAUL MA
FILED
~~
P Oskiti.e_opArd"
District Clerk, Floyd County, T-exas
Texas
By ;-Q-11\0C>I~ . 11 :..t{ ~
Motion to Compel
Compel Arbitration
Arbitration Page17
9
806-792-1048
10:38:35 a.m.
10:38:35a.m. 06-27-2013 3/3
No. 10,422
No.l0,422
JODY JAMES FARMS, JV § ININTHE II om DISTRICT COURT

THE110T11
§
v. § OFOF
§
LAURIEDIAZ
LAURIE DIAZ FLOYDCOUNTY,
§ FLOYD COUNTY,TEXAS
TEXAS
ORDER
ORDER GRANTING
GRANTING MOTION TO ARBITRATE
ON TIDS 20'11 day ofMay,

THIS the 20th of May, 2013, the Court considered the Motion of
of Defendants, THE
ALTMAN GROUP, INC. AND LAURIE DIAZ, to Compel Arbitration and, after considering the
pleadings, the argument

pleadings, affidavit, evidence, and the argument of
of counsel, the Court hereby grants said motion.
IT IS THEREFORE of Defendants, THE ALTMAN GROUP,

THEREFORE ORDERED that the Motion of
all things GRANTED.

INC. AND LAURIE DIAZ to arbitrate this matter is hereby in all
SIGNED thi this..$-yy of c,LY~-t · .

, June, 2013. . ·
.. ~:~
FILED JUDGE PRESIDING
Pcdfg~
District Clerk,
District ClerK,Floyd County,'f.9xa8
FloydCo1.1nty, Texas
By '-22-WE . L;/~
-.
27
From: JWY Law
From:JWY Law 8066871994 09/11/2013 16:03
09/11/2013 16:03 #776 P.003/003
#776 P.003/003
CAUSE NO. 10,422
JODY JAMES FARMS, JV § ININTHE

THE110TH
llOTH DISTRICT COURT
§
v. §
§ OF
OF
§
LAURIE DIAZ
LAURIEDIAZ § FLOYD
FLOYDCOUNTY,
COUNTY,TEXAS
TEXAS
ORDER ON PLAINTIFF'S MOTION TO RECONSIDER
~Qn_August.26,_2Q]1,-th~~CoJ.Jrt,.heard_Plaintiff,.Jody_James Fanns,~JV!.s-Motion-to~--·
On, August_ 26,_2013, _the _Court _heard _Plaintiff, -Jody_ James..-Farms, s—Moti on -to ------- ~
--- -~-
- ---~-.....,.--
Reconsider its Order

Reconsider its Order referring
referring this
this case
case to Arbitration.
Arbitration. After
Afterconsidering
considering the
the evidence
evidence and
and
arguments of
of counsel, the Court finds as follows:
follows:
IT IS ORDERED that Plaintiff, Jody James Farms, JV's Motion

Motion to Reconsider is hereby
denied,
denied.
IT IS
IS THEREFORE ORDERED that the above
THEREFORE ORDERED above styled
styled matter
matter is abated
abated until
until further
further
order of
of this Court.
IT IS FURTHER ORDERED that either party may request

request reinstatement of
of this case by
filing a motion to reinstate and

and giving
giving the
the other
other side
side a 30a
30 day
day notice
notice of
of such motion.
thi~yof
SIGNED this Ey of , ~ , ,'2013.
2013.
401,10:
· - - - - - - - - - - - : - - -. ~:.o---..---=:::::--- 4:7_.!.1111PMfais
JUDGE SIDING
AGREED:
Jody Jenkins
Attorney for Plaintiff
F LED
P()~~~ DAAHIPP17fr
District Cler:~.
District CleCA, Floyd Coo*, Texas
Floyd eourl(y, T-ax
By
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PLAINTIFF'S
EXHIBIT
3
21
cO: 1 AMERICAN ARBITRATION
AMERICAN ARBITRATION ASSOCIATION
ASSOCIATION
2 In
2 In the Matter
Matter of the
the )
Arbitrationbetween:
Arbitration between : )
3 )
)
JODYJAMES
4 JODY JAMES FARMS,
FARMS, JV
JV )
)
5 Claimant, ) Case
Case 71
71 430 E 00391
430 E 00391 11
11
)
6 vs.
6 VS. )
)
RAIN AND
77 RAIN AND HAIL,
HAIL, LLC,
LLC , )
)
8 Respondent. )
)
9 CASE
CASE MANAGER:
MANAGER: Valerie
Valerie )
Bagsby )
10
11
11
12
ORAL DEPOSITION
ORAL DEPOSITION OF
OF
13
JODY JAMES
JODY JAMES
14
JANUARY 10,
JANUARY 10, 2012
15
16
17
18
19
20 ORAL DEPOSITION
ORAL DEPOSITIONOF OF JODY
JODYJAMES,
JAMES,produced
produced as as a
witness at
witness at the
theinstance
instanceof of
thethe DEFENDANT, and
DEFENDANT, and duly
duly
21 sworn,
21 sworn, was
was taken
taken ininthe
the above-styled
above-styled andandnumbered
numbered cause
cause
on January
on January10,10, 2012, from 1:45
2012, from 1:45 p . m. to
p.m. 3 : 45p.m
to 3:45 ., before
p.m., before
22 Elaine
22 Elaine Fowler,
Fowler, CSR
CSR in and for the
in and the State
State ofof Texas,
Texas,
reported by
reported by machine
machine shorthand,
shorthand,atatthethelaw
lawoffices
offices of
23 Jenkins,
23 Jenkins,Wagnon
Wagnon & &Young,
Young, Lubbock,
Lubbock, Texas
Texas pursuant
pursuant to the
to the
Texas Rules of Civil Procedure and the provisions
Texas Rules of Civil Procedure and the provisions stated stated
24 on the
24 on the record
record oror attached
attached hereto.
hereto.
PLAINTIFFS
PLAINTIFF'S
25
c EXHIBIT
~
CATHY SOSEBEE&&ASSOCIATES
CATHY SOSEBEE ASSOCIATES* *LUBBOCK,
LUBBOCK,TEXAS*
TEXAS 806 . 763 .0036
* 806.763.0036
22
· Deposition of JODY JAMES,
JAMES, taken January 10,
10, 2012
9 11
11
MaybeitItisIsburied
2. Maybe
1 burled in
In the
the back
back here and II just
here and just didn't 1 and
andI start
I start talkingover
talking overone
oneanother
anotheritItisIs going to be
going to be
2 notice
2 It Is
noticeit.it.It is in In the
the back andI Ididn't
backand didn'tpay
pay any
any 2
2 real
realhard
hard --
--
3 attention to lt.
attention it. 3 Sheis
A. She Isgood.
good.
4
4 MR. CARTHEL:
MR. CARTHEL:Okay.
Okay. That Is
is fine. 4
4 Q. She Is
is pretty good, yeah.
pretty good, So ifIf you would
yeah, So would let
let
5 (BY MR.
Q. (BY MR. CARTHEL)
CARTHEL) And
And we
we requested
requested aa number of mefinish
5 me finishthe
thequestion
question and
and I will try to do the
try to the same
documentsand
6 documents andasked
asked you
you to
to produce
produce those. And I am not
those. And 6 whenyou
11 when youare
areanswering
answeringso
sowe
we don't
don'ttalk
talkover
overeach
each other.
7 goingtotogo
7 going gothrough
through that
that list
list right
right now
now -- 77 But you talked about this notebook that
But that she
a Whatwere
A. What were they?
they? No.
No. II don't
don't remember.
remember. I am
am a
s Have you
has. Have you seen it
It in
In connection
connection with anything
9 not
t not aware
aware whatI was
ofofwhat I wassupposed to bring
supposed to bring today.
today. t9 related
relatedtotothis casetotosee
thiscase seeifIfsomething
something is
Is In
in there
10 MR. JENKINS: It
MR. JENKINS: Is all this production
It is 10 that
10 that is
Is --
stuff
11 stuff hehewould
wouldhave
havebeen
been talking
talking about. 11
11 A. I Iam
A. amnot
notsure.
sure.
12 THE WITNESS:
THE WITNESS: II would
would have
have thought
thought that 12 Butthat
Q. Okay. But thatisIssomething
something you
you can
can get
get aa copy
copy
13 they would
would have
have brought
brought that. 13 ofof
and giveIt Ittotoyour
andgive yourattorney
attorneyand
andwe
wecan takeaa look
can take look
14 MR. CARTHEL: can
MR. CARTHEL: Can we
we go
go off
off the
the record? 14 atatit?
It?
15 MR. JENKINS: Sure. 15 Yes.
A. Yes.
16 (Break
(Break taken from 1:51
taken from 1:51 p.m. to 1:52
p.m. to 1:52 p.m.) 16 Q. Okay. Do you
Okay. Do you have
have any
any written
writtencorrespondence
correspondence
17 Q. (BY MR.
MR. CARTHEL) Mr.James,
CARTHEL) Mr. James,off
off the
the record we 17 to
17 to anyone other than Rain and Hall where you ·
Hail or Altman where
is discusseda alittle
18discussed littlebitbit
ofof confusionIn
confusion Inwhether
whether or not -- 11areare
Is communicating
communicating oror dlswsslngany
discussing anycomplaints
complaintsyou
you have
19 in got sent to
In how this document got to you
you or didn't get sent 19 about your 2010 crop
your 2010 crop Insurance
Insurance claims or
or policies?
policies?
20 to you, and I think In a different format it was sent to
It was 20 Written?No,
A. Written? No,sir,
sir,not that II am
notthat am aware of.
aware of.
21
21 you in
In connection
connection with requests for production of 21
21 Q. Okay. One of
Okay. One of the
the questions that we talked
22 documents. And I am not
documents. not going to go through all of about
22 about offoff
thethe recordwas
record wasthe
theexistence
existenceof
ofphone
phone records.
records.
these,but
2.3 these,
23 butlet
letme
meask
askyou
youaafew
fewquestions to see
questions to see If
If you 23 Are you aware of any
any phone
phone records
records that
that you
24 of these types of
have any of of documents or records. 24 have that would
would support your
your contentions that
that you
you made
made
25 Do you have any
Do any records
records that
that would
would consist of
of zs
25 calls on
phone calfs on certain dates to
certain dates to the Altman Agency or
CATHY SOSEBEE
CATHY SOSEBEE ASSOCIATe;
&& * t.U8BOCK,
ASSOCIATES TECAS
* LUBBOCK, * 806.763.0036
TEXAS 806.763.0036 CATHY SOSEBEE &
&ASSOCIATES * LUBBOCK.
' TEXAS• *806.763.00~
t.UBBOCK, TEXAS 806.763.00:
10 12
I
1 communications you
notes, your notes, about any communications you had
had with 1 Hall?
to Rain and Hail?
Rainand
22 Rain andHail orAltman
Hallor Altmanor
oranybody
anybody assodated
assodated with the 2 A. Well,
Well,we
wehave
haveaaland
landline
linethat
thatis
Isnot
nottong
tong
2010grain
3 2010 grainsorghum
sorghum claim?
claim? 3 distance, so
so II don't think there is
Is a record
record of It
it that
4
4 A. The
A. Theonly
onlything
thing that
thatII would
wouldhave
have would
would be
be my 4
4 I/ am
am aware of.
5 secretary's notes. don'thave
notes. II don't haveany
any personal
personal notes,
notes, no. 5 Q. One of the issues
Issues In
in this case Is
is when and
6
6 Q. Okay. And when
Okay. And when you say "secretary's notes•,
notes", t
6 whether or not
not you
you gave a notice of loss --
7 what
7 what secretaryare
secretary areyou
you referring
referring to?
to? 7 A. Yes,
A. Yes, sir.
sir.
8 MaryAnn
A. Mary Ann Thurman.
Thurman. a
1 Q. --
Q. -- to Altman. You
You understand
understand that is
Is a --
9 How long
Q. Okay. How long has
has Mary
Mary Ann
Ann been--
been -- 9 A. Yes,
A. Yes, sir.
sir.
10 Theywould
A. They wouldonly
onlybe notes that
benotes that—
- what
what do
do you
you 10 Q. Do you have any documents
Do documents or
or written evidence
written evidence
callit It
11 call whenyou
when youhave
haveaabook
booklike
like—
- aa message
message when 11 that you contend supports your position that you
that you gave
12 people call
people call you.
you. That would be the
the only thing II would
only thing 12
12 that notice in
that notice In November
November of 2010?
of 2010?
13
13 have. 13 A. Yes.
A. Yes.
14 Q. And
And you
you say
say It
it Is
is a book
book that keeps that
that she keeps Is
that is 14 Q. Okay. Tell me what that Is.
Okay. Tell is.
15 like aa message
like message book about phone calls coming In and 15 A. Well,
A. Well,itItisIsaalong
long story.
story. But
But the day that
that II
16
16 going
going--
-- 14i
16 told her about the
the loss
losswas
wasthe
theday
dayafter
after II had a burr
17 Yes,that
A. Yes, thatwould
wouldbe
bethe
theonly
only thing
thing I could
could 17 .fire. And II have
fire. And havegot
gotthat
thatdate
dateby
by going
going back to get the
11 think
18 think thatmight
ofofthat mighthave
havesomething
something on I~ like when
on it, 11
18 - the
record of the — fire department records.
the fire
19 Kevincalled
19 Kevin calledor
orsomething
something or
or we
we tried
tried to
to call
call Kevin,
Kevin, 19 Q. And you said
said burr fire --
--
20 goingtotocall
20 going callback
backor
orsomething.
something. 20 A. Yes, sir.
21 Q. And
And let me --
-- 21 Q. --
Q. -- as In
in cotton burr?
22 A. That
A. ThatisIsthe
theonly
only thing
thing I can
can think of that 2Z
22 A. AtAtthe
A. thecotton
cotton gin,
gin, yes,
yes, sir.
23
2.3 would be -—that
that would pertain to
would pertain to this.
this. 23 is my
Q. Okay.
A.
24
Z4 Q. Okay, And 1
Okay. And am real
I am real bad
bad about this,
this, but let me 24 A. That Is my recollection, the day that
that II told
25 telltell
youyouwhen
whenElaine
ElaineisIstrying
tryingto
totake
takethis
this down,
down, as
as you Z5
25 her.
CATHY SOSEBEE
CATHY SOSEBEE&&ASSOCJATES
ASSOCIATES• "LUBBOCK,
LUBBOCK,TEXAS • 806.763.0036
TEXAS * 806.763.0036 CATHY SOSEBEE
SOSEBEE & ASSOCIATES
ASSOCIATeS • •LUBBOCK,
LUBBOCK,TEXAS • 806.763.0036
TEXAS 806.763.0036
CATHY SOSEBEE && ASSOCIATES

CATHY SOSEBEE Page23
Page 99 to
to 12
12 of
of -IT
10~
.. CROP REVENUE
CROP REVENUE COVERAGE
COVERAGE (CRC)
(CRC) INSURANCE
INSURANCEPOLICYPOUCY 2005-NCIS 700B-CRC
2005-NCIS 7008-CRC
is a continuous policy. Refer to section 3.)
(This Is
Insurance policy is
This insurance Is reinsured
reinsured byby the
the Federal
FederalCrop
CropInsurance
Insurance Corporation
Corporation (FCIC)
(FCIC) under
under the
the authority
authority of
of section
section 508(h)
50B(h) ofof the
the
ederal Crop
)9deral Crop insurance
Insurance Act
Act (Act),
(Act), as
as amended
amended (7 (7U.S.C.
U.S.C.1508(h)).
1508(h)). Ali
Allprovisions
provisions of
ofthe
thepolicy
policyand
andrights
rightsand
andresponsibilities
responsibUities of of the
sarties
,...arties are
are specifically
specifically subject to the Act.
Act. The
The provisions
provisions of of the
the policy
policy may
maynot
notbe
bewaived
waivedororvaried
varied ininany
anyway
wayby byus,
us,ourourinsurance
Insurance
agent or or any
any other
other contractor
contractor oror employee
employee of of ours
ours or
orany
anyemployee
employeeofofUSDAUSDAunless
unlessthe
thepolicy
policyspecifically
specificaHy authorizes
authorizes aa waiver
waiver or
agreement. We will
modification by written agreement. will use
usethetheprocedures
procedures(handbooks,
(handbooks,manuals,
manuals,memoranda
memoranda and and bulletins),
bulletins), as
as issued
Issued byby FCIC
FCIC
and published on the RMA RMA website
website atat http://rma.usda.gov/ successor website, in the administration
htto:l/nna.usda.gov/ or aa successor administration of this policy,
policy, including
including the
adjustment
adjustment of any loss loss or
or claim
claim submitted
submitted hereunder.
hereunder. In In the
the event
event that
that we
we cannot
cannot pay
payyour
yourloss
lossbecause
because we we are
are insolvent
Insolvent oror are
are
perfonn our duties
otherwise unable to perform duties under
under our
ourreinsurance
reinsurance agreement
agreement with
with FCIC,
FCIC. your
yourclaim
claim will
will be
be settled
settled in
Inaccordance
accordance with with the
provisions of responsible for
of this policy and FCIC will be responsible for any
any amounts
amounts owed.
owed. No
No state
state guarantee
guarantee fund
fund will be liable for your loss.
Throughout the policy,

Throughout policy, "you"
"you" and "your"
"your" refer
refer to
to the
the named
namedinsured
insuredshown
shownononthe
theaccepted
acceptedapplication
applicationand
and"we,"
"we," "us,"
•us; and
and "our"
•our" refer
refer to
the insurance
insurance company providing insurance. Unless
providing insurance. Unless the context indicates
Indicates otherwise,
otherwise, use plural form
use of the plural fonn of
of aa word
word includes
includes the
singular and use of the singular form of
singular of the word includes the plural.
AGREEMENT TO INSURE:INSURE: In return for the paymentpayment of the premium,

of the premium, andand subject
subject toto all
allofofthe
theprovisions
provisions of
ofthis
this policy,
policy, we
we agree
agree with
insurance as stated in
you to provide the insurance In this
this policy.
policy. ifIfthere
thereisIsaaconflict
conflictbetween
betweenthe theAct, theregulations
Act,the regulationspublished
pubHshed at at77 CFR
CFR chapter
chapter
IV, and the
the procedures
procedures as as issued
Issued by
by FCIC,
FCIC, thethe order
orderof ofpriority
priorityisIsas
asfollows:
follows:(1)
{1)the
theAct;
Act:(2)(2)the
theregulations;
regulations:and
and(3)
(3)the
theprocedures
procedures as
Issued by FCIC,
issued FCIC, with
with (1)
(1) controlling
controlling (2),
(2), etc.
etc.IfIfthere
thereisisa aconflict
conflictbetween
betweenthe thepolicy
policyprovisions
provisionsand andthe
theadministrative
administrativeregulations
regulations
at 77 CFR
published at CFR part
part 400,
400, the
the policy
policy provisions
provisionscontrol.
control.IfIfaaconflict
conflictexists
existsamong
amongthe thepolicy provisions,the
policyprovisions, the order
orderof
ofpriority
priority is:
is: (1)
(1) the
Catastrophic Risk Protection
Catastrophic Protection Endorsement,
Endorsement, as applicable; (2) the Special
as applicable; Special Provisions;
Provisions: (3) the Crop
(3) the Crop Provisions;
Provisions; and
and (4)
(4} these
these Basic
Basic
Provisions, with (1) controlling (2), etc.
BASIC PROVISIONS
Terms and Conditions
Definitions
1. Definitions at 100
at 100 percent
percent of of the Base Price,
the Base Price, or aacomparable
comparable
Abandon
Abandon - FailureFailure to to continue
continue to care care for
for the
the crop.
crop, coverage.
providing care so insignificant
Insignificant as
as to
to provide
provide no
no benefit
benefit to Administrative fee
Administrative fee -• An
An amount
amount you you mustmust pay pay for
for
the crop, oror failure
failure toto harvest
harvest in timely manner, unless
In a timely additional coverage
coverage for for each
each crop yearyear as as specified
specified in
Insured cause of
an insured of loss prevents you from property
properly caring section 8.B.
for or harvesting
harvesting the the crop
crop oror causes
causes damage
damage to to It
it to the Agricultural commodity - Any crop or
Agricultural or other
other commodity
commodity
extent that
extent producers of
that most producers of the crop on acreage
the crop acreage with produced, regardless
regardless of of whether not itit is insurable.
whether or not Insurable.
similar characteristics
similar characteristicsInin the the area would not
area would not normally
normally Agricultural experts - Persons who are employed by the
Agricultural experts
further care for oror harvest
harvest it.
it Cooperative
Cooperative State Research,
Research, Education
Education and and Extension
Extension
report - A report required
Acreage report required by section
section 7 ofof these
these Service or or the
the agricultural
agricultural departments
departments of of universities,
universities, or
Basic Provisions
Basic Provisions that that contains,
contains, In in addition
addition to otherother other persons
other persons approved
approved by FCIC, FCIC, whose
whose research
research or
required Information,
required information,your yourreport
reportofof your
your share
share of of all
an occupation
occupation is related
related to the specific
specific crop or or practice
practice forfor
acreage of
acreage of anan insured
insured cropcrop inIn the
thecounty,
county, whether
whether which such expertise is sought.
Insurable or
insurable or not insurable.
Insurable. Annual crop
Annual crop -• An agricultural
agricultural commodity
commodity that that normally
normally
Acreage reporting date
Acreage reporting date -- The date contained
The date contained In in the
the must be planted each year.
must
Special Provisions
Special Provisions or as provided
provided In in section 7 byby which
which Application - The form required
Application required to bebe completed
completed by you
you are required to submit your acreage report.
acreage report. and
and accepted
accepted by by usus before
before insurance
insurance coverage
coverage will will
The Federal
Act - The Federal CropCrop Insurance
Insurance Act (7 U.S.C. 1501
Act (7 1501 et et commence. This form must be completed and filed in your
form must
seq.).
seq.). agent's office
offiCe not later than the sales sales closing date of the
Actual Production
Actual Production History
History (APH)
(APH) - A process
process usedused to initial insurance
initial Insurance year for for each
each crop
crop for
for which
which insurance
Insurance
determine production guarantees
determine production guaranteesIn in accordance
accordance with with 7 coverage is
coverage Is requested.
requested. If cancellation
cancellation or termination
termination of
CFR part 400, subpart
subpart (G).
(6). insurance
insurance coverage occurs for any
coverage occurs any reason,
reason, including
Including but
Yield - The
Actual Yield
Actual The yield per acre
yield per acre for
for aa crop
crop year
year limited totoIndebtedness,
not limited Indebtedness, suspension,
suspension, debarment,
debarment,
calculated from
calculated from the production records
the production records or claims for
or claims for disqualification,
disqualification, cancellation
cancellationby byyou
you oror us,
us, or violation
violation of
indemnities.
indemnities. The The actual
actual yield
yield Is
is determined
determined by by dividing
dividing the controlled substance
substance provisions of the the Food
Food Security
Security
total production (which includes
Includes harvested and appraised
appraised Act of 1985,
1985, aa new
new application
application must be filed ffled for thethe crop.
production) byby planted acres.
acres. Insurance
Insurance coveragecoveragewill willnot
not be
be provided
provided ifif you you areare
Actuarial documents
Actuarial documents - The The material
material for crop year
for the crop year ineligible
ineligible under the contract or or under
under anyany Federal
Federal statute
statute
which Is
which is available
available for public
public inspection
Inspection in In your
your agent's
agent's or regulation.
offiCe and
office and published
published on
on AMA'sRMA's websitewebsite at at Approved yield
Approved yield - The actual production
The actual production history
history (APH)
(APH)
htio://www.rma.usda.govi
htto:/fwww.rma.uscla.gov/ ororaa successor
successor website,
website, andand yield, calculated
yield, calculated and and approved
approved by by the verifier, used
the verifier, used to
which shows
which shows available
available coverage
coverage levels,
levels, information
Information determine the
determine Final Guarantee
the Final Guarantee by summing
summing the the yearly
needed
needed to to determine
determine amounts
amounts of of insurance,
insurance, premium
premium actual, assigned, adjusted or unadjusted transitional yields
actual,
rates, premium
rates, premium adjustment
adjustment percentages,
percentages, practices,
practices, dividing the sum by the number of yields contained in
and dividing
particular
particular types oror varieties of the Insurable
insurable crop, insurable
Insurable the database,
the database, whichwhich will
will always
always contain
contain at least four
at least four
~creage, and
acreage, other related
and other related information
information regarding
regarding crop
crop yields. The
yields. The database may contain contain upup to 10 10 consecutive
consecutive
insurance
Insurance in In the county. crop years of
crop of actual
actual oror assigned
assigned yields.
yields. TheThe approved
approved
Additional coverage
Additional coverage - A levellevel of
of coverage
coverage equal
equal to or yield may have
yield have yield
yield adjustments
adjustments elected under under section
section
percent of the approved yield indemnified
greater than 50 percent Indemnified 35, revisions sectl~o~l.iiW·~~~~~~
according to sectio
revisions according
PLAINTIFF'S
C 2004
0 2004National
National Crop
Crop Insurance
Insurance Services, Inc. Page 1 of
of26
26
EXHIBIT
I 25
s
.. according to FCIC
according FCIC approved
approved procedures
procedures applied applied when
when full text of the
full text the CFRCFR isisavailable
availableininelectronic
electronic formatfonnat a
calculating the approved yield. yield. This
This yield is established for hHo:/fwww.access.Qoo.gov/or
htto://www.accessmo.gov/ oraasuccessor
successor website.
basic or optional units. The approved yield for each each basic
basic Consent
Consent --Approval
Approval in in writing
writing by us allowing you to take ft
or optional
optional unit comprising
comprising an an enterprise
enterprise unit is Is retained
retained specific action.
" for
for premium
premium and Final Anal Guarantee
Guarantee purposes purposes under under an an Contract-
Contract (see"Policy".)
- (see •Polley".)
1 enterprise unit. unit Contract
Contract change change date date -- TheThe calendar date date by which
by whict
Area - Land
Area Land surrounding
surrounding the insured acreage
the insured acreage with with changes
changes to to the
the policy,
policy, if any,
any, will
wiU bebe made
made available
available ir lr
geographic characteristics,
geographic characteristics,topography,
topography,soil soil types
types and accordance with section 5 of these these Basic
Basic Provisions.
Provisions.
climatic conditions similar to the Insured insured acreage. Conventionalfarming
Conventional farmingpractice
practice- -AAsystemsystemororprocess
process foi fo1
Assignment of Indemnity
Assignment Indemnity -- AAtransfer transfer of of policy
policy rights,
rights, producing agricultural commodity,
producing an agricultural commodity, excluding
excluding organicorganic
made on our form, and effective effective when when approved
approved by by us.
us, It farming practices, that is
farming practices, Is necessary
necessary to produce the the crop
crop
is
Is the
the arrangement
arrangement whereby whereby you you assign
assign youryour right
right to
to an that may
that may be, be, butbut isisnot notrequired
required totobe, be,generally
generally
Indemnity payment to any party of your choice for the crop
indemnity recognized by agricultural experts for for the
the area
area to to conserve
year. or enhance natural resources and the environment.
Average yield
Average yield -• The The yield,
yield, calculated
calculated by summing summing the County
County--Any Anycounty,
county,parish,
parish,ororother
otherpolitical
politicalsubdivision
subdivision
yearly actual, assigned, adjusted or unadjusted transitional state shown
of a state shown on on your
your accepted appUcatlon, Including
application, including
yields and
yields and dividing
dividing the the sum
sum by by the the number
number of of yields
yields acreage In in a field
field that
that extends
extends Into Into an
an adjoining
adjoining county If if
contained
contained In in the
the database,
database, prior to to any
anyadjustments,
adjustments, the county boundary Is is not readily discernible.
Including those
including elected under
those elected under sectionsection 35, 35, revisions
revisions Coverage--The
Coverage Theinsurance
insurance provided
provided by by this policy, against
according to
according section 4, or
to section or other
other limitations
limitations according
according to insured
insured loss loss of of revenue
revenue by by unit
unit asas shown
shown on on your
your
FCIC approved procedures. summary of coverage.
Base premium
premium rate rate -- AApremium
premium rate rate used to calculate
calculate Cover
Cover cropcrop- -AAcrop cropgenerally
generallyrecognized
recognizedby byagricultural
agricultural
the risk associated with yield. experts as agronomically
experts agronomically sound sound for for the
the area for erosion erosion
Base Price - The The initial
Initial price determined
determined in in accordance
accordance control or other
control other purposes
purposes relatedrelated to conservation
conservation or soil
with the Commodity Exchange Exchange Endorsement and used to improvement.
Improvement. AA cover cover crop
crop maymay be considered
considered to to be
be a
calculate youryour premium and Minimum Guarantee. second crop (see the definition of •second crop•).
"second crop").
Buffer
Buffer zone zone - A A parcel
parcel of land,land, as as designated
designated in In your
your Coverage begins,
Coverage begins, date -- The The calendar
calendar date insuranceInsurance
organic
organic plan, plan, thatthat separates
separates agricultural
agricultural commodities
commodities begins on
begins on the the Insured
Insured crop, crop, as contained
contained in In the Crop
the Crop
grown under
grown under organicorganic practices
practices from from agricultural
agricultural Provisions, or
Provisions, or the planting begins
the date planting begins on the the unit
unit (see
commodities grown under non-organic practices, and used section 12 of of these Basic Basic Provisions
Provisions for for specific
specific provisions
minimize the
to minimize the possibility
possibility of of unintended
unintended contact contact by by relating to prevented planting).
prohibited substances or organisms. Crop Provisions - The part of the policy policy that
that contains the
Certified
CertJffed organic
organic acreage
acreage - Acreage Acreage in In thethecertified
certified specific provisions of insurance for each insured Insured crop.
organic
organic farming
farming operation
operation that that has been certified
has been certified by a Crop
Crop year - The period within within which the insured Insured crop crop is Is
certifying agent
certifying agent as as conforming
conforming to organic organic standards
standards in normally grown, regardless regardless of of whether or not itIt is Is actually
actually
accordance with 7 CFR part 205. grown, designated by the calendar year in
grown, and designated In which
whlch the
Certifying agent
Certifying agent -- AAprivate privateororgovernmental
governmental entity entity insured
Insured crop crop isIs normally
normally harvested,
harvested, unless unless otherwise
otherwise
accredited by
accredited by the
the USDA
USDA Secretary
Secretary of Agriculture
Agriculture for the specified In in the Crop Provisions.
purpose of of certifying
certifying a production, processing or handling handling Damage - Injury, InJury, deterioration,
deterioration, or loss of revenue revenue of the
operation as organic. Insured crop due to Insured insured or uninsured causes.
CRC base base rate
rate- Thepremium
- The premium rate rate used
usedto tocalculate
calculate the Calendar days.
Days - Calendar
risk associated with revenue. Deductible
Deductible - The amount determined by subtracting subtracting the
CRC high price factor factor·- A premium factor, as set forth In in coverage level percentage you choose from 100 percent. percent.
actuarial documents,
the actuarial documents, used used to to calculate
calculate the the risk
risk example, if
For example, If you
you elected
elected a 65 65 percent
percent coverage
coverage level, level,
associated with an increase Increase In in the Harvest Price relative to your deductible would be 35 percent (100% (1 00% - 65% = 35%). =
the Base Price. Delinquent debt - Any administrative
Delinquent administrative fees or or premiums
premiums
CRC low price price factor - A premium factor, factor, as set forth in for insurance issued under the authority of of the Act, and the
the actuarial
the actuarial documents,
documents, used used to calculate the
to calculate the risk
risk Interest on
interest those amounts,
on those amounts, If applicable, that
if applicable, that areare notnot
associated with a decrease In in the Harvest Price relative to postmarked
postmarked or or received
received by by us
us or our agentagent on on oror before
before
the Base Price. the termination
the termination date date unless
unless you you have enteredentered into into an
Calculated
Calculated Revenue Revenue -- The Theproduction
production to count count for for the
the agreement acceptable to us to pay such amounts amounts or have
insured crop multiplied
multiplied by bythe
the Harvest
Harvest Price. filed for bankruptcy on or before the termination date; any
Cancellation
Cancellation date -• The calendar date
Thecalendar date specified
specified in the
In the other
other amounts
amounts due due us for for insurance
Insurance issuedissued underunder the the
Crop Provisions
Crop Provisions on on which
which coverage
coverage for for the crop will
the crop will authority of
authority the Act
of the Act (including,
(Including, but but not not limited
limited to, to,
automatically
automatically renew renew unless
unless canceled
canceled in in writing
writing by either
either Indemnities, prevented
indemnities, prevented planting
planting payments replanting
payments or replanting
you
you or or us,
us, or orterminated
terminated in In accordance
accordance with with the
the policy
policy payments
payments found found not not toto have
have been earned or that that were
were
terms. overpaid), and the interest Interest on such amounts, ifIf applicable,applicable,
Claim for for indemnity
Indemnity--AAclaim claim mademadeon onour
ourformform byby you
you which are not not postmarked
postmarked or received by us or or our
our agent
for damage or or loss to an insured crop and and submitted
submitted to us us by
by thethe duedue datedate specified
specified In in the
the notice
notice to to you
you of the the
not later than 60 days days after
after the Harvest
Harvest PricePrice is released
released amount
amount due; due; or any any amounts
amounts due due under
under an an agreement
agreement
(see section 15). with you
with you to pay pay the the debt,
debt, which
which are are not
not postmarked
postmarked or
Code of
Code of Federal
Federal Regulations
Regulations(CFR) (CFR)- -The Thecodification
codification of of received by us or our agent agent by the due due dates
dates specified
specified In in
general
general and and permanent
permanent rules rules published
published In in the
the Federal
Federal such agreement.
Register by by the
the Executive
Executive departments
departments and and agencies
agencies of Disinterested third third party
party --AAperson
person thatthat does
does notnot have
Federal Government.
the Federal Government. Rules Rules published
published In Federal
in the Federal any familial
any familial relationship
relationship (parents,
(parents, brothers,
brothers, sisters,sisters,
) children, spouse,
children, spouse, grandchildren,
grandchildren, aunts, uncles, nieces,
aunts, uncles, nieces,
Register by FCIC are contained contained in 7 CFR chapter IV. The
nephews, first cousins, or grandparents, related by blood,
C
© 2004 National Crop Insurance Services, Inc. Page2of26
Page 2 of 26
26
.. adoption or marriage,
adoption marriage, are are considered
considered to famHial
to have a familial contained In
or contained organic plan. We may,
in the organic may, or or you rna~
you ma'
relationship) with
relationship) with you or who who will not not benefit
benefit financially
financially request us to, to, contact
contact FCICFCIC to to determine
determine whetherwhether or no
from the
from the sale
sale of
of the
the insured
Insured crop. crop. Persons
Persons who who are are production methods will be
production methods be considered
considered to to be
be 'good farmln~
"goodfarrnira
authorized to conduct quality analysis in In accordance
accordance with practices.·
practices.'
the Crop
Crop Provisions
Provisions are are considered
considered disinterested
disinterested third third Harvest Price - The final final price
price determined
determinedinInaccordance accordancE
parties unless there Is a familial relationship. with the Commodity
Commodity ExchangeExchange Endorsement
Endorsement and and usedused a t<
Double crop - Producing two or more crops for harvest on calculate your
calculate your Calculated
Calculated Revenue Revenue and and the Harves
the Harves
the same acreage in In the same crop year. Guarantee.
Earliest planting date - The initial planting date contained Household - A domestic
Household domestic establishment
establishment including Including the thE
In the
in the Special
Special Provisions,
Provisions, which earliest date you
which is the earliest you members of aa family family (parents,
(parents, brothers,
brothers, sisters,
sisters, children
children
plant an
may plant an Insured
Insured agricultural
commodity and qualify qualify spouse,grandchildren,
spouse, grandchildren, aunts, aunts, uncles,
uncles, nieces, nephews nephews
for a replanting
replanting payment ifIf such such payments
payments are are authorized
authorized first cousins, or
first or grandparents,
grandparents, related related by byblood,
blood,adoptioradoptior
by the Crop Provisions. marriage, are considered
or marriage, considered to to be family
family members) anc anc
End
End of Insurance
insurance period,
period, date date of - The date upon which others who live live under the the same roof. roof.
Insurance coverage
your crop insurance coverage ceases ceases for for the crop year year Insurable
Insurable loss loss - Damage for which coverage coverage is providec
is provider
(see
(see Crop Provisions and section 12). under the terms terms of your policy, and for for which
which you you accep
FCIC - TheThe Federal
Federal Crop
Crop Insurance
Insurance Corporation,
Corporation, a wholly wholly an indemnity
Indemnity payment.
owned government corporation within USDA.
owned Insured
Insured - The The named person shown on
named person on the
the applicatior
applicatlor
Field
Field - AU acreage of
All acreage liftable land
of tillable land within
within a natural
natural or accepted by us. This term
accepted term does does notnot extend
extend to to any
any otheothe
boundary (e.g., roads,
artificial boundary roads, waterways,
waterways, fences, etc.). person having a share share or or interest
interest in In the
the crop
crop (for
(forexample
example
Different planting patterns or planting different
planting patterns different crops
crops do partnership, landlord,
a partnership, landlord, or or anyanyotherotherperson)
person)Ladess unle~
not create separate fields.
not specifically indicated on the accepted application.
specifically
Final Guarantee - The number of dollars dollars guaranteed
guaranteed per Insured crop - The crop in in the
the county
countyfor forwhich
whichcoverage
coverage
acre determined toto be
acre determined be the the higher
higher of of the
theMinimum
Minimum is available underunder youryour policy
policy as as shown
shown on on the
the applicatior
applicatior
Guarantee or
Guarantee or the Harvest Guarantee, where: accepted by us.
Minimum Guarantee
(1) Minimum Guarantee -- The approved yield
The approved yield per acre acre lnterplanted - Acreage
Interplanted Acreage on which two two or or more
more crops crops are are
multiplied by
multiplied by the
the BaseBase Price Price multiplied
multiplied by by the the planted In
planted in aa manner
manner that that doesdoes not not permit
permit separate
coverage level percentage you elect. agronomic maintenance or or harvest
harvest of of the
the insured
Insured crop.
Harvest Guarantee
(2) Harvest Guarantee - The approved approved yield yield per acre acre Irrigated
Irrigated practice
practice - A method method of of producing
producing aa crop crop by b}
multiplied
multiplied by the Harvest Harvest Price,Price, multiplied
multiplied by by thethe which water
which water is Is artificially
artificially applied
applied during during the growin~
thegrowina
coverage level percentage you elect. season by by appropriate
appropriate systems and at the proper proper times times
you elect
If you elect enterprise
enterprise unit coverage,
coverage, the the basic units or with the intention
with Intention of of providing the the quantity
quantity of ofwater
waterneedec needec
optional units
optional units comprising
comprising the enteJprise unit
the enterprise retain
unit will retain produce at least the
to produce the yield
yield usedused to to establish
establish the the Fina
Rna
separate FinalAnal Guarantees. Guarantee on the irrigated acreage planted to to the insurer
lnsurec
Final planting
Final planting date - The The date contained
contained in the the Special
Special crop.
Provisions for
Provisions for the Insured crop
the insured crop by which
which the crop crop mustmust Late planted - Acreage initially initially planted
planted to to the
the insured
insured crop CI'OJ=
Initially be planted
initially planted in order to be insured Insured for the full Final Anal after the final planting date.
after
Guarantee. Late
Late planting period - The
planting period The period that that begins
begins the da~
the day
First Insured
insured crop -With respect to a single crop year and after the final
final planting
planting datedate for for the
the insured
insured crop crop and and endeends
any specific
any crop acreage,
speclfic crop acreage, the the first Instance
Instance that that an an 25 daysdays after
after the
the final
finalplanting
plantingdate, date,unless
unlessotherwise
otherwise
agricultural commodity Is is planted for harvest or or prevented
prevented specified in the Crop Crop Provisions or or Special Provisions.
from being planted
from being planted and
and is insured
insured under
under the authority
authority of Liability - The dollar amount of of insurance
insurance coverage
coverage usec use<J
the Act. For For example, if winter wheat that Is is not insured is in
In thethe premium
premium computation
computation for for the
theinsured
insured agriculture
agricultura
acreage that is
planted on acreage Is later planted to soybeans
soybeans that commodity.
Insured, the first insured
are insured, insured crop would be soybeans. soybeans. If Limited resource
resource farmerfanner - A person with:
the winter wheat was insured, insured, it would be the first first insured Direct or indirect
(1) Direct indirect gross
gross farm farm sales
sales not not moremore than than
crop. $100,000.00 in in each of of the previous two years (to be
FSA-- The Farm Service Agency,
FSA Agency, an agency of the USDA, increased starting
increased starting in fiscal year 2004
in fiscal 2004 to to adjust
adjust for for
or a successor agency.
or inflation using
inflation using Prices
Prices Paid Paid by Farmer Farmer Index Index as as
FSA farm
FSA serial number - The number
farm aerial number assigned
assigned to the the complied by National
compiled National Agricultural
Agricultural Statistical
Statistical Service
Service
farm by by the local FSA office. (NASS)); and
(MASS));
Generally recognized
Generally recognized - When agricultural experts or the (2) A total
(2) total household
household incomeincome at or or below
below the the national
national
organic agricultural industry, as
agricultural industry, as applicable,
applicable, are aware of
are aware poverty level
poverty level for family of four,
for aa family four, or or less
less than than 50 50
the production method or practice and there is Is no
no genuine
genuine county median
percent of county median household
household income income in each
dispute regarding whether
dispute regarding whether the production method
the production method or or previous two
of the previous two years
years (to (to be
bedetermined
determined annually annuaUy
practice allows the crop to make make normal
normal progress
progress toward
toward using Commerce Department Data).
maturity and produce at least the yield used used to to determine
determine MPCI - Multiple peril crop insurance
MPCI insurance program,
program, a program program
the Final
Anal Guarantee. of insurance
Insurance offered under the Act Act andand implemented
Implemented in 7
Good fanning
Good fanning practices
practices -- The The production
production methodsmethods CFR chapter IV.
utilized to produce
produce the insured
insured crop and allow It to make make Negligence - The failure to use such care care as as a reasonably
reasonably
normal progress toward maturity maturity and and produce at least the prudent and
prudent and careful
careful person
person would would use use under
under similarsimilar
yield used to determine the Final Anal Guarantee, including
Including any circumstances.
adjustments for
adjustments for late planted acreage,
late planted acreage, which
which are: are: (1) for Non-contiguous - Acreage
Non-contiguous Acreage of Insured crop
of an insured crop that that is
conventional or
conventional sustainable farming
or sustainable farming practices,
practices, those those separated from other other acreage of of the same
same insured
insured crop by
generally recognized
recognized by by agricultural
agricultural experts
experts for the area; area; land that is is neither
neither owned
owned by you nor nor rented
rented by you you forfor
or (2)(2) for
fororganic
organicfarming
farming practices,
practices, thosethose generally
generally cash or a crop share. However, acreage separated separated by only
recognized by the organic agricultural industry for for the area
0 2004 National Crop Insurance Services, Inc. Page3of26

Page 3 of 26 c
27
.. a public oror private
private right-of-way,
right-of-way, waterway,
waterway, or an irrigation irrigation crop due to to an
an insured
insured cause of of loss
loss that
that is Is general
general in in the
be considered as contiguous.
canal will be surrounding area and that that prevents
prevents other other producers
producers from
Offset
Offset - The
The act of deducting
deducting one amount from from another
another planting acreage
acreage with similar characteristics.
amount. Production report
Production report-•AAwrittenwritten record showing your your annual
annual
Organic
Organic agricultural
agricultural Industryindustry -• Persons Persons who who are are production and
production and used
used by us to to determine
determine your your yield
yield forfor
employed by the
employed the following
following organizations:
organizations: Appropriate Appropriate insurance purposes (see
insurance purposes section 4). The
(see section The report
report contains
contains
Technology
Technology TransferTransfer for for Rural
Rural Areas,Areas, Sustainable
Sustainable yield
yield information
information for for previous
previous years, years, including
including planted planted
Agriculture Research
Agriculture Research and Education or the
and Education the Cooperative
Cooperative acreage and harvested
acreage harvested production.
production. This This report must must be
State Research, Education
State Research, Education and Extension Service,
and Extension SeiVice, the supported
supported by by written
written verifiable
verifiable records records from from a a
agricultural departments of
agricultural departments of universities,
universities, or other persons persons warehouseman ororbuyer
warehouseman buyerofof the Insured crop,
the insured crop, by by
approved by
approved FCIC, whose
by FCIC, whose research
research or occupation occupation is Is measurement
measurement of of farm-stored
farm-stored production,production,or or by other other
related to the specific
related specific organic
organic crop practice for which
crop or practice which records
records of production
production approvedapproved by by us on on an an Individual
Individual
such expertise is Is sought. case basis.
Organic farming practice -• A system of plant plant production
production substance -• Any
Prohibited substance Any biological, chemical, or or other
practices approved
practices approved by certifying agent
by a certifying agent in In accordance
accordance agent that is is prohibited
prohibited from from use or Is Is not
not included
Included in In the
with 7 CFR part 205. organic standards for
organic standards for useuse on on any anycertified
certified organic,
organic,
Organic plan
Organic plan - A writtenwritten plan, in In accordance
accordance with the the transitionalor
transitional or buffer
buffer zone acreage. Usts
zone acreage. Lists of of such such
National Organic
National Organic Program published In
Program published in 77 CFA
CFR part 205, substances are contained at 7 CFR part part 205.
that describes the organic farming practices that you and a Replanted
Replanted crop crop - -The The same same agricultural
agriculturalcommodity commodity
certifying agent agree
certifying agent agree uponupon annually
annually or or at suchsuch otherother replanted on the same same acreage
acreageas asthethefirst
first insured
insured crop crop for
times as prescribed by the certifying agent. harvest
harvest In in the
the samesame crop crop year year ifIf the thereplanting
replanting is is
Organic
Organic standards
standards - Standards
Standards in accordance with
in accordance with thethe specifically made
specifically made optional
optional by by thethe policy
policy and you elect elect to
Production Act
Organic Foods Production of 1990 (7 U.S.C.
Act of U.S.C. 6501 6501 et et replant the cropcrop andand insure
Insure itit under
under the the policy
policy covering the
seq.) and 7 CFR part 205. first Insured
insured crop, or replanting is required by by the
the policy.
policy.
Perennial
Perennial cropcrop- - AAplant, bush, tree,
plant. bush, tree, or or vine
vine cropcrop that has Replanting - -Performing
Replanting Performingthe thecultural
cultural practices
practices necessary
a life span of of more than one year. to prepare
prepare the land to replace replace the seed or plants plants of the
Person
Person -• An An individual,
Individual, partnership,
partnership, association,association, damaged or destroyed insured Insured crop and then replacing the
corporation,
corporation, estate,estate,trust,trust,or or other
other legal legal entity,
entity, and and seed or plants
seed plants of of thethe same
same crop crop in In thethe samesameinsuredinsured
wherever applicable,
wherever applicable, aa StateState or political subdivision
or a political subdivision or acreage. The same
acreage. same cropcrop doesdoes not not necessarily
necessarily mean the the
agency of a State.
agency State. "Person"
MPerson• does not include Include the the United
United same type type oror variety
variety of of the
the crop
crop unless
unless different
different types or
States Government or any agency thereof. varieties constitute
varieties constituteseparate separatecrops crops or or it is Isotherwise
otherwise
Planted acreage
Planted acreage - Land land in In which
which seed,
seed, plants,
plants, or trees trees specified in the policy.
have
have been
been placed
placed appropriate
appropriate for for the
the insured
Insured crop crop and and Representative sample •- Portions of the insured insured crop that
planting method, at the correct correct depth,
depth, into a seedbed that must remain in the field for for examination and review review by our
has been properly
properly prepared
prepared for the planting method and loss adjuster when making a crop appraisal, appraisal, as as specified
specified
production practice. Crop Provisions.
in the Crop Provisions. In In certain
certain instances
instances we may may allowallow
Polley - The
Policy The agreement
agreement between
between you you andand us to Insure insure an you to harvest the crop crop and require only that samples samples of
agricultural commodity and
agricultural commodity and consisting
consisting of of thethe accepted
accepted the crop residue be be left
left in the field.
field.
application, these
application, these Basic
Basic Provisions,
Provisions, the Crop Provisions, Provisions, Sales
Sales closing
closing date date --AAdate datecontained
contained in In the
the Special
Special
Provisions, other applicable endorsements
the Special Provisions, endorsements or Provisions by
Provisions by which
which an application
application must must be filed. The last
be filed.
options,
options, the the actuarial
actuarial documents
documents for for the the insured
Insured date by
date by which
which you you may maychangechange your yourcrop cropinsurance
insurance
agricultural commodity,
agricultural commodity, and and the
the appficable
applicable regulations
regulations coverage for a crop year.
published
publishedin In 7 CFA chapter
7 CFR chapter IV. IV. Insurance
Insurance for for each
each Second
Second crop crop-With-Withrespect
respectto to aa single
single crop crop year,
year, thethe next
next
agricultural commodityinin each
agricultural commodity each county
county wiD will constitute
constitute a occurrence
occurrence of planting planting any any agricultural
agricultural commoditycommodity for for
separate policy. following a first
harvest following first insured
insuredcrop cropon on the the same
same acreage.
Practical to
Practical replant -• Our determination,
to replant detennination, after after loss
loss or The second
The second crop crop may may be be the the samesame or or aadifferent
different
damage to
damage the insured
to the Insured crop,crop, based
based on on all ali factors,
factors, agricultural commodity as as the first Insuredinsured crop, except the
including, but not not limited to moisture availability, marketing term
term does not not Include
Include a replanted
replanted crop. crop. A A cover
cover crop,crop,
window, condition of
window, condftion of the
the field,
field, and time
time to crop crop maturity,
maturity, planted after
planted after a firstfirst insured
insured crop crop and and planted
planted for for thethe
that replanting the insured crop crop will
will allow the crop to attain purpose of haying,haying, grazing
grazing or otherwise harvesting in
or otherwise In any
maturity prior to
maturity prior to the
the calendar
calendar date date for for thethe endend of the manner or
manner or that
that Is hayed or or grazed during the crop year, or
Insurance
insurance period.
period. ItIt will
will be considered
considered to practical to
to be practical that is Is otherwise
otherwise harvested
harvested is considered to be aa second
is considered second
regardless of
replant regardless of availability
availability of of seed
seed or or plants,
plants, or the crop.
crop. A cover crop that is is covered
covered by by FSA's
FSA's noninsured
noninsured
input costs necessary to produce the insured crop such as crop disaster assistance
assistance programprogram (NAP) (NAP) or receivesreceives otherother
those that would be Incurred Incurred for seed or plants, irrigation Irrigation USDA
USDA benefitsbenefits associated
associated with with forage
forage crops crops will will be be
water, etc. considered as planted
considered planted for the purpose of of haying,
haying, grazing,
Premium billing date -• The earliest date upon which you or otherwise
otherwise harvesting.
harvesting. A crop crop meeting
meeting the theconditions
concfltions
will
will bebe billed
billed forfor insurance
insurance coverage
coverage based based on on youryour stated herein will
stated herein wilt be
be considered
considered to to be be aa second
second crop crop
acreage report.
acreage report. The The premium
premium billing date Is
billing date contained in
is contained In regardless of of whether
whether or ornotnot itIt is
Is insured.
Insured. Notwithstanding
Notwithstanding
the Special Provisions. the references
the references to to haying
haying and and grazing
grazing as harvesting harvesting In
Prevented
Prevented planting -• Failure Failure toto plant
plant the the insured
insured crop crop these Basic Provisions, for the purpose of of determining the
with proper
with proper equipment
equipment by by the
the finalfinal planting
planting date date insurance period, harvest of the crop will be as
end of the insurance
designated
designated in the Special Provisions Provisions for the Insured Insured crop defined in the applicable Crop Provisions.
in thethe county.
county. You may eligible for
may also be eligible for aa prevented
prevented Section (for the the purposes
purposes of of unit
unit structure)
structure) -- AA unit unit of
planting payment ifif you
planting payment you failed
failed to plant the the insured
insured crop crop measure under under aa rectangular
rectangular survey survey systemsystem describing
describing a
• with
with the proper equipment
equipment withinwithin the
the late planting period. tract
tract of of land
land usually
usually one one mile mtle square square and and usually
usually
You must have have beenbeen prevented from from planting the insured insured containing approximately 640
containing 640 acres.
© 2004 National Crop Insurance Services, Inc.

C Page 4 of 26
Page4of26
28
... ..
Share-- Your percentage
Share percentage of of Interest
interest in in the Insured
insured crop as Void - When the the policy is Is considered
considered not to have have existe
existet
an owner,
an owner, operator,
operator, or tenant at the
or tenant the time
time insurance
insurance for aa crop
crop yearyear as asaaresult resultofofconcealment,
concealment, fraud, fraud, o o
attaches. However, only for the purpose of determining the misrepresentation (see section 27).
amount of indemnity,
amount Indemnity, your your share
share will will not exceed
exceed youryour Written Agreement - A document document that alters alters designate
designate1
share at the earlier of the time of loss, or the beginning of terms of aapolicy
terms policy asasauthorizedauthorized under under these these Basi Bash
harvest. Provisions (see section 34).
Provisions - The part of the
Special Provisions the policy that that contains
contains UnitStructure
2. Unit Structure
specific provisions of insurance
insurance for for each
each insured crop that Basicunit
(a) Basic unit- -All
Allinsurable
Insurableacreage acreageofofthe theinsured
Insuredcrop cro1
may vary by geographic area.
may In the
in the county
county on on the thedate datecoverage
coveragebegins beginsfor forthe
thecrop
cro1
State - The state shown on your accepted application. year:
beneficial Interest
Substantial beneficial interest - An interestInterest held by any (1) In which you have have 100 1 00 percent
percent crop share; share; or
person of at least
person least 1010 percent
percent in you. The spouse spouse of any (2) Which Is Is owned by by oneone person
person and and operated
operated b! b~
Individual applicant or individual Insured
individual insured will be considered another person on aa share share basis.
basis. (Example:
(Example: If, ir
if, it
to have a substantial beneficial Interest
substantial beneficial Interest in in the applicant or addition to the land land you you own,
own, you you rentrent land
land Ironfron
Insured unless
insured unless the spouses can
the spouses can prove
prove they are are legally
legally landlords, three on
five landlords, on aa cropcrop share
share basisbasis anc am
separated or otherwise
separated otheJWise legally
legally separate
separate under state law. two on aa cash basis, basis, you you would
would be entitled to fou
Any child of of an
an individual
Individual applicant Individual insured
applicant or individual insured units; oneone forfor each
each crop crop share
share lease
lease and and one one tha
will not
will not bebe considered
considered to to have
have aasubstantial
substantial beneficial
beneficial combines the two cash leases leases and the land land yot
Interest in
interest In the applicant
applicant or insured
Insured unless
unless the the child has a own.) LandLand rented rented for for cash,
cash, aafixed fixedcommodit3
commodil)
separate legal interest In in such person. For example, there payment, or or aa consideration other other than a share share lr it
are two partnerships that each each have a 50 percent interest Interest Insured crop,
the insured crop, or or proceeds
proceeds from from the thesale
sale ofofthethE
in you and each partnership
In partnership is is made up of two Individuals,
individuals, Insured crop, on
insured on such
such landland will
will bebe considered
considered a! a:
each with
each with a 50 50 percent
percent share share in the the partnership.
partnership. In this owned by the
owned the lessee
lessee (see (see definition
definition of of "share'
•share'
case, each individual
case, Individual would would be be considered
considered to to have
have a 25 above).
percent interest in you, you, and both the partnerships and the Optionalunit
(b) Optional unit- Unlesslimited
- Unless limited by bythe
the CropCrop Provision:
Provisiom
Individuals would
individuals would havehave a substantial
substantial beneficial Interest In
beneficial interest in Special Provisions,
or Special Provisions, aa basic basic unit unit as defined defined ir it
you (The
you (The spouses
spouses of of thethe individuals
Individuals would would not not be be section 2(a) may be be divided
divided into into optional
optional units if, if, fo1
fo
considered to have a substantial beneficial Interest interest unless each optional unit:
spouse was
the spouse was one one of the individuals
individuals that that made
made up the (1) YouYoumeetmeetthe the following:
following:
partnership). However, Ifif each
partnership). However, each partnership
partnership Is is made
made up up of (i) You have records, that are acceptable to us
Individuals with
six individuals equal interests,
with equal Interests, then then each
each would only for atat least
least the the previous
previous crop crop yearyear for for al
have an 8.33
have 8.33 percent
percent interest
Interest in you and
in you and although
although the the optional units
optional units that that you you willwill report
report in In the
the
partnership would
partnership would still have aa substantial
still have substantial beneficial
beneficial current crop
current crop year (You may may be be required
required tc tc
Interest in
interest In you, the individuals would would not for the purposes purposes produce the records records for for all
all optional
optional units units for for
of reporting in In section 3. the previous crop year);
Summary of coverage
Summary coverage - Our statement statement to you, you, based
based You must plant the crop
(ii) You crop in In aa manner
manner that that
upon your acreage report, report, specifying
specifying the Insuredinsured crop and results In
results in aa clear
clear andand discernable
dlscemable break break in In
the Final Guarantee provided by unit. the planting
the planting pattern pattern at the the boundaries
boundaries of ol
Sustainable farmingfarming practice - A system system or process
process for each optional unit;
producing an agricultural
producing agricultural commodity,
commodity, excludingexcluding organic
organic (Iii) All optional units you select
(iii) select for for the cropcrop year
farming practices,
farming practices, that that is is necessary
necessary to to produce
produce the crop Identified on the acreage
are identified acreage report report for for that
and is generally recognized by agricultural
agricultural experts for the year (Units will
crop year will be
be determined
determined when the
area to conserve
area conserve or or enhance
enhance naturalnatural resources
resources and the the acreage is Is reported
reported but may be be adjusted
adjusted or
environment. combined to reflect
combined reftect the actualactual unit unit structure
structure
Tenant - A person who rents land from another person for when adjusting
when adjusting aa loss. loss. No No further
further unit unit
a share of of the crop or a share of the proceeds of the crop division may
division may be made made after after the acreage
the acreage
(see the definition of "shareR above).
of ''share" reporting date for any reason); and
Termination date
Termination date - The The calendar
calendar date contained In
dale contained the
in the You have
(iv) You have records records of of marketed
marketed or or stored
stored
Crop Provisions upon which which your insurance
insurance ceases to be be production from
production from each each optional optional unit unit
effect because
in effect because of nonpayment
nonpayment of of any
any amount
amount due us maintained in In such a manner manner that permits us
under the policy, including
under Including premium. verify the
to verify the production
production from from each each optional
optional
planted - Planted
Timely planted Planted on on or before
before the final final planting
planting unit, or
unit, or the the production
production from from each each optional
optional
designated In
date designated Provisions for the insured
in the Special Provisions unit is Is kept
kept separate
separate until until loss
loss adjustment
adjustment is
crop In in the county. completed by us.
Transitional acreage - Acreage on which organic farming (2) ItItmeets
meets one one or ormore
more ofofthe thefollowing,
following, unless unless
practices are being followed followed that that does not yet qualify to be otherwise specified
otherwise specified In the Crop
in the Crop Provisions
Provisions or or
designated as organic acreage. allowed by written
allowed written agreement
agreement (Note: (Note: No No written
written
Unlt--
Unit agreement Is
agreement allowed for optional
is allowed optional unitsunits created
created
Basic unit
(a) Basic unH - A unit unit established
established in In accordance
accordance with with across section lines or or in
In oversized sections if the
section 2(a). acreage is Is located in In a high risk area):
(b) Optional unit •- A unit established from from basic units in Optional units
(i) Optional units may may be beestablished
established ifif each each
accordance with section 2(b). optional unit is located in a separate separate section.
(c) Enterprise unit - A unit established established from basic units In the absence
absence of of sections, we may consider
or optional units
or units inIn accordance with section 2(c). parcels of land
parcels land legally
legally identified
Identified by by other
USDA - United States Department of Agriculture.
United States methods of
methods measure such
of measure such as as Spanish
Spanish
grants, as the equivalents of sections for unit
purposes. In
purposes. areas which
In areas which have have not not beenbeen
~ 2004 National Crop insurance

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surveyed using sections, section equivalents
surveyed are located in two or more more separate
separate sections.
sections,
or in
In areas where boundaries are not readily section
section equivalents,
equivalents, FSA FSA farm farm serialserial
discernible,each
discernible, each optional
optionalunit unit mustmust be be numbers,
numbers, or or units
unlts established
established by by written
written
located In
located in aa separate
separate FSA FSA farm farm serial
serial agreement,
agreement, with with atat least
least some
some planted
planted
number; acreage In
acreage in two or or more
more separate
separate sections,
sections,
(li) In addition
(ii) addition to, or orinstead
Instead of, of,establishing
establishing section equivalents,
section equivalents, FSA FSA farm farm serialserial
optional units by
optional by section,
section, section
section equivalent
equivalent numbers,
numbers, or or two or more more separate
separate unitsunits as
or FSA
FSA farm farm serial
serial number,
number, optional
optional units units established by written agreement; or
may be based on irrigated Irrigated and and non-irrigated
non-Irrigated (li)
(II) For two or more more optional units units of
of the
the same
same
acreage. To qualify as separate Irrigated irrigated and insured crop
insured crop established
established by by separate
separate
non-irrigated optional units, the non-irrigated sections, section equivalents,
sections, section equivalents, FSA FSA farm farm
acreage
acreage may may not continue
continue into into the inigated
Irrigated serial numbers, or as established
serial numbers, established by by written
wriUen
acreage in
acreage the same
in the same rows rows or or planting
planting agreement, with
agreement, with at least two
at least two optional
optional units
units
pattern. The
paUem. The irrigated
irrigated acreage
acreage may may not not containing some planted acreage, as defined
as defined
extend
extend beyond beyondthe the point
point at at which
which the the in section 2(b)(2)(1).
In 2(b)(2)(i).
Irrigation system
irrigation system can can deliver the quantity of (3) These basic units or or optional
optional units
units that
thatcomprise
comprise
water needed
needed to to produce the yield on which the enterprise
the enterprise unitunit must
must eacheach havehave insurable
Insurable
the
the Final
Anal Guarantee
Guarantee is based, based, exceptexcept the planted acreage of
planted acreage of the
the same
same crop crop inIn the
the crop
crop
corners
comers of of a field
field in In which
which aacenter-pivot
center-pivot Insured;
year insured;
Irrigation
irrigation system Is used may be considered (4) You must comply with all all reporting
reporting requirements
requirements
Irrigated acreage
as irrigated acreage If if the corners
corners of a field field for
for the the enterprise
enterprise unit (You must
unit (You must maintain
in
In which
which aa center-pivot
center-pivot irrigation
Irrigation system
system is required productionrecords
required production recordsononaa basic basic or
used do
used do not not qualify
qualify as as aa separate
separate non- non- optional unit basis If if you wish to to change
change your your unit
Irrigated optional
irrigated optionalunit. unit. In this case,
In this case, structure for any subsequent crop year);
production
production from from both
both practices
practices will will be used qualifying basic
(5) The qualifying
(5) basic units or or optional
optional units
units maymay
to determine your approved yield; and not be combined
combined Into into an enterprise
enterprise unit on on any
(Iii) In addition
(iii) addition to, or orinstead
instead of, of,establishing
establishing basis other than as described herein; and
optional units by section,
optional section, section
section equivalent
equivalent (6) At any any time we discover
discover you do do not
not comply
comply with
or FSAFSA farmfarm serial number,number, or irrigated
Irrigated and reporting provisions
the reporting provisions for the the enterprise
enterprise unit,unit,
non-Irrigated acreage,
non-irrigated acreage, separate separate optionaloptional your yield
your yield for
for the
the enterprise
enterprise unit unit willwill bebe
established for acreage
units may be established acreage of the determined In in accordance with section 4.
insured
Insured crop crop grown
grown and and insured
Insured under an (d) Selection
Selectionofofunit unitstructure
structure- - Basic
Basic ororoptional
optional units
units will
organic farming
organic farming practice.
practice. Certified
Certified organic,
organic, be determined when the acreage is Is reported
reported but may
transitional and
transitional and buffer zone acreages do not adjusted, combined,
be adjusted, combined, or separated to reflect
or separated reflect the
individually
Individually qualify qualify as as separate
separate units. (See (See actual
actual unitunit structure when adjusting
structure when adjusting aa loss.loss. If you you
) section 37 for additional provisions regarding select
select an enterprise
enterprise unit structure,
structure, you you must
must make
make
acreage Insured
acreage Insured underunder an organic organic farming
farming such election by the sales closing date for for the insured
Insured
practice). crops and report report such
such unit structure to us us in
in writing.
writing.
(3) IfIfyou
youdo donot
notcomply
complyfully fully with
with the
the provisions
provisions in In enterprise unit structure selection will remain
Your enterprise remain in In
this section, we will combine all optional units that effect from year to year unless you notify us in writing
are not in in compliance
compliance with these these provisions
provisions into Into the sales
by the sales closing
closing date
date for for the cropcrop and
and year
year for
the basic unit from which they they were
were formed.
formed. We which you
which you wish
wish to change this election.election. Eligibility
Eligibility for
will combine the
will combine the optional
optional units units atat any time time we we enterprise units will be determined when the
units will the acreage
acreage
discover that
discover that you you have
have tailedfailed to to comply
comply with with Is reported. At any time we discover
is discover you do do not
not qualify
these provisions.
these provisions. IfIf failure comply with these
failure to comply these for an enterprise
enterprise unit,
unit, we wm assign
we will assign the basic unit
the basic unit
provisions is determined by us to be be inadvertent,
Inadvertent, structure.
and the optionaloptional units are combined Into into a basic
basic All
All applicable
applicable unit unit structures
structures must must be be stated
stated on on thethe
portion of the
unit, that portion the additional
additional premium
premium paid acreage report for each crop year.
for the optional
optional units that that havehave been
been combined
combined 3. Life
LifeofofPolicy,
Polley,Cancellation,
Cancellation,and
andTermination
Tennlnatfon
will be refunded to you for the units combined.
wUI (a)
(a) This isIs a continuous poUcypolicy and will
wiH remain in effect for
Enterprise unit
(c) Enterprise unit -- AA unit
unitthat
thatconsists
consists of of all
aUinsurable
insurable each
each crop
crop year
year following
foRowlng the acceptance
acceptance of of the
the
planted acreage
planted acreage of of the
the insured
insured crop crop Inin the county in In original applicationuntil
original application untilcanceled
canceledby by youyou in In
which you have a share on the the date
date coverage begins begins accordance with the terms of the policy
with the policy or
or terminated
terminated
the crop
for the crop year.year. If you you select
select and and qualify
qualify for an by operation of the terms of the policy, or by us.
enterprise unit, you will qualify for a premium discount (b) Your
Your application
application for for insurance
Insurance must must contain
contain your your
based on the insured Insured crop and number of acres In in the security number
social security (SSN) Ifif you are an
number (SSN) an individual
Individual
enterprise unit.
enterprise unit. The discount contained
The discount contained In the
in the or employer identification number
employer Identification number (EIN)
(EIN) ifif you
you are
are a
actuarial documents
documents will will only
only apply to acreage acreage In in the person other
person other than
than an an individual,
Individual, and SSNs and
and all SSNs
enterprise unit
enterprise unit that has been planted. planted. The The following
following EINs, as applicable,
applicable, of all persons with with aa substantial
substantial
requirements must be
requirements be met to qualify for an enterprise beneficial interest
beneficial interest In you, the coverage
in you, coverage level,
level, crop,
crop,
unit: type,
type, variety,
variety, or class,
class, plan
plan of
of insurance,
Insurance, and and any
(1) The enterprise
( 1) The enterprise unit unit must
must contain
contain 50 50 or or more
more other material information
information required on the application
application
acres; to insure
to Insure thethe crop.
crop. if If you
you or orsomeone
someone with with a a
(2) TheTheacreage
acreage that that comprises
comprises the the enterprise
enterprise unit unit substantial beneficlallnterest
beneficial Interest Is is not legally required
required to
must also qualify: have a SSN or EIN, you must request and receive receive an
) (I) For
(I) Fortwo twoorormore more basicbasic unitsunits ofof thethe same
same identification number for
Identification number for the
the purposes
purposes of this this policy
policy
insured crop
insured crop as defined in section section 2(a) that lntemal Revenue Service (IRS) if such
from us or the Internal
C 2004 National
National Crop Insurance Services, Inc,
Inc. Page
Page&6 of 26
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30
Identification number
identification numberisisavailable
availablefrom fromthethe IRS.
IRS. If any planting
planting payment
payment due due you you for thisthis or
or any
any other
other crorcro1=
of the
of the information
information regarding regarding persons persons with with a a insured with
insured with us under the authority of the Act.
beneficial interest changes during the crop (1) Even ifif your your claim
claim has not not yet
yet been
been paid,paid, you you
year, you must
year, must reviserevise youryour application
application by by the next next must stillstili pay the premiumpremium and and administrative
administrative fee
' sales closing
sales closing date applicable under
date applicable under your
your policypolicy to to on or or before
before the the termination
termination date date for for you you tc tc
I the correct
reflect the correct information. remain eligible for Insurance. insurance.
(1) Applications
Applications that that dodo not contain
contain youryour SSN,
SSN, EIN or (2) If we we offset
offset any any amount
amount due dueus usfrom
from an anindemnity
indemnity
Identification number,
identification number, ororany any ofof thethe otherother prevented planting
or prevented planting payment owed owed to to you,
you, the
Information required
information requiredininsection section3(b) 3(b) are are not not date of of payment
payment for for the
thepurpose
purposeof ofdetermining
determining
acceptable
acceptable and and insurance
Insurance will will not be be provided
provided whether you
whether you have a delinquent delinquent debtdebt willwill bebe the
the
(Except If
(Except if you
you fall
fail to report the
to report the SSNs,
SSNs, ElNs EINs or date that that youyou submit
submit the the claim
claim for
forindemnity
Indemnity in
identification
Identification numbers numbers ofof persons
persons with with a accordance with section section 15(c)15(c) (Your Duties).
substantial beneficialinterest interestinin you, you, the the (f) AAdelinquent
(f) delinquent debt debt for for anyany policy
policy will
will make
make you you
provisions in in section
section 3(b)(2)
3(b)(2) will apply); ineligible to obtain
ineligible obtain crop crop insurance
insurance authorized
authorized under under
(2) IfIfthetheapplication
application does does not not contain
contain the SSNs, SSNs, the Act
Act for for anyany subsequent
subsequent crop year and and result
result in In
EINs,
EINs, ororidentification
Identification numbers of all persons with termination of all
termination all policies
policies in in accordance
accordance with with section
section
a substantial beneficial interest in
substantial beneficial in you, you fail fall to 3(f)(2).
3(0(2).
application in accordance with section
revise your application (1) With
(1) Withrespect
respecttotoineligibility:
ineligibility:
3(b), oror the
the reported
reported SSNs,SSNs, EINs, EINs,ororidentification
identification (I) ineligibility
(i) Ineligibilityfor forcrop
cropinsurance
Insurancewill will be
beeffective
effective
numbers
numbers are are incorrect
incorrect and and the the Incorrect
incorrect SSN, SSN, on:
EIN, or
EIN, or identification
identification number number has has not not been been (A) The date
(A) date that that aa policy
policy was
was terminated
terminated in
corrected by the acreage reporting reporting date, and: accordance with
accordance with section
section 3(f)(2)
3(0(2) for for the
the
(I) Such persons
(i) persons are eligible eligible forfor insurance,
insurance, the crop for
crop for which
which you you failed
failed to to paypay
amount of coverage for all all crops included on premium, an administrative
premium, administrative fee, fee, or or any
this
this application
application will be
will be reduced reduced related interest owed, as as applicable;
applicable;
proportionately by
proportionately by the
the percentage interest in (B) The payment
(B) payment due due date
date contained
contained in in any
you
you of such such persons,
persons, you you must
must repayrepay the the notification of
notification indebtedness for
of indebtedness for any any
amount of
amount of indemnity,
indemnity, preventedprevented plantingplanting overpaid indemnity, prevented
overpaid prevented planting
planting
payment or
payment replanting payment
or replanting payment that that is is payment or replanting
payment replanting payment,
payment, if you you
proportionate to
proportionate to the
the interest
interest of the persons persons fail
fall to pay pay thethe amount
amountowed, owed,including
including
whose
whose SSN, EIN, EIN, ororidentification
identification number number any related interest owed, as as applicable,
applicable,
was unreported
unreported or incorrect incorrect for such such crops,
crops, by such due date;
and your
and your premium premium will will be be reducedreduced (C) The termination
termination date date for the crop crop year year
commensurately; or prior to
prior to thethe cropcrop yearyear in in which
which a a
(ii) Such persons
(ii) persons are not not eligible
eligible for
for insurance,
insurance, scheduled payment
scheduled payment is is due under under a
except as
except provided in
as provided section 3(b)(3),
in section 3(b)(3), the the payment agreement
agreement ifif you you fail
fail to
to pay
pay the
policy
policy is is void
void and no no indemnity,
indemnity, prevented
prevented amount owed
amount owed by payment date
by any payment date in
planting payment or replanting
planting replanting payment
payment will will any agreement to to pay
pay the
the debt;
debt or
be owed
be owed for for anyany cropcrop included
included on on thisthis termination date the policy
(D) The termination policy was was or
application,
application, and andyou you mustmust repay repay any any would have
would have been been terminated
terminated under under
indemnity, prevented
indemnity, prevented planting planting payment
payment or sections 3(f)(2)(i)(A), (B),
sections 3(f)(2)(i)(A), (B), or
or (C) ifif your
your
replanting payment
replanting payment that that may have been paid bankruptcy petition
bankruptcy dismissed before
petition is dismissed before
for
for such
such crops.crops. IfIf previously
previously paid, paid, the the discharge.
balance of
balance of any any premiumpremium and and any any (ii) IfIfyou
(ii) youare areineligible
ineligible and and aapolicy
policy hashas beenbeen
administrative
administrative fees fees will
will bebe returned
returned to you, you, terminated In
terminated accordance with
in accordance with section
section
less twenty
less twenty percentpercent of the premium
of the premium that that 3(f)(2), you you will will not
not receive
receive any anyindemnity,
Indemnity,
would otherwise
would otherwisebe be due from you
due from you for for such
such prevented planting
prevented planting payment
payment or or replanting
replanting
crops.
crops. If not previously
previously paid, paid, no premium or payment, ifif applicable,
applicable, and andsuch
suchineligibility
ineligibility
administrative fees
administrative feeswill willbe be due
due for for such
such termination of the policy may affect your
and termination
crops. eligibility for
eligibility for benefits
benefits under under other
other USDA USDA
(3) The
Theconsequences
consequencesdescribed describedin in section
section 3(b)(2)(ii) programs. Any indemnity, Indemnity, prevented
prevented planting
planting
will not
will not apply
apply if If you
you havehave included
included an an ineligible
ineligible payment or replanting payment that may be
replanting payment
person's
person's SSN, SSN, EIN, EIN, or oridentification
identification number on owed for
owed for the the policy
policy before
before it has been
it has been
your application
application and and do not include include thethe ineligible
ineligible terminated will
terminated will remain
remain owed to you, but may
person's share on the the acreage report. be offset
offset in in accordance
section 3(e),
(c) After
(C) After acceptance
acceptance of the application,
of the application, you you may may not not unless your
unless your policy policy was was terminated
terminated in in
cancel this policy
policy for for the
the initial crop year. Thereafter,
initial crop accordance with with sections
sections 3(f)(2)(i)(D)
3(f)(2)(i)(D) or (E).
policy will
the policy will continue
continue in force for
in force for each
each succeeding
succeeding (2) With
Withrespect
respecttototermination:
termination:
year unless
crop year unless canceled or terminated terminated as as provided
provided Terminationwill
(I) Termination willbebeeffective
effective on:
on:
below. (A) For aa policy
(A) policy with with unpaid
unpaidadministrative
administrative
Eitheryou
(d) Either youororwewemay maycancel
cancelthis thispolicy
policy after
afterthe the initial
initial fees or or premiums,
premiums, the the termination
termination date
year by
crop year by providing
providing written
written notice to the other on or immediately subsequent
immediately subsequent to the billing
to the billing
before
before the the cancellation
cancellation date date shown
shown in in the
the CropCrop date for the crop year;
Provisions. (B) For a policy
(B) policy with other amounts due, the
I (e) Any Anyamount
amountdue duetotous usforforanyanypolicy
policy authorized
authorized under termination
termination date immediately immediately following
following
the Act will be offsetoffset from
from any indemnity or prevented the date you you have
have aa delinquent
delinquent debt;
debt;
C 2004
CO 2004National
NationalCrop
Crop Insurance
Insurance Services,
Services, Inc. Page T of 26
Page7of26
31
.. .. (C) For each policy for which insurance has closing
closing date. date. If if you
you fail
fail to
to make
make aa payment
payment that
attached before you become
attached become ineligible,
Ineligible, was scheduled to be made made on April April 1,1, 2005,
2005, your
the termination
the termination date date immediately
immediately policy will terminate
tennlnate as of of October
October 31, 31, 2004,
2004, for
following the date you become ineftgible; ineligible; crop A, and and March 15, 2005, for crop B, 8, and
and no
execution of
(D) For execution agreement to pay
of an agreement pay Indemnity, prevented
Indemnity, prevented planting planting paymentpayment or
any amounts
amounts owed and and failure
failure to make
make replanting payment will be due for that crop year
that crop
any scheduled payment, the termination for either crop. You will not not be eligible to apply for for
date for the
date the crop year prior to the crop crop crop Insurance for
crop insurance for any
any cropcrop untiluntil after
after thethe
year
year In which you
in which you failed
failed to to make
make the the amounts
amounts owed are paid paid inIn full or
or you
you file
file aa petition
petition
scheduled payment; or to discharge the debt In bankruptcy.
dismissal of aa bankruptcy
(E) For dismissal bankruptcy petition
petition (6) IfIfyou
(6) youare aredetermined
determined to be ineligible ineligible underunder
before discharge,
before discharge, the termination
termination date date section 3(f), persons with a substantial substantial beneficial
beneficial
the
the policy
policy was was or or would
would have have beenbeen Interest In
interest in you may may alsoalso be be ineligible
Ineligible untiluntil you
terminated
terminated under under sections 3{f)(2XI)(A),
sections 3(f)(2)(1)(A), become eligible again.
become
(B) or (C).
or(C). (g) If you
(g) you die, die,disappear,
disappear, or orare judiciallydeclared
arejudicially declared
(ii)
(il) For all all policies
policies terminated
terminated under under sections
sections Incompetent, or
incompetent, or Ifif you
you areare an entityentity other
other thanthan an
3(f)(2)(i)(D) and
3(f)(2)(i)(D) and (E), (E), any anyindemnities,
indemnities, individual and such entity is Is dissolved,
dissolved, the policy policy will
prevented
prevented plantingplanting payments
payments or replantingreplanting terminate
tennlnate as of of the
the date
date of of death,
death, judicial
judicial declaration,
declaration,
payments paid subsequent to the termination or dissolution.
dissolution. If such such eventevent occurs
occurs afterafter coverage
coverage
date must be repaid. begins for any any crop
crop year,year, the
the policy
policy willwill continue
continue in In
Once the policy
(iii) Once policy is Is terminated,
terminated, it It cannot
cannot be force through the crop year and terminate terminate at the end
reinstated
reinstated for for the
the current
current crop year year unless
unless of
of the insurance
insurance period and any indemnity Indemnity will be paid
the termination
termination was in error. Failure to timely person or
to the person or persons
persons determined
determined to be beneficially
pay because of illness, bad weather, or other entitled to
entitled to the the indemnity.
Indemnity. The The premium
premium will will bebe
such
such extenuating
extenuating circumstances
circumstances Isis not not deducted from
deducted from the the indemnity
indemnity or collected
collected from from the
grounds for
grounds reinstatement in
for reinstatement the current
in the current estate. Death
estate. Death of of a a partner
partner in In aapartnership
partnership will will
year. dissolve
dissolve the the partnership
partnership unless unless the the partnership
partnership
(3) To
Toregain
regaineligibility,
eligibility, youyou must: agreement
agreement provides otherwise. IfIf two or or more persons
(i) Repay the delinquent debt in full; having a joint
having joint interest
Interest are insured jointly, death of one
(ii)
(ii) Execute
Execute an an agreement
agreement to pay any any amounts
amounts of the persons will dissolve the joint entity.
of
owed
owed and and make make payments
payments in in accordance
accordance (h) We may may cancel your policy if if no
no premium
premium is is earned
earned
with the agreement (We will not enter Into into an for 3 consecutive years.
agreement
agreement with with you you to pay pay the the amounts
amounts (I) The cancellation
cancellation and termination dates dates are contained
contained
owed if if you have previously failed to make a In the Crop
in Crop Provisions.
Provisions.
scheduled
scheduled paymentpayment under under thethe terms
terms of any any 0) When
(j) When obtaining
obtaining coverage, coverage, you you must must provideprovide
) agreement to
other agreement to pay withwith us or any other regarding crop insurance
information regarding Insurance coverage on any
Insurance provider); or crop previously obtained obtained from an an approved
approved insurance
insurance
(iii) File a petition to have your your debts
debts discharged provider, Including
provider, including the the date
date such such insurance
insurance was was
in bankruptcy
bankruptcy (Dismissal
(Dismissal of the the bankruptcy
bankruptcy obtained
obtained and and the amount of the administrative fee.
petition before
petition discharge will
before discharge terminate all
will terminate (k) Any person
person may may signsign any any document
document relativerelative to to crop
crop
policies in In effect retroactive
retroactive to the date date your insurance
insurance coveragecoverage on on behalf
behalf of any any other
other person
person
policy
policy would would have have been been terminated
terminated In In covered by such
covered such a policy,
policy, provided
provided that that the
the person
person
accordance with section 3(f)(2)(i)); has aa properly
properly executed
executed power of attorney attorney or such such
(4) After you
(4) After become eligible
you become eligible for for crop
crop insurance,
Insurance, if If other legally
legaHy sufficient
sufficient document authorizing authorizing such such a
you want to obtain obtain coverage for your crops, you person
person to to sign.
sign. YouYou are are still
still responsible
responsible for for the
the
must submit a new application application on before the
on or before accuracy
accuracy of all all information
information provided
provided on your your behalf
behalf
sales closing date for the crop (Since applications and may may be be subject
subject to to the
the consequences
consequences In In section
section
for crop insurance
insurance cannot be accepted accepted after the 7(g),
7(g), and and any any applicable
applicable consequences,
consequences, ifif any any
sales closing date, if you make any payment after Information
information has been misreported.
the sales closing
the sales closing date, date, you you cannot
cannot apply apply forfor (I)
(I) You
You are are not noteligible
eligible to toparticipate
participate in In thethe CropCrop
insurance until the next crop year); Revenue Coverage Coverage program program If if you have elected elected the the
(5) For
Forexample,
example, for for thethe 2003
2003 crop crop year,
year, if crop
crop A, MPCI
MPCI Catastrophic
Catastrophic Risk Risk Protection
Protection Endorsement
Endorsement
with a termination
termination date date of October 31, 2003, and except if you
except you execute
execute aa High High RiskRisk Land
Land Exclusion
Exclusion
crop
crop B, 8, with
with aa termination
termination date date of of March
March 15, 15, Option for for a CropCrop Revenue
Revenue Coverage Policy, you may
2004, are
2004, are insured
Insured and and you you do do notnot paypay thethe elect to insureinsure the "high "high risk
risk land"
lancr under
under an an MPCI
MPCI
premium
premium for crop A by the termination termination date, you Catastrophic Risk Risk Protection
Protection Endorsement,
Endorsement, provided provided
are ineligible for crop Insurance insurance as of October 31, the Catastrophic Risk
the Catastrophic Risk Protection
Protection Endorsement
Endorsement is Is
2003, and crop A's As policy is is terminated
terminated as of that that obtained from
obtained from us. us. If bothboth policies
policies are are in force,
force, thethe
date. Crop
date. Crop B's policy policy does does not not terminate
terminate until until acreage of of the
the crop covered under the Crop Revenue
March
March 15, 2004, 2004, and an Indemnity Indemnity for the 2003 2003 Coverage policy
Coverage policy and the acreage acreage covered
covered under an
crop year
crop year may may stillstill bebe owed.
owed. If you you enter
enter an an MPCI Catastrophic
Catastrophic Risk Protection Protection Endorsement
Endorsement will
agreement toto repay
agreement repay amounts amounts owed owed on on be considered
be considered as as separate
separate crops crops for for insurance
Insurance
September
September 25, 25, 2004,
2004, the the earliest date by which which purposes,
purposes, includingIncluding the the payment
payment of of administrative
administrative
you
you can obtain obtain crop crop insurance
insurancefor for crop
crop AA Is is to fees.
apply for crop insurance by the October 31, 2004,
) sales closing
sales closing date
dale and and for crop 8B Is
for crop apply for
is to apply
crop insurance
crop insurance by by thethe March
March 15, 1S, 2005,
2005, sales
sales
0 2004 National Crop Insurance Services, Inc. Page 8 of

of26
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32
4. Coverage
CoverageLevel,
Level,and
andApproved
Approved Yield
Yield For
ForDetermining
Detennlnlng because the incorrect
because incorrect information
information was was It tt
Final Guarantee and indemnity Indemnity result
result of our our error
error or or the
the error
errorof ofsomeor
someor
Unless adjusted
(a) Unless adjusted or or limited
fimited in in accordance
accordance with with your
your from USDA.
policy,
policy, the Final Anal Guarantee,
Guarantee, coverage coverage level, level, andand (f) InInaddition
additiontotoany anyconsequences
consequencesininsection section 4(e),4(e),
approved
approved yields yieldsat at which
which an an indemnity
Indemnity will will bebe any timetime the thecircumstances
circumstances described described below below a
) determinedfor
determined foreach
eachunit unit willwill bebe those
those used used to to discovered, your your approved
approved yield yield willwill bebe adjusted:
adjusted:
calculate
calculate your your summary
summary of of coverage
coverage for for each crop crop (1) ByByincluding
including an anassigned
assignedyield yielddetermined
determined
year. accordance with section 4(d)(1) and 7 CFR
accordance CFR pe pe
Youmay
(b) You mayselect
selectonly onlyone onecoverage
coverage level level fromfrom among 400, subpart
400, subpart G, G, ifIfthe
the actual
actualyield yield reported
reported In in ttit
those offered
those offered by by us for all acreage
acreage of the the cropcrop inIn the database is
database excessive for any
is excessive any cropcrop year,year, ~
county. You may change change the coveragecoverage level level for the determined by
determined by FCIC under under its procedures,
procedures, ar
following
following crop crop yearyear by giving
giving written
written notice
notice to us not you do do not
not provide
provide verifiable
verifiable records records to to suppc
suppc
later than the sales closing date for the insured Insured crop. the yield in In the database
database (If there are are verifiab
verifiab
If you
you do do notnotchange
change the the coverage
coverage level level for the the records for the yield yield in In your
your database,
database, the the yield
succeeding crop
succeeding crop year
year you will will be assigned
assigned the same significantly different
significantly different from from the other yields yields in tl- tt
coverage level
coverage level that
that was effect the
was in effect the previous
previous crop crop county
county or your other yields for for the crop crop and and yc
year. cannot prove there is Is aa valid
valid basis
basis to to support
support th
(c) This policyisIsan
Thispolicy analternative
alternativeto the MPCI
to the MPCI program
program and differencesIn
differences In the
the yields,
yields, the the yield
yield will
win be be th th
satisfies the requirements
requirements of of section 508 (b)(7) of the average of
average of the yields for
the yields for the the cropcrop or or th th
Act. applicable county transitionaltransitional yield yield ifif you
you havehave n
(d) YouYoumust mustreport
reportproduction
production to to us
usforfor the
the previous
previous crop other yields for the the crop,
crop, and and you you may may be be subjei
subjec
year by by the earlier of the acreage reporting date or 45 to provisions of section 27);
days after the
days after the cancellation
cancellation date date unless
unless otherwise
otherwise (2) By Byreducing
reducing itIttotoan anamount
amountconsistent
consistent with with th
stated in the Special Provisions. average of
average of the the approved
approved yields yields for for otheothE
(1) If you you do do not notprovide
provide the therequired
required production
production databases
databases for for your farming farming operation
operation with with th
report, we will assign a yield for the previous crop same
same crop, crop, type,type, and and practice
practice or or thethe count
count
year. The
year_ The yield assigned by us will not be
yield assigned be more
more transitional yield, as applicable, if:
than 75
than 75 percent
percent of of thethe yield
yield usedused by by us
us to to (i) The approved APH yield is is greater
greater than 11 11
determine your
determine your coverage
coverage for previous crop
for the previous crop percent of
percent of thethe average
average of of the
the approve
approve
year. The production
production report or assigned yield will yields of all
yields all applicable
applicable databasesdatabases for for yot
yoi
used to compute your Approved
be used Approved Yield Yield for the farming
farming operation
operation that have have actual
actual yields
yields i
determining your Final
purpose of determining Final Guarantee
Guarantee for them or itit is Is greater
greaterthan than 115 percent of
115percent ttl-
of th•
the current crop year. county
county transitional
transitional yield yield if no no appiicabl
applicabl
(2) If
(2) If you
you have
have filed
filed a a claim
claim for for any
any crop
crop year,year, the databases exist for comparison; and
) documents signed by by you which state the amount (II) The
(ii) The currentcurrent year's year's insured Insuredacreage acreagt
production used
of production used to to complete
complete the the claimclaim forfor (Including applicable prevented
(Including applicable prevented plantin! plantin!
Indemnity wUI
indemnity will be production report
be the production report for that that acreage) is greater than 400
acreage) percent of thi
400 percent th1
year unless otherwise specified by FCIC. average number of of acres
acres in the database
in the database o
Production and
(3) Production and acreage
acreage for for the
the prior crop year year the acres
acres contained
contained in in two
two or ormore ind'IVldua
moreindividue
must be reported for each proposed optional unit years in In the database
database are are eacheach less
less thanthan 11 11
production reporting
by the production reporting date. date. IfIf you
you do not percent
percent of the the current
currentyear's year'sinsurabir
insurabl•
provide the information stated above, the optional acreage in
acreage In the theunit unit(including
(Includingapplicably
applicabh
units will be combined into Into the basic unit. prevented planting acreage); or
Appraisals obtained
(4) Appraisals obtainedfrom fromonly only aa portion
portion of the (3) ToToananamount amountconsistent
consistentwith withthe theproductioi
productior
acreage
acreage in in the
the field
field that
that remains
remains unharvested
unharvested methods actually
methods actually carriedcarried out out forfor the cropcrop year iI
remainder of the
after the remainder the crop
crop within
within a field has you
you use a different
different production method than we! wa!
been destroyed or put put to another use wilt will not be previously used
previously used and and the theproduction
production methoc metho(
used to
used to establish
establish your your actualactual yield yield unless
unless actually carried out
actually carried out is Is likely
likely to to result
result in in aayielc
yielt
representative samples
representative samples are are required
required to to be left by lower than the the average
average of of your
yourprevious
previous actua actua
you In in accordance with the Crop Provisions. yields. The yield yield will will bebe adjusted
adjusted based based on you
(e) ItIt isIsyour
(e) yourresponsibility
responsibility to to accurately
accurately report report all all units where
other units where such suchproduction
production methods methods were werE
Information that
information that is usedused to to determine
determine your your approved
approved carried out out oror toto the
the applicable
applicable county county transitiona
transitions
yield. You
yield. You must must certify
certify to the accuracy
to the accuracy of this this yield
yield for the the production
production methods methods if other other sect suet
information on your production report. units do not not exist.
exist. You You mustmustnotify notifyus usofofchanges
change!
(1) If you you dodo not not have
have written
written verifiable
verifiable recordsrecords to in youryour production
production methods methods by by thetheacreage
acteagE
support the information
Information on your production report, reporting
reporting date. date. If you fail fall toto notify
notify us, us, inin additior
additlor
you will receive
receive an assigned
assigned yield yield in in accordance
accordance reduction of
to the reduction of your
yourapproved
approved yield describec
yield describes
with section 4(d)(1) and 77 CFR part 400, subpart
with herein, you will will be be considered
considered to to havehave
G for those crop years for which you do not have misreported information
misreported information and and you you will will be
be subject
subject Ic tc
such records: the consequences in section 7(g). 7(g). For For example
example
(2) If you misreport any material information
you misreport Information used to non-Irrigated unit, your
for a non-Irrigated your yieldyield is Is based
based upon upon
determine your approved yield: acreage of the crop that that is is watered
watered once once prior tc
(i) WeWe will will correct
correct the the unit unit structure,
structure, if if planting, and
planting, and the crop is
the crop Is not
not watered
watered prior prior Ic tc
necessary; and planting for for the current
current crop crop year.
year. Your Your approved
approved
) (ii)
(il) You
You will will be be subject
subject to to the theprovisions
provisions APH
APH yield yield will will be be reduced
reduced to to an anamountamounl
regarding misreporting
regarding mlsreporting contained
contained in section section consistent with
consistent with the actual actual production
production history history of
7(g), unless
7(g), unless we we correct
correct the theInformation
information your other non-irrigated
non-Irrigated units where the crop has
C 2004
ID 2004 National Crop Insurance Services, Inc. Page9
Page 9 of 26
of26
33
... not been
been watered
watered prior prior to planting
planting or limited
limited to before August 15, you you mustmust submit
submit an anacreage
acreage
the non-Irrigated transitional
the non-irrigated transitionalyield yieldfor
for the
the unit
unit if report for all such such crops
crops on on or orbefore
before the the latest
latest
other
other such unitsunits do not not exist. applicable acreageacreage reporting
reporting date date for for such
such crops.
crops.
Unlessyou
(g) Unless youmeet
meetthe thedouble
doublecropping
cropping requirements
requirements (3) Notwithstanding the provisions
(3) provisions In in sections
sections 7(a)(1)
7(a){1)
contained In
contained in section
section 18{f){4),
16(t)(4),ifif youyou elect
elect to to plant a and (2):
) second crop on acreage acreage where where the first insured
insured crop (I) IfIf the
(i) the Special
Special Provisions
Provisions designate
designate separate
separate
was prevented from being planted, planted, you will receive a planting periods for a crop, crop, you you must
must submit
submit
yield equal to 60 percent of of the approved yield for the acreage report
an acreage report for for each
each planting
planting periodperiod
first insured crop crop to calculate
calculate your averageaverage yield for on or
on or before
before the theacreage
acreage reporting
reporting date date
subsequent crop crop years
years {Not(Not applicable
applicable to to crops
crops If if the contained
contained In in the Special
Special Provisions
Provisions for the
APH is not
APH not the
the basis
basis for for the
the insurance
Insurance guarantee).
guarantee). If planting period; and
the unit
unit contains both prevented planting and planted (II) IfIf planting of
(ii) of the insured
Insured crop crop continues after
acreage of the same crop, the yield for the unit will be planting date or
the final planting or you
you are are prevented
prevented
determined by: from planting during the late late planting
planting period,
period,
Multiplying the
(1) Multiplying number of
the number of insured
Insured prevented
prevented the acreage
acreage reporting
reporting date date wtn will be the the later
planting
planting acres acres by by 60 percent
percent of the the approved
approved of:
Insured crop;
yield for the first insured (A) The acreage reporting date date contained
contained In in
(2) Adding
(2) Adding the totals from
the totals from section
section 4(g)(1)
4(g)(1) to to thethe the Special Provisions;
amount of appraised or harvested production production for (B) The date determined in In accordance
accordance with
of the insured planted acreage; and
all of sections 7(a)(1) or (2); or
(3) Dividing
Dividing the totals section 4(g)(2}
totals in section 4(g)(2) by the total total (C) Five
(C) FIVe (5)(5) days after the end end of the late
of the late
number of
number of acres in the unit. planting period
planting period for for the insured
Insured crop, crop, if
{h) The
(h) Theapplicable
applicable premium
premium rate, rate, oror formula
formula to to calculate
calculate applicable.
the premium rate, rate, and transitional
transitional yieldyield will be thosethose (b) IfIfyou
youdo donotnothave have aashare
share in In an
an insured
Insured crop crop in in the
contained in the actuarial
contained actuarial documents except, In
documents except, the
in the county for the crop crop year, you must must submit
submit an an acreage
acreage
case of high high risk
risk land,
land, aa written
written agreement
agreement may may be report
report on on or or before
before the the acreage
acreage reporting
reporting dale, date, so
requested
requested to to change
change such such transitional
transitional yield yield or or indicating.
Indicating.
premium rate. (c) Your
(c) Your acreage
acreage report report mustmust Include
Include the the following
following
5. Contract Changes
5, Information, ifIf applicable:
information,
(a) We may may change
change the terms of of your
your coverage
coverage under under (1) All acreage
(1) acreage of the the crop
crop in In the
thecounty
county(Insurable
(Insurable
this policy from year to year. and notnot insurable)
Insurable) in which you have a share;
(b)
(b) Any changes in In policy provisions, premium rates, and (2) Your share at the time coverage begins;
(2) Your
program
program dates dates (except
(except as as allowed herein or
allowed herein or as as (3)
{3) The practice;
specified
specified In in section
section 4) 4) can
can be viewed
viewed on the the RMA RMA (4)
(4) The type; and
website
website at http;//www.rma.usda.gov/
hHD;/(Www.rma.ussfa.QOV/ or or a successor
successor (5)
(5) The date the insured crop was planted.
) website not
website later than
not later than the the contract
contract change
change date date Regarding the
(d) Regarding the ability torevise
ability to revise an an acreage
acreage reportreport you
contained in In the Crop Provisions. We may only revise have submitted to us:
this information
this Information after after the the contract
contract change
change date date to (1) For planted
(1) planted acreage,
acreage, you cannot revise
you cannot revise any any
correct clear errors
correct errors (For example,
example, the the price for corn com information pertaining to
Information pertaining to the
the planted
planted acreage
acreage
was announced at $25.00 per bushel instead of $2.50 after the
after the acreage
acreage reporting
reporting date date without
without our our
per bushel or or the final planting date should be May 1 100 consent (Consent may only be provided provided when when no
but thethe final
final planting
planting date date in In the
the Special
Special Provisions
Provisions cause
cause of loss loss has
has occurred;
occurred; our our appraisal
appraisal has has
states August 10). determined that
determined Insured crop will produce
that the insured produce at
(c) After the contract change date, all changes specified
(c) specified least 90 percent
percent of the yield
of the yield used
used to todetermine
determine
In section
in section 5(b)5(b) will
will also
also be be available
available uponupon request
request your Final
your Fmal Guarantee
Guarantee for for thethe unit ('mctuding
unit(including
from your crop insurance agent. You will be provided, provided, reported and unreported
unreported acreage), except except when when
in writing,
writing, a copy copy of of thethe changes
changes to to thethe Basic
Basic there are are unreported
unreported units (see section section 7(f));
7(f)); the
Provisions
Provisions and and Crop
Crop Provisions
Provisionsand andaa copy
copy of the the information
Information on on the
the acreage
acreage report report is Is clearly
clearly
Provisions not
Special Provisions not later than 30 days
later than days prior to the transposed;
transposed; you provide adequate evidence evidence that
cancellation date for the insured
cancellation Insured crop. Acceptance of we or or someone
someone from USDA USDA have have committed
committed an
the changes
the changes will win bebe conclusively
conclusively presumed
presumed In in thethe regarding the information
error regarding lnfonnation on your your acreage
acreage
absence of notice from you to change or cancel your report; or or ifIf expressly permitted by the policy);
insurance coverage. (2) For prevented
(2) prevented planting acreage acreage reported reported on the
6. [Reserved] acreage
acreage report, report, you you cannotcannot revise revise any any
Report of
7. Report of Acreage Information pertaining
information pertaining to the the prevented
prevented planting planting
(a) AnAnannual
annualacreage
acreagereport
report must must bebe submitted
submitted to us on acreage after the report Is is initially
lnltlafty submitted to us
form for each
our form Insured crop
each insured crop in the county
county on or or without our
without our consent
consent (Consent
(Consent may may only only be be
before
before the acreage acreage reporting
reporting date date contained
contained in the the provided when information on the acreage acreage report
Special Provisions, except as follows: clearly transposed
is clearly transposed or or youyou provide
provide adequate
adequate
(1) If If you
you insure
Insure multiple crops with us that have final evidence that we
evidence we or someone
someone from from USDAUSDA have
planting
planting datesdates on on or after after August
August 15 15 butbut before
before committed an error regarding the information
committed information on
December
December 31, 31, youyou must must submit
submit an an acreage
acreage your acreage report);
report
report for all such such crops on or before before thethe latest
latest {3) For prevented
(3) prevented planting
planting acreage
acreage not reported reported on
applicable acreage reporting date for such crops; the acreage report,
the acreage report, you you cannot
cannot revise revise your your
and acreage report
acreage report to to addadd prevented
(2) If you insure multiple crops with us that have final
(2) acreage;
planting dates
planting dates on on or afterafter December
December 31 31 but but
C 2004 National Crop Insurance Services, Inc. Page10of26

Page 10 of 26
34
. .,.
(4) IfIfyou
yourequest
requestan anacreage
acreage measurement
measurement prior to (2) InInaddition
additiontotothe theotherotheradjustments
adjustments specifiedspecified iih
the acreage
the acreage reporting reporting date date and and submit submit section 7(g)(1), ifIf you you misreport
misreport any any informatioi
lnformatiot
documentation of
documentation of such request and an acreage acreage that results
results in liability
liabl&ty greater than than 11 0.0 percen
110.0 carter
report
report with estimated
estimated acreage acreage by the the acreage
acreage lower than 90.0 percent of the
or lower the actual fiabilit
actual liabilit
reporting
reportingdate, date, you you must must provide provide the the determined
determined for for thethe unit,
unit,any
anyindemnity,
Indemnity,prevented
preventet
measurement
measurement to us, we will revise revise youryour acreage
acreage payment, or
planting payment, or replanting
replanting paymentpayment will will bdbt
report
report ifif there is Is aa discrepancy, and no indemnity, Indemnity, based
based on the the amount
amount of of liability
liability determined
detennlned ii11
prevented planting
payment or replant replant payment
payment accordance with
section 7(g){1
7(g)(1)(i) (II) and
)(I) or (ii) and wi
will bebe paid
paid until
until the the acreage
acreage measurement
measurement has be reduced
reduced in In ananamount
amountproportionate
proportionatewith with thetht
been
been received
received by by us
us (Failure
(Failure to provide provide the the amount of
amount of liability
liabilitythat thatisIsmisreported
misreportedinInexcess excessdo o
measurement to us will result in In the application of the
the tolerances
tolerances stated stated In in this
this section
section (Fo (Fo
section 7(g)
section 7(g) if the the estimated
estimated acreage acreage Is not
is not example, ifIf the actual actual liability
liability isIs determined
determined to b( bt
estimated acreage under this section
correct and estimated $100.00, but you reported reported liability
liability ofof $120.00, an~ an'
will nono longer
longer be be accepted
accepted for for any
any subsequent
subsequent Indemnity, prevented
indemnity, prevented planting planting payment payment o
acreage report); replanting payment
replanting paymentwill will be reduced by
be reduced by 10e10.(
(5) IfIfthere
thereisIsan anirreconcilable
Irreconcilabledifference
difference between: percent ($120.00 I/ $100.00
percent ($120.00 $100.00 = 1.20, 1.20, andand 1.20 1.20 -
(I) The
(i) acreage measured
The acreage measuredbybyFSA FSA or or a a 1.10 =
1.10 = 0.10)).
0.10}).
measuring
measuring service service and and our our on-farm
on-farm (h) If we we discover
discover you you have haveincorrectly
Incorrectly reported
reported am anl
measurement, our on-farm measurement will Information
Information on the acreage report for for any
any cropcrop year
year
be used; or you
you may may be be required
required totoprovide providedocumentation
documentation Irlr
(U}
(ii) The The acreage
acreage measured
measured by by aa measuring
measuring subsequent
subsequent crop crop years substantiating
substantiating your report report o
service, other
service, other than than our our on-farmon-farm acreage
acreage for for those
those crop crop years,
years, including,
including, but but no
measurement,
measurement, and andFSA, FSA, the the FSA FSA limited to, an an acreage
acreage measurement
measurement service at you
measurement will be used; and own expense.
expense. If If the
the correction
correction of ofanyanymisreporter
misreportec
(6) IfIf the
(6) the acreage
acreage report report hashas been been revised
revised in In information would
information would affect affect an an indemnity,
Indemnity, preventecpreventec
accordance with
section 7(d)(1),
7(d)(1), (2), (4), or (5),
(2), (4), planting payment
payment or replant payment that was paid paid ir it
the information
Information on on the initial
initial acreage
acreage report will a prior
prior crop
crop year,
year, suchsuch claim claim will
will be
beadjusted
adjustedand and yor.
yol
not be be considered
considered misreported
mlsreported for the purposes purposes will be required
required to repay any overpaid amounts.
of section 7(g). (I) Errors
Errors in in reporting
reporting units units may may be be corrected
corrected by byus usat at the
thE
(e) We
(e) We may may elect elect to to determine
determine all all premiums
premiums and and time of of adjusting
adjusting a loss loss to to reduce
reduce our our liability
liability and
and tc tc
indemnities based
indemnities based on information you
on the information you submit on conform to to applicable
applicable unit division guidelines.
the acreage report or upon the the factual
factual circumstances
circumstances Premium and Administrative Fees
8. Annual Premium
we determine
we determine to to have have existed,
existed, subjectsubject to to thethe (a) The annual annual premium
premium is earned eamed and and payable
payable at the
at the
provisions contained In in section 7(g). time coverage
time coverage begins. begins. You You will
will be billedbilled for for thethe
(f) IfIf you do
(f) do notnot submit an acreage report by the acreage administrative fee not earlier
premium and administrative earlier thanthan the the
reporting date, or If if you fall to report all units, we may premium
premium bWing billing date date specified
specified in in thethe Specie
Specia
elect to determine by unit the insurable crop acreage, Provisions.
share,
share, type and practice, practice, or to deny liability on such such administrative fees
(b) Premium or administrative fees owed by you you willwill bebE
units. If If we deny
deny liability
JiabUity for the unreported units, your offset
offset from from an an indemnity
Indemnity ororprevented prevented plantinc plantin~
share of of any production from the unreported units will payment due
payment due you in In accordance with with section 3(e). 3(e).
allocated, for loss
be allocated, loss purposes only, as production to (c) Your annual premium amount is Is determined by:
count to the reportedreported units in In proportion to the liability (1) Multiplying
Multiplying the the Approved
Approved Yield Yield times times the the
each reported
on each reported unit. However,However, such production production will Coverage Level, times the Base
Coverage Base Premium
Premium Rate Rate,
not be be allocated
allocated to to prevented
prevented planting
planting acreage
acreage or and
and timestimes the the Base Base PricePrice as as defined
defined in in the
the
otherwise affect any prevented planting payment. Commodity Exchange Endorsement;
(g) You
(g) You must must provide
provide all requiredrequired reports
reports and and you you areare Multiplying the
(2) Multiplying Approved Yield
the Approved Yield times times the the
responsible for
responsible for the accuracy of all
the accuracy all information
Information Coverage Level, times the CRC CRC Base Base Rate,
Rate, and
contained
contained In those reports.
in those reports. You You shouldshould verify
verify thethe times the CRC Low Price Price Factor
Factor specified
specified in the
information
information on on all
all suchsuch reports
reports priorprior to to submitting
submitting actuarial documents;
them to us. Multiplying the
(3) Multiplying Approved Yield
the Approved Yield times times the the
(1} ifIfyou
(1) yousubmit
submitinformation
information on any report report thatthat is Coverage
Coverage Level, Level, times limes the Base Base Premium
Premium Rate, Rate,
different than
different than what
what is determined
determined to be be correct
correct and times the CRC High Price Factor Factor specified
specified in
and such Information results in: In: the actuarial documents;
(I) AAlower
(I) lowerliability
liability thanthan the theactual
actual liability
liability (4) Adding sections 8(c)(1), (2), and (3);
determined,
determined, the the Final Guarantee
Guarantee on on the unit (5) Multiplying the result of section
(5) section 8(c)(4)
8(c)(4) times
times the
will be reduced to an amount consistent with Acres
Acres Insured,
insured, times times your Share at the
your Share the time
time
the reported Information
the reported information (In (In the event the
the event the coverage begins,
coverage begins, and as applicable, applicable, times times any any
Insurable
insurable acreage
acreage Is under-reported for any
is under-reported CRC
CRC Unit Unit Option
Option Factor; Factor; YieldY~eldAdjustment
Adjustment
unit, all production
unit, production or or value
value from from Insurable
Insurable Surcharge; and/or and/or CRC Enterprise Option Factor, Factor;
acreage in
acreage that unit
in that unit will will be beconsidered
considered (6) Multiplying the result result of section 8(c)(5) 8(c)(5) times the
production
production or or value
value to count
count in In determining
determining applicable producer
applicable producer subsidy subsidy percentage
percentage to to
the Indemnity);
indemnity); or calculate the appropriate amount of subsidy. subsidy. The
(II) AA higher
(ii) higher liability
liability than
than the the actual
actual liability
liability producer subsidy percentage percentage is based upon upon the
determined, the information contained
determined, contained In in the coverage
coverage level level and is contained contained in in the
the actuarial
actuarial
) acreage
acreage report report will will be be revised to to be be documents; and
consistent with the correct Information. information. (7) Subtracting section 8(c)(6)
(7) B(c)(6) from section 8(c)(5). B(c)(5).
C 2004 National Crop Insurance Services, Inc.

(9 Page 11 of 26
35
- (d) The information
information needed needed to determine determine the the premium
premium grain sorghum
if grain sorghum had already already been been planted
planted ano ano
rate andand any premiumpremium adjustmentadjustment percentages that that harvested on the same
harvested same acreageacreage during
during the the crop
crop
may apply are are contained
contained in In the
theactuarial
actuarial documents
documents year);
year):
or an approved written written agreement.
agreement. (5) That
(5) That isis planted for for the
the development
developmentor orproduction
production
(e) inInaddition
additionto tothe
the premium
premium charged: charged: of hybrid
hybrid seed seed or orfor forexperimental
experimentalpurposes, purposes,
(1) You,You,unless
unless otherwise
otherwise authorized authorized In in 77 CFR part part pennitted by the Crop Provisions; or
unless permitted
400, mustmust pay pay an an administrative
administrative fee each each crop crop (6) ThatThat Is Is used
used solely
solely for forwildlife
wildlife protection
protection or or
year of $30 per per crop per per county. management. If the the lease
lease states
statesthat thatspecific
specific
(2) TheTheadministrative
administrative fee feemustmust be be paid
paid no no later
later than acreage
acreage must must remain
remain unharvested,
unharvested, only only that
that
the time that premium is due. acreage is Is uninsurable. If If the
the lease specifies that
leasespecifies
(3) Payment
Payment of of an an administrative
administrative fee fee will
will not
not be be a
a percentage
percentage of of the the crop crop must must be be leftleft
required
required ifif you you file file a bona bona fide fide zero
zero acreage
acreage unharvested, your share will be reduced
unharvested. reduced by by such
such
report on or before the acreage reporting reporting date dale for percentage.
the crop.
crop. If you falsely file file a zero acreage
acreage report,
report, Although certain
(c) Although certain policy documents may
pollcy documents may state that that a
you may be be subject
subject to to criminal and and administrative
administrative crop type, class, variety or or practice
practice is Is not
not insurable,
Insurable, it It
sanctions. does not mean mean all all other
other crop types, classes,
crop types, classes, varieties
varieties
(4) The
(4) The administrative
administrative fee fee willwill be waived if
be waived If you
you or practices
practices are insurable..
Insurable. To To be insurable
insurable the crop crop
request itIt and:
request type, class,
type, class, variety
variety or practice must
or practice must meet meet all all the
the
(i)
(I) You qualify as a limited resource farmer; farmer, or conditions in In this section.
(II) You were Insured
(ii) insured prior to to the
the 2005
2005 crop year 10. Insurable
Insurable Acreage
Acreage
or for
or for the the 2005 2005 crop crop year year and and your your Acreage planted
(a) Acreage planted to to the
the insured
Insured crop crop in In which
which you you
administrative
administrative fee feewas was waived
waived for for oneone or or have
have aa share
share is Is insurable except acreage:
more of those
more those crop crop years
years because
because you you (1) Thal
That has hasnot notbeenbeenplantedplanted and andharvested
harvested or or
qualified
qualified as as a limited
limited resource
resource farmer under under insured (including
insured (Including Insured insured acreageacreage that that was was
a policy
policy definition
definition previously
previously In in effect,
effect, and and prevented
prevented from from being
being planted)
planted) In in at least one of
you remain qualified
you remain qualified as aa limited limited resource
resource the three
the three previous
previous crop crop years unless unless you you cancan
farmer under the definition definition thatthat was in In effect show that:
at thethe time time the theadministrative
administrative fee fee was was Suchacreage
(I) Such acreagewas wasnot notplanted:
planted:
waived. (A) In at least least two
two of of the
the previous
previous three three crop
Failureto
(5) Failure topay paythe theadministrative
administrative fees when when due years to comply
years comply with with any other other USDA USDA
may make make you you ineligible
ineligible for for certain
certain other USDA program;
benefits. Because of
(B) Because
(B) of crop rotation (e.g., corn,
crop rotation com,
(f) IfIfthe
(f) theamountamountofofpremium premium(gross (grosspremium
premium less less soybeans,
soybeans, alfalfa; alfalfa; and and the the alfalfaalfalfa
premium subsidy
premium subsidypaid paidon on youryour behalf
behalf by by FCIC)
FCIC) and and remained
remained for for four four years before before the the
administrative fee
administrative feeyou you are required to
are required to pay
pay for any any acreage was
acreage was planted
planted to to corn
com again);
again); or
acreage
acreage exceeds exceeds the the liability
liability for for the the acreage,
acreage, (C) Because a perennial perennial tree, tree, vine,
vine, or or bush
bush
coverage for
coverage for those
those acres acres will will not be be provided
provided (no (no crop was grown on on the acreage;
premium or
premium administrative fee
or administrative feewiUwillbe be due
due and and no no (il) The Crop
(II) Crop Provisions
Provisions or a written written agreement
agreement
indemnity
Indemnity will will be
be paid
paid for for such
such acreage).
acreage). specifically allow
specifically Insurance for
allow insurance for such such
9. Insured
InsuredCrop Crop acreage; or
(a) TheTheinsured
insuredcrop cropwill will bebethat thatshown
shown on on your
your accepted
accepted (iii)
(Iii) Such
Suchacreage
acreageconstitutes
constitutesfive five percent
percent or or less
less
application and as specified in the Crop Provisions
application Provisions or of the Insured
insured planted acreage acreage in In the
the unit;
unit;
Special
Special Provisions
Provisions and and must must be grown grown on on insurable
insurable Thathas
(2) That hasbeen beenstrip-mined,
strip-mined,unless unlessotherwise otherwise
acreage. approved by
approved written agreement,
by written agreement, or unless unless an an
(b) AAcropcropwhichwhichwillwill NOT
NOTbe beinsured
Insuredwill willinclude,
include, but but will
will agricultural
commodity other other than
than aa cover, hay, or
not be limited
limited to, any crop: forage crop
forage crop (except
(except corn com silage),
silage), has has been been
(1) That is is not grown
grown on on planted acreage (except for harvested from from the acreage for for atat least
least five five crop
crop
the purposes of prevented planting coverage), or years after strip·mlned land was reclaimed;
after the strip-mined reclaimed;
that Is
that is aa type,
type, classclass or or variety
variety or or where
where the (3) ForForwhich
whichthe theactuarial
actuarialdocuments
documentsdo donot notprovide
provide
conditions under which which the crop is planted
the crop planted are are the
the information
Information necessary
necessary to to determine
determine the the
not
not generally
generally recognizedrecognizedfor for thethe area
area (For (For premium rate,
premium insurance is
unless Insurance
rate, unless allowed by
is allowed by a
example,
example, where where agricultural
agricultural experts experts determine
determine written agreement;
written
that planting
that planting a non-irrigated
non-Irrigated com corn crop crop after
after a (4) OnOnwhichwhichthe theinsured
insured crop crop is Is damaged
damaged and and itIt is
Is
failed
failed small grain crop
small grain crop on on thethe same
same acreage in In practical to
practical replant the
to replant Insured crop,
the insured crop, but but the
the
the same crop
the same crop yearyear is Is not
notappropriate
appropriate for for the
the Insured crop Is
insured is not replanted;
area); (5 ) That
(5) Thatisisinterplanted,
lnterplanted, unless unless allowed
allowed by by the the Crop
Crop
(2) ForFor which which the the information
Information necessary necessary for for Provisions;
Insurance
Insurance (premium(premium rate, rate, etc.) is Is not
not Included
included in In (6) That
(6) That is Is otherwise
otherwise restrictedrestricted by by the the Crop Crop
the actuarial
actuarial documents,
documents, unless unless suchsuch information
Information Provisions or Special Provisions;
is provided by a written written agreement;
agreement; (7)) That
(7 That IsIsplanted
planted in In any
any mannermanner other other than than as as
(3) That
That is Is aa volunteer
volunteer crop; specified in In the policy provisions for the crop;
(4) Planted following the
Planted following the samesame crop crop on on the same same (8) OfOfaasecond
secondcrop, crop,ififyouyouelect electnotnotto insure such
to insure
acreage and
acreage and the first planting of
first planting of the cropcrop has has acreage when
acreage when an indemnity for
an indemnity for a firstfirst insured
Insured
been
been harvested
harvested in in the
the same same crop crop yearyear unless
unless crop may be be subject
subject to to reduction
reduction in in accordance
accordance
specifically permitted by
specifically permitted by thethe Crop Provisions
Provisions or with
with the provisions
provisions of of section
section 16 and you you intend
intend
the Special Provisions
Provisions (For (For example, the second second collect an indemnity
to collect Indemnity paymentpayment that that Is equal to
is equal
planting of grain sorghum would
grain sorghum would not be Insurable 100 percent
100 percent of the the insurable
insurable loss loss for for the first
the first
tO 2004 National Crop

2004 National Crop Insurance
Insurance Services, Inc. 12 of
Page 12 of26
26
36
Insured
Insured crop crop acreage.
acreage. This This election
election must must be be the reasonable
reasonable expectation
expectation of ofreceiving
recetvmgadequate adequate
made on
made on a first first insured
Insured crop crop unitunit basis.
basis. For For water at the time
at the time coverage
coverage begins,
begins,to tocarry
carryout outaa gooc
example,
example, if the first insured ctop crop unit contains 40 irrigation practice. If you knew or or hadhad reason
reason to knov. knox
planted
planted acres acresthat that may may be be subject
subject to to an an that your
that your water
water may may be bereduced
reducedbefore beforecoveragecoverage
indemnity reduction,
reduction, then then no second crop can be begins, no no reasonable expectation exists.
insured
Insured on any of the 40 acres. In this case: (c) Notwithstanding
(c) Notwithstanding the the provisions
provisions in in section 9{b)(2), ri
section 9(b)(2),
(i) If
(i) If the
the first
first insured
insured crop is is insured
Insured under under this acreage is is irrigated
Irrigated and and wewe do do not provide aa premium
notprovide premlurr
policy, you must provide written notice to us rate for for an
an irrigated
irrigated practice,
practice, you you may mayeither either report
repon
of your
your election
election not to insure Insure acreage
acreage of a and insure the the irrigated
irrigated acreage
acreage as "non-irrigated.~ of
as 'non-irrigated," ot
second crop at the time the first insured Insured crop report the irrigated
report Irrigated acreage as not insured. Insured.
acreage
acreage Is is released
released by by us {if (if no acreage
acreage in In (d) We may restrict restrict the amount amount of of acreage
acreage that that we we will
wil
the first insured
the Insured crop crop unit is Is released,
released, this this insure
Insure to the amount
to the amount allowedallowed under under any anyacreage
acreage
election must be made by
election by the earlier
earlier of the limitation program
limitation program established
established by by thethe USDA USDA If we
if we
acreage reporting date
acreage reporting date for the second second crop crop notify you of of that
that restriction
restriction prior
prfor to to the
the sales
sales closing
closing
or
or when you sign the claim for indemnity Indemnity for date.
the first insured
Insured crop) crop) or, or, if the first insured
the first Insured Share Insured
11. Share Insured
crop
crop is Is insured
Insured under under the the Group Group Risk Risk (a) Insurance
Insurancewill will attach
attach onlyonly toto the
theshare
share of ofthethe person
person
Protection
Protection Plan Plan of Insurance (7
of Insurance (7 CFR
CFR part part appfteation and will
completing the application wUI not not extend
extend to to any
any
407), this election
407), election must be made before the other person
person havinghaving a share share In in the
the crop crop unless
unless the the
second
second crop crop insured
insured under under this this policy
policy is Is application clearly states that:
planted,
planted,and and ifif you
you fail fail toto provide
provide such such (1) The insurance
insurance Is is requested for for an an entity
entity such
such as
notice,
notice, the second crop
the second acreage will
crop acreage will bebe a partnership or a joint venture; or
Insured in
insured In accordance
accordance with with the the applicable
applicable (2) You as as landlord will insure insure youryourtenant's
tenanrs share, share, or
policy provisions
policy provisions and and you you must repay repay any you as tenant will insure insure youryour landlord's
landlord's share. share. In in
overpaid Indemnity
indemnity for the the first Insured
insured crop; this event,
this event, you you mustmust provide
provide evidenceevidence of the the
(ii)
(li) In the the event
event a a second
second crop crop is is planted
planted and and other party's approvalapproval (lease,
(lease, power power of of attorney,
attorney,
insured
insured with with aa different
different insurance
Insurance provider,
provider, etc.). Such evidence
evidence will be retained retained by us. us. You
or planted and insured by a different person, also must
must clearly
clearly setset forth
forth the
the percentage
percentage shares shares
you must
you must provideprovide written
written noticenotice to to each
each each person
of each person on on the
the acreage
acreage report. report. For For each
insurance
insurance provider provider that that aa second
second crop was was landlord or tenant that that isis an
an Individual,
Individual, you you must
planted on acreage acreage on which you had a first
on which report the landlord's
landlord's or or tenant's
tenant's social social security
security
insured crop; and number. For
number. For eacheach landlord
landlord or tenant tenant that that is is a
(Iii) You
(iii) You must must reportreport thethe crop acreageacreage that will person
person other other than than an an individual
Individual or or for
for a trusttrust
not be be insured
Insured on on thethe applicable
applicable acreage acreage administered by the Bureau Bureau of of Indian
Indian Affairs,
Affairs, you
) report; or must report
must report each each landlord's
landlord's or or tenant's
tenanrs social social
(9) Of Ofaacrop cropplanted
planted following
following a a second
second crop crop or or security number, employer employer identification
Identification number, number,
following
following an insured insured crop crop that is Is prevented
prevented from from or other
other identification
Identification number number assigned assigned for for the
being plantedplanted after Insured crop, unless it
after aa first insured purposes of this policy.
Is aa practice
practice that that isisgenerally
recognized by by {b) We
(b) Wemay mayconsider
considerany anyacreage
acreageor orinterest
interestreported
reported by
agricultural experts
agricultural experts or or the
the organic
organic agricultural
agricultural or forfor your
your spouse,
spouse, child child or or any
any membermember of of your
your
industry for the area to plant three or more crops household to
household to be included in your your share.
for
for harvest
harvest on on the same same acreage
acreage in the the same
same Acreage rented
(c) Acreage rented for for aa percentage
percentage of the crop, or a
the crop,
crop year,
crop year, and and additional
additional coverage
coverage insuranceinsurance lease containing
containing provisions
provisions for for BOTHBOTH a minimum
provided under the the authority
authority of the Act is offered offered payment (such
payment (such as as aa specified
specified amount amount of of cash,
cash,
for the third or subsequent crop in the same crop bushels, pounds,
bushels, pounds, etc.) AND AND aa crop crop share share willwill be be
year. Insurance will only be provided for a third or considered a crop share lease.
subsequent crop as follows: (d) Acreage
(d) Acreage rented rented for for cash,
cash, or or aalease leasecontaining
containing
(I) You
(i) Youmust mustprovide
providerecordsrecords acceptable
acceptable to us provisions for EITHER a minimum
provisions minimum payment payment OR a
that
that show: crop share (such
crop (such as aa 50/50 50/50 shareshare or $100.00 per
or $100.00
(A) You
(A) You have produced produced and harvested harvested the acre, whichever is greater) greater) willwill be
be considered
considered a cash
insured
Insured crop crop following
following two other other crops
crops lease.
harvested on
harvested on thethe same acreage In
same acreage the
in the 12. Insurance
Insurance Period Period
same crop year In in at least two of the last (a) Except
Exceptfor forprevented
preventedplanting planting coverage
coverage (see (see section
section
four
four years
years in which which you you produced
produced the the 1B), coverage begins on each unit or part of a unit at
18),
Insured crop; or
insured the later
later of:
(B) The applicable acreage has had three or
(B) (1)
{1) The date date we we accept
accept youryour application
application (For (For the the
more crops produced and harvested harvested on purposesof
purposes of this
this paragraph,
paragraph, the the datedate of of
it In at least two of the last four years in acceptance is the date date that
that you
you submit
submit aa properly
which the insured
which insured crop crop was grown on it; executed application in accordance
executed application accordance with wHh section
section
and 3);
(ii)
(II) TheThe amount amount of of insurable
Insurable acreageacreage will will not
not {2) The date the insured crop is planted; or
(2)
exceed
exceed 100 100 percent
percent of the the greatest
greatest numbernumber (3) The The calendar
calendar date date contained
contained in in thethe Crop Crop
acres for
of acres for which
which you you provide
provide the the records
records Provisions for
Provisions for thethe beginning
beginning of of thethe insurance
Insurance
required in section 1 10(a)(9)(i)(A)
O(a)(9)(1)(A) or (B). period.
(b) IfIfinsurance
InsuranceisIsprovided provided for for anan irrigated
irrigated practice,
practice, you Coverageends
(b) Coverage endsat atthe
the earliest
earliest of:
report as
must report as irrigated
Irrigated only that acreage acreage for which which (1) Total destruction of
(1) of the
the insured
insured crop crop on on the
the unit;
you have
have adequate
adequate facilitiesfacilities and adequate water, water, or (2) Harvest of the unit;
(2) unH;
C 2004
ID 2004 National Crop Insurance Services, Inc. Page 13 of26
of 26
37
•' (3)
(3) Final
Final adjustment of of a loss
Joss on a unit; (2) Initially planted prior to to the
the earliest
earliestplanting
planting datedate
(4) The
(4) calendar date
The calendar contained In
date contained in thethe Crop
Crop established by the Special Provisions; or
Provisions for the end of the insurance period; (3) On whichwhich one one replanting
replanting payment
payment has hasalready
already
(5) Abandonment of the crop on the unit; or
(5) been allowed for the crop year.
(6) As otherwise
(6) otheJWise specified In in the Crop Provisions. (c) The replanting
replanting paymentpayment per acre will be be your
your actual
actual
f 3. Causes
'3. Causes of Loss
of Loss cost forfor replanting,
replanting, but will will not
not exceed
exceed the theamount
amount
The insurance
insurance provided
provided Is is against
against only only unavoidable
unavoidable loss Joss determined in In accordance
accordance with the the Crop
Crop Provisions.
Provisions.
directly caused by specific causes of loss contained in In the replanting payment will be paid ifIf we
(d) No replanting detennlne it
we determine
Crop Provisions. All
Crop Provisions. specified causes
All specified causes of loss, Joss, except
except is
Is not
not practical to replant.
where
where the the Crop
Crop Provisions
Provisions specifically
specifically cover cover loss of
loss of Duties in
15. Duties InthetheEvent
Eventof ofDamage,
Damage,Loss, Loss,Abandonment,
Abandonment,
revenue due to a reduced reduced price in In the
the marketplace,
marketplace, must Destruction,
Destruction, or or Alternative
Alternative Use Use of of Crop
Crop or or Acreage.
Acreage.
be due to a naturally occurring event. All other causes of Your Duties -
loss, including
loss, Including but limited to the following,
but not limited following, are NOT NOT (a) InIncase
caseofofdamage
damageto toany
any Insured
Insured crop you must: must
covered: (1) Protect
(1) Protect the the crop crop fromfrom furtherfurther damage
damage by by
(a) Negligence, mismanagement, or
Negligence, mismanagement, or wrongdoing
wrongdoing by you, providing sufficient care;
any
any member
member of your your family
family or orhousehold,
household, your your (2) Give
Give us us notice
notice within
within 72 72 hours
hours of of youryour initial
Initial
tenants, or employees; discovery of damage
discovery damage (but not later than 15 days
(b)
(b) Failure
Failure to follow
follow recognized
recognized good good farming
farming practices
practices after the end of of the
the insurance period), by by unit, for
for the Insured
for insured crop; Insured crop;
each insured
(c) Water that is contained by or within structures that are
(c) (3) ifIfrepresentative
(3) representative samples samples are required required by the the
designed
designed to contain a specific amount of water, such such Provisions, leave
Crop Provisions, leave representative
representative samples samples
as dams,
as dams, locks
locks or or reservoir
reservoir projects,
projects, etc.,etc.. on any any intact
Intact of the the unharvested
unharvested crop crop ifif you you report
report
acreage when
acreage when such
such water stays within within the designed
designed damage
damage less less than
than 15 days before before the time time you
limits example, a dam
limits (For example, dam is designed
designed to contain begin harvest or during during harvest
harvest of of the
the damaged
damaged
water to an elevation
water elevation of 1,200 1,200 feet feet but you plant a unit (The
(The samples
samples must must be be left
left intact
Intact until
until we
we
crop on acreage at an elevation of 1,100 1,1 00 feet. A storm Inspect them or
inspect or until
until 15
15 days
days after completion of
after completion
causes
causes the the water
water behind
behindthe thedamdamto to rise
rise to
to an
an harvest on the the unit,
unit, whichever
whichever is Is earlier.
earlier. Unless
Unless
elevation
elevation of 1,2001,200 feet.
feet. Under
Under such such circumstances,
circumstances, otheJWise specified
otherwise specified In in the Crop Crop Provisions
Provisions or
the resulting
the resulting damage
damage would would not not bebe caused
caused by an
by an Special
Special Provisions,
Provisions, the the samples
samples of of the
the crop
crop in In
insurable
insurable causecause of loss.
loss. However,
However, if you planted planted on each field
each field in the unit must must be be 1010 feet
feet wide
wide andand
acreage
acreage that that was
was above
above 1,200 1,200 feetfeet elevation,
elevation, any any extend the entire length of the row, ifif the the crop
crop isIs
damage caused by water that that exceeded that elevation planted in
planted in rows,
rows, or or if the crop is Is not
not planted
planted in
would be caused by an insurable cause of loss); rows, the
rows, the longest dimension of
longest dimension field. The
the field.
of the The
(d)
(d) Failure
Failure or breakdown
breakdown of the the irrigation
Irrigation equipment
equipment or period to retain retain representative
representative samples samples may be
facilities unless
facilities unless the
the failure
failure or or breakdown
breakdown is is due
due to a extended ifif itit isIsnecessary
extended necessary totoaccurately accurately
) cause of loss
cause Joss specified
specified in In the
the Crop
Crop Provisions
Provisions (If determine
detennlne the Joss. loss. You will be notified notified in in writing
writing
damage is due to an insured
damage Insured cause,
cause, you must make make of any such extension); and
all reasonable
reasonable efforts
efforts to restore
restore the the equipment
equipment or (4) Cooperate
(4) Cooperate with with us us in in thetheinvestigation
investigation or or
facilities to proper working order within a reasonable
facilities reasonable settlement
settlement of of the
the claim,
claim, and, and, as as often
often as as wewe
amount of time unless we determine ills it is not practical reasonably require:
to do
to do so. Cost Cost willwill not
not be beconsidered
considered when when Showus
(I) Show usthe
thedamaged
damaged crop;
determining
determining whetherwhetheritft is is practical
practical to to restore
restore thethe (li) Allow
(ii) Allow us to remove remove samples of of the
the insured
insured
equipment or facilities);
equipment crop; and
(e) Failure to carry out aa good
cany out good irrigation
irrigation practice
practice for the (iii) Provide
(iii) Provide us with records records and and documents
documents we
insured crop, ifIf applicable; or request and permit us to to make
make copies; and
(f) Any cause
(f) cause of loss that results in damage damage that is not Giveus
(5) Give usnotice
noticeofofyour yourexpected
expectedrevenuerevenue loss loss not
evident or would
evident would notnot have
have beenbeen evident
evident duringduring the later than
later than 45 45 days
days after
after thethe date
date thethe Harvest
Harvest
insurance period, including,
Including, but not limited to, damage Price Is is released.
that only
that only becomes
becomes evidentevidentafter after thethe endend of the
of the (b) YouYoumust
mustobtain
obtainconsent
consentfrom from us us before,
before, andand notify
notify us
insurance
insurance period unless unless expressly
expressly authorized
authorized in the after you:
Provisions. Even
Crop Provisions. Even though we may not Inspect the Destroy any
(1) Destroy any of the insured
of the insured crop crop thatthat is not not
damaged
damaged crop crop until
until after
after the
the endend of of thethe insurance
insurance harvested;
period,
period, damage
damage due due to insured
insured causescauses that that would
would (2) Put the Insured
(2) insured crop to an alternative use;
have been evident during the insurance period will be (3) PutPut the acreage to another use; or
covered. (4) Abandon any portion of the insured Insured crop. We will
14. Replanting
Replanting Payment
Payment not
not give consent for any of of the
the actions in sections
(a) If allowed
(a) allowed byby the
theCrop
CropProvisions,
Provisions, aa replanting
replanting through (4) if it is practical to
15(b)(1) through to replant
replant the
payment may be made on an an insured
Insured crop replanted
replanted crop
crop or until until we have have made made an an appraisal
appraisal of the
after we
after we have
have given
given consent
consent andand thethe acreage
acreage potential production of the crop.
replanted Isis at
replanted at least
least the lesser of
the lesser of 20 acres or 20
20 acres 20 (c) InInaddition
additiontotocomplying
complyingwith withthe the notice
noticerequirements,
requirements,
of the insured planted acreage for the unit (as
percent of you must submit aa claim claim for for indemnity
Indemnity declaring
declaring the
determined on the final planting date or within the late amount of
amount of your loss not later than 60 days days afterafter the
If a late planting period Is
planting period If is applicable). Harvest Price
Harvest Price Is released unless
is released unless you you request
request an
(b)
(b) No replanting payment will be made on acreage: extension in writing and we agree to
extension to such
such extension.
extension.
(1) On which
(1) On which our ourappraisal establishes that
appraisalestablishes Extensions will
Extensions will only
only be granted if the amount
be granted amount of the
) production will exceed
production will exceed thethe level
level set by the Crop cannot be determined
loss cannot determined within within suchsuch timetime period
period
Provisions; because
because the the information
lnfonnation needed needed to determine
determine the
~
© 2004 National Crop Insurance Services, Inc. Page 14 of 26
Page14of26
38
amount
amount of of the
the loss
loss is Is not
not available.
available. The claim claim for for indemnity or
indemnity or other payment is is due,
due, you you willwill sti
sti
indemnity must
indemnity include all information
must include information we require to
we require be required
required to pay pay thethe premium
premium due due underunder th
settle
settle the claim.
claim. Failure to submit submit a claim claim or or provide
provide policy for the unit);unit); and
required information
the required information will result In
will result no indemnity,
in no indemnity, (2)
(2) Failure
Failuretotocomply
complywith withother
othersections
sectionsof ofthe
the polic
pollc
prevented planting payment or replant
planting payment replant payment (Even will
will subject you to the the consequences
consequences specified specified i
though no indemnity or other payment is due, you
though you will those sections.
still be
still be required
required to to pay the the premium
premium due under under the the Duties--
Our Duties
policy for the unit). (a) If Ifyou
youhave
havecomplied
compliedwith withallallthe
thepolicy
policyprovisions,
provisions, w W•
(d) YouYoumust:must: will pay your loss within within 30 after the
30 days after the later
laterof:of:
Provide aa complete
(1) Provide complete harvesting
harvesting and and marketing
marketing (1) We reach agreement
We reach agreement with with you;
record of each
record each insured
insured crop crop by by unit
unitincluding
Including (2) Completion
Completion of arbitration, reconsideration cc
arbitration, reconsideration
separate records
records showingshowing the same same information
information regarding good
determinations regarding good farming
farmingpractice:practice:
production from
for production from any any acreage not not insured.
insured. In or any other
other appeal
appeal thatthat results
results in In an award itII
an award
addition, Ifif you
addition, you Insure
insure any any acreage
acreage that may be your favor, unless we we exercise
exerciseour ourright right toto appee
appec
subject to an indemnity
Indemnity reductionreduction as specified
specified in In such decision;
section 16(e)(2)
section 16(e)(2) (for (for example,
example, you you planted
planted a Completion of
(3) Completion any investigation
of any investigation by USDA, USDA, i
second crop
second crop on acreage where
on acreage where aa firstfirst insured
Insured applicable, of your current
applicable, current or any past past claim
claim fo fa
crop had an an insurable
insurable loss loss and you you dodo notnot qualify
qualify indemnity if no evidenceevidence of ofwrongdoing
wrongdoing has has beer
beer
for the
for the double
double cropping
cropping exemption),
exemption), you you mustmust found (If any
found any evidence
evidence of ofwrongdoing
wrongdoing has has beer
beer
provide separate
separate recordsrecords of of production
production from such discovered, the
discovered, amount of
the amount of any anyindemnity
Indemnity
acreage for
acreage for ail all insured
Insured crops crops planted
planted on on the the prevented planting
prevented planting or replantreplant overpayment
overpayment as as 1I
acreage. For For example,
example, ifif you you have
have an an insurable
Insurable result of such wrongdoing may be be offset
offset fromfrom an~an'
loss on 10 acres acres of of wheat
wheat and and subsequently
subsequently plant Indemnity or prevented
indemnity prevented planting
planting payment
payment owed owed tr t1
cotton on
cotton on the
the same 10 10 acres,
acres, youyou must
must provide
provide you); or
records
records of the the wheat
wheat and andcotton
cotton production
production on (4) TheThe entryentry of aa final final judgment
judgment by by a court court o
the 10 acres separate
10 acres separate from from anyany other
other wheat and competent
competent jurisdiction.
jurisdiction.
cotton production
cotton productionthat thatmay may be planted In
be planted the
in the (b) InInthetheevent
eventwe weare areunable
unabletotopay payyour
yourloss losswithin
within 3( 3t
same unit.
same unit. IfIf you
you fail fall toto provide
provide suchsuch separate
separate days, we we will
will give
give you
younotice
noticeof ofour
ourintentions
Intentionswithir withir
records, we will allocate
records, allocate the the production
production of each the 30-day period.
crop to the the acreage
acreage inInproportion
proportion to to our
ourliability
liability (c) We
(c) Wemay maydeferdeferthe theadjustment
adjustment of of aaloss lossuntiluntil the
thE
for the acreage; and amount of loss can be accurately accurately determined.
determined. We wil
(2) Upon our request,request, or that of of any USDA employee not pay pay for foradditional
additional damage
damage resulting
resulting from from you you
authorized
authorized to conduct conduct investigations
Investigations of of the cropcrop provide sufficient
failure to provide sufficient care
care forforthe
thecrop cropduring
during the thE
insurance program,
insurance program, submit submit to to anan examination
examination deferral period.
under
under oath. (d) We
(d) We recognize
recognize and and applyapply the theloss lossadjustmen
adjustmen
(e) You
(a) You must mustestablish
establish the the total
total production
production or or value
value procedures established or approved approved by by FCIC.
received for the insured insured crop on the unit, that any loss loss Productionincluded
16. Production Included in InDetermining
Determiningan anindemnity
Indemnity anc anc
production or value occurred
of production occurred during during the insurance
Insurance Pa~ntReducUons
Payment Reductions
period, and that
period, that thethe loss
Joss of of production
production or value value was Thetotal
(a) The total production
production to to bebe counted
counted for for aa unit unit wil
wil
directly caused by one or more of
directly caused of the insured
Insured causes include all production
include determined In
production determined in accordance
accordancewitt wit
specified in In the Crop Provisions. the policy.
(f) InInthe
(f) theevent
eventyou youare areprevented
preventedfrom from planting
planting an Appraisedproduction
(b) Appraised production will will bebe used
usedto tocalculate
calculate your your
Insured crop which
insured which has preventedprevented planting
planting coverage, claim if you
claim you are
are not not going
going to to harvest
harvest your your acreage
acreage
you must notify notify us within
within 72 hours after: appraisals may
Such appraisals may be conducted
conducted after after the the endend 01 o
(1) The final final planting
planting date, date, If you do
if you do notnot intend
intend to the Insurance period. period. IfIf you
you harvest
harvest the the cropcrop after
after the
the
plant the
plant the insured
Insured crop crop during
during the the late
late planting
planting crop has been appraised:
period or
period or if If aa late lateplanting
planting periodperiod is is notnot (1) YouYou must must provide
provide us us withwith the the amount amount o' ol
applicable; or harvested production;
harvested production; and
determine you
(2) You determine you willwill notnot be able to plant plant the the (2} If the
(2) theharvested
harvested production
production exceeds exceeds the the
insured crop
insured crop within
within any applicable
applicable late late planting
planting appraised production,
appraised production, claims claims willwill be be adjusted
adjusted
period. using the harvested
using harvested production,
production, and you you will
will be
(g) Ail
(g) All notices
notices required
required in In this
this section
section that that mustmust be be required to repayrepay any any overpaid
overpaid indemnity;
indemnity; or
received by
received by us within 72
us within hours may
72 hours may be made by
be made by (3) If the the harvested
production is less than
is less than the the
telephone or in person person to your your crop crop insurance
insurance agent appraised production, and:
but must
but must be be confirmed
confirmed in in writing withinwithin 15 days. (I) You harvest
(i) harvest after
after thethe end
end of ofthe theinsurance
Insurance
(h) ItItisIsyour
yourduty dutyto toprove
prove you you have havecomplied
complied with with all period, your appraised
period, appraised production
production will will bebe
provisions of this policy. used to adjust the loss loss unless
unless you can can prove
prove
Failure to
(1) Failure to comply
comply with with the therequirements
requirements of of that
that no no additional
additional causescauses of loss or
of loss or
section 15(c) (Your
section (Your Duties)
Duties) will will result
result In denial of deterioration of
deterioration of the
the crop occurred
occurred after the
your claim for indemnity or prevented planting or end of the insurance period; or
replant payment for the acreage acreage for for which
which failure
failure (ii) You harvest
(ii) harvest before the end end of of the
the insurance
insurance
occurred. Failure
occurred. Failureto comply with
to comply with all all otherother period, your
period, your harvested
production will will be
requirements of of this section will will result In in denial
denial of used to adjust the loss.
your claim for for indemnity
Indemnity or prevented planting or (c) The
Theamount
amountofofan anindemnity
indemnitythat thatmay
maybe bedetermined
determined
) replant payment
replant payment for for thethe acreage
acreage for for which
which the the under
under the the applicable
applicable provisions
provisions of your policy may be
failure occurred, unless we still have the ability to reduced by an
reduced an amount,
amount, determined
determined in inaccordance
accordance
accurately adjust
accurately adjust the the lossloss (Even
(Even though
though no no with
with the Crop Crop Provisions
Provisions or or Special
Special Provisions,
Provisions. to
® 2004
2004 National
National Crop
Crop Insurance
Insurance Services, Inc.
inc. 15 of
Page 15 of26
26
39
•• reflect out-of-pocket
out.of-pocket expenses expenses that were not not incurred
incurred (f) The
(f) The reduction
reduction in in thethe amount
amount of of indemnity
indemnity or or
by you
by you as as aaresult
result of ofnot notplanting,
planting, caring caring for, for, oror planting payment and premium specified In
prevented planting in
harvesting the
harvesting crop. Indemnities
the crop. Indemnities paid paid for for acreage
acreage sections 16(d) and 16(e), 16(e),as asapplicable,
applicable,will will apply:
apply:
prevented
beingplanted
plantedwill willbe be based
based on on a (1) Notwithstanding the the priority
priority contained
contained in In the
the
reduced Final Guarantee as as provided
provided for for inIn the
the policy
policy Agreement
Agreement to Insure section,
to Insure section, which which states
states thatthat
and will not be further reduced to reflect expenses not the Crop Provisions have priority over over the the Basic
Basic
Incurred. Provisions when a conflict exists, to any any premium
Withrespect
(d) With respectto toacreage
acreage where where you you have have suffered
suffered an owed or Indemnity or prevented planting planting payment
payment
Insurable loss to planted acreage of your first insured
insurable Insured made in accordance
made accordance with the the CropCrop Provisions,
Provisions,
crop In
crop crop year,
in the crop year, except
except in In the
the case
case of of double
double and any applicable endorsement.
cropping described
described In in section
section 16(g): (2) Even If If another person plants plants the secondsecond crop crop on
(1) YouYou may elect elect to not not plant
plant or to to plant
plant and and not not acreage where
any acreage where the the first
first insured
Insured crop crop was was
insure
Insure a secondsecond crop crop on on the same same acreage
acreage for for planted or was prevented from being being planted,
planted, as
harvest In
harvest in the same crop
the same crop year year and and collect
collect an an applicable.
indemnity
Indemnity payment that Is equal to 1 00 percent of
100 (3) ForFor prevented planting only:
the insurable loss for the first insured crop; or (I) If Ifa avolunteer
volunteercrop cropor orcover
covercrop crop is Is hayed
hayed or
(2)
(2) You may elect to plant and insure Insure a second crop grazed from the same acreage, after after the late
on thethe same
same acreage
acreage for for harvest
harvest In In the
the same
same planting period
planting period (or (or after the the final
final planting
planting
crop year (you
crop (you will
will pay the full full premium
premium and, and, if If date ifif aa late
date late planting
planting period period is Is notnot
there
there is Is an
an insurable
Insurable loss to to the
the second
second crop, crop, applicable)
applicable) for for the
the first insured
Insured crop in in the
the
receive the full full amount of indemnityIndemnity that that may be same crop
same crop year,year, or or isIsotherwise
otherwise harvested
harvested
due for the the second
second crop,crop, regardless
regardless of of whether
whether anytime after the late planting period period (or (or after
there Is
there is a subsequent
subsequent crop crop planted
planted on on thethe same the final planting date if a late planting period
acreage) and: is not applicable); or
Is
Collect an
(i) Collect
(I) an Indemnity
Indemnity payment payment that that is is 3535 (II) IfIfyou
(ii) youreceive
receivecash cash rentrentfor foranyanyacreage
acreage on
percent of
percent the insurable
of the Insurable loss loss for the first
for the first which you were prevented from planting.
Insured crop;
insured (g) YouYoumay mayreceive
receive aa full tunindemnity,
indemnity, or or aa full
fuH prevented
prevented
(ii)
(II) BeBe responsible
responsible for forpremium
premiumthat that Is is 35 planting payment
planting paymentfor for aa first
first insured
insured crop crop whenwhen a a
percent of
percent the premium
of the premium that that you you would
would second crop
second crop is planted
planted on the same acreage acreage in in the
the
otherwise owe for for the
the first
first insured
Insured crop; and same crop
same crop year, regardless of
year, regardless whether or not the
of whether the
(iii) If the
(ill) the second
second crop crop does does not not suffer
suffer an an second crop is
second Insured or
Is insured or sustains an insurable loss, if
Insurable loss: each of of the following conditions are met: met
(A) Collect
Collect an an indemnity
indemnity payment payment for the the (1) It is Is aapractice
practice that that isIsgenerally
recognized by by
other
other 65 65 percent of insurable Insurable loss that that agricultural experts
agricultural experts or the the organic
organic agricultural
agricultural
was not previously
was previously paid paid underunder section
section industry
Industry for for the
the area to plant two or or more
more crops
crops
) 16(d)(2)(1); and for harvest in in the
the same
same crop year; year,
responsible for
(B) Be responsible remainder of the
for the remainder The second
(2) The second or or more
more crops crops are arecustomarily
customarily
premium
premium for for the firstfirst insured
Insured crop that that planted after after the first first insured
insured crop crop for for harvest on
you
you did did not not pay payunder undersection section the same acreage in In the same
same crop crop year in in the
the
16(d)(2)(ii). area;
Withrespect
(e) With respect to toacreage
acreage where where you you werewere prevented
prevented (3) Additional
(3) coverage insurance
Additional coverage Insurance offered under the
from planting
from planting the the first
first Insured
insured crop crop in the crop year, year, authority of
authority of the
the Act is Is available
avaNable In the county on
except
except in the the case
case of of double
double cropping
cropping described
described in the two or more crops that are double cropped;
section 16(g): (4)
(4) You provide records acceptable to us of of acreage
acreage
(1) If aa second
second crop crop Is Is not
not planted
planted on on thethe same
same and production
and production that that showshow you you have have doubledouble
acreage for harvest
acreage harvest In in the same same crop year, you cropped acreage
cropped acreage in in at least two of the the last
last four
four
may collect a preventedprevented planting payment that is crop
crop yearsyears in In which
which the the first
first insured
Insured crop crop was was
equal
equal to 100 100 percent
percent of of the
the prevented
prevented plantingplanting planted, or that show the the applicable acreage was
payment for the acreage for the first insured crop; double cropped
double cropped In in atat least
least twotwo of the last last four
four
or crop yearsyears in which the first first Insured
Insured crop crop waswas
(2) IfIf aa second
(2) second crop is Is planted
planted on the same acreage
the same acreage grown on It; it; and
for harvest
harvest In in the same crop year (you will pay pay (5) In the
(5) the case
case of ofprevented
prevented planting,planting, the the second
second
the full premium and, if If there is Is an insurable
insurable loss crop is Is not planted on or prior to the final planting
to the
the second
second crop, crop, receive
receive the full full amount
amount of date or, ifIf applicable,
applicable, prior prior to the end of the the late
indemnity
Indemnity that may be due due for for the
the second
second crop, crop, planting period for the first insured crop.
regardless of whether there is a subsequent subsequent crop crop Thereceipt
(h) The receipt of ofaafull fullindemnity
indemnityor orprevented
prevented plantingplanting
planted on the same acreage) and: payment on
payment both crops
on both crops that are are double
double croppedcropped is
(I) Provided
(i) Provided the the second
second crop crop Is is not planted on limited
limited to to the
the number
number of acres acres for for which
which you you can can
or before the final planting date dale or or during the demonstrate
demonstrate you you have double cropped
have double cropped or that have
planting period
late planting period (as applicable)
applicable) for the the been historically double
been historically double croppedcropped as specified in
as specified In
first
first insured
Insured crop, crop, you you may may collectcollect a a section 16(g).
prevented planting
prevented plantingpayment paymentthat that Is Is 35 35 (i) IfIfany
(i) any Federal or State State agency
agency requires
requires destruction
destruction of
percent
percent of the the prevented
prevented planting planting payment
payment any insured
Insured crop or or crop
crop production,
production, as as applicable,
applicable,
for the first insured crop; and because it contains
because contains levels levels of of aa substance,
substance, or or has
has a
(ii)
(II) Be responsible
responsible for for premium
premium that that is is 35 35 condition,
condition, that that Isis Injurious
injurious to to human
human or animal health health
) percent
percent of of the
the premium
premium that that you you would
would in
In excess
excess of of the
the maximum
maximum amounts amounts allowed allowed by by the
otherwise owe for the first Insured crop. Food and
Food and Drug Drug Administration,
Administration, other other public
public health
health
C
© 2004 National Crop Insurance Services, Inc. Page 16 of 26
16of26
40
••
organizations of the United States or an agency of the year for for the
the insured
insured crop crop in In thethe county
county
applicable State, you you must destroy the the insured crop or provided insurance
provided insurancehas has been been in in force
force
production, as
crop production, applicable, and
as applicable, and certify
certify that suchsuch continuously since since thatthat date.
date. Cancellation
Cancellation for fo1
insured crop or
insured or crop
crop production
production has been been destroyed
destroyed the purpose of transferring
the purpose transferring the policy to aa
the policy
prior to to receiving
receiving an an indemnity
indemnity payment.payment. FailureFailure to to different insurance
different Insurance provider provider for for the the
destroy
destroy the insured crop
the insured crop or crop crop production,
production, as as subsequent crop year year will
will not
not be be considerec
conslderec
applicable,
applicable,will will result
resultln in you having to repay
you having repay any any break in
a break in continuity
continuity for for the
the purpose
purpose of of the
the
indemnity
indemnitypaid paidand andyou you may may be subject to
be subject to preceding sentence;
administrative sanctions
administrative sanctions in In accordance
accordance with section section (2) You include
Include any any acreage
acreage of of the
the insured
Insured crop crop thatthai
515(h) of the Act and 7 CFR part 400, subpart R, A, and was prevented
was prevented from from beingbeing plantedplanted on on your yoUI
any applicable civil or criminal sanctions. acreage report; and
Planting
Late Planting
17. Late (3) You did not
(3) not plant
plant thethe insured
Insured crop crop duringduring or after
or after
limited by
Unless limited by the CropCrop Provisions,
Provisions, Insurance
insurance will will be the late
the late planting
planting period.
period. IfIf such such acreage acreage was was
provided for acreage planted to
acreage planted to the Insured
insured crop after the planted to
planted to the
the insured
insured crop crop during
during or or after
after thethe late
final planting date in accordance with the foftowing: following: planting period, Itit is
planting period, is covered
covered under under the the late fate
(a)
(a) The
The FinalFinal Guarantee
Guarantee for each acre
for each acre planted
planted to the the planting provisions.
insured crop
insured crop during
during the late planting
the late planting periodperiod will
will bebe (b) The
(b) The actuarial
actuarial documents
documents may may contain
contain additionaladditional
reduced by
reduced by 1 percent
percent per per day for each day planted planted levels of of prevented
prevented plantingplanting coverage
coverage that you you may may
after the final planting date.
after purchase for
purchase for the insured
Insured crop:
Acreageplanted
(b) Acreage plantedafter
afterthe
thelatelateplanting
planting periodperiod (or after purchase must be made on or
(1) Such purchase or before
before the
the final planting
planting date
date for crops
crops that
that do do not
not have
have a late sales closing date.
planting period) may be Insured insured as follows: (2) ifIf you
you do donotnotpurchase
purchase one one ofofthosethoseadditional
addHional
(1) The Final Anal Guarantee
Guarantee for for each
each acre planted as
acre planted levels by by the
the sales
sales closing
closing date,date, you you will will receive
receive
speclfl8d In
specified in this subsection will be determined detennined by the prevented planting coverage specified in the
multiplying the
multiplying Anal Guarantee
the Final Guarantee that is Is provided
provided Crop Provisions.
acreage of
for acreage the Insured
of the insured crop crop thatthat isis timely
timely (3) IfIf you havehave an MPCI MPCI Catastrophic
Catastrophic Risk Risk Protection
Protection
planted by the prevented planting coverage level Endorsement for any acreage acreage of "high •high risk risk land,"
land,"
percentage you
percentage you elected,
elected, or or that
that is contained
contained in In the additional
the additional levels levels of ofprevented
the Crop
the Crop Provisions
Provisions IfIf you you did did not elect aa
not elect coverage will
coverage will not be be available
available for for thatthat acreage;
acreage;
prevented planting coverage level percentage; and
Planting on
(2) Planting such acreage
on such acreage must must have have been been (4) You may not not increase
Increase your your elected
elected or or assigned
assigned
prevented by the final planting date (or during the preventing planting
preventing planting coverage
coverage level level for any any crop crop
late planting period, if applicable) by an insurable year ifif aa cause
cause of of loss
loss that
that will
will or orcould
could prevent
prevent
cause occurring
cause within the
occurring within insurance period for
the insurance for planting
planting Is is evident prior to the time you wish wish to
) prevented planting coverage; and change your
change your prevented
prevented plantingplanting coverage
coverage level.
production from
(3) All production from insured acreage as specified specified Thepremium
(c) The premiumamount amount for foracreage
acreage that that isisprevented
prevented
in this
this section
section will be includedIncluded as production
production to from being plantedplanted will be be the
the same as as thatthat forfor timely
timely
count for the unit. acreage except
planted acreage except as as specified
specified in section section 16(e).16(e).
Thepremium
(c) The premiumamount amountfor for insurable
insurable acreage
acreage specified
specified the amount
If the amount of of premium
premium you you are are required
required to to pay
pay
in this section will
this section will be
be thethe samesame as as that
that for
for timely
timely premium less our subsidy)
(gross premium subsidy) for acreage acreage that Is is
planted acreage.
planted acreage. IfIf the amount of premium
the amount premium you are are prevented from being planted exceeds the liability on
required
required to pay (gross premium premium less our subsidy) for acreage, coverage
such acreage, coverage for those acres
for those acres will not not be
such acreage exceeds the liability, coverage for those provided (no premium premium will be due due and and no noindemnity
indemnity
acres will
acres will not be provided
provided (no premium premium will be due, will be paid for such acreage).
and no indemnity will be paid). Droughtororfailure
(d) Drought failureofofthetheIrrigation
Irrigationwaterwater supply supply will will be
Anyacreage
(d) Any acreage on on which
which an insuredinsured causecause of loss Is is a considered to be an insurable
considered Insurable cause cause of loss loss for for the
material factor in In preventing completion of planting, as purposes of prevented
purposes prevented planting planting only only ifif on on the the final
final
specified In
specified definition of 'planted
in the definition acreage" (e.g.,
"planted acreage" planting datedate (or(or within
within the late late planting
planting period If if you
seed Is broadcast
broadcast on on the
the soli surface but cannot be
soil surface elect to
elect to try
try toto plant
plant the crop):
lnco1p0rated) will
incorporated) will be considered
considered as acreage planted planted (1) ForFor non-irrigated
non-Irrigated acreage, acreage,the the area area that that is is
after the final planting date and the Final Final Guarantee
Guarantee prevented from being planted has has insufficient
Insufficient soil
will be calculated in In accordance
accordance with section 17(b)(1). moisture
moisture for germination of
for germination seed or
of seed or progress
progress
Prevented Planting
18. Prevented toward crop maturity due due to aa prolonged
prolonged period period of
Unless limited
(a) Unless limited by by the
the policy
policy provisions,
provisions, aa prevented
prevented weather. Prolonged
dry weather. Prolonged precipitation
precipitation deficiencies
deficiencies
planting payment
planting payment may may be be made
made to you for
to you for eligible
eligible must be be verifiable
verifiable using using information
Information collected by
acreage if: sources whose business it Is record and study
is to record
(1) YouYou were were prevented
prevented from from planting
planting the the insured
insured weather, including,
the weather, including, but but not limitedlimited to, to, local
local
crop (Failure to plant when when other producers In in the weather
weather reporting
reporting stations stations of of the the National
National
area were planting
planting willwill result
result In in the denial of the Weather Service; or
prevented planting
prevented claim) by
planting claim) insured cause
by an insured cause Irrigated acreage,
(2) For Irrigated acreage, there there is Is not
not aa reasonable
reasonable
that occurs: expectation of having adequate water to carry out
(i) On or after after the sales closing date contained Irrigated practice. IfIf you knew or
an irrigated or had reason to
In the Special Provisions for the insured crop
in know that your water is reduced reduced before the final
In the county for the crop year the application
in planting date,
planting date, no no reasonable expectation existed.
Insurance Is accepted; or
for insurance Themaximum
(e) The maximum number number of of acres
acres thatthat may may be be eligible
eligible
(ii) For any
(ii) any subsequent
subsequent crop crop year,
year, on after
on or after prevented planting payment for any crop will
for a prevented will be
closing date
the sales closing previous crop
date for the previous detennlned
determined as follows:
C
© 2004 National Crop Insurance Services, Inc. Page 17of26
17 of 26
41
.. {1) The
(1) Thetotal totalnumber
number of acres eligible
ofacres eligible forfor prevented
prevented the eligible acres. If a processor
planting coverage for all crops cannot exceed the cancels or or does not provide
number
number of of acres
acres of croplandcropland in In your
your farming
fanning contracts, or reduces the contracted
operation
operation for for the the crop
crop year,year, unless
unless you you areare acreageor
acreage orproduction
production from what
eligible
eligible for for prevented
prevented planting planting coverage
coverage on on would have otherwise been allowed,
solely because the acreage was
double
double cropped cropped acreage acreage In accordance with
in accordance with
prevented from being planted due to
section 18(f){4).
section 18(f)(4). The The eUgible
eligible acresacres for each each an insured
Insured cause of loss, loss, we may
Insured crop
Insured crop will be be determined
determined in In accordance
accordance elect to detennlne
elect determine the nunber number of
with the foilowrno
th e following • table: acres eligible based on the number of
Type of Eligible acres If, In in any of the the 4 most Eligible acres it, In
If, in acres or
acres or amount
amount of of production you
Crop recent crop years, you have planted any of the 4 most had contracted
had contracted in In the county in In the
any crop In the county for which recent crop years, previous crop year. If If you did not
prevented planting Insurance insurance was you have not have aaprocessor
have processor contract in In place for
available or have received a any crop in
planted any In the previous crop year, year, you will not
prevented plantingplanting insurance
Insurance the county for have any
have eligible prevented planting
any eligible
guarantee. which prevented acreage for
acreage for the
the applicable processor
planting Insurance
insurance crop. The total eligible prevented
was available or planting acres In au all counties cannot
have not
have not received exceed the total to1a1 nunber
number of acres or
a prevented amooot of production contracted In
amount in all
aJ
planting Insurance counties In the previous crop year.
guarantee. (2) AnyAnyeligible
eligibleacreage
acreage determined
determined in in accordance
accordance
{I) The
(i) maximum number
The maximum
(A) The number of acres The number
(B) The number of contained In section 18(e)(1) will be
with the table contained
crop Isis not certified
certifiedforfor APHAPH purposes
purposes or or insured
lnstnd acres specified on reduced by subtractingsubtracting the number number of acres acres of
required acres reported
acres reported for Insurance
1nstnnce for the yoor
your Intended the crop (insured
(insured and uninsured) uninsured) that are timely timely
to be crop Inin any one of the 4 most recent acreage report report late planted,
planted, Including
Including acreage specified In
acreage specified
and late in
contracted crop years(not
cropyears (notincluding
Including reported which Is submitted
with a prevented planting acreage that was to us by the sales section 17(b).
processor plantedplantedtotoaasecond secondcrop crop unless
unless you you closing date for all (f)
(f) Regardless
Regardless of of thethe number number of of eligible
eligible acres acres
to be meet the
meet the double
double cropping
cropping Insure
crops you insure determined In
determined section 18(e),
in section 18(e), prevented
prevented planting
planting
Insured
insured requirements In
requirements in section
section18(1)(4)).
18(f)(4)). The
The for the crop year coverage will not be provided for any acreage:
number of acres determined detennlned above and that isIs Thatdoes
(1) That doesnot notconstitute
constitute at at least
least 2020 acres
acres or 20
for a crop may be increased Increased by accepted by us. percent of the insurable Insurable crop acreage in In the unit,
multiplying Itit by the the ratio of the total The total
The total number whichever Is
whichever less, and
is less, and any any prevented
prevented planting
planting
cropland acres that you are farming fanning of acres listed may acreage within
acreage within a field that
a field thatcontains
contains planted
planted
this year (It
this (if greater) to the total not exceed the
cropland acres that you fanned farmed In runber of acres of
in the number
acreage
acreage will will be considered
considered to be acreage acreage of the
same crop, crop, type,type, and practice that is Is planted
planted in In
) previous year, provided that you
submit proof to to us that for the the current
cropland in
current fanning
In your
yoiM'
farming operation the field except
the field except that that the theprevented
prevented planting
planting
crop year you have purchased ptxehased or at the time you
at acreage may
acreage may be considered
considered to acreage of a
to be acreage
addltionalland
leased additional land or thatthat acreage
acreage submit the crop, type, and practice other than that which which is
will be
will be released from from any any USDA Intended acreage planted in In the field If: if:
program which prohibits protllblls harvest of a report. The number nt.mber (I)
(i) TheTheacreage
acreagethat thatwas wasprevented
being
crop. Such acreage must have been of acres planted constitutes at
planted constitutes at least
least 2020 acres
acres or 20
purchased, leased, or released from determined above
tha USDA program,
the USDA program, in In time
time to plant itIt for a crop may may only
percent of the total insurable Insurable acreage In in the
for the cutn!flt
current crop year using good Increased by
be increased field and
field and you you produced
produced both both crops,
crops, crop crop
fanning
farming practices.
practices. No cause of loss multiplying It by the types, or followed both practices in In the same
that would
would prevent planting may be ratio of the total field in In the same crop year within any one of
evident at the time you lease the cropland acres that the four most recent crop years; or
acreage (except acreage you leesed leased you are farming fanning (ii)
(il) You
You were were prevented
planting a first first
the previous year and continue to this year (il
(If insured crop and you planted a second second crop
lease in
lease In the current crop year); you greater) to the In the
in the field
field (There
(There can can onlyonly bebe one one first
first
buy the acreage; the acreage is Is number of acres
number
from a USDA Insured crop
insured cropInin a a field
field unless
unless the the
released from USDA programprogram listed on your
which prohibits harvest of aa crop; you intended
prohibits harvest Intended acreage requirements In
requirements in section
section 18{f)(1
18(f)(1)0 (ill) are
)(I) or (iii)
request a written agreement to insure ins!M'e report, ifHyou meet met); or
the acreage;
acreage; or or you otherwise acquire the conditions (iii) The insured crop planted planted In in the field
field would
would
the acreage (such (such as as Inherited
lnherHed or stated in In section not
not have have been been planted
planted on theremaining
on the remaining
gifted acreage). 18(e)(1)(1)(A). prevented planting planting acreageacreage (For (For example,
example,
(H)The
(ifiThe The number
(A) The nunber of acres of
of acres of the crop (B) The number of
The number where rotation requirements
where rotation requirements would would not not be
crop must specified In the processor contract, ifIf acres of of the crop met or you already already planted the total total number
number
be the contract specifies a number n~n~ber of detennlned In
as determined of acres specified In the processor processor contract);
contracted acres contracted for the crop year; or section {2) For
(2) Forwhich
whichthe theactuarial
actuarialdocuments
documents do not provide
do not
with a the result of dividing the quantity of 18(e)(1 )(IQ(A).
18(e)(1)(a)(A). the information
Information needed needed to determine a premium premium
processor production stated in In the processor
to be contract by your approved yield, Ifif the rate unless a written agreement designates such
written agreement
Insured
insured processor contract specifies a premium rate;
quantity of production that will be (3) Used
Usedfor conservation purposes,
forconservation purposes, Intended
intended to to be
accepted. If If aa minimum
minimum number number of unplanted under any
left unplanted any program
program administered
administered
} acres or or amount
amount of of production
production is Is by thethe USDAUSDA or orother
othergovernment
government agency, agency, or
specified in In the processor contract, contract. required to be left unharvested under the terms of
I thls amount will
this be used to determine
will be the lease or any other agreement (The number number of
C 21304National
© 2004 NationalCrop
CropInsurance
Insurance Services,
Services, Inc. Page 18 of26
of 26
42
• .. acres eligible
acres eligible for for prevented
prevented planting
planting will will be (Evidence that you
(Evidence you have
have previously
previously planted
planted th
limited to
limited the number
to the number of acres acres specified
specified in In thethe crop on
crop on thethe unit
unit willwill bebeconsidered
considered adequat adequat
lease for which which you you are are required
required to pay pay either
either proof unless your planting
unless your plantingpractices
practicesororrotationsrotation;
cash or share rent); requirements show
requirements show that the acreage acreage would would hay hav
(4) On Onwhich which the theinsured
Insured crop crop isIsprevented
prevented from from remained fallow or or been
been planted
planted to to another
another crop, crop;
) being planted, if you or any other person receives (10)
{1 0) Based on on an an irrigated
Irrigated practice
practice Final Anal Guarante
Guarante
a prevented planting payment payment for for any
any crop for the adequate irrigation
unless adequate Irrigation facilities
facilities were in in plac
plac
same acreage
same acreage In in the same crop crop year (It Is Is your
your to carry out an irrigatedirrigated practice on the the acreag
acreag
responsibility to
responsibility to determine
determine whether
whether a preventedprevented prior to the insured
Insured causecause of ofloss
loss that
that prevente
prevente
planting payment had
planting payment had previously
previously been been made made for you
you fromfrom planting.
planting. Acreage
Acreage with with an an irrigate
Irrigate
the crop
the crop year on the acreage acreage for for which
which you you are practice Final
practice Final Guarantee
Guarantee will will be limited
limited to to thth
claiming a prevented planting
now claiming payment and
planting payment number of acres acres allowed
allowed for forthat
thatpractice
practiceundE unde
report such
report information toto us
such information before any
us before any sections
sections 18(e) and (t); (f);
prevented
prevented plantingplanting payment payment can can be be made), (11) Based on a crop crop typetype that
that youyou diddid not plant, c
not plant,
excluding share
excluding share arrangements, unless: did notnot receive
receive aaprevented
preventedplanting plantinginsurance
insuranc1
(I) It Is a practice that is
(i) Is generally recognized by guarantee for,
guarantee for, in least one
in at least one of of the
the fourfour mcs mo~
agricultural
agriculturalexperts expertsoror the the organicorganic recent crop
recent crop years.
years. TypesTypes for forwhich
whichseparateseparat1
agricultural
agriculturalIndustry
industryIninthe the area
area to plant the Insurance guarantees
insurance guaranteesare available must
are available must b• b
second crop harvest following
crop for harvest following harvest of included in
included approved yield database
In your approved database in in a
the first insured
the first Insured crop, crop, and andadditional
additional least one of of the
the four
four most
most recent
recent cropcrop years,years, o
coverage insurance
coverage insurance offered offered under under the the crops that do do not
notrequire
requireyieldyieldcertification
certification (crop; (crop!
authority of
authority of the
the Act is available in the county county which the insurance
for which Insurance guarantee is Is not
not bassibaset
for both
both crops
cropsin inthethesame
same cropcropyear;
year on anan approved
approved yield) yield) must
must be be reported
reported on on you
(II) You
(ii) You provide
provide records
records acceptable
acceptableto to us
us of of acreage report
acreage report In in at least one of of the
the fourfour mos mos
production that show you have
acreage and production recent crop
recent crop years except except as asallowed
allowed ininsectior sectior
double cropped
cropped acreage in In at least
least two of the 18(e)(1){1){B). We
18(e)(1)(1)(B). We will will limit
limitprevented
prevented plantinf plantin!
last four crop
crop years in In which
which the first first insured payments based on aa specific
payments specific crop crop type type to to the
thf
crop was
crop planted, or
was planted, or thatthat show show the the number of
number acres allowed
of acres allowed for that crop type type a: a!
applicable acreage was double cropped in
applicable In at specified In in sections
sections 18(e) 18(e) and (f); or
least two of the last last four
four crop years in in which
which (12) If aa cause
cause ofofloss losshas hasoccurred
occurredthat thatwoulc woulc
the first insured
insured crop crop was grown on it: it; and prevent planting at the time:
(Iii) The
(iii) amount of acreage
The amount acreage you you are are double
double (i)
(I) You lease the acreage (except acreage acreage yol yet
cropping in
cropping in the current crop
the current crop year does not not leased the the previous
previous crop crop yearyearand andcontinue
continue
exceed the number
exceed number of of acres
acres for for which
which you you to lease in the current crop year);
provide the
provide records required
the records required in in section
section (ii)
(ii) You buy the acreage;
18(f)(4)(H);
18(0(4)(i1); (iii) The acreage
(iii) The acreage is is released
released from from a USOP USDP
(5)
(5) On On whichwhich the the insured
Insured crop crop isisprevented
prevented from from program which prohibits prohibits harvest
harvest of of aa crop;
being planted, it if: You request a written
(iv) You written agreement
agreement to Insure
to insure
(i) Any AnycropcropisIsplanted
plantedwithinwithinor orprior
prior to to the
the late
late the acreage; or
planting period
planting period or or on on oror prior
prior to to the
the final
final (v) YouYou acquire
acquire the the acreage
acreage throughthrough means mean~
planting date
planting date if no late
if no late planting
planting periodperiod is is other than
other than leaselease or or purchase
purchase (such (such as a~
applicable, unless: inherited or gifted acreage).
(A) You You meet meet the thedouble doublecropping cropping (g) If you
(9) you purchased
purchased an an additional
additional coverage
coverage policy policy for a
requirements in section 18(1)(4); 18(f)(4); crop, and you you executed
executed aa High HighRisk RiskLand landExclusion
Exclusion
(B) The crop planted was aa cover
(B) cover crop; or Option that separately
Option separately insures Insures acreage
acreage which which has has
benefit, including
(C) No benefit, including any benefit benefit underunder designated as "high
been designated •high risk"
risk" land
land by by FCJC
FCIC under under a
any USDA program, program, was was derived
derived from from Catastrophic Risk
Catastrophic Protection Endorsement
Risk Protection Endorsement for for thatthat
the crop; or crop, the maximum
crop, maximum number number of acres acres eligible
eligible for for a
(II) Any
(ii) Anyvolunteer
volunteeror orcover
cover cropcrop is Is hayed, grazed prevented planting
payment will will be limited
limited for each
otherwise harvested within
or otherwise within or prior to the policy as specified
specified in in sections
sections 18(e)18(e) and (f).
planting period
late planting period or on or prior to the final (h) IfIfyou
youare areprevented
preventedfrom fromplanting
planting aa crop crop for for which
which
planting date
planting date if no no late
late planting
planting periodperiod is Is you do
you do not not have
have an anadequate
adequate base base ofofeligible eligible
applicable; prevented
prevented planting planting acreage, as determined in
as determined in
(6) ForForwhichwhichplanting
planting history
history or orconservation
conservation plans plans accordance
accordance with section 18(e)(1),
with section 18(e)(1), your your prevented
prevented
Indicate
indicate that the acreage would remain fallow faUow for planting
planting FinalFinal Guarantee,
Guarantee, premium, premium, and and prevented
prevented
crop rotation purposes or on which
rotation purposes which any pasture pasture planting payment will
planting payment will be based on on thethecrops Insured
crops insured
or other forage forage cropcrop Is in place
is in place on on the
the acreage
acreage for the
for the current
current crop crop year,year, for for which
which you you have have
during the
during the time that planting of the the insured
Insured crop crop remaining eligible
remaining eligible prevented
prevented planting planting acreage.
acreage. The
generally occurs in the area; crops used for this purpose will be those that that result
result in In
(7) Thatexceeds
(7) That exceeds the the number
number of of acres eligible
eligible for a prevented planting
a prevented planting payment
payment most similar to
most similar the
to the
prevented plantingplanting payment;
payment; prevented planting payment
prevented planting payment that that would
would have have been
(8)) That
(8 That exceedsexceeds the the number
number of of eligible
eligible acresacres made for for the
the crop
crop thatthat waswasprevented
prevented from from being being
physically available for planting; planted.
(9)) For
(9 Forwhichwhichyou youcannot
cannot provideprovide proof
proof that you had (1) ForForexample,
example,assume assumeyou you were
wereprevented
prevented from from
inputs available
the inputs available to to plant and produceproduce a crop crop planting 200
planting 200 acres
acres of corn com and and have 100 100 acres acres
'
t~2004
2004National
with
with the
yield used
yield
NationalCrop
the expectation
expectation of
used to
CropInsurance
to determine
determine the
Insurance Services, Inc.

at least
of at least producing
the Final
producing the
Final Guarantee
Guarantee
the
Page 19 of 26
eligible for
eligible for a corn
would result
that would
com prevented
result In
prevented planting
in a payment
payment of
planting guarantee
of $40 per
guarantee
per acre.
43
•• You also
You also had 50 acres acres of of potato
potato eligibility
eligibility that
that accordance with section 20(g). IfIf resolution resolution cannotcannot be
would result
would result In in a $100
$100 per per acre
acre payment,
payment, 90 90 reached through mediation,
reached through mediation,or or you
you and and we do do not
not
acres of grain sorghum eligibility that would result agree
agree to mediation, the
to mediation, the disagreement
disagreement must must be be
in $30 per
In aa $30 per acreacre payment,
payment, and and 100 100 acres
acres of resolved through
resolved through arbitration
arbitration In accordance with
in accordance with the
soybean eligibility that
soybean eligibiHty that would
would result
result In in aa $25 per rules of the American
of the American Arbitration
Association (AAA), (AAA),
acre payment. Your prevented planting coverage except as
except provided In
as provided sections 20(e)
in sections 20(c) and and (f), (f), and
for the 200 acres would be be based on 100 acres of unless rules are established by by FCIC
FCIC for for this
this purpose.
purpose.
com ($40
corn ($40 per acre), acre), 90 acresacres of of grain
grain sorghum
sorghum Any mediator or arbitrator with a familial, familial, financial
financial or
($30 per acre),acre), and 10 10 acres
acres of of soybeans
soybeans ($25 ($25 other business relationship
relationship to to you or us, or or our
our agent
agent
per acre). or loss
loss adjuster,
adjuster, is Is disqualified
disqualified from from hearing
hearing the the
(2) Prevented
Prevented planting
planting coverage
coverage will will be allowed
allowed as dispute.
specified
specified In in this section (18(h))
this section (18(h)) only
only if If the crop (1) AllAlldisputes
disputesinvolving
Involvingdeterminations
determinations made made by us,
that was prevented
prevented from from being planted
planted meets all except those
except specified In
those specified section 20(d),
in section 20(d), are are
provisions, except
policy provisions, except for having an adequate adequate subject
subject to mediation
mediation or or arbitration.
arbitration. However,
However, If
base
base of of eligible
eligible prevented
prevented planting
planting acreage.
acreage. the dispute In
the dispute any way
in any way involves
involves a policy policy or
Payment
Payment may may be be made
made basedbased on crops crops other
other procedure Interpretation, regarding
procedure interpretation, regarding whether whether a
than those that
than those that werewere prevented
being specific policy
specffic policy provision
provision or or procedure
procedure is Is
planted even
planted even though though otherother policy
policy provisions,
provisions, applicable to the situation, how It It is
Is applicable,
applicable, or
Including but
Including but not limited
limited to,to, processor
processor contract
contract the meaning of of any
any policy
policy provision or or procedure,
procedure,
and rotation requirements,
requirements, have have not
not been met for either you you or or wewe mustmustobtain
obtain an Interpretation
aninterpretation
the crop
the crop on on which
which payment
payment is Is being
being based.
based. from FCIC In accordance accordance with with 7 CFR part part 400,
However, Ifif you
However, you were were prevented
planting subpart X
subpart X or or suchsuch other otherprocedures
procedures as as
non-Irrigated crop
any non-irrigated crop acreage
acreage and and you you do not not established by FCIC.
have any remaining eHgible eligible acreage for that crop (I)
{I) AnyAnyinterpretation
Interpretationby byFCIC
FCIC will be binding
will be binding in
and you do do not not have
have anyany other
other crop
crop remaining
remaining any mediation or arbitration.
with eligible acres under a non-irrigated non-Irrigated practice, (II) Failure
(ii) Failure to obtain obtain anyany required
required interpretation
interpretation
prevented planting
no prevented planting payment
payment will will bebe made for from FCIC will result in the nullification of any
the acreage. agreement or award.
(i)
(i) The
Theprevented
prevented planting
planting payment
payment for any any eligible
eligible An interpretation
(iii) An interpretation by FCIC of
by FCIC of aa policy
policy
acreage within
acreage withinaa basic basic or optional unit
or optional will be
unit will be provision is
provision considered aa rule
is considered rule of of general
general
determined by: applicability
applicability and and Is is not
not appealable.
appealable. If you
(1) Multiplying the the Anal Guarantee for timely planted disagree with
disagree with anan interpretation
Interpretation of of a a policy
policy
acreage
acreage of of the insured
Insured crop by by the
the prevented
prevented provision
provision by by FCIC,
FCIC, you you must must obtainobtain a a
planting coverage
coverage level percentagepercentage you elected, Director's review from the National
Director's National Appeals
Appeals
or that is Is contained In in the Crop Provisions
Provisions if you Division
Division In accordance wfth
in accordance with 77 CFR CFR 11.6 11.6
) did not elect a prevented planting coverage level before
before obtainingobtaining judicial judicial review review In In
percentage; accordance with subsection.{e);
subsection (e);
(2) Multiplying
(2) Multiplying the the result
result of of section
section 18(i)(1)
18(1)(1) by the the (iv) An Interpretation by
An Interpretation FCIC of aa procedure
by FCIC procedure
number of eligible prevented planting acres in In the may be be appealed
appealed to to the
the National
National AppealsAppeals
unit; and Division in accordance with 7 CFR part part 11.
11.
(3)
(3) Multiplying
Multiplying the the result of of section
section 18(1)(2)
18(1)(2) by by your Unlessthe
(2) Unless thedispute
disputeisIsresolved
resolved through
through mediation,
mediation,
share. the arbitrator
the arbitrator must must provide
providetoto you you andand us us a a
0) The
(j) Theprevented
prevented plantingplanting payment
payment for any any eligible
eligible written statement
written describingthe
statement describing the issues
issues in
acreage within
acreage within an enterprise unit will be
an enterprise be determined
determined dispute, the factual
dispute, factual findings,
findings, the the determinations
determinations
by: and
and the the amount
amount and and basis
basis for any any award
award and and
(1) Multiplying
Multiplying the the Final
Final Guarantee
Guarantee for for each
each basic
basic breakdown by
breakdown by claim
claim for for any any award.
award. The The
unit or optional unit within within the enterprise unit, for statement
statement must must also also include
include any any amounts
amounts
timely planted acreage acreage of of the insured crop by the awarded
awarded for interest. interest. Failure
Failure of the arbitrator
arbitrator to
prevented planting
prevented planting coverage
coverage level level percentage
percentage provide such
provide such written
written statement
statement will result in the
will result
you elected, or
you elected, that is
or that contained in the Crop
is contained nullification of all determinations of the arbitrator. arbitrator.
Provisions
Provisions Ifif you you did did notnot elect
elect aaprevented
prevented All
All agreements
agreements reached reached through through settlement,
settlement,
planting coverage level percentage; Including those resulting from mediation, must be
including
Multiplying the
(2) Multiplying the result
result of section 18(j)(1)
of section 180)(1) by by the in
In writing
writing and contain at aa minimum minimum aa statementstatement
number
number of eligibleeligible prevented
prevented planting
planting acresacres in of thethe issues
issues in In dispute
dispute and the amount amount of the
each basic
each basic unit unit or optional
optional unit unit within
within the the settlement.
enterprise unit;untt; (b) Regardless
Regardlessofofwhether mediation is
whethermediation is elected:
(3) Multiplying
Multiplying the the result
result of section
section 180)(2)
18(j)(2) by your your (1) The
The initiation
initiation of of arbitration
arbitration proceedings
proceedings must must
share; and occur within one year of the date we denied your
(4)
(4) Total the results from section 180)(3). 18(j)(3). claim or or rendered
rendered the the determination
determination with with which
which
19. Crops As Payment you disagree, whichever Is later; later,
You must not abandon abandon any any crop
crop toto us. We will not accept (2)
(2) IfIf you failfail toto initiate
initiate arbitration
arbitration in accordance with
any crop as compensation for payments due us. 20(b)(1) and complete
section 20(b)(1) complete the process, process, you
20. Mediation,
Mediation, Arbitration,
Arbitration, Appeal, Appeal, Reconsideration,
Reconsideration, and will not
will not be be able
able to to resolve
resolve the the dispute
dispute through
through
Administrative and Judicial Review review;
judicial review;
(a) ifIfyou
youandandwe wefail
falltotoagree
agreeon on any
any determination
determination made (3)
(3) IfIf arbitration has been initiated In in accordance with
by us exceptexcept those
those specified
specified in section 20(d),
in section 20(d), the section
section 20(b)(1)
20(b)(1) and and completed,
completed, and and judicial
judicial
disagreement may
disagreement may be resolvedresolved through
through mediation
mediation in In review is sought,sought, suit must be filed not later than
C
© 2004 National Crop Insurance
insurance Services, Inc. Page20of26
Page 20 of 26
44
... one year after
one after thethe date
date the
the arbitration
arbitration decision
decision {h) Except
(h) Except as as provided
provided in in section
section 20(1), 20{1), no no award
award o
was rendered; and seHiement in
settlement mediation, arbitration,
in mediation, arbitration, appeal appeal
(4) InInanyanysuit,
suit, ififthe
thedispute
dispute in in any
any way
way involves
involves a administrative review
administrative reconsideration process
review or reconsideration process o
policy or
policy or procedure
procedure interpretation,
interpretation, regarding
regarding judicial review can
judicial review can exceed
exceed the the amount
amount of liablli~
of liabilit!
whether a specific policy provision provision or procedure
procedure established
established or which which should
should have havebeen beenestablishes
establishec
is applicable to the situation, how it is applicable, under the
under the policy,
policy, except
except for for interest
interest awarded
awarded it ir
or the
or the meaning
meaning of of any
any policy
policy provision
provision or or accordance with section 26. 26.
procedure, an
procedure, interpretation must
an interpretation obtained
must be obtained (I) InIna a judicialreview
judicial reviewonly, only,you youmay mayrecover
recoverattorney!
attomey1
from FCIC
from accordance with
FCIC in accordance with 7 CFR
CFR part 400, 400, fees or
fees or other other expenses,
expenses, or or any anypunitivepunitive
subpart X
subpart X or or suchsuch other other procedures
procedures as as compensatory
compensatory or or any other damages damages from from us only only Ii
established
established by FCIC. FCIC. SuchSuch interpretation
interpretation willwill be obtain aa determination
you obtain detennination from from FCIC that we, we, ou
binding. agent or or loss
loss adjuster
adjuster failed
failed to comply comply with with thethe term:
tennf
(c) Any Anydecision
decisionrendered
rendered in in arbitration
arbitration is Is binding on you policy or
of this policy or procedures
procedures issued issued by byFCICFCICand and suck
suet
unless judicial review Is sought in accordance
and us unless failure resulted
failure resulted in you receiving
in you receiving a payment payment in in ar
with section 20(b)(3). Notwithstanding any provision In in amount that
amount that is lessless than
than the the amount
amount to to which
which yoi.
yoL
the rules
rules of the AAA, you
the AAA, you and and we have have the right to
the right were entitled.
were entitled. Requests
Requests for such such aadeterminatior
determinatfor
judicial review of any decision rendered In in arbitration. should
should be addressed • to
be addressed to the thefollowingfollowing
(d) IfIfyou
youdo donotnotagree
agreewith withany anydetermination
determination made by USDAIRMA/Deputy Administrator
USDA/RMA/Deputy Administrator of of Compliance/Stor
Compliance/Sto,:
us oror FCIC
FCIC regarding whether you you have
have used a good 1400 Independence Avenue, S.W.,
0806, 1400 S.W., Washingtor
farming practice
farming practice (excluding
(excluding determinations
determinationsby by us
us of D.C. 20250-0806.
the amount of
the amount of assigned
assigned production
production for for uninsured
uninsured 0) If FCIC
(j) If FCICelectselectstotoparticipate
participateinlnthe theadjustment
adjustmentof of your
you1
causes for your failure to use good farming practices), claim, or modifies, revises or corrects your claim, claim, prio1
pito
you may
you may request ~onslderatlon by
request reconsideration by FCIC
FCIC of this
of this to
to payment,
payment, you you may may not not bring bring an anarbitration
arbitration,
determination in accordance with the reconsideration
determination reconsideration mediation or litigation
mediation litigation action
action againstagainst us. us. YouYou must
mus1
process established for this purpose and published at request administrative review review or or appeal
appeal in in accordance
accordance
7 CFR
CFR part part 400, subpart JJ(reconsideration).
400, subpart (reconsideration). To To with section 20(e). 20(e),
resolve disputes
resolve disputes regarding determinations of
regarding determinations the
of the Access to
21. Access to Insured
Insured Crop Crop and and Records,
Records, and and Record
Record
amount
amount of assigned production, you
assigned production, you must
must useuse the Retention
arbitration or
arbitration mediation process
or mediation process contained
contained in this
in this (a) We,
(a) We, and and any anyemployee
employee of ofUSDA USDA authorized
authorized to to
section. investigate
investigate or or review
review any any mattermatter relating
relating to crop crop
(1) You must complete complete reconsideration
reconsideration beforebefore filing insurance, have have the right right toto examine
examine the the insured
insured crop
suit against
suit against FCIC FCIC and and anyany suchsuch suit must be
suit must be and all all records
records related
related to the the insured
Insured crop crop and and any
any
brought in the United States district court for the mediation, arbitration
arbitration or or litigation
litigation involving
involving the the insured
insured
district in which the insured farm farm is located. crop as
crop as often
often as asreasonably
reasonably required required during during the the
) (2) Suit must be filed not later than one year after the
date
date of of thethe decision
decision renderedrendered In in thethe (b) You
record retention period.
Youmust mustretain,
retain,and andprovide
provideupon uponour ourrequest,
request, or or the
reconsideration. request of any
request any employee
employee of of USDAUSDA authorized
authorized to
(3) You cannot sue us for determinations of whether investigate or
investigate review any
or review any mattermatter relating
good farming practices were used by you. insurance:
(e) Except
Except as as provided
provided in in section
section 20(d),
20(d), ifif you
you disagree
disagree Complete records
(1) Complete records of the the planting,
planting, replanting,
replanting,
with any other determination made by FCIC, you may production, harvesting, and disposition
inputs, production, disposition of
obtain
obtain an administrative
administrative review review in in accordance
accordance with with 7 the insured crop on each unit unit forfor three
three years
years after
CFR part
CFR part 400, subpart JJ (administrative
400, subpart (administrative review)
review) or the endend of of the
the crop
crop yearyear (This
(This requirement
requirement also
accordance with
appeal in accordance with 77 CFR
CFR part 11 11 (appeal).
(appeal). If applies to all such such records for for acreage
acreage that is not
you elect to bring suit after completion completion of any appeal, Insured); and
insured);
such
such suit must be filed filed against
against FCICFCIC not later than (2)
(2) All All records
records used used to to establish
establish the the amount
amount of of
one year after the date
one date of of the
the decision
decision rendered
rendered in production you
production certified on
you certified on youryourproduction
production
such appeal.
such appeal. UnderUnder no no circumstances
circumstances can can you you reports used to compute your your approved
approved yield yield for
recover any attorneyattorney fees fees or other expenses,
expenses, or any any three
three years
years afterafter the
the end end of the crop crop yearyear for
for
punitive, compensatory or
punitive, compensatory or any damages from
any other damages which you initially
initially certified
certified such such records,
records, unlessunless
FCIC. such records
records have already been been provided
provided to us
(f) InInanyany mediation,arbitration,
mediation, arbitration,appeal,
appeal, administrative
administrative (For
(For example,
example, if your your approved yield for for the 2003
review, reconsideration
review, reconsideration or or judicial
judicial process,
process, the terms crop yearyear was was based
based on on production
production records records you
of this policy, the Act, and the regulations published at
of certified for the 1997
certified 1997 through
through 2002 2002 crop crop years,
years,
CFR chapter
7 CFR chapter IV, IV, including
including the provisions
provisions of 77 CFR you must retain all such records records through the 2006
400, subpart
part 400, subpart P, P, areare binding.
binding. Conflicts
Conflicts between
between crop year,
crop year, unless
unless such such records
records have have already
already
this policy and any state or local laws will be resolved been provided to us).
in accordance
section 36. 36. If there
there are
are conflicts
conflicts (c) We,
(c) We, or or anyanyemployee
employee of ofUSDA USDA authorized authorized to to
between any
between rules of the AAA and the provisions
any rules provisions of investigate or
investigate review any
or review any mattermatter relating
your policy, the provisions of your policy will control. insurance, may
insurance, extend the record
may extend record retention
retention period period
(g) To
(g) Toresolve
resolve any anydispute
dispute through
through mediation,
mediation, you you and beyond three years by by notifying you of of such
such extension
extension
we must both: in writing.
(1) Agree to mediate the dispute; (d) By Bysigning
signingthe theapplication
application for forinsurance
insuranceauthorized
authorized
(2) Agree on a mediator; mediator, and under the Act Act or or byby continuing
continuing insurance insurance for for which
which
} (3) Be presentpresent or or have
have aa designated
designated representative
representative you have
you have previously
previously applied,
applied, you authorize us
you authorize us oror
authority to settle
who has authority settle the case present,
present, at USDA, or
USDA, or any any person
person acting acting for for us us or or USDAUSDA
the mediation. authorized to investigate or review any matter relating
C2004
0 2004National
National Crop
Crop Insurance
Insurance Services, Inc. Page21
Page of26
21 of 26
45
• to crop Insurance,
to crop insurance, to obtain records
to obtain records relating
relating to the the and
and the the other
other policy
policy will will bebe void,
void, unless
unless boll boll
planting, replanting,
planting, replanting, inputs,
inputs, production,
production, harvesting,
harvesting, policies are with:
and disposition
disposition of of the
the insured
insured crop crop fromfrom any personperson (I) The
(I) Thesame sameinsurance
Insurance provider provider and and the th•
who may have have custody
custody of of such
such records,
records, including
Including but insurance provider agrees agrees otherwise;
otherwise; or
not limited
limited to, to, FSA offices,
offices, banks, warehouses,
warehouses, gins, gins, (II) Different
(ii) Different insurance
insurance providers providers and and boll boll
) cooperatives, marketing associations, and Insurance providers
insurance providers agree agree otherwise.
accountants. You
accountants. You must assist in obtaining obtaining all all records (b)
(b) Other
Other Insurance
Insurance Against Against Fire Fire -- IfIfyou youhave have othe othe
we or
we or any any employee
employee of of USDA
USDA authorizedauthorized to to insurance,
insurance, whether whether valid valid or not, not, against
against damagedamage t<tc
investigate
Investigate or or review
review any any matter
matter relating
relating to crop crop the insured
Insured crop crop by fire fire during
during the the insurance
Insurance period period
Insurance request from third parties.
insurance we will
we will be liable liable for loss loss due to to fire
fire caused
caused by z£
(e) Failure
Failureto toprovide
provide access
access to to the
the insured
insured crop crop or the the naturally occurring
occurring event event only for the smaller of:
farm, authorize
farm, authorize accessaccess to the records records maintained
maintained by (1) The amount amount of of indemnity
indemnity determined
determined pursuant pursuant tc tc
third parties or assist in
third parties in obtaining
obtaining such such records
records will will this policy without without regard
regard to such other other insurance
result In
result in a determination
determination that that no Indemnity
Indemnity Is due for or
Or
the crop year in In which such failure occurred. (2) The
The amount amount by by which
which the the lossloss from from fire fire is If
(f) Failure
(f) Failure to maintain or or provide records
records will will result
result in: determined
determined to to exceed
exceed the the Indemnity
indemnity paid pald or 01
(1) The
(1) The imposition
Imposition of of anan assigned
assigned yield yield in In payable under
payable under such other Insurance.
accordance with
accordance withsection
section4(d)(1)4(d)(1)and and 77 CFACFR part part (c) ForForthethepurpose
purposeofofsection section 22(b),22(b),the theamount
amountof lo~
ofloss
400, subpart
400, subpart G G for
for those
those crop years years for for which you from
from fire fire will
will be the the reduction
reduction in In revenue
revenue of of the
the
do notnot have
have the the required
required production
production records records to Insured crop on the unit involved determined
insured determined pursuant pursuan1
support a certified yield; to this policy.
(2) AAdetermination
determination that that no no indemnity
indemnity Is is due ifif you you Conformity to Food Security Act
23. Conformity
fail to
fall to provide
provide records
records necessary
necessary to to determine
determine Although your
Although your violation
violationof of a number
number of of federal
federal statutes,
statutes,
Joss;
your loss; including
Including the Act, may may causecause cancellation,
cancellation, termination,
termination, or or
(3) Combination
(3) Combination of the optional
of the optional units units intoInto the the voidance
voidance of of youryour insurance
Insurance contract, contract, you you should
should be be
appUcable basic unit;
applicable specifically
specifically aware aware that that your policy policy willwill bebe canceled if you
(4) Assignment
Assignmentof ofproduction
production to to the
the units
units by by usus ifIf you are determined
determined to to bebe ineligible
Ineligible to to receive
receive benefits
benefits under under
fail to maintain separate records: the
the ActAct due duetotoviolationviolation ofofthe thecontrolled
controlledsubstancesubstance
(I) For
(i) For your basic units; or provision (title
provision (title XVII
XVII of the the Food
Food Security
Security Act Act of of 1985 (Pub.
(ii) For any uninsurable
{ii) acreage; and
uninsurable acreage; LL 99-196))
99-198))and andthe theregulations
regulationspromulgated
promulgated under under thethe Act
{5) The
(5) Theimposition
imposition of of consequences
consequences specified specified in In by USDA.
USDA.Your Yourinsurance
Insurance policy policy will be canceled ifIf you are
section 7(g),
7(g), as applicable. determined, by the appropriate appropriate Agency, to be be inIn violation
violation
{g) IfIfthe
(g) Imposition of
theimposition of an
anassigned
assigned yield yield under
under section
section of these provisions.
provisions. We We will
wHI recover
recover any and and all all monies
monies
21(f)(1) would
21(f)(1) would affect
affect an an indemnity,
Indemnity, prevented
prevented planting
planting paid
paid to to you
you or orreceived
received by by youyou during
during your your period
period of of
payment or replant replant payment
payment that that waswas paidpaid In prior
in a prior Ineligibility, and
ineligibility, and your your premium
premiumwill will be refunded, less
be refunded, less a
crop year, such claim claim willwill be adjusted and you will be reasonable amount
reasonable amount for for expenses
expenses and handling not
and handling not to
required to repay any overpaid amounts. exceed 20 20 percent
percent of the premium premium paid paid or to be paid paid by
22. Other
Other Insurance
Insurance you.
(a)
(a) Other
Other Like Uke Insurance
Insurance - -Nothing Nothing inInthis thissection
section 24. Amounts Due Us
prevents
prevents you you fromfrom obtaining
obtaining other other insurance
Insurance not not (a) Interest will accrue at
will accrue at the
the rate of 1.25 1.25 percent
percent simplesimple
authorized under the Act. However, However, unless unless specifically
specifically Interest per
interest per calendar month, or any any portion
portion thereof, on
required by policy provisions,provisions, you you must not obtain any unpaid amount
any unpaid amount owed owed to to usus or on on any any unpaid
unpaid
other crop Insurance
insurance authorized under the Act on your administrative
administrative fees fees owed
owed to to FCIC. For For thethe purpose
purpose of
share of the insured Insured crop. IfIf you you cannot
cannot demonstrate
demonstrate premium amounts amounts owed owed to us or or administrative
administrative fees
that you did not intend intend to have more than than oneone policy
policy owed to FCIC, FCIC, Interest
Interest will wm start
start to accrue
accrue on on the
the first
first
effect, you
in effect, you maymay be be subject
subject to to thetheconsequences
consequences day of of thethe month
month following
following the the premium
premium billing billing date
authorized under under this this policy,
policy, the the Act,Act, or any any other
other specified in the Special Provisions. We We willwill collect
collect any
applicable statute. If you can demonstrate that you did unpaid amounts
unpaid amounts owed owed to to us
us and any any interest
interest owedowed
not intend
intend to have more than one policy in effect (For thereon
thereon and, and, priorprior to to the
the termination
termination date, date, we we willwill
example, an application
example, application to transfer your
to transfer policy or
your policy or collect any administrative
collect administrative fees fees and and interest
interest owed owed
written notification
notification to to anan Insurance
Insurance provider that states thereon to FCIC. After the termination termination date, dale, FCIC will will
you want to purchase, or transfer, insurance Insurance and you collect
collect any any unpaidunpaid administrative
administrative fees fees and and any any
want
want any other other policies
policies for for the cropcrop canceled
canceled would would interest owed thereon.
interest
demonstrate
demonstrate you you did did not
not intend
intend to to have
have duplicate
duplicate (b) For the the purpose
purpose of any other other amounts
amounts due us, us, such
such
policies), and: as repayment
repayment of of indemnities
Indemnities found found not not to to have been
(1) One OneisIsan anadditional
additional coverage
coverage policy policy and and the the earned, Interestinterest will will start
start to to accrue
accrue on on the date that
other is a Catastrophic Risk Risk Protection
Protection policy:
policy: notice
notice Is is issued
Issued to to youyou for for thethe collection
collection of the the
(I) The additional
(i) additional coverage
coverage policy policy willwill apply
apply if uneamed amount.
unearned amount. Amounts Amounts found found due due underunder this this
both
both policies
policies are are with
with thethe samesame insurance
insurance paragraph will
paragraph will notnot be charged interest Interest if payment
payment is Is
provider
provider or, or, if not,
not, both
both insurance
Insurance providers
providers made within within 30 days of issuance Issuance of the notice notice by us.
agree; or The amount
amount will will be
be considered
considered delinquent If if not paid
(ii)
(ii) The
The policypolicy with with the the earliest
earliest date date of of within 30 days of the date the notice notice is Is issued
Issued by us.
application
application will will bebe in force ifif both both Insurance
Insurance All amounts
(c) All amounts paid paid winwill be applied
applied first first to expenses
expenses of
providers do not not agree;
agree; or collection (see
collection (see section
section24(d)) 24(d)) ifif any,
any, second
second to the
(2) Both Bothare areadditional
additional coverage
coverage policiespolicies or or both
both are reduction of
reduction of accrued
accrued interest,interest,and and then then to the
to the
) Catastrophic Risk
Catastrophic Protection policies,
Risk Protection policies, the policy policy reduction of the principal principal balance.
balance.
with the earliest date of application will
with will be
be In
In force
forte
ei 2004 National
C 2004 National Crop
Crop Insurance
Insurance Services, Inc. Page 22 of 26
Page22of26
46
•• (d) determine that itit Is necessary to contract with
If we determine with a from an insurable
loss from insurable causecause and and fallfall to file
file aa claimclaim fc fc
cotlection agency or to employ an attorney to assist In
collection indemnity within
indemnity within60 days after
60 days after the the Harvest
Harvest Price Price i
collection, you
collection, youagree agreeto to pay
pay allall of the expenses
expenses of released,
released, the theassignee
assignee may maysubmit
submitthe theclaim
claimfor forindemnit
indemnit
collection. not later than 15 15 days
days after
after the 60-day 60-dayperiod period has has expire(
explrec
, (e) The portion portion of the amounts amounts owed owed by you you for a policypotlcy We
We willwill honor
honor the the terms
terms of of the
the assignment
assignment only if we we ca
I authorized under
authorized under the the Act
Actthat
thatareare owed
owed to to FCIC
FCIC may accurately determine
accurately determine the amount of the
the amount the claim.
claim. HoweveHoweve1
collected in
be collected In part
part through
through administrative
administrative offset from no action will lie against us for failure to do so.
payments you receive from from United States government 30. Subrogation
30. Subrogation(Recovery (Recoveryof ofLoss
LossFrom FromaaThird Third Party)Party)
agencies
agencies In in accordance
accordancewith with31 31 U.S.C. chapter 37.
U.S.C. chapter Since you you may may be be able
able toto recover
recover all all or
or aa part
partof ofyour
your los
Such amounts include Include all all administrative
administrative fees, fees, and the from someone other
from other than
than us, us, you you must do all all you
you can can tto
share of
share of thetheoverpaid
overpaid indemnities
indemnities and and premiums
premiums preserve this right. right. IfIf you
you receive
receive any anycompensation
compensation fc
retained by FCIC FCIC plus plus any interest
Interest owed thereon. your loss, excludingexcluding private hail insurance insurance payments
payments ani an•
[Reserved]
25. [Reserved) payments covered covered by section section 33, and and the theindemnity
Indemnity dui dut
InterestLimitations
26. Interest Umltations under this this policy
policy plusplus the amount
amount you you receive
receive from from thi th•
We will
We will pay
pay simple
simple interest
Interest computed on the net net indemnity person
person exceeds exceeds the the amount
amount of your your actual
actual loss, loss, thi th•
ultimately found found to to be due by us or by a final judgment of a indemnity
Indemnity will be reduced reduced by by the the excess
excessamount,amount,or orififthe
tht
51
court of competent jurisdiction, jurisdiction, from from andand Including
including the the 61611" Indemnity has already
indemnity already beenbeen paid,paid, you youwillwill beberequired
required tc It
after the date
day after date you you sign,
sign, date,
date, and submit submit to to us the the repay the
repay the excess
excessamount,amount, not notto toexceed
exceedthe theamount
amountofofthe th1
proper1y completed
properly completed claim claim on on our form.
form. Interest will will be paid indemnity. The
indemnity. The total amount of the
total amount the actual
actual loss loss is Is thetht
only If if the reason
reason for our failure failure to to timely
timely pay pay Is is NOT
NOT due difference
difference between between the value value of ofthetheinsured
insuredcrop cropbefore befon
to your
your failure
failure to to provide
provide information
Information or other other material
material and after
after the theloss,
loss,based
basedon onyour yourproduction
productionrecords records anc am
necessary for
necessary for the the computation
computation or or payment
payment of of the the Harvest Price
the Harvest Price available
available for the crop. If If we pay pay you you fo
indemnity.
indemnity. The interest Interest rate will will be that established by the your loss, your your right
right to recovery will, will, at
at our
ouroption,
option, beton(belen(
Secretary of the Treasury under section section 12 of the Contract to us. IfIf we
to us. werecover
recover more more than than we we paidpaid you you plus plus ou ou
Disputes Act Act ofof 1978
1978 (41 U.S.C. 611)
(41 U.S.C. 611) andand published
published in In the expenses, the
expenses, the excess
excess will be paid to you.
Federal Reoister semiannually on
Register semiannually on oror about January 1 and
about January DescriptiveHeadings
31. Descriptive Headings
July 11 of of each year,year, and and maymay varyvary with
with each
each publication. The descriptive
The descriptive headings headings of of thethevarious
variouspolicy policyprovision:
provislom
27. Concealment
Concealment.Misrepresentation
Misrepresentation or Fraud are formulated
formulated for for convenience
convenience only and are are not
not intender
intende<
(a) IfIfyou youhave havefalsely
falselyor orfraudulently
fraudulently concealed
concealed the fact affect the
to affect the construction
construction or meaning of of any
any ofofthe the polio)
policl
that you are are ineligible
Ineligible to receivereceive benefits
benefits under the the provisions.
Act or if you or or anyone
anyone assisting
assisting you has has Intentionally
Intentionally Notices
32. Notices
concealed
concealed or or misrepresented
misrepresented any any material
material fact fact (a) All All notices
notices required
requiredto to bebe given
given by you must
by you must be be it ir
relating to this this policy: writing and
writing received by your
and received your cropcrop insurance
insurance agen agen
(1) This policy will will be be voided;
voided; and within
within the designated
designated time time unlessunlessotherwise
otherwiseprovidec providec
j (2) You You may may be be subject
subject to to remedial
remedial sanctions
sanctions in In by the the notice
notice requirement.
requirement. Notices Notices required
required to be be
accordance with with 77 CFRCFR partpart 400,
400, subpart R. immediately may be by telephone
given immediately telephone or or in in persor
persor
(b) Even
(b) Even thoughthough the the policy
policy is void, you
is void, you may may stillstill bebe confirmed In
and confirmed writing. Time
in writing. Time of of the
the notice
notice will will bebe
required to
required to pay
pay 20 percent of the premium premium due under determined by
determined by the
the time
time of of our
our receipt
receipt of of the
the writter
water
the policy to offset costs costs incurred
incurred by by us us inin the service notice. IfIf the the date
date byby which
which you you are arerequired
requiredto submi~
tosubmi•
this policy.
of this policy. If previously
previously paid, paid, the the balance
balance of the the report or
a report or notice
notice falls
falls on on Saturday,
Saturday, Sunday, Sunday, or ae
premium will be returned. Federal holiday, holiday, or, If if your
your agent'sagent's office
office is, is, forfor any
an}
(c) Voidance
Voidance of of this
this policy
policy will will result
result in in you
you having
having to reason, not
reason, not open
open for business
business on on the date date you you are are
reimburse all
reimburse all indemnities
indemnitiespaid paidfor for thethe crop
crop yearyear in In required to submit submit suchsuch notice
notice or or report,
report, such
such notice notice
which the voidance was effective. or report must be submitted on the next business day.
(d) Voidance
(d) Voidance will will be be effective
effective on on the
the firstfirst day
day of the the (b) All notices and communications required required to to bebe sentsent by b~
insurance period
insurance period for forthethe crop
crop year
year in which the
in which the act us to to youyou willwill be
be mailed
mailed to to thethe address
addresscontained
contained in in
occurred and will
occurred will not affect the policy policy for subsequent your records located with your crop insurance insurance agent.
crop years
crop years unless
unless a violation violation of this this section
section also also Notice
Notice sent sent to to such
such address
address will willbe beconclusively
conclusively
occurred in In such crop years. presumed to have have been
been received
received by by you.
you. YouYou shouldshould
28. Transfer
Transferof ofCoverage
Coverage and and Right
Right to Indemnity advise us us immediately
immediately of any change of of address.
address.
If you transfer any part of your share during during the crop crop year, Multrple Benefits
33. Multiple Benefits
you may may transfer
transfer your coverage coverage rights,rights, If if the transferee is Is (a) If you you are are eligible
eligible toto receive
receive an an indemnity
indemnity under under an
eligible
eligible for for crop
crop insurance.
insurance.We We willwill not
not be liable for any any additional coverage
additional coverage plan plan of insurance and
of insurance and are also also
more than the the liability
liability determined in accordance with your eligible to
eligible receive benefits
to receive benefits for for the same same loss loss underunder
policy that
policy that existed
existed before before the the transfer
transfer occurred.
occurred. The The any otherother USDA USDA program,
program, you you may may receive
receive benefits
benefits
transfer of coverage
transfer coverage rights rights mustmust be be onon our form form and and will
will under both both programs,
programs, unless unless specifically
specifically limitedlimited by
not be be effective
effective untiluntil approved
approved by us in in writing.
writing. Both you the crop Insurance contract or by law.
and the the transferee
transferee are are jointly
jointly and severally liable for the (b) TheThe total total amount
amount received
received from from all all such
such sources
sources may
payment of the
payment the premium
premium and and administrative
administrative fees. fees. TheThe not exceed the the amount
amount of of youryour actual
actual loss.
loss. The total total
transferee has all
transferee all rights
rights and and responsibilities
responslbflities under under this this amount of the
amount the actual
actual loss
loss is is the
the difference
difference betweenbetween
policy consistent with with the the transferee's
transferee's Interest.
interest. the fairfair market
market valuevalue ofof the
the insured
Insured commodity
commodity before
Assignment of
29. Assignment of indemnity
Indemnity and afterafter the the loss,
loss, based
basedon onyouryourproduction
production records records
You may mayassign assign to to another
another party party your
your right
right to an indemnity
indemnity and the the Harvest
Harvest Price available
available for the crop. crop.
for
for the crop crop year. The assignment assignment must must be be on our our form
form (c) FSA
(c) FSA will will determine
determine and and paypay the the additional
additional amountamount due
and will will notnot bebe effective
effective until until approved
approved in writing writing by us. you for
you for anyany applicable
applicable USDA USDA program, program, after after first first
assignee will
The assignee wfll have
have the the right
right toto submit
submit all all loss
loss notices
notices considering the
considering amount of
the amount of anyany crop crop insurance
insurance
and forms
forms as required by the policy. policy. If youyou have have suffered a Indemnity.
indemnity.
C 2004
2004 National
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Crop Insurance
Insurance Services, Inc. Page23
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47
• 34.' Written
34. Written Agreements
Agreements (A)
(A) Insure
Insure unrated
unrated land, land, or or ananunratec unratec
Terms of of this
this policy
policy which
which are are specifically
specifically designated
designated for for practice,
practice, type type oror variety
variety of of a crop crop (fo(fa
the use of of written
written agreements
agreements may be altered altered by by written
written which that
which that practice,
practice, type,type, or variety variety o0
agreement in
agreement in accordance
accordance with with thethe following:
following: the crop is Is insured
insured under
under CRC CAC for for thir
thit
(a) YouYoumust
mustapplyapplyininwriting
writing for for each
each written
written agreement
agreement crop year) and such written written agreement!
agreement
no later
no later than
than the the sales
sales closing
closing date,
date, except
except as as may be be approved
approved only only after
afterinspectior
inspectior
section 34(f);
provided In section acreage by
of the acreage by usus andand the thewritter
writter
(b) The Theapplication
application for foraawritten
written agreement
agreement must must contain
contain agreement may
agreement may onlyonly be approved
approved ta b~
all variable terms of the contract between you and us
contract between FCIC
FCIC ifif the
the crop's
crop's potential
potential Is is equal to o a
that will
that will be in In effect
effect ifIf the
the written
written agreement
agreement is Is not
not exceeds 90 percent percent of of the yield used
the yield used tc tc
approved. determine
determine the Final Anal Guarantee
Guarantee and and yor.
yoL
(c) AAwritten
written agreement
agreement may may only only be usedused to to insure
Insure a sign the agreement on the same same day day the
CRC cropcrop in In aa county without a CRC
county without CAC program
program if If the appraisal is Is made; or
without aa CRC program Is adjacent
county without adjacent to aa county county (B) Establish
(B) Establish optional
optional units in In accordance
accordance
with a CRC program;
CRC program; with
with FCICFCIC procedures
procedures that thatotherwise
otherwise
(d) IfIfapproved
(d) approved by by FCIC,
FCIC, the thewritten
written agreement
agreement will will would
would not not be be allowed,
allowed, changechange the the
include
Include allall terms
terms of of thethe contract,
contract, Including,
Including, but not not premium
premium rate rate oror transitional
transitional yield yield forfor
limited to, crop practice,
practice, type type or variety, the guarantee designated
designated high high risk
risk land,
land, or or insure
Insure
(except for a written agreement In effect for more than acreage that is greater than 55 percent
Is greater percent of
one year) and and premium
premium rate rate or or information
lnfonnatlon needed to the
the planted acreage in
planted acreage In the
the unit
unit wherewhere
detennlne the guarantee and premium rate;
determine the acreage
the acreage has not not been
been planted
planted and and
(e) Each
Each written
written agreement
agreement will will only
only bebe valid
valid for for the
the harvested or Insured in In any of the three
number
number of of crop
crop years specffied in
years specified in thethe written
written previous crop years; or
agreement
agreement and aa multi-yearmulti-year written agreement: (ii)
(li) On or or before the the cancellation
cancellation date, to to insure
Insure
(1) Will only apply
Will only apply for for any any particular
particular crop crop year year crop in
a crop in aacounty
county that that does
does not not have have
designated In
designated in the
the written agreement If
written agreement if all terms
terms actuarial documents
documents for for the crop (If the Crop
the crop
and conditions
conditions In In the written
written agreement are are still
still Provisions do not provide a cancellation date
applicable
applicable for for the
the crop
crop year and and thetheconditions
conditions for the county,
county, the the cancellation date date for for other
under
under whichwhich the the written
written agreement
agreement has has beenbeen insurable
Insurable crops crops In in the
the same state that that have
provided have not changed prior to the beginning similar final
similar planting and harvesting
final planting harvesting dates dates
the insurance
of the insurance period period (If (Ifconditions
conditions change change will be
be applicable); or
during or
during prior to
or prior the crop
to the crop year,
year, the the written
written (UI) On or
(iii) or before
before the date date specified
specified in In the Crop
the Crop
agreement will will not be effective for that crop year Provisions or SpecialSpecial Provisions;
but may still still be effective
effective for for aa subsequent
subsequent crop crop (3) On
(3) On or or before
before the the sales
sales closing
closing date,date, for for all
all
year ifif conditions
year conditions under under whichwhich the the written
written requests
requests for for renewal
renewal of of written
written agreements,
agreements,
agreement
agreement has has beenbeen provided
provided existexist for for such
such except as provided In In section
section34(f)(1);
34(f)(1);
year); (4) To add add landland or or aacropcroptotoananexistingexistingwritten written
(2) MayMay be be canceled
canceled in In writing
writing by: agreement or to
agreement to add land land or a crop crop to aa requestrequest
(i) FCIC
(I) FCIC not not lessless than than 30 days before
30days before the the for aa written
written agreement
agreement providedprovided the request request is
cancellation date if it discovers that any term
cancellation tenn submitted
submitted by by thethe deadlines
deadlines specified
specified in In this
this
or condition
or condition of the the written
written agreement,
agreement. subsection;
including
including the the premium
premiumrate, rate, is is not not (g) A request for a written agreement agreement must must contain:
appropriate for the crop; or (1) For
Forallanwritten
writtenagreement
agreement requests:
requests:
Youororus
(ii) You usononor orbefore
beforethe the cancellation
cancellation date; (I) A completed "Request for Actuarial Change"
(i) Change•
(3) That is not renewed
is not renewed in in writing
writing after itit expires,
expires, is Is form;
not applicable
not applicable for for aa crop
crop year,
year, oror isis canceled,
canceled, (ii)
(li) An APH form(except
form(except for policies that do not
then
then insurance coverage will
Insurance coverage will be in in accordance
accordance require APH) containing
require containing all the the information
Information
with the terms and and conditions
conditions stated in this policy, needed to determine
determine the approved approved yield yield for
without regard
without regard to to the
the written
written agreement;
agreement; and the current
current cropcrop year
year (completed
(completed APH form),
Will be
(4) Will be automatically
automaticaly cancelled cancelled If you transfer
if you transfer signed
signed by you, or
by you, or an
an unsigned,
unsigned, completed
completed
your
your policy
policy to anotheranother Insurance
Insurance provider
provider (No APH
APH form form with with the theapplicable
applicableproduction
production
notice will
notice will be provided to
be provided to you
you andand for for anyany reports signed
reports signedand dated by
and dated by you
you that that are
subsequent
subsequent crop crop year,
year, forfor aa written
written agreement to based on on verifiable
verifiable records
records of actual actual yields yields
effective, you must
be effective, must timely
timely request
request renewal
renewal of for the crop and county for which the
for the written
written
written agreement
the written agreement In In accordance
accordance with with this
this agreement Is
agreement being requested
is being requested (the (the actualactual
section); yields
yields do do not
not necessarily
necessarily have have to be from from the
(f) A Arequest
requestfor foraawritten
writtenagreement
agreementmay maybe besubmitted:
submitted: same physical
same physical acreage
acreage for which you
for which you are
(1) After the sales closing closing date, date, but on or before the requesting
requesting aa written written·agreement)
agreement) for for at least
acreage reporting
reporting date, if you you demonstrate
demonstrate your your the most
most recent
recent cropcrop year during during the base
physical inability to to submit
submit the the request prior to the period and verifiable
verifiable records of actual yields yields
sales closing
closing date date (For
(For example,
example, you you have been if
If required
required by by FCIC;
hospitalized or
hospitalized or aa blizzard has made made itItimpossible
impossible (iii)
(iii) The legallegal description
description of of the
the land
land (in (In areas
areas
to submit the
to submit the written
written agreement
agreement request request in In where legal descriptions
descriptions are are available),
available), FSA
person or or by mall); Serial Number
Farm Serial Number including
Including tract number, number,
(2) For the first first year the written
written agreement will will be in In and aa FSA
and FSAaerial aerialphotograph,
photograph, acceptable
acceptable
effect only:
effect only: Geographic information System
Geographic Information System or Global Global
(I) On Onororbefore
beforethe theacreage
acreagereporting
reporting date,date, to:to: Positioning System
Positioning System maps maps or other legible
or other leglble
C2004
0 2004National
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Insurance Services,
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48
maps delineating field boundaries where you (2) The original written agreement
(2) agreement Is is signed by by yoJyo
intend
Intend to plant the crop for for which
which insurance
Insurance sent to
and sent to usus not
notlater
laterthan thanthe theexpiration
expiration date date
is requested; and and
(iv)
(lv) All
All other
other information
lnfonnatlon that that supports
supports your your (3) The crop crop meets
meets the the minimum
minimum appraisal appraisal amour amour
request for aa written
request written agreement
agreement (Including(Including 34(f)(2)(i)(A), ifif applicable;
section 34(f)(2)(i)(A),
specified in section applicable;
) but not
but not limited
limited to to records
records pertaining
pertaining to (k) Multiyear
Multiyear written
written agreements
agreements may be canceled canceled Brll an
levees,
levees, drainage
drainage systems,
systems, flood flood frequency
frequency requests for renewal may may be be rejected
rejected ifif thethe severity
severity o
data, soil types, elevation, etc.); frequency of your loss
frequency loss experience
experience under under the the writtei
writte1
{2) For
(2) For written
written agreement
agreement requests requests for for counties
counties agreement is
agreement Is significantly
significantly worse worse than than expected
expected base( basec
without actuarial documents
without actuarial documentsfor for thethe crop,
crop, thethe on
on the the information
Information provided providedby by youyou or used used ft tc
requirements In
requirements section 34(g)(1) (except section
in section establish your premium rate rate and and the the loss
lossexperiencr
experienc1
34(g)( 1){II)) and:
34(g)(1)(i1)) of
of other
other crops with similar similar risksrisks In in the area;
(i)
(I) A completed
completed APH APH formform (except for policies policies (I)
(/) With
Withrespect
respecttotoyour yourand andour ourability
abflityto to reject
reject an an offe
that do not require
require APH) based on verifiable for a written agreement:
records of
records of actual
actual yields
yields for for thethe cropcrop andand (1) When
(1) When aa single single Request
Request for forActuarial
ActuarialChange ChangE
county
county for which which the the written
written agreement
agreement is form
form is Is submitted,
submitted, regardlessregardless of of how
how man man!
being requested
being requested (the (the actual
actual yields
yields do do notnot requests for changes changes are contained on the the form
necessarilyhave
necessarily havetoto be be fromfrom the the same
same you and we can only accept or reject the writter water
physical
physical acreage acreagefor for which
which you you are are agreement In
agreement entirety (you
In Its entirety (you cannot
cannot rejec rejec
requesting aa written
requesting written agreement)
agreement) for at least specific
specific termsterms of of the
thewrittenwrittenagreement
agreement anc anc
the most recent three consecutive crop years accept
accept others);
during the base period; (2) When When multiple
multiple RequestRequest for forActuarial
Actuarial Change ChangE
(H) Acceptable
(ii) Acceptable production
productionrecords recordsfor for at least
least forms are
forms are submitted,
submitted, regardlessregardless of when when the thE
the
the most
most recentrecent threethree consecutive
consecutive crop crop forms are submitted, for for thethe same
same condition or fo1 fo
years; the same crop (i.e., (I.e., toto insure
Insure corn com on on tenten lege
lega
(iii) The dates you and other growers in the area descriptions where
descriptions where there there are are no no actuaria
actuarfa
normally
normally plant plant andand harvest
harvest the the crop,
crop, If if documents
documents In in the
the county
county or the the request
request is to tc
applicable; change the
change premium rates
the premium rates from from the the high ris~
high risk
The name,
(iv) The name, location
location of, of, and
and approximate
approximate rates)
rates) all these these forms forms may may be be treated
treated as as one
one
distance to the place place thethe crop
crop willwill be sold or request and you you and and we we willwill only
only have
have the the option
option
used by you; of accepting
of accepting or or rejecting
rejecting the the written
written agreement
agreement in In
(v) For any irrigated
(v) Irrigated practice,
practice, the water source, its
Its entirety
entirety (you(you cannot
cannot rejectreject specific
specific terms
terms of the
method of irrigation, and the amount of water written agreement and accept others);
needed for an irrigated practice for the crop; (3) When
(3) When multiple
multiple RequestRequest for for Actuarial
Actuarial Change Change
and forms
forms are are submitted, regardless of when
submitted, regardless when the the
(vi) Alt
All other
other information
information that that supports
supports your your forms are are submitted,
submitted, for for the the different
differentconditions
conditions
request
request for for a written
written agreement
agreement (such (such as as or
or forfor different
different crops,
crops, separate
separate agreements
agreements may
pubHcations regarding
publications regarding yields, yields, practices,
practices, be issued and you and and we we will will have
have the the option
option to
risks, climatic data, etc.); and accept
accept or or reject each written agreement; agreement and
(3) SuchSuchother otherinformation
fnfonnatlon as as specified
specified in In the Special (4)
(4) If we we reject
reject an an offer
offerfor fora awrittenwrittenagreement
agreement
Provisions or or required by FCIC; approved by FCIC,
approved FCIC, you you may may seek seek arbitration
arbitration or
(h) AArequest
requestfor foraawritten
written agreement
agreement will will not
not be accepted mediation of
mediation decision to reject
of our decision reject the offer offer in
if: accordance with section 20;
(1) The request is submitted submitted to us after the deadline (m) Any
Any information
Information that that is submitted
submitted by you you afterafter the
the
contained In in sections 34(a) or (f); applicable deadlines In in sections
sections 34(a) and (f) will not not
(2) All the information required in section 34(g) Is is not be considered,
considered, unless unless such such information
Information is is specifically
specifically
submitted to
submitted to us with the
us with the request
request for for a a written
written requested in in accordance with section 34(g)(3);
agreement
agreement (The (The request
request for a written agreement agreement (n) If
(n) If the
the written
written agreement
agreement or or thethe policy
policy is is canceled
canceled for
may be be accepted
accepted if any any missing
missing information
Information is Is any reason, or or the
the period
period for for which
which an an existing
existing written
available from other acceptable sources): sources); or agreement Is is In effect ends, aa request
in effect request for for renewal
renewal of
(3) The request request Is is to add land to an an existing
existing written
written the written agreement must must contain ail all the
the information
lnfonnation
agreement
agreement or or toto add
add land
land to to a request
request for for a a required by
required by thisthis section
section and and be be submitted
submitted in In
written agreement
written agreementand and thethe request
request to to add
add thethe accordance with
accordance section 34(f),
with section 34(f}, unlessunless otherwise
otherwise
land is Is not
not submitted
submitted by the the deadlines
deadlines specified
specified specified by FCIC; and and
In sections 34(a)
in 34{a) or or (f). (o) If If aa request
request for for aa written
written agreement
agreement is Is not
not approved
approved
(I) A request for
(I) for a written agreement will be denied if: FCIC, aa request
by FCIC, request for for aa written
written agreement
agreement for for any
(1) FCIC determines the risk Is is excessive; subsequent crop year that fails to to address
address the the stated
stated
(2) Your Your APH APH history
history demonstrates
demonstrates you you havehave not basis for for the
the denial
denial willwin not
not be be accepted
accepted (If (If the request
produced
produced at at least
least 50 percent
percent of of the
the transitional
transitional for a written agreement contains the same information infonnation
yield for the
yield the crop,
crop, type,
type, and and practice
practice obtained
obtained that waswas previously
previously rejected rejected or denied, denied, you you willwill not
from an adjacentadjacent county with similar similar agronomic
agronomic have any any right
right toto arbitrate,
arbitrate, mediate
mediate or or appear
appeal the non-
conditions and risk exposure; acceptance of your request).
(3) Agricultural
Agricultural experts experts or organic agricultural
or the organic agricultural Substitution of
35. Substitution of Yields
Industry determines the crop is not adapted to the
industry (a)
(a) When
When you you havehave actualactual yieldsyields ininyour yourproduction
production
county; history database
database that, that, duedue to an insurable insurable cause cause of
0) A Awritten
(j) writtenagreement
agreementwill willbebedenied
denied unless:
unless: loss,
loss, are less less than than 60 60 percent
percent of ofthetheapplicable
applicable
(1) FCICFCICapproves
approvesthe the written
written agreement; transitional
transitionalyield yield (T -yield) you
(T-yield) you may may elect,
elect, on on an an
C 2004
4D 2004National
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Services, Inc. Page25
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49
• •• Individual actual
individual actual yield basis, to exclude
yield basis, exclude and replacereplace (c) On Onthe
thedate
dateyouyoureport
reportyouryouracreage,
acreage, you you must
must have:
have:
one or more of any such yields within within eacheach database. For certified
(1) For certified organic
organic acreage,
acreage, a a writter
writter
(b) Each election made in section 35{a) 35(a) must be made on certification
certificationin in effect from aa certifying
effect from agen~
certifying agen
or before the production reporting date for the Insured insured Indicating the
indicating the namename of the entity
of the entity certified
certified
crop and each
crop each suchsuch election
election will remain in
will remain in effect for effective date of of certification,
certification, certificate
certificate number
number,
succeeding years
succeeding years unless cancelled
cancelled by the production types of
types of commodities
commodities certified,
certified, and name name and and
reporting date
reporting dale for succeeding crop
for the succeeding year. If you
crop year. address of the
address the certifying
certifying agent
agent (A (Acertificate
certificate
election, the actual yield will be used in the
cancel an election, Issued to
issued tenant may
to a tenant may be be used
used to to qualify
qualify a a
database. For
database. For example,
example, If youyou elected
elected to substitute
substitute landlord or other similar arrangement);
yields In
yields database for the 1998
in your database 1998 and 2000 crop crop (2) ForFor transitional
transitional acreage,acreage, aa certificate
certificate as as
year, for any subsequent
year, subsequent crop crop year,
year, you you can
can elect to described In
described section 37(c)(1),
in section 37(c)(1), or or written
written
cancel the substitution for either or both years. documentation from
documentation from a certifying
certifying agent
agent indicating
Indicating
Each excluded
(c) Each excluded actualactual yield
yield will
will be replaced with
be replaced with a an organic plan plan is In effect for for the acreage;
acreage; and
yield equal to 60 percent of the applicableapplicable T -yield for
T-yield Records from
(3) Records
(3) certifying agent
from the certifying showing the
agent showing
the crop year in which the yield is Is being replaced (For specific location of each field of of certified
certified organic,
organic,
example, ifit you
example, you elect
elect to exclude
exclude a 2001 2001 crop year transitional, buffer
transitional, buffer zone,
zone, and acreage not
and acreage not
actual yield,
actual yield, thethe T-yleld
T-yield in effect for the 2001
in effect 2001 crop
crop maintained under organic management management.
year in the county
county willwill be used.
used. If you also elect to (d) ifIfyou
youclaim
claimaaloss losson onanyanyacreage
acreageinsured under an
insured under
exclude a 2002 crop year actual yield,
exclude yield, the T-yield In in organic farming
organic farming practice,
practice, you you must
must provide
provide us with with
effect for the
effect the 2002 crop crop year
year in thethe county
county will be copies of of the records required In section 37(c).
used). The
used). replacement yields
The replacement yieldswiU will bebe used
used in in the (e) IfIf any
(e) anyacreage
acreage qualifies
qualifies as as certified
certified organic
organic or
same manner
same manner as actual yields
as actual yields for purpose of
for the purpose transitional
transitional acreage
acreageon on the
the date
date youyou report
report such
such
calculating the approved yield. acreage, and
acreage, and such such certification
certification isIssubsequently
subsequently
Once you have
(d) Once have elected
elected to exclude
exclude an actual actual yield
yield revoked by the certifying agent, or the certifying agent
from the database,
database, the replacement
replacement yield will remain remain no longer considers
no longer considers the the acreage
acreage as astransitional
transitional
In effect until such time as that crop year Is
in is no longer acreage for
acreage the remainder
for the remainder of the crop
of the year, that
crop year, that
included In
included the database
in the database unless
unless this this election
election is Is acreage will
acreage remain insured
will remain Insured under
under the the reported
reported
cancelled In accordance with section 35(b). quaUfled at the time
practice for which it qualified time the the acreage
acreage
(e) Although
(e) Although your your approved
approvedyield yieldwillwill be used to
be used to was reported. Any loss due to failure failure toto comply
comply with
determine your
determine your amount
amount of premium owed,
of premium owed, the the organic standards
organic standards will considered an
will be considered an uninsured
uninsured
premium rate will be increased to cover the additional cause of loss.loss.
risk associated with the substitution of higher yields. Contamination by
(f) Contamination by application
application or drift drift of
ofprohibited
prohibited
36. Applicability of of State and Local Statutes substances onto land on which crops are grown using
If the
If the provisions
provisions of of this
this policy
policy conflict with statutes
statutes of the organic farming practices will
farming practices will not be an insured
Insured peril
State or locality
State locality inIn which
which this policy
policy isis issued,
Issued, the policy
policy on any
any certified
certified organic, transitional or buffer
organic, transitional buffer zone
zone
provisions will prevail.
provisions prevaiL State and local laws and regulations acreage.
in conflict
in conflict with
with federal
federal statutes,
statutes, this policy, and
this policy, and thethe additiontotothe
(g) InInaddition theprovisions
provisionscontained
contained in in section
section 18(f),
18(f),
applicable regulations
applicable regulations do do not apply to this policy. prevented planting
prevented planting coverage
coverage will will not be provided
provided for
37. Organic Farming
Fanning Practices any acreage based on an organic organic farming
farming practice In in
accordance with section 9(b)(2), insurance
(a) In accordance Insurance will will not excess of the number
excess number of acres acres that
that will
will be
be grown
grown
provided for any
be provided any crop
crop grown
grown usingusing an an organic
organic under an organic fanning
under farming practice and shown as such
farming practice,
farming practice, unless the information
unless the Information neededneeded to In the records required In
in in section 37(c).
determine aa premium
determine premium rate rate for anan organic
organic farming
farming (h) In lieu of of the
the provisions
provisions contained
contained in in section
section 18(f)(1)
18(f){1)
practice is
practice specified on
is specified the actuarial
on the actuarial table,
table, or specify prevented
that specify prevented planting
planting acreage within within a field
insurance is
insurance Is allowed
allowed by a written agreement. that contains planted acreage will be considered to be
Insurance is
(b) If insurance is provided
provided forfor anan organic
organic farming
farming acreage of the same
acreage same practice
practice that
that is planted
planted in In the
practice as
practice specified in
as specified section 37(a),
in section 37(a), only only thethe field, prevented planting
field, prevented planting acreage
acreage will be be considered
considered
following acreage will be insured under such practice: as organic
as organic practice
practice acreageacreageifif itit is Is identified
Identified as as
(1) Certified organic acreage; certified organic, transitional, or buffer zone acreage
organic, transitional, acreage
Transitional acreage
(2) Transitional acreage being converted
converted to certified In the organic plan.
acreage In
organic acreage
organic accordance with
in accordance organic
with an organic
plan; and
(3) Buffer
Buffer zone acreage.
It> 2004
ID 2004 National
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50
.. LAURIE DIAZ -
- FEBRUARY 15,
15, 2012 11
1
JODY JAMES FARMS, JV, )
2 )
)
3 )
VS. ) ARBITRATION NO.
4 ) 71 430 E 00391 11
)
5 )
RAIN AND HAIL, L.L.C. )
6
7
8
9
ORAL DEPOSITION OF
10
LAURIE DIAZ
11
15, 2012
FEBRUARY 15,
12
13
14
15
QORIGINAL
ORIGINAL
16
17 ORAL DEPOSITION OF LAURIE
LAURIE DIAZ, produced
produced as a
18 instance of
witness at the instance of the
the PLAINTIFF,
PLAINTIFF, and
and duly
duly
19 sworn,
19 sworn, was taken in
in the
the above-styled and
and numbered
numbered cause
20
20 15, 2012,
on February 15, 2012, from
from 11:23 a.m.
a.m. to
to 1:17 p.m.,
p.m.,
21 before Cindy Shook,
Shook, CSR in and for the
the State of Texas,
Texas,
22
22 reported by machine shorthand,
reported shorthand, at
at the
the offices of the
23 Altman Agency,
23 Agency, 5805 64th Street,
Street, Lubbock,
Lubbock, Texas,
Texas,
24 pursuant to the Texas Rules of Civil
pursuant Civil Procedure and the
provisions stated on the record
record or attached ~h•e•re.tt~:o~~~~
or attached
l
25 provisions hereto
PLAINTIFF'S
'----------------~ EX~BIT
(1;IT
EXI-
CAPROCK COURT REPORTING,

REPORTING, INC.
INC . LUBBOCK, TEXAS
LUBBOCK, (806)795.4202
(806)795.4202
51
LAURIE DIAZ -- FEBRUARY
FEBRUARY 15,
15, 2012
2012 i..
• • I
LAURIE '
1 LAURIE DIAZ,
LAURIE DIAZ,
2
2 having been
having beenfirst duly sworn
first duly sworn by
by the court reporter,
the court reporter,
33 testified as
as follows:
follows:
4 EXAMINATION
5
5 BY MR.
BY MR. JENKINS:
JENKINS:
66 Q.
Q. Could you
Could you state
state your
your name
name for
for us,
us, please,
please,
7 ma • am?
ma'am?
8 A.
A. Laura Ann Diaz.
Di az.
99 Q. And
AndMs.
Ms.Diaz,
Diaz, what
whatdo
doyou
youdo
dofor
foraa living?
living?
10
10 A.
A. Operations manager.
Operations manager.
11
11 Q.
Q. And you work
And you work for
for the
theAltman
AltmanGroup?
Group?
12
12 A. Yes, sir.
A. Yes, sir.
13
13 Q.
Q. How long
long have
have you
you been
been doing
doing that?
that?
14 A.
A. Eleven years.
years.
15 Q. Have you
Have always been
you always been employed
employed here
here at
at this
16 address, or
address, officecomplex,
or this office complex, or
or this building?
building?
17 A.
A. No.
No.
18 Q,
Q. How long
How long have
have you been here?
you been here?
19 A.
A. Eleven years
Eleven --
or this
years -- or this building?
building? Three
Three years.
years.
20 Q.
Q. Three years.
Three Okay.
21 A. Yes, sir.
A. Yes, sir.
22 Q. But with the
But with the Altman Group, 11?
Altman Group, 11?
23 A.
A. Eleven years,
Eleven years, yes.
24 a.
Q. Have always
Have alwayshad
hadthe
the same
sametitle?
title?
25 Yes, sir.
A. Yes,
A. sir.
CAPROCK COURT
CAPROCK COURTREPORTING,
REPORTING, INC.
INC. LUBBOCK, TEXAS (806)795.4202
52
• .
•' LAURIE DIAZ -- FEBRUARY 15,
15, 2012
11 A.
A. Yes, sir,
Yes, sir, continuing
continuing education.
education.
2
2 Q.
Q. And when
when did
did you
you do
do that?
that?
3
3 A.
A. I do
I do that
that four
four times
times a
a year.
year.
4
4 Q.
Q. And have
And have you
you done
done that
that every
every year
year since
since 1992?
1992?
5
5 A.
A. Yes --
Yes -- no,
no, no.
no. II was
was not
not licensed
1 i censed until
unti 1 2003.
2003.
6
6 So in
So in 2003
2003 was
was when
when II was
was required
required to
to do
do the
the continuing
continuing
ed .
7 ed.
8
8
7 Q.
Q. And
And what
what were you licensed
were you licensed as
as in
in 2003?
2003?
9
9 A.
A. Property and
Property and casualty.
casualty.
10
10 Q.
Q. As an
an agent?
agent?
11
11 A. Yes,
A. Yes, sir.
sir.
12
12 Q.
Q. Do you
Do you get paid on
get paid on a
a commission
commission for
for the
the work
work
13
13 that you
that you do?
do?
14
14 A.
A. No. sir.
No, sir.
15
15 Q.
Q. How long
How long have
have you
you worked with
with any
any policy
policy that's
that's
16
16 been
been held
held by Mr.
Mr. James
James or Blanco
Blanco Gin?
17
17 A.
A. Approximately one
Approximately one year.
year.
18 Q.
Q. Did somebody
Did somebody else
else at
at the
the Altman
Altman Group
Group have
have his
his
19
19 policies prior the
policies prior the that?
that?
20
20 A.
A. Yes, sir.
Yes, sir.
21
21 Q.
Q. Why did
Why did you
you become
become involved?
involved?
22
22 A.
A. became involved
-- II became
I came --
I involved because
because he
he couldn't
couldn't
23
23 get along
get along with the agent that
the agent that we had assigned
we had to it,
assigned to it, and
and
24
24 the agent
the agent couldn't
couldn't get
get along
along with
with him.
him.
25
25 And who
Q. And
Q. who was
was that?
that?
CAPROCK COURT
CAPROCK REPORTING, INC.
COURT REPORTING, INC. LUBBOCK, TEXAS
LUBBOCK, TEXAS {806)795.4202
(806)795.4202
53
LAURIE DIAZ -- FEBRUARY 15,
15, 2012 51
51
1 loss
loss date periods
periods on
on this
this particular
particular type
type of
of policy
policy that
that
2 we have
2 have got
got here. You understand
here. You understand how
how these
these policies
policies
3 work and
3 how claims
and how claims must
must be
be filed,
filed, correct?
correct?
4
4 A. Yes, sir.
Yes, sir .
5
5 a.
Q. And so you said the last
last date to turn in the
6 claim was December the 10th.
6 10th .
7
7 A. Uh-huh .
A. Uh-huh.
8
8 a.
Q. That's the
That's the last
last date
date based
based upon
upon what?
what?
9
9 A.
A. That's the
That's the last
last date
date based
based on
on the
the policy.
policy.
10 a. Okay .
Q. Okay.
~
111 A.
A. As far
As far as
as the
the end
end of
of the
the insurance
insurance period,
period,
12 being able
being able to
to turn it
it in
in in
in the
the computer
computer system.
system.
13 a.
Q. Are there
there any
any circumstances
circumstances that
that would
would allow
allow aa
claim to
14 claim to be
be filed
filed after
after December
December the
the 10th?
10th?
15 A.
A. Yes, but
Yes, but I
I can't
can't tell
tell you
you what
what they
they are. I'm
are. I'm
16 not aa loss
not loss adjuster. just go
adjuster. II just go with
with December
December the
the 10th
10th
~7
17 in getting it
in it into
into the
the computer
computer system
system so that
that it's
i t's
filed timely.
18 filed timely.
19 a.
Q. So if one of your clients has a claim for one
* of their
of their crops,
crops, they
they call
call you
you up
up and
and say,
say, "I have aa
"I have
21 claim," do you
claim," you expect
expect them
them to
to send
send you
you aa written
written
.
correspondence telling
22 correspondence telling you
you that
that they
they have
have aa claim
claim in
in
addition to
23 addition that?
to that?
t24
24 A. No, sir.
A. No, sir .
~5
25 a.
Q. So most
So most of
of them
them do
do not?
not?
CAPROCK COURT
CAPROCK COURT REPORTING, INC.
REPORTING, INC. LUBBOCK, TEXAS
LUBBOCK, TEXAS (806)795 . 4202
(806)795.4202
54
LAURIE FEBRUARY 15,
15, 2012 52
•
11 A.
A. That's correct,
That's correct, sir.
sir.
2
2 a.
Q. They just
They just call
call you
you and
and say,
say, "You're
"You • re my
my agent.
agent.
3
3 Take care
Take care of
of it,"
it," right?
right?
4
4 A.
A. They call
They call you
you and
and say,
say, "I
"I have
have aa claim
claim.. II need
need
5
5 you to turn it in,"
in," yes,
yes, sir.
sir.
6
6 a. Okay. But
Q. Okay. Butyou
youdon't
don'tunderstand
understand or
or know
know any
any of
of
7 the
7 the provisions
provisions that
that would
would allow
allow aa claim
claim to
to be
be turned
turned in
in
after that
8 after
8 that December
December 10th
10th date?
date?
9 A.
A. No.
No.
10
10 Q.
Q. Do you recall
Do recall that the reason
reason why Mr.
Mr. James
11
11 would not
not give
give you
you the
the acreage
acreage --
-- do
do you
you recall
recall what
12
12 that was
that was when
when you
you first
first started
started filling
filling out
out the
the AR
AR
13 report?
14 A.
A. No, II don't.
No, don't.
15 Q.
Q. Was it .bec.ause it wasn't
because it wasn't planted
planted at
at that
that time?
time?
16 A.
A. I don't
I -- don't know.
don't -- II don't know. I don't really
I don't really
17 remember dealing
remember dealing with
with him. It was
him. It was aa lot
lot with
with Debby. So
Debby. So
18 can't really
I can't
I really tell
tell you
you II remember
remember speaking
speaking with
with him
him
19
19 specifically on
specifically on it. remember us
it. II remember us --
-- II can
can tell
tell you
you
20
20 talking to
talking to Debby
Debby for
for sure,
sure, but
but other
other than
than him,
him, II am
am not
not
21
21 for sure,
for sure, for
for sure.
sure.
22
22 Q.
Q. So on
So on January
January 5th,
5th, Mary
Mary Ann
Ann called
called you. You
you. You
23 didn't
didn't ever
ever talk
talk to
to Jody. Mary Ann
Jody. Mary Ann was
was the
the first
first to
to
24
24 inform you
inform you that
that there
there was
was aa potential
potential loss
loss on
on the
the milo
milo
25
25 crop?
crop?
CAPROCK COURT
LUBBOCK, (806)795.4202
(806)795.4202
55
LAURIE DIAZ
FEBRUARY 15,
15, 2012
2012 56
56
11 a.
Q. Was
Wasthere
there not
not an
an adjuster was taking
adjuster that was taking care
care
2
2 of that?
of that?
3 A. believe so.
II believe Like II said,
so. Like said, II don't
don't --
-- II don't
don't
4
4 know. Once
know. Once the
the claim
claim is turned in, Federal
is turned Federal crop
crop rules
rules
5
5 says that the
says that the agent
agent can
can no
no longer
longer be
be involved. So once
involved. So once
6 turn the
I turn
I the claim
claim in,
in,my
my involvement
involvement is
ismaybe
maybe to
7
7 facilitate information, to
facilitate information, to collect it and
collect it and give
give it
it to
to an
an
8
8 adjuster, to
adjuster, to give
give itittoto somebody.
somebody.
9
9 a.
Q. And John
John Utley
Utley was
was the
the adjuster
adj.uster on
on this
this case,
case,
10
10 correct?
correct?
11 A. Yes, si_r,
Yes, believe so.
sir, II believe so.
12 a.
Q. Was he
he hired
hired by
by Altman
Altman Group
Group or
or Rain
Rain and
and Hail?
Hail?
13 A.
A. Ra i n and
Rain and Hai 1 .
Hail.
14 a.
Q. Okay. So
Okay. So when
when Mary
Mary Ann
Ann faxed
faxed that
that milo
milo
15
15 production to
production to you,
you, you
you had
had to
to turn
turn around
around and
and give
give it
it to
to
16 somebody else
somebody else because
because you
you weren't
weren't supposed
supposed to
to be
be
17 involved at
involved at that
that point?
point?
18 A.
A. That's correct.
That's correct.
19 Q. So what
So what did
did you
you do
do with
with it?
it?
20 A.
A. sent it
II sent itto
toRain
Rain and
and Hail. didn't turn
Hail. II didn't turn the
the
21 claim in
claim and send
in and send it to Rain
it to Rain and
and Hail
Hail until
until later,
later,maybe
maybe
22 February, and
February, andthat's after phone
that's after phone calls,
calls,maybe,
maybe, back
back and
and
23 forth with
with Mary
Mary Ann
Annand
andthe
the situation with Jody
situation with Jody
24 escalating .
escalating.
25
25 thought that
II thought should have
I should
that I have let the
let the
CAPROCK COURT
CAPROCK COURT REPORTING,
REPORTING , INC.
INC. LUBBOCK, TEXAS
LUBBOCK, (806)795.4202
(806)795.4202
56
.. LAURIE DIAZ -
- FEBRUARY 15,
15, 2012 78
11 John when
John when John
John was
was working
working the
the cotton
cotton claim.
claim.
2
2 a.
Q. So that
So that next
next paragraph,
paragraph, it says, "Jody's
it says, "Jody's milo
milo
3
3 loss is
loss is one
one issue
issue in
in a
a long
long list
listofofissues."
issues."What
What other
other
4
4 issues were
were there?
there?
5 A.
A. The whole
The whole file. Him in
file. Him general .
in general.
6
6 a.
Q. You just
You just didn't 1 ike him
didn't like him and
and ----
7 A. No.
No.
8 a.
Q. -- was part
that was
-- that part of
of it?
9
9 A.
A. No, not
No, --
not -- not at all.
not at a 11 . If didn't like
If II didn't 1 ike him,
him, II
10
10 wouldn't have
have attempted
attempted to
to try
try to
to get
get his
his unit
unit structure
structure
11
11 fixed when
fixed when he
he was supposed
supposed to move his
to move insurance and
his insurance and
12
12 didn't.
13
13 a.
Q. Well, clearly,
Well, clearly, your
your letter
letter indicates
indicates that
that you
you
14
14 don't want
don't want to
to deal
deal with
with him. So --
him. So --
15
15 A.
A. Not now,
Not now , no,
no , sir.
si r .
16 a.
Q. And he --
-- and it says he scares you.
you.
17 A. Uh-huh.
A. Uh-huh.
18 a.
Q. And how
And how is
is it
it that
that he
he scared
scared you?
A.
A. In the
In the sense
sense of how he
of how heacts. He is
acts. He is rude,
rude,
manipulative, mean-spirited.
a.
Q. But II don't
But don't understand
understand what
whatyou
you-- were you
-- were you --
what were
what were you
you afraid was
was going
going to
tohappen?
happen?
A.
A. If --
If -- if
if you
you look
look at
at the
the history
history with
with Jody
Jody
James and
James and my
my agency,
agency, Roy
Roy King
King was
was the
the first
first agent,
agent,
didn't get
didn't get along
along with
with him. Attempted to
him. Attempted to hit
hit him
him with
with
CAPROCK COURT
LUBBOCK, (806)795.4202
(806)795.4202
57
LAURIE DIAZ -
- FEBRUARY 15,
15, 2012 79
11 his vehicle.
his vehicle.
2
2 Then you have Brad
Brad Pitts,
Pitts, didn't get along
3
3 with him,
him, didn't
didn't like
like him.
him. I had to take it,
I it, didn't get
get
4
4 along with me,
me, didn't
didn't like
like me,
me, didn't get along with
5
5 Gina, didn't
Gina, didn't get
get along
along with
with the
the FSA
FSA office. It's just
office. It's just aa
6 long line
long line of
of issues
issues with
with this
this man.
man.
7
7 a.
Q. issues are thinks
And most of these issues thinks that you
yo~
8 have heard
have heard from
from somebody
somebody else
else and
and not
not physically
physically been
been aa
9
9 part of?
part of?
10 A.
A. Until II had to deal
Until deal with him
him this
this last
last year.
year.
11
11 a.
Q. And so
so when you
you say
say you're
you're scared
scared of
of him,
him, you
you
12 weren't really scared
weren't really scared of
of him. You just
him. You just didn't
didn't want
want to
to
13 deal with him.
deal him.
14 A.
A. bit of
A little bit
A of both.
both.
15 a.
Q. were you
And what were you scared
scared he was going to
was going do?
to do?
16 A.
A. his ranting
With his ranting and
and raving -- you
raving -- you know,
know,
17 now, you
anymore now, don't know
you don't know when
when someone
someone is
is going
going to
to
18 walk in your office and start shooting,
shooting, and
and with his
19
19 nasty attitude
nasty attitude --
-- like
like II said,
said, you
you just
just --
-- you
you pick
pick aa
20
20 person in
person in any
any of
of this
this deposition
deposition [sic]. He is
[sic]. He is nasty.
nasty.
21
21 a.
Q. And so
so you
you believe
believe that
that he
he would
would potentially
potentially
22 walk in your office and start
start shooting?
shooting?
23
23 A. Possibly.
A. Possibly. -
24
24 a.
Q. Your letter
Your letter indicates
indicates the
the CED
CEO advised
advised you
you Jody
Jody
25
25 is being
is being looked
looked at
at by
by the
the county
county committee.
committee. What was
REPORTING, INC.
CAPROCK COURT REPORTING, INC. LUBBOCK, TEXAS
LUBBOCK, (806)795.4202
(806)795.4202
58
.. .
Rain and Hail
Haill.l.C.
L.L.C.
Southwest Division
Southwest
CMc Circle, Suite 604
2201 Civic
Amarillo,
Amenlb, TXTX 79109
Tel; 1806 3534344
Tet l8061353-4344
299-4344
800 299-4344
Fax: 806 359-4947
Fax 806 359-4947
Website: www.RalnHa~l.com
Website; www.Raintiail.corn
April26,
April 26, 2011
JodyJames
Jody James Via Certified Mail:
Mail:70081140
7008 1140 0003
0003 2219 7230
282 County Road 215
Aoydada, Texas 79235-5700
Floydada,
Re: Multiple Peril

Multiple PerilPolicy
PolicyNumber:
Number: 516508
516508
Delayed Notice of Loss
Claim Number:
Number. 10-004269
2010 Crop Year, Grain sorghum
Dear Mr.
Mr.James,
James,
I am writing
writingas
as aa follow-up
follow-uptotoour
ourmultiple
multiplephone
phoneconversations
conversations over
over the
the last several weeksregarding
several weeks regarding the
theclaim
claim you
filed on your 2010 grain sorghum cropcrop insured
insured under
underthe
theMultiple
Multiple Peril Crop Insurance
Insurance(MPCI)
(MPCI) program.
Please
Please note, thepolicy
note,the policyinInquestion
quesJionisisaaMultiple
MultiplePeril
Peril Crop
Crop Insurance
Insurance('MPCI*)
("MPCI") policy,
policy, which is insured pursuant to the
Federal crop Insurance
Insurance Act (•FCIAj.
('FCIA`). The FCIAFCIA created
created the Federal Crop Insurance Corporation eFCICj
InsuranceCorporation ('FCIC') as an
agency within
agency within the
the USDA
USDA. One of FCIC's
FCJC's primary
primarygoals
goalsisistotoensure
ensure the
the equal treatment
treatment nisi!
of all insurance
insurancerecipients
recipients
through the adoption of aa common set of regulations.
set of regulations. ToTo·encourage
encourageparticipation,
participation, the
theFCIC
FCIC subsidizes the insurance
premiums. U.S.C§§1508.
premiums. 77U.S.0 1508.TheThefirst
firstpage
pageofofthe
theMPCI
MPCJCommon
CommonCrop CropInsurance
InsurancePolicy
Policy2005-NCIS
2005-NCIS700B,
7008, the
thepolicy
policy
at issue states:
at
This insurance
insurance policy is reinsured by by the
the Federal
FederalCrop
CropInsurance
InsuranceCorporation
Corporation(FCIC)
(FCIC) under
underthetheprovisions
provisions of
of
the FederalCrop
the Federal Crop Insurance
InsuranceAct Act(Act)
(Act) (7
{7 U.S.C. 1501 etetseq.).
seq.).All
All provisions
provisionsofofthe pof~ey and rights and
the policy
responsibilities of the
the parties are specifically
parties are specifically subject the Act
subject to the ActThe
Theprovisions
provisionsofofthethepolicy
policy may not be
waived or varied inin any
any way byby us,
us, our insurance agent or
insurance agent or any
any other
othercontractor
contractoror oremployee
employee of ofours or any
employee of
employee of USDA unless thepolicy
unless the policy specifically
specifically authorizes
authorizes aawaiver
waiverorormodification
modification by written
written agreement.
agreement.
We will
willuse
use the
the procedures manuals, memoranda
procedures (handbooks, manuals, memorandaand andbulletins),
bulletins), as
asissued
issuedbyby FCIC
FCIC and
publisheq
published on the RMARMA website
website atat http://www.rma.usda.gov/
http://www.rmausda.gov/ or oraa successor website, in the
successor website, the administration
administration of
this policy, including
including the
the adjustment
adjustment of of any loss
loss or claim submitted
submitted hereunder.
hereunder.
As discussed,
discussed,you
youfailed
failed to
to provide
provide aatimely
timely notice
notice of
of damage
damagewhich
which has
hasresulted
resultedInInour
ourinability
inability to make the
necessaryand
necessary andrequired
requiredloss
lossdeterminations
determinationsforforindemnity
indemnityunder
underyour
yourMPCI
MPCIpolicy.
policy. Section
Section12
12ofofthe
theCommon
Common Crop
Insurance Policy
Insurance Policy defines the end of the insurance period as the earliest of the following:
as the earliest of the following:
lnsurance Period
12. Insurance
Coverage ends at the earliest of:

(b) Coverage
destruction of
(l) Total destruction
(1) ofthe insured crop on the unit;
(2) Harvest of
of the unit;
{3} Final adjustment of
(3) of a loss on a unit;
calendar date
(4) The calendar date contained in the
contained in CropProvisions
the Crop Provisions for
forthe
theend
endofofthe
the insurance
insurance period;
(5} Abandonment
(5) Abandonment of ofthe crop on the unit; or
(6) As otherwise specified in the
the Crop
Crop Provisions
Provisions...,
PLAJNnFF'S
PLAINTIFF'S
EXHIBIT
11 I /f()
0
64
..
Paragraph 15(a)(2)
15(a)(2) describes yourduties
describes your duties toto file aa timely
timely notice
noticeofofdamage
damage in in the
the event
event there
there Is
is a
a loss.
Paragraph 15 (a)(5)
(a}(5) requires you to give us us notice of your
yourexpected
expected revenue loss not later than 45 days after the date
the Harvest Price Isis released. Paragraph1515(c)
released. Paragraph (c)includes
includesadditional
additionallanguage
languagethat thatrequires
requiresyou
youtotosubmit
submitaaclaim
claim for
indemnity, that
indemnity, information we
that includes all infonnation require to settle your claim, within
we require within6060 days
days after the
the Harvest Price is
released. Paragraph
Paragraph15(h)(1)
15(h)(1) containsourourrequired
contains requiredcourse
courseofof actionif ifyou
action youdodonotnotcomply
complywith theprovisions
withthe provisions in
in
paragraph 15(c).
15. Duties In
15. In the Event of Damage,
Damage, Loss,
Loss, Abandonment,
Abandonment, Destruction,
Destruction,or
orAlternative
Alternative Use
Useof
ofCrop
Crop or
or Acreage.
Your Duties
Your Duties--
(a} in
(a) In case of damage
case of to any
damage to any insured crop you
you must
must
(1) Protect
(1) Protect the
the crop
crop from
from further damage
damage by byproviding
providing sufficient care;
(2) Give us
(2) us notice
notice within
within 72 hours
hours of your initial
initial discovel)'
discoveryof ofdamage
damage (but not later
than 15
15 days
days after
afterthe endof
the end ofthe
the insurance
insuranceperiod),
period),bybyunit,
unit, for each insured
crop;
(5) Give
(5) Giveususnotice
noticeofofyour
your expected
expected revenue
revenue loss
lossnotnotlater
laterthan
than 45
45 days
days after
after the
the date
date the
the Harvest
Harvest
Price Is
is released.
(c) In add'rtion
addition to complying
complying withwiththethe notice
notice requirements,
requirements, you must must submit
submit aaclaim
cfaim for
indemnity declaring
indemnity declaring the amount of of your
your Joss
loss not
not later
laterthan
than 60
60 days after the Harvest Price is released
requestan
unless you request anextension
extensioninin writing
writing and we we agree Extensionswill
agree to such extension. Extensions will only
only be
granted ifif the amount
amountof of loss
loss cannot
cannotbe bedetermined
determinedwithinwithin such
suchtime
time period
period because
becausethetheinformation
information
needed
needed to todetermine
determinethe
theamount
amountofofthe theloss
Jossisisnot
notavailable.
avanable.The
Theclaim
claimfor
forindemnity
indemnitymust
mustinclude
include all
all
information
information we we require to settle the claim. Failure
the claim. Failuretotosubmit
submitaaclaim
claimororprovide therequired
providethe requiredinformation
infonnation
will result
will result In
in no
no indemnity,
indemnity,prevented
prevented planting payment or or replant
replant payment
payment(Even
(Even though
though nonoindemnity
indemnity or
payment
payment is is due,
due, you will still
youwill still be
be required
required to pay the premium due due under
underthe
thepolicy
policy for
for the unit.
unit
(h} It is your duty to prove

(h) prove you
you have
havecomplied
compliedwith aB provisions
with all provisions of
ofthis
this policy.
policy.
(1) Failure to
(1) to comply
comply with
with.the requirements
requirementsofofsection
section15(c)
15(c)(Your
(YourDuties)
Duties)will
will result
result in
denial of
denial of your
your claim for Indemnity
indemnity or or prevented
prevented planting or replant payment payment for the
acreagefor
acreage forwhich
whichthe
thefailure
failure occurred.
occurred.Failure
Failuretotocomply
complywith with all other
requirements
requirements ofofthis
thissection
sectionwill
will result
resultinin denial yourclaim
denialofofyour claim for
for indemnity
Indemnity or
prevented planting or
prevented planting or replant
replant payment
paymentfor for the
the acreage
acreagefor forwhich
which thethe failure
faUure
occurred, unless
occurred, unlesswe still have
westill havethe
theability
ability to accurately adjust
adjust the
the loss
foss (Even
no Indemnity
though no Indemnity or other
other payment
payment isIs due,
due,you
youwill still be
will still be required to pay the
premium clue
due under the policy
under the policy for the unit); and
(2) Failure to comply

(2) comply with other sections ofthe
sections of thepolicy
policy will
will subject
subject you to the
consequencesspecified
consequences specified in
In those sections.
sections.
Rain and Hail

HaU received
received the loss
loss notice
notice on
on your
your 2010
2010 grain
grain sorghum
sorghum claimclaim on February
February 16,
16,2011. Wehave
2011. We haveconfirmed
confinned
with the
with the agency that you reported
reported aaprobable Josstototheir
probableloss theiroffice
officeon on January 2011.AAreview
JanuSJY5,5,2011. reviewofofyour
yourgrain
grain sorghum
claim file reflects the loss units of
loss units of 5.02, 6.01, and
and 6.02
6.02 were harvested
harvested on on December
December26, 26, 2010,
2010, January
January 27,
27, 2011, and
January 24,
January 24,2011, respectively. Each
2011, respectively. Eachloss
lossunit
unitwas
washarvested
harvestedwell wellafter
afterthe
theDecember
December10, 2010, end
10, 2010, end of
of insurance
date. Additionally,
date. Additionally, the Crop Revenue
Revenue Coverage
Coverage(CRC)
(CRC) Harvest
HarvestPricePricewas
wasreleased
releasedbybythe RiskManagement
theRisk ManagementAgencyAgency
(RMA) on
(RMA) onNovember
November1, 1, 2010.
2010. In In either
eithercase,
case,you
youdid
didnotnotfile
file aatimely
timely notice
notice of
of damage
damagewithwith 15
15 days
days after
after the end of
the Insurance period nor
insurance period nornotify
notify us
us of
of your expected revenueloss
expected revenue losswithin
within 45
45 days
daysofofthe
theNovember
November 1, 1, 2010, Harvest
announcement. ItItis,is,ininpart,
Price announcement. part,and
andbecause
becauseofofyour
yourfailure
failuretotosubmit
submitaatimely
timelynotice
notice ofof damage/loss
damagenoss to to us,
us, that
that we
necessaJYclaim
cannot make the necessary claimdeterminations
determinationsforforindemnity.
indemnity.
2
65
• •
ourunde~tanding
Additionally, it isis our understandingthat thatyou
you"farm-stored"
'farm-stored°all
allofofthe
thegrain
grainsorghum
sorghumbushels
bushelsharvested
harvestedinin2010.
2010. Based
on the information provided
provided to
to the adjuster, your harvested
the adjuster, harvested grain
grain sorghum
sorghum bushels
bushels were weighed and and stored in aa
commercial-size storage facility,
facility, then
then later sold to ADM Milling Co. It
It is also our unde~tanding that the applicable
our understanding that the applicable
storage facility is not licensed
licensed asas aa commercial grain elevator rather is a commercial-size facility facility used for •farm-
'farm-
storing• grain.
storing" grain.When
When "farm-storing•
'farm-storing' grain, the claim adjustment procedures
procedures require adjusters to measure and
calculate all farm-stored productionfor
farm-stored production forthe
theunit
unitand
andcurrent
currentcrop
cropyear.
year. Section
Section 1104
04 of the Federal
Federal Crop
Crop Insurance
Insurance
Corporation's {FCIC) loss Adjusbnent Manual (LAM} states the
(FCiC) Loss Adjustment Manual (LAM) states the following: following:
104 PRODUCTION FARM-STORED

PRODUcriON WEIGHED AND FARM..STORED
A Insured's
Insured'sWeighed
WeighedProduction
Productionfor the Current
fortbe Current Crop
Crop Year
Adjusters must measure and and calculate all farm-stored
farm-stored production
production for the unit and current
crop year unless as discussed
year unless discussed Inin subparagraph
subparagraphFFbelow,below,production
production to count is
detennined from pre-harvest appraisals as required
determined required or permitted.
permitted. If
Ifthe
the insured
insured provides
provides
weight records
acceptable weight records for
for the
the current
current crop year adjusters may:
(1)
{l) Use
Usethe
theinsured's
insured'sweighed
weighedproductionl/
productionl/forforthe
thecurrent
currentcrop
crop year PROVIDED the:
(a) Insured's weighed production!/
productionl/ isiswithin
within3%3% of
ofthe
theadjuster-measured
adjuster-measured and
calculated production,
production, (adjusted
(adjustedfor
forany
anyexcess
excess moisture
moisture and
andpack factor(if
packfactor (if
applicable)•
applicable).
.F Pre-harvest
.F Pre-harvestAppraisal
Aggraisalare arerequired
required or
orpermitted
pennitted in in lieu
lieu of
ofthe
the adjuster
adjuster measuring and
accepting the insured's
insured's weight
weight tickets. WHEN:
(I) Production
(1) Productionwill
willbebestored
stored(or
(orused
used(processed)
(processed)and stored)ininsuch
andstored) suchaamanner
manner that
that
production cannot
the production cannot bebemeasured
measured(refer PAR.'s 85
(refertotoPAR.'s 85 B
B (3) and (4) to determine
whether the
the weighed
weighed production
production was within the 3% 3% tolerance
toleranceas statedin
asstated inAA (1)
(1)
above (e.g.,
(a) above (e.g.• high-moisture com stored in airtight
high-moisture corn airtightstructures).lf
structures). Ifaapre-harvest
pre-harvest
appraisal is not done to determine the production-to-count, the claim claim must be
denied because tbe the insured does not havebave verifiable records of the stored
production in the absence of the AIP AlP being able to verify tbe the actual harvested
production in the structure by measuring the production in the structure. structure.
Based
Basedononthe
theclaim
claim adjustment
adjustment procedures
procedures spelled
spelled out
out above,
above,your
yourgrain
grain sorghum
sorghum claim
claim must
must bebe denied
denied because
without our measurements ofof the farm-stored
farm-stored production,
production, you
you do
do not
not have
have the
the required
requiredverifiable
verifiablerecords for the
records for
stored grain.
lastly, we
Lastly, we believe you intentionally
believe you intentionally misrepresented
misrepresented the theplanting
planting dates
dates on
on your
your2010
201 0grain
grainsorghum
sorghumcrop
cropinin order
order to
gain advantages under your MPCI MPC1 policy. Your 2010
policy. Your 2010crop
crop year
year acreage
acreagereport
report signed
signed by
by you
you on July 13, 2010,
the following
reflects the following planting dates on thethe loss
loss units
units in question:
Unit5.02
Unit 5.02 175.0 acres July 2, 2010
2010 planting
planting date
Unit6.01
Unit 6.01 330.0 acres July 2, 2010
2010 planting
planting date
Unit 6.02 227.5 acres July 2, 2010 planting date
2010 planting
The FSA
The FSA578578documents
documents dated August 13, 2010,
2010, and
and August
August 16,
16,2010, and signed
2010, and signed by
by you
you on August 16, 2010,
August16,
reflect the
reflect the following
following plant dates on the same
sameloss
loss units
units in
in question:
question:
Unit 5.02
Unit5.02 145.0 acres July 23, 2010
2010 planting
planting date
Unit6.01
Unit 6.01 330.0 acres July 24, 2010 planting date
2010 planting
Unit 6.02 acres
227.5 acres July 24, 2010
2010 planting
planting date
Additionally, you informed the adjuster that the

the above
above noted
noted grain
grain sorghum
sorghum acres
acres were
wereplanted
plantedwith
with an
an eight(8)
eight(B) row,
(20) foot
twenty (20) foot planter
planter that was capable
capable of
ofplanting
planfing 200
200 to
to 300
300acres
acresper
perday, yetyou
day,yet yousigned
signed the
the 578
578documents
documents
claiming to have planted 557.5 acres
acres (Unit
(Unit6.01
6.01—-330.0 acres, Unit
330.0 acres, Unit6.02
6.02-227.5 acres) all
— 227.5 acres) all on July 24,
24, 2010.
Section 27
27of
ofthe
the Basic
Basic Policy
Policy provisions reads as
as follows:
follows:
66
• •
27. Concealment,
Concealment, Misrepresentation
Misrepresentation or or Fraud
Fraud
(a) If
If you have falsely or or fraudulently
fraudulently concealed
concealed the the fact that
that you
you are
are ineligible
ineligibletoto receive
receivebenefits
benefits under
under the
or ifif you or
Act or or anyone
anyone assisting
assisting you
you has
has intentionally
intentionally concealed
concealedor ormisrepresented
misrepresented any anymaterial
material fact
relating to this policy:
(1) This policy will be voided; and
(1)
(2) You may be subject to remedial sanctions in
be subject
accordance with 7 CFR part 400,
CFR part 400, subpart R.
(b) Even though the policy
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(c) Voidance of
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misrepresentation, covering grain
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Please find
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enclosed premium refund
refund check
check for previously paid premium
premium less 20 percent.
percent
Please be
Please advisedthat
beadvised thatthe
thereferences
referencestotothetheforegoing
foregoingcoverage
coverageprovisions
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shouldnot
notbe
beinterpreted
interpreted as
aa waiver
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oran
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anyother
otherterms,
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retainthe right to
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this letter. Additionally,
Additionally, the foregoing analysis is based on the material that has been been made
made available
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us. Because
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receive all
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have any
have anyinformation
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which suggests
suggests thatthatthe
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information on which we have have based
basedourourdetermination
determinationisis erroneous,
erroneous, or
if there is additional material you would like us to consider,
consider, please
please provide thethe same to us as soon as possible.
possible. We
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will gladly reconsider our coverage position if any information you provided should so warrant. wanant IfIfyou
youwish
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20. Mediation, Arbitration,

20. Mediation, Arbitration, Appeal, Reconsideration, and
Appeal, Reconsideration, and Administrative and Judicial
JucHcial Review.
(a) IfIf you and we fail to agree

(a) agreeon on any
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of the American
Arbitration Association (AAA),
(AAA), except as provided in sections
sections20(c)
20(c) and (f), and unless
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established by FCIC FCICfor
forthis
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mediation is elected:
(1) The
(1) Theinitiation
initiation of
of arbitration
arbitration proceedings
proceedings must
must occur within
within one
one year of
of the date we denied your
claim or rendered the determination
determination with
with which you disagree, whichever isIs later;
The application
application and
and procedures
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theAmerican
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Associationarbitration
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www.adr.org.
web site at www.adr.org.
As requested, II have
have enclosed
enclosed aa copy
copyof
ofyour
your2010
2010 grain
grain sorghum
sorghum claim
daim file
file and
and your
your2010
2010 MPCI acreage report.
report. I
also enclosed
have also enclosed aacopy
copy of
ofthe
the 2005-NCIS
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7008CRC
CRCCrop
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RevenueBasic
BasicProvisions
Provisionsand
andthe
the2002-NCIS
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CRC Coarse Grains Crop Provisions.
44
67
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Should you have any questions regarding this matter, please
please give me
me aacall
call at
at 800-299-4344,
800-299-4344, extension 502.
Sincerely,
~·~
4,_
Kevin Powers
Kevin Powers
Claims Manager
cc: The Altman Group (via email.•.letter only)

email...letter
enclosures
5
68
Neutral
As of: February 24, 2017 3:47 PM EST
Baldwin v. Cavett
United States Court of Appeals for the Fifth Circuit
November 6, 2012, Filed
No. 11-41199 Consolidated with 12-40289
Reporter
502 Fed. Appx. 350 *; 2012 U.S. App. LEXIS 22777 **
SCOTT BALDWIN, JR.; SJBR ENTERPRISES, INC.; JOHN B. BALDWIN, Plaintiffs - Appellees, v. CLIFFORD W.
CAVETT; CAVETT, TURNER AND WYBLE, L.L.P., Defendants - Appellants.SCOTT BALDWIN, JR.; SJBR
ENTERPRISES, INCORPORATED; JOHN B. BALDWIN, Plaintiffs - Appellees, v. LARRY A. TURNER; ROBERT J.
WYBLE, Defendants - Appellants.
Notice: PLEASE REFER TO FEDERAL RULES OF APPELLATE PROCEDURE RULE 32.1 GOVERNING THE
CITATION TO UNPUBLISHED OPINIONS.
Prior History: [**1] Appeals from the United States District Court for the Eastern District of Texas. USDC No. 2:10-
CV-401.
Baldwin v. Cavett, 2011 U.S. Dist. LEXIS 112553 (E.D. Tex., Sept. 29, 2011)
Core Terms
arbitration, arbitration agreement, district court, arbitration clause, compel arbitration, services, parties, signatory,
nonsignatory, Engagement, accounting services, equitable estoppel, registered, securities, employees, applies,
advice, broker
Case Summary
Procedural Posture
Plaintiffs sued defendant accountants and accounting firm, alleging violations of the of the Racketeer Influenced
and Corrupt Organizations, 18 U.S.C.S. § 1961 et seq., and state claw. The United States District Court for the
Eastern District of Texas denied defendants' motion to compel arbitration, which was based on the arbitration
clause in the client agreement. Defendants appealed.
Overview
The accountants argued that they were "parties" to the arbitration clause contained in the client agreement because
it expressly referenced "employees or agents" of the securities broker. The court disagreed. Defendants had not
signed the new account forms or client agreements that contained the arbitration clause. Therefore, under ordinary
contract principles, defendants were not parties to the arbitration agreement, and the court rejected their attempts to
refute that straightforward conclusion. Further, the accountants were acting outside the course and scope of their
relationship with the securities broker when they provided the services that formed the basis of plaintiffs' claims.
Finally, because defendants were not a party to the arbitration agreement, and the district court did not clearly err in
concluding that they were acting outside of their role as securities broker agents when they provided the advice at
issue in the case, the district court did not abuse its discretion by denying the motion to compel arbitration based on
equitable estoppel.
Outcome
Mallory McCarty
Page 2 of 8
502 Fed. Appx. 350, *350; 2012 U.S. App. LEXIS 22777, **1
The orders denying the motions to compel arbitration were affirmed.
LexisNexis® Headnotes
Business & Corporate Compliance > ... > Alternative Dispute Resolution > Arbitration > Arbitrability
HN1[ ] To determine whether a person may be compelled to arbitrate, courts apply a two-step analysis. First,
courts examine whether the person agreed to arbitrate the dispute. This inquiry requires the court to ask: (1) is
there a valid agreement to arbitrate the claims and (2) does the dispute in question fall within the scope of that
arbitration agreement. Second, if the answer to both of these questions is "yes," courts consider whether any
federal statute or policy renders the dispute nonarbitrable.
HN2[ ] An arbitration clause must be in writing and signed by the party invoking it and courts will allow a
nonsignatory to invoke an arbitration agreement only in rare circumstances.
Business & Corporate Compliance > ... > Arbitration > Federal Arbitration Act > Arbitration Agreements
Business & Corporate Compliance > ... > Contracts Law > Contract Conditions & Provisions > Arbitration Clauses
Contracts Law > Contract Interpretation > General Overview
HN3[ ] Generally-applicable rules of contract interpretation and enforcement govern arbitration clauses. 9
U.S.C.S. § 2.
Business & Corporate Compliance > ... > Formation of Contracts > Acceptance > General Overview
Business & Corporate Compliance > ... > Formation of Contracts > Acceptance > Meeting of Minds
Contracts Law > Formation of Contracts > Offers > General Overview
HN4[ ] Three elements comprise contract formation in Texas: offer, acceptance, and a meeting of the minds.
HN5[ ] A nonsignatory may not compel arbitration merely because he is an agent of one of the signatories.
Business & Corporate Law > Agency Relationships > Authority to Act > General Overview
Civil Procedure > Appeals > Standards of Review > Clearly Erroneous Review
Civil Procedure > Appeals > Standards of Review > De Novo Review
Civil Procedure > Appeals > Standards of Review > Questions of Fact & Law
Mallory McCarty
Page 3 of 8
HN6[ ] Whether an employee or agent was acting within the course and scope of his work is a mixed question of
law and fact. If legal issues predominate, such as when all of the facts are settled and undisputed, then we review
de novo the district court's application of the law to the facts and its conclusion regarding whether an agent or
employee was acting within the course of his work. But when factual issues predominate, appellate courts review
the district court's course-and-scope determination for clear error. Clear error exists only if this court, after reviewing
the record, has a definite and firm conviction that the district court made a mistake. If the district court's account of
the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even
though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently.
Civil Procedure > ... > Defenses, Demurrers & Objections > Affirmative Defenses > Estoppel
Civil Procedure > Appeals > Standards of Review > Abuse of Discretion
HN7[ ] The doctrine of equitable estoppel can sometimes provide a basis for a nonsignatory to enforce an
arbitration agreement against a signatory. Courts have recognized two scenarios in which equitable estoppel
applies: (1) 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, and (2) 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 signatories. Appellate courts review for abuse of discretion a district court's order
denying a motion to compel arbitration based on equitable estoppel. Generally, an abuse of discretion occurs only
when no reasonable person could agree with the district court's decision.
Counsel: For SCOTT BALDWIN, JR., SJBR ENTERPRISES, INCORPORATED, JOHN B. BALDWIN, Plaintiffs -
Appellees: Russell Stanley Post, William R. Peterson, Beck, Redden & Secrest, L.L.P., Houston, TX; Stephen Ray
Smith, Esq., Attorney, Laura Lawton Gee, Christian, Smith & Jewell, Houston, TX; George Robert Blakey, Notre
Dame Law School, Notre Dame, IN; Michael Charles Smith, Esq., Siebman, Burg, Phillips & Smith, L.L.P., Marshall,
TX.
For CLIFFORD W. CAVETT, CAVETT, TURNER & WYBLE, L.L.P., Defendants - Appellants: Linda Broocks,
Janiece M. Longoria, Judith Anne Meyer, Ogden, Gibson, Broocks, Longoria & Hall, L.L.P., Houston, TX; Richard
M. Forrest, Forrest Law Group, P.C., Houston, TX.
Judges: Before HIGGINBOTHAM, ELROD, and HAYNES, Circuit Judges.
Opinion
[*350] PER CURIAM: *
In this case we must decide whether the defendants may rely on an arbitration [*351] agreement they did not sign
to compel the plaintiffs' claims against them to arbitration. [**2] The defendants' motions to compel arbitration were
denied in the district court based on the conclusion that there is no agreement to arbitrate the plaintiffs' claims. For
the reasons that follow, we find no reversible error and, therefore, AFFIRM the orders denying the motions to
compel arbitration.
I.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
Mallory McCarty
Page 4 of 8
Clifford W. Cavett ("Cavett"), Larry A. Turner ("Turner"), and Robert J. Wyble ("Wyble") are partners in the
accounting firm Cavett, Turner & Wyble L.L.P. ("CTW"). According to the Second Amended Complaint, Cavett and
CTW began providing accounting services to Scott and John Baldwin, their law firm, and several Baldwin family
entities (collectively, "the Baldwins") in the mid-1990s. In 2000 and 2001, the Baldwins allege that Cavett, in his role
as the representative of CTW, conducted quarterly meetings with Scott Baldwin to discuss the Baldwins' tax
returns, business records, and the accounting details of the Baldwins' investment accounts. During these meetings,
Cavett allegedly told Scott Baldwin that his current investment advisor was charging excessive fees and
encouraged the Baldwins to transfer their investment accounts to Ronald J. Legnion ("Legnion"), a registered
securities broker [**3] with Raymond James Financial Services ("RJFS").
Eventually, in December 2004, the Baldwins opened their first account with RJFS. When opening the account, Scott
Baldwin signed two documents. First, he signed a "Disclosure of Receipt of Other Compensation From Referral of
Clients to Raymond James Financial Services by Partners and Staff of Cavett, Turner & Wyble, L.L.P." (the
"Disclosure Form"), which explained that Cavett, Turner, and Wyble are also partners with Legnion in LTC Financial
Services, Ltd. ("LTC"). The Disclosure Form specified that Legnion assigns to LTC all of the compensation he
receives from servicing RJFS accounts, and that a portion of those earnings are allocated to Cavett, Turner, and
Wyble based on their interest in LTC. The Disclosure Form did not contain an arbitration clause.
Second, Scott Baldwin signed an RJFS New Account Form, which Legnion also signed as "Financial Advisor" and
"Branch Manager." Cavett did not sign the New Account Form and was merely listed as the "CPA" designated to
receive duplicate copies of RJFS statements. Above Scott Baldwin's signature on the New Account Form is the
following statement: "By signing below, I acknowledge that I have [**4] received, read, understand, and agree to
abide by all the terms and conditions set forth in the Client Agreement incorporated herein by this reference."
The Client Agreement is a two-page, unsigned document that contains the following arbitration clause:
Any dispute or controversy, either arising in the future or in existence now, between me and you (including your
officers, directors, employees or agents and the introducing broker, if applicable) will be resolved by arbitration
conducted before the New York Stock Exchange, Inc., the National Association of Securities Dealers, Inc., the
American Stock Exchange, Inc., or other self-regulatory organizations (SRO) subject to the jurisdiction of the
Securities and Exchange Commission (SEC) pursuant to the arbitration rules of the applicable SRO.
This clause applies to each of the accounts that the Baldwins opened with RJFS.
Cavett and CTW continued to provide accounting services to the Baldwins after they opened the RJFS accounts,
and the Baldwins signed additional documents clarifying the accounting services that they were receiving.
Specifically, in November [*352] 2005, Scott Baldwin signed an "Outside Activity Disclosure Letter" (the "Activity
[**5] Letter"), which states: "I understand that the below noted product/service is being offered to me by my CPA in
his/her individual capacity and not in the capacity as a registered representative of [RJFS]." The "product/service"
listed in the Activity Letter was "Cavett Turner & Wyble (Certified Public Accountants)." Soon after Scott Baldwin
signed the Activity Letter, Cavett executed and delivered to him another letter (the "Engagement Letter"), which was
"to confirm [their] understanding of the terms and objectives of [their] engagement and the nature and limitations of
the services [CTW] will provide." The Engagement Letter described three accounting services: (1) compiling interim
and annual statements of assets, liabilities, and capital; (2) preparing quarterly and year-end payroll returns and
information reports; and (3) preparing federal income-tax returns.
The Baldwins allege that by May 2006 they had moved all of their investments to RJFS because Cavett told them
that doing so would be good from a tax perspective. They further allege that Cavett continued to provide them with
tax advice regarding their investments. The parties sharply dispute whether the Baldwins knew that Cavett
[**6] was working not only with Legnion, but also as a RJFS securities broker himself.
As the financial markets plummeted in 2007 and 2008, the Baldwins told Cavett that they wanted to get out of the
market. Cavett allegedly convinced the Baldwins to stay in the market because, again, it would be good from a tax
standpoint. By 2009, the value of the Baldwins' investments had decreased substantially.
Mallory McCarty
Page 5 of 8
In September 2010, the Baldwins sued Cavett and CTW in the Eastern District of Texas. The Baldwins' suit alleges
violations of the Racketeer Influenced and Corrupt Organizations (RICO) statute, see 18 U.S.C. § 1961 et seq., as
well as various state-law claims, including common law fraud, negligent misrepresentation, accountant malpractice,
and breach of fiduciary duty. Cavett and CTW moved to compel the dispute to arbitration based on the arbitration
clause in the Client Agreement. The Baldwins opposed the motion and filed their First Amended Complaint, which
altered several allegations concerning Cavett. Cavett and CTW then filed a motion to compel the revised claims in
the First Amended Complaint to arbitration.
The district court referred the case to a magistrate judge for pretrial purposes. [**7] On September 12, 2011, the
magistrate judge issued a report recommending that the district court deny Cavett and CTW's motion to compel
arbitration. The district court adopted the magistrate judge's conclusions and denied the motion to compel
arbitration, which prompted Cavett and CTW to appeal.
After Cavett and CTW filed their notice of appeal, the Baldwins filed a Second Amended Complaint adding Turner
and Wyble as defendants. Turner and Wyble moved to compel the Baldwins' claim to arbitration, arguing essentially
the same theories that Cavett and CTW previously advanced. Because those arguments were resolved in the
earlier ruling on Cavett and CTW's motion to compel arbitration, the motion was denied. Turner and Wyble then
filed a notice of appeal. The two appeals have been consolidated in this court.
II.
HN1[ ] To determine whether a person may be compelled to arbitrate, we apply a two-step analysis. Jones v.
Halliburton Co., 583 F.3d 228, 233-34 (5th Cir. 2009) (citing Sherer v. Green Tree Servicing LLC, 548 F.3d 379,
381 (5th Cir. 2008)). First, we examine whether the person agreed to arbitrate [*353] the dispute. Id. This inquiry
requires us to ask: "(1) is there a valid agreement to arbitrate [**8] the claims and (2) does the dispute in question
fall within the scope of that arbitration agreement." Id. at 234 (quoting Sherer, 548 F.3d at 381). Second, if the
answer to both of these questions is "yes," we consider whether any federal statute or policy renders the dispute
nonarbitrable. Id.
Our inquiry here begins and ends with the first step. While Cavett and the other defendants contend that there is an
agreement to arbitrate the Baldwins' claims, their arguments are unpersuasive for the reasons below.
A.
Cavett, Turner, and Wyble argue that they are "parties" to the arbitration clause contained in the Client Agreement
because it expressly references "employees or agents" of RJFS. We disagree.
Our jurisprudence recognizes an important distinction between signatories and nonsignatories to an arbitration
agreement. See, e.g., Westmoreland v. Sadoux, 299 F.3d 462, 465 (5th Cir. 2002) (stating that HN2[ ] "an
arbitration clause must be in writing and signed by the party invoking it" and explaining that "we will allow a
nonsignatory to invoke an arbitration agreement only in rare circumstances"). Here, it is undisputed that Cavett,
Turner, and Wyble did not sign the New Account Forms or Client [**9] Agreements that contain the arbitration
clause. Furthermore, HN3[ ] generally-applicable rules of contract interpretation and enforcement govern
arbitration clauses. See 9 U.S.C. § 2. The parties here have assumed that Texas law applies, and HN4[ ] three
elements comprise contract formation in Texas: offer, acceptance, and a "meeting of the minds." Bocchi Ams.
Assocs., Inc v. Commerce Fresh Mkt., Inc., 515 F.3d 383, 392 (5th Cir. 2008) (citing Prime Prods., Inc. v. S.S.I.
Plastics, Inc., 97 S.W.3d 631, 636 (Tex. App.—Houston [1st Dist.] 2002, pet. denied)). Cavett neither made an offer
to the Baldwins, nor accepted an offer from them. The same is true for Turner and Wyble. Therefore, under ordinary
contract principles, Cavett, Turner, and Wyble are not parties to the arbitration agreement. We reject their attempts
to refute this straightforward conclusion.
B.
Mallory McCarty
Page 6 of 8
Cavett, Turner, and Wyble next contend that there is an agreement to arbitrate the Baldwins' claims against them
because they are agents of RJFS. In Westmoreland, we joined other courts of appeal in concluding that HN5[ ] a
nonsignatory may not compel arbitration "merely because he is an agent of one of the signatories." 299 F.3d at 466.
But Cavett, [**10] Turner, and Wyble assert that this case is different because the arbitration clause applies to
"[a]ny dispute or controversy" and "includes . . . employees or agents." They insist that they may compel to
arbitration any claims that any RJFS customer subject to the Client Agreement may have against them for any
conduct, no matter how unrelated to their work for RJFS. In support of this argument, they direct us to In re Rubiola,
334 S.W.3d 220 (Tex. 2011). We agree that Rubiola is instructive here, but it reveals that Cavett, Turner, and
Wyble's position is untenable.
In Rubiola, the Salmons agreed to purchase a home from Greg Rubiola, who along with his brother, J.C., operated
several real estate businesses. Id. at 222. Greg and J.C. were president and vice-president, respectively, of Rubiola
Mortgage Company ("RMC")—a corporation they used to obtain financing for real estate buyers. Id. The Salmons
applied for mortgage financing with RMC, and as part of the lending process, executed an arbitration [*354]
agreement with RMC. Id. The arbitration agreement applied to "any and all controversies or claims between the
parties of whatever type or manner," and it expressly defined "parties" to [**11] include:
Rubiola Mortgage Company, and each and all persons and entities signing this agreement or any other
agreements between or among any of the parties as part of this transaction. "The parties" shall also include
individual partners, affiliates, officers, directors, employees, agents, and/or representatives of any party to such
documents, and shall include any other owner and holder of this agreement.
Id. at 222-23. J.C. signed the agreement on behalf of RMC, but Greg did not sign it. See id. at 223. The Salmons
later sued Greg and J.C., alleging, in part, that J.C.—as both a listing agent and a principal involved in the
construction and repair of their home—made numerous misrepresentations. Id. The Rubiolas moved to compel the
Salmons' claims to arbitration, arguing that they could rely on the arbitration agreement as officers and
representatives of RMC. Id. at 224. The Rubiola court agreed. Id. The arbitration agreement explicitly provided that
nonsignatory officers and representatives were parties to the agreement, and the Rubiolas were thus entitled to
compel arbitration in their capacity as officers and representatives of RMC. See id. at 224-25.
Cavett, Turner, and Wyble would [**12] have us focus entirely on the similarity between the arbitration agreement in
Rubiola, which expressly referenced officers and representatives of a signatory, and the agreement here, which
"includes . . . employees or agents" of a signatory. But we cannot divorce the language of the arbitration agreement
from the facts. That is because here, as in Rubiola, the nonsignatories' ability to compel arbitration depends on their
relationship with a signatory. Cavett, Turner, and Wyble derive their arbitration rights from RJFS, just as the
Rubiolas derived their arbitration rights from RMC. In both cases, acting on behalf of the signatory is a necessary
condition to relying on the arbitration clause. 1 While that did not present an obstacle to compelling arbitration in
Rubiola, it does here. For their part, Turner and Wyble make no argument that they were acting on behalf of RJFS
when they allegedly engaged in the conduct of which the Baldwins complain. Regarding Cavett, the district court
adopted the magistrate judge's determination that Cavett was not acting on behalf of RJFS when he provided the
services on which the Baldwins base their claims. Cavett contends that determination was erroneous, [**13] but we
disagree.
The magistrate judge's report to the district court explained that Cavett provided the Baldwins with general
accounting services for over seven years before engaging in the activities of which the Baldwins complain in this
suit. When the Baldwins decided to open accounts with RJFS, Cavett referred them to his partner, Legnion, instead
1 Despite Cavett, Turner, and Wyble's argument to the contrary, our conclusion here is consistent with Downer v. Siegel, 489
F.3d 623 (5th Cir. 2007). There, we addressed the scope of an arbitration clause and held that the parties' dispute was within the
scope of the clause because "[a] reasonable interpretation . . . support[ed] a conclusion that the clause cover[ed] the dispute."
Id. at 626. This case is different from Downer because we deal here not with the scope of an arbitration clause, but with whether
there is an agreement to arbitrate the claims. We need not reach the question of scope when there is no agreement to arbitrate,
see Jones, 583 F.3d at 233-34, and as we explain above, there is no such agreement between Cavett, Turner, and Wyble and
the Baldwins.
Mallory McCarty
Page 7 of 8
of representing them himself. Soon after the Baldwins executed the New [**14] Account Forms, they signed the
[*355] Activity Letter, which notified them that the accounting services they were receiving from CTW were "being
offered to [them] by [their] CPA in his/her individual capacity and not in the capacity as a registered representative
of [RJFS]." Then, in the Engagement Letter, Cavett represented to the Baldwins that he was providing them with
three specific types of accounting services. Furthermore, the New Account Forms merely listed Cavett as the "CPA"
to receive duplicate copies of financial statements, while Legnion was identified as the "Financial Advisor." Based
on these facts, the magistrate judge recommended and the district court concluded that "Cavett was acting outside
of his role as an agent of RJFS in providing the [Baldwins] with the general accounting and investment tax advice at
issue in this case."
The standard of review we use in reviewing the district court's conclusion depends on the nature of the case. HN6[
] Whether an employee or agent was acting within the course and scope of his work is a mixed question of law
and fact. Beech v. Hercules Drilling Co., L.L.C., 691 F.3d 566, 569 (5th Cir. 2012) (quoting Hussaini v. Marine
Transp. Lines, Inc., 158 F.3d 584 (5th Cir. 1998) [**15] (unpublished)). If legal issues predominate, such as when
all of the facts are settled and undisputed, then we review de novo the district court's application of the law to the
facts and its conclusion regarding whether an agent or employee was acting within the course of his work. Id. But
when factual issues predominate, we review the district court's course-and-scope determination for clear error. Id.
(quoting Hussaini, 158 F.3d at 584). Clear error exists only if this court, after reviewing the record, has a definite
and firm conviction that the district court made a mistake. Boudreaux v. United States, 280 F.3d 461, 466 (5th Cir.
2002) (quoting McAllister v. United States, 348 U.S. 19, 20, 75 S. Ct. 6, 99 L. Ed. 20 (1954)); see Estate of Lisle v.
C.I.R., 541 F.3d 595, 601 (5th Cir. 2008) ("If the district court's account of the evidence is plausible in light of the
record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting
as the trier of fact, it would have weighed the evidence differently." (quoting Anderson v. Bessemer City, 470 U.S.
564, 573-74, 105 S. Ct. 1504, 84 L. Ed. 2d 518 (1985)). Here, factual questions predominate. The parties sharply
dispute whether the Baldwins knew [**16] that Cavett was a registered RJFS securities broker. They also dispute
whether Cavett provided the Baldwins with investment advice in his role as a broker, or tax advice in his role as an
accountant. The clear-error standard therefore applies.
Our review of the record does not give rise to a definite and firm conviction that the district court made a mistake.
The Activity Letter, Engagement Letter, and the other allegations recited in the magistrate's report support the
district court's conclusion that Cavett was acting outside the course and scope of his relationship with RJFS when
he provided the services that form the basis of the Baldwins' claims. Accordingly, the district court did not clearly
err.
C.
As a nonsignatory, nonparty, nonagent, CTW asserts that it is entitled to compel the Baldwins' claims against it to
arbitration based on principles of equitable estoppel. We disagree.
HN7[ ] The doctrine of equitable estoppel can sometimes provide a basis for a nonsignatory to enforce an
arbitration agreement against a signatory. See Grigson v. Creative Artists Agency L.L.C., 210 F.3d 524, 527 (5th
Cir. 2000). We have recognized two scenarios in which equitable estoppel applies:
[*356] (1) "[W]hen [**17] 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," and
(2) "[W]hen 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 signatories."
Id. (emphasis and citation omitted). We review for abuse of discretion a district court's order denying a motion to
compel arbitration based on equitable estoppel. Weingarten Realty Investors v. Miller, 661 F.3d 904, 912 (5th Cir.
2011). Generally, an abuse of discretion occurs only when no reasonable person could agree with the district
court's decision. Friends for Am. Free Enterp. Ass'n v. Wal-Mart Stores, Inc., 284 F.3d 575, 578 (5th Cir. 2002)
(quoting Dawson v. United States, 68 F.3d 886, 896 (5th Cir. 1995)).
Mallory McCarty
Page 8 of 8
On the facts of this case, the district court did not abuse its discretion. The Activity Letter and Engagement Letter
made clear to the Baldwins that the services Cavett was providing them through CTW were not in his capacity as a
registered representative of RJFS. Based on these facts and the magistrate [**18] judge's recommendation, the
district court concluded that the Baldwins' claims against CTW do not rely on the Client Agreement between the
Baldwins and RJFS. The district court also concluded that CTW could not rely on the concerted-misconduct theory
because Cavett was not a party to the arbitration agreement. CTW argues that this conclusion is erroneous
because Cavett was a party to the arbitration agreement and acted in his capacity as an RJFS agent when
providing the services of which the Baldwins complain. But for the reasons we explained above, Cavett was not a
party to the arbitration agreement, and the district court did not clearly err in concluding that Cavett was acting
outside of his role as an RJFS agent when he provided the advice at issue in this case. Therefore, CTW has not
shown that the district court abused its discretion by denying CTW's motion to compel arbitration based on
equitable estoppel. See Weingarten, 661 F.3d at 912; Friends for Am. Free Enterp. Ass'n, 284 F.3d at 578.
III.
For the foregoing reasons, we find no reversible error and AFFIRM the orders denying the motions to compel
arbitration.
End of Document
Mallory McCarty
Cited
Golden Age Senior Living of El Paso, LLC v. Atwood

Court of Appeals of Texas, Eighth District, El Paso
January 8, 2016, Decided
No. 08-14-00161-CV
Reporter
486 S.W.3d 44 *; 2016 Tex. App. LEXIS 202 **
GOLDEN AGE SENIOR LIVING OF EL PASO, LLC and SUNRIDGE AT CAMBRIA, Appellants, v. JOHN PATRICK
ATWOOD, Appellee.
Subsequent History: As Corrected April 1, 2016.
Prior History: [**1] Appeal from the 168th Judicial District Court of El Paso County, Texas. (TC# 2013-DCV-3810).
Core Terms
arbitration, parties, arbitration agreement, compel arbitration, entity, trial court, economic interest, non-signatories,
MANDATORY, right to arbitration, documents, employees, financing, disputes
Case Summary
Overview
HOLDINGS: [1]-An employee could not be compelled to arbitrate his discrimination claims against his employers
because the employers were not signatories to the arbitration agreement the employee signed; rather, the
agreement was between the employee and the entity responsible for managing the employers pursuant to an
agreement; [2]-Although the management company claimed it was acting on behalf of the employers when it
entered the arbitration agreements with employees, the employers were not mentioned by name any where in the
agreement; [3]-The employers did not claim to have any financial interest in the management company and so were
not "an affiliated company" of the management company with an economic interest in it, as defined in the
agreement.
Outcome
Order denying motion to compel arbitration affirmed.
Business & Corporate Compliance > ... > Pretrial Matters > Alternative Dispute Resolution > Judicial Review
Civil Procedure > Appeals > Appellate Jurisdiction > Interlocutory Orders
HN1[ ] Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (2015) permits an interlocutory appeal from the denial of a
motion to compel arbitration under the Federal Arbitration Act.
Mallory McCarty
Page 2 of 6
486 S.W.3d 44, *44; 2016 Tex. App. LEXIS 202, **1
HN2[ ] A party seeking to compel arbitration must establish that: (1) a valid arbitration agreement exists and (2)
the claims in issue fall within the agreement's scope.
HN3[ ] An appellate court reviews a trial court's denial of a motion to compel arbitration for an abuse of discretion.
Under this standard, the appellate court defers to the trial court's factual determinations supported by the record
and reviews legal questions de novo.
Contracts Law > Third Parties
HN4[ ] Ordinarily, parties must sign arbitration agreements to enforce them or be bound by them. But this is not
always the case. An arbitration agreement may provide that certain non-signatories are parties to the agreement. If
the agreement does not expressly identify all the parties to the agreement, the question of whether a valid
arbitration clause exists between specific parties is ultimately a function of the intent of the parties, as expressed by
the terms of the agreement. To determine the parties' intent, courts apply ordinary principles of state contract law.
HN5[ ] Signatories to an arbitration agreement may identify other parties in their agreement that may enforce
arbitration as though they signed the agreement themselves.
HN6[ ] Non-signatories may not rely on an arbitration agreement to compel arbitration unless they were acting on
behalf of a signatory from which they derive their arbitration rights.
Counsel: FOR APPELLANTS: Hon. Jay M. Wallace, Bell Nunnally & Martin LLP, Dallas, TX.
FOR APPELLEE: Hon. John P. Mobbs, Attorney at Law, El Paso, TX.
Mallory McCarty
Page 3 of 6
486 S.W.3d 44, *44; 2016 Tex. App. LEXIS 202, **1
Judges: Before McClure, C.J., Rodriguez, and Hughes, JJ.
Opinion by: YVONNE T. RODRIGUEZ
Opinion
[*45] In this employment-discrimination case brought by John Patrick Atwood against Golden Age Senior Living of
El Paso, LLC (Senior Living) and Sunridge at Cambria (Senior Care), Senior Living and Senior Care (collectively,
"Appellants")1 sought to compel arbitration pursuant to an arbitration agreement they did not sign. Atwood asserted
Appellants could not compel arbitration because they could not prove the existence of a valid and enforceable
agreement to arbitrate his claims against them. Specifically, he claimed the agreement was invalid because
Appellants are not parties to it and unenforceable because it is so one-sided as to be substantively unconscionable.
The trial court apparently agreed with Atwood's argument because it denied the motion to compel without
explanation. On appeal, Appellants contend the trial court erred in so ruling. They assert they were parties to the
agreement and "the [**2] Arbitration Agreement covers the dispute at issue and is not substantively
unconscionable." We conclude otherwise and, therefore, affirm the trial court's order.
FACTUAL AND PROCEDURAL BACKGROUND
Atwood was hired by Senior Living to work at "Sunridge at Cambria." Approximately one year later, he was fired,
ostensibly for complaining of discriminatory treatment. After obtaining administrative permission to sue, Atwood
brought a cause of action against Appellants for gender discrimination and retaliation. They, in turn, answered and
moved to compel arbitration pursuant to a "MANDATORY ARBITRATION PLAN." Under the plan, an "Employee"
agrees to submit to binding arbitration any legally-recognized "Claim" against the "Company," including those
alleging discriminatory-employment practices.2 The term "Claim" is defined as "any claim . . . which an Employee
has with the Company, or the Company has with the Employee, which could normally [*46] be made the basis of a
lawsuit in a State or Federal Court." The term "Company" is defined as:
[T]he employer and any, present or former, officer, director, shareholder, co-worker, attorney, agent or [**3]
client of the Company. This definition shall also include any parent company, holding company, subsidiary or
any other entity which has or had an economic interest in the Company.
The term "employer" is not defined.
But the "MANDATORY ARBITRATION PLAN" was not signed by Senior Living or Senior Care. Instead, it was
signed by "Keith Ashburn" in his capacity as "Chief Operating Officer" of "12 Oaks Management Services, Inc.," the
entity responsible for managing Sunridge at Cambria pursuant to an agreement with the facility's tenant, Senior
Care. Ashburn averred that, under this management agreement, "12 Oaks assumes most administrative, payroll,
and human resources functions at the [facility] on behalf of . . . Senior Living." 12 Oaks, according to him, [**4] was
acting on behalf of Senior Living when it "had each of Senior Living's employees, including . . . Atwood, agree to the
provisions of a Mandatory Arbitration Plan and execute an acknowledgment of same." The acknowledgment signed
by Atwood is titled "RECEIPT OF 12 OAKS SENIOR LIVING DISPUTE RESOLUTION PROGRAM AND MUTUAL
AGREEMENT TO ARBITRATE CLAIMS" and states:
Employee has received and reviewed the 12 Oaks Senior Living Dispute and Resolution Program and Mutual
Agreement to Arbitrate Claims, understands that the Dispute Resolution Program is mandatory and applicable
to all Employees as of June 15, 2004, and understands that a copy of the Acknowledgment will be placed in
1 Senior Living and Senior Care are financially intertwined companies.

2 The arbitration clause reads, in pertinent part:
1.05 All employees, by applying for, accepting or by continuing employment after the implementation of this plan, shall be
required to submit any legally recognized claim to arbitration, rather than litigation, according to this plan and the rules
established for its enforcement. The company shall also be required to proceed to arbitration on all matters brought for
arbitration by an employee.
Mallory McCarty
Page 4 of 6
486 S.W.3d 44, *46; 2016 Tex. App. LEXIS 202, **4
his/her file. Employee has had the opportunity to ask his/her supervisor and 12 Oaks Senior Living
management staff any questions he/she may have concerning the Agreement.
Atwood opposed arbitration for the reasons identified earlier, and the parties filed briefs in support of their
respective positions. The trial court held a hearing, but it was not recorded. After taking the motion under
advisement, the trial court signed an order denying it without explanation. Appellants did not request, and the trial
court did [**5] not issue, findings of fact and conclusions of law. This accelerated appeal followed. See HN1[ ]
TEX.CIV.PRAC.&REM.CODE ANN. § 51.016 (West 2015)(permitting an interlocutory appeal from the denial of a motion
to compel arbitration under the Federal Arbitration Act); TEX.R.APP.P. 28.1 (classifying appeals from interlocutory
orders, when permitted by statute, as accelerated).
AGREEMENT TO ARBITRATE
HN2[ ] A party seeking to compel arbitration must establish that: (1) a valid arbitration agreement exists and (2)
the claims in issue fall within the agreement's scope. G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d
502, 524 (Tex. 2015). Atwood did not—and does not—dispute the supposition that his claims against Appellants fall
within the scope of the arbitration agreement. But he does dispute the notion that a valid and enforceable arbitration
agreement exists. As noted above, Atwood contends Appellants cannot rely on the "MANDATORY ARBITRATION
PLAN" to compel arbitration of his claims against them because they are not parties to the agreement and because
the agreement is so one-sided as to be substantively unconscionable. In response to Atwood's contentions,
Appellants counter, inter alia, that they are parties because the term "Company" in the agreement encompasses
[*47] Senior Living by virtue of its status—first—as Atwood's [**6] employer and—second—as "an affiliated
company of 12 Oaks" with an economic interest in 12 Oaks. We disagree.
Standard of Review
HN3[ ] We review the trial court's denial of a motion to compel arbitration for an abuse of discretion. See In re
Labatt Food Svc., L.P., 279 S.W.3d 640, 643 (Tex. 2009)(orig. proceeding). Under this standard, we defer to the
trial court's factual determinations supported by the record and review legal questions de novo. Id.
Applicable Law
It is undisputed that Appellants did not sign the "MANDATORY ARBITRATION PLAN." HN4[ ] Ordinarily, parties
must sign arbitration agreements to enforce them or be bound by them. In re Rubiola, 334 S.W.3d 220, 224 (Tex.
2011). But this is not always the case. An arbitration agreement may provide that certain non-signatories are parties
to the agreement. In re Rubiola, 334 S.W.3d at 224. If the agreement does not expressly identify all the parties to
the agreement, the question of whether a valid arbitration clause exists between specific parties is ultimately a
function of the intent of the parties, as expressed by the terms of the agreement. Id. To determine the parties' intent,
we apply ordinary principles of state contract law. Id.
Discussion
The trial court did not abuse its discretion in denying the Appellants' motion to compel arbitration of Atwood's claims
against them. Contrary [**7] to their assertion, no valid and enforceable arbitration agreement exists between
Atwood and them.
Under ordinary contract principles, Appellants are not parties to the arbitration agreement. Because Appellants did
not personally sign the arbitration agreement, there is no evidence they made an offer to Atwood, or accepted one
from him, to arbitrate any legally-recognized claims arising from their employment relationship. Nor do the terms of
the arbitration agreement clearly and unmistakable demonstrate that the parties to this dispute, as opposed to 12
Oaks and Atwood, intended to be bound by the agreement. Nowhere in the documentation provided to Atwood are
Appellants mentioned by name. Instead, 12 Oaks is the only entity specifically named in those documents. In the
arbitration agreement, 12 Oaks is identified as the "Company," and, by the terms of this plan, an "Employee" is
obligated to arbitrate his or her claims against the "Company." In the acknowledgment signed by Atwood, he
Mallory McCarty
Page 5 of 6
486 S.W.3d 44, *47; 2016 Tex. App. LEXIS 202, **7
expressly confirms his assent to the following matters: (1) receiving and reviewing "the 12 Oaks Senior Living
Dispute and Resolution Program and Mutual Agreement to Arbitrate Claims[;]" (2) understanding [**8] "that the
Dispute Resolution Program is mandatory and applicable to all Employees . . .[;]" and (3) having "had the
opportunity to ask his/her supervisor and 12 Oaks Senior Living management staff any questions he/she may have
concerning the Agreement." What these provisions clearly and unmistakably establish is that 12 Oaks and Atwood,
not Appellants and Atwood, agreed to arbitrate disputes between them.
As indicated above, Appellants argue they are parties to the arbitration agreement because the agreement
expressly defined "Company" to include "the employer" and "any other entity which has or had an economic interest
in the Company." In support of their argument, Appellants cite the afore-mentioned In re Rubiola. Appellants' [*48]
reliance on In re Rubiola is misplaced.
In re Rubiola stands for the proposition that HN5[ ] signatories to an arbitration agreement may identify other
parties in their agreement that may enforce arbitration as though they signed the agreement themselves. There, the
plaintiffs agreed to purchase a home from Greg Rubiola and his wife pursuant to a standard Texas real estate sales
contract without an arbitration clause. In re Rubiola, 334 S.W.3d at 222. The transaction was handled by Greg's
brother, [**9] J.C. Rubiola, "who served as the listing broker for the property." Id. After agreeing to purchase the
home, the plaintiffs used Greg as their mortgage broker and loan officer, executing a financing agreement with
Rubiola Mortgage Company (RMC), a corporation operated by Greg and J.C in their capacities as president and
vice-president, respectively. Id. The financing agreement contained an arbitration provision, which applied to "any
and all controversies between the parties of whatever type or manner" and expressly defined "parties" to include:
[RMC], and each and all persons and entities signing this agreement or any other agreements between or
among any of the parties as part of this transaction. 'The parties' shall also include individual partners, affiliates,
officers, directors, employees, agents, and/or representatives of any party to such documents, and shall
include any other owner and holder of this agreement.
In re Rubiola, 334 S.W.3d at 222-23. The financing agreement was signed by J.C. on RMC's behalf, and the
plaintiff's signed a form acknowledging J.C.'s dual role as real estate agent and mortgage broker. Id. at 223. Greg
did not sign the financing agreement.
After purchasing the home, the plaintiffs sued Greg, J.C., [**10] and others for alleged misrepresentations inducing
them to buy the home and for failure to make certain repairs to the home. Id. Greg and J.C. moved to compel
arbitration as non-signatory parties to the arbitration agreement, asserting that, as RMC's officers and
representatives, they could rely on the arbitration agreement executed by the plaintiffs and RMC. Id. at 223-24. The
plaintiffs objected, arguing that J.C. and Greg were not parties to the arbitration agreement because they did not
sign it. Id. The trial court denied the Rubiolas' motion to compel, a decision upheld by the court of appeals. Id. at
223.
The Texas Supreme Court reversed, reasoning that the Rubiolas were entitled to compel arbitration in their capacity
as RMC's officers and representatives because: (1) the arbitration agreement explicitly provided that RMC's non-
signatory officers and representatives were parties to the agreement; and (2) the language of the arbitration
agreement indicated it "was not limited to the financing part of the transaction but rather extended to the real estate
sales contract and the [plaintiffs'] complaints regarding that sale." Id. at 225-26.
Appellants contend the arbitration agreement here is similar to the one in [**11] In re Rubiola in that it broadly
defines the parties to the agreement to include non-signatories; in this case, Senior Living in its capacities as
Atwood's employer and as an affiliated company of 12 Oaks with an economic interest in 12 Oaks. But the
underlying principle In re Rubiola is that HN6[ ] non-signatories may not rely on an arbitration agreement to
compel arbitration unless they were acting on behalf of a signatory from which they derive their arbitration rights.
See Baldwin v. Cavett, 502 Fed.Appx. 350, 353-54 (5th Cir. 2012)(analyzing Rubiola and reaching this conclusion).
In In re Rubiola, J.C. and Greg [*49] were able to compel arbitration because they were acting on behalf of RMC,
the entity from which they derived their arbitration rights, when they allegedly engaged in the tortious conduct about
which the plaintiffs complained. The same cannot be said here. Appellants were not acting on behalf of 12 Oaks
Mallory McCarty
Page 6 of 6
486 S.W.3d 44, *49; 2016 Tex. App. LEXIS 202, **11
when they allegedly engaged in the illegal conduct about which Atwood complained, and 12 Oaks is not an entity
from which Appellants can derive their arbitration rights.
Appellants first argue they are non-signatory parties because they derive their arbitration rights from Atwood in their
capacity as his "employer." We do not dispute that [**12] the agreement provides that "'Company' means the
employer . . . ." But, by the same token, the agreement identifies 12 Oaks as the "Company." Significantly, the
agreement does not name Atwood's employer, nor does it define the term "employer." And while the agreement
lists in general terms the wide array of parties to which it applies, the only entity identified by name in the
documents provided to Atwood is 12 Oaks. Thus, when construed as written and in conformity with its internal logic,
the arbitration agreement clearly and unmistakably identifies 12 Oaks as the employer with whom Atwood agreed to
arbitrate his disputes. Conversely, we cannot say that the agreement clearly and unmistakably identifies Senior
Living as the entity with whom Atwood agreed to arbitrate his disputes. That Atwood would agree to arbitrate
disputes against 12 Oaks is not improbable because he had some type of employment relationship with 12 Oaks,
as evidenced by the documents provided to him and by Ashburn's affidavit. Atwood acknowledged that he "had the
opportunity to ask his . . . supervisor and 12 Oaks Senior Living management staff any questions [he] may have
[had] concerning the Agreement[,]" and [**13] Ashburn averred that "[t]he Plan . . . covers all disputes that an
employee may have with 12 Oaks . . . ."
Appellants next argue they are parties because they derive their arbitration rights from 12 Oaks in their capacity as
"an affiliated company of 12 Oaks" with an economic interest in 12 Oaks. We do not dispute that the term
"Company" in the arbitration agreement is broadly defined to include "any other entity which has or had an
economic interest in the Company" and that 12 Oaks has a business relationship with Appellants. But there is no
evidence that Appellants have an economic interest in 12 Oaks. Nowhere in his affidavit does Ashburn make such a
claim, and the arbitration agreement fails to mention the relationship between Appellants and 12 Oaks. Ashburn
merely avers that Appellants are clients of 12 Oaks' management services. Furthermore, there is no evidence that
Appellants were acting on behalf of 12 Oaks when they allegedly engaged in the discriminatory conduct about
which Atwood complains, and Appellants make no such argument. Indeed, the evidence indicates that Appellants
have never acted on 12 Oaks' behalf in their dealings with Atwood. Ashburn states in his affidavit that [**14] 12
Oaks is Appellants' agent and that it acted on their behalf in assuming human resources duties at Sunridge at
Cambria, including the execution of the arbitration agreement in question here.
In sum, Appellants have failed to establish the existence of a valid and enforceable arbitration agreement to which
they are parties as non-signatories. Accordingly, the trial court did not abuse its discretion by denying Appellants'
motion to compel arbitration on this basis. Because this basis is sufficient to affirm the trial court's order, our inquiry
thus begins and ends here. We therefore decline to address the argument that the agreement is invalid and
unenforceable because it is so one-sided [*50] as to be substantively unconscionable. See TEX.R.APP.P. 47.1.
Appellants' issue is overruled.
CONCLUSION
The trial court's order denying Appellants' motion to compel arbitration is affirmed.
January 8, 2016
YVONNE T. RODRIGUEZ, Justice
End of Document
Mallory McCarty
Questioned
Grigson v. Creative Artists Agency, L.L.C.

April 24, 2000, Decided ; April 24, 2000, Filed
No. 98-51016
Reporter
210 F.3d 524 *; 2000 U.S. App. LEXIS 7365 **
CHARLES O. GRIGSON, as Trustee for "The Texas Chainsaw Massacre"; RIVER CITY FILMS, INC.; ULTRA
MUCHOS, INC., Plaintiffs-Appellants, versus CREATIVE ARTISTS AGENCY, L.L.C.; MATTHEW DAVID
McCONAUGHEY, Defendants-Appellees.
Subsequent History: [**1] As Corrected May 15, 2000. Rehearing and Rehearing En Banc Denied June 1, 2000,
Reported at: 2000 U.S. App. LEXIS 14951. Certiorari Denied November 27, 2000, Reported at: 2000 U.S. LEXIS
7835.
Prior History: Appeal from the United States District Court for the Western District of Texas. A-98-CV-235-JN.
James R Nowlin, US District Judge.
Disposition: AFFIRMED.
Core Terms
arbitration, non-signatory, signatory, parties, contracts, arbitration clause, equitable estoppel, movie, distribution
agreement, principles, district court, arbitration agreement, compel arbitration, estoppel, buyer's, RESTATEMENT,
intertwined, promissory estoppel, decisions, equitable, state-law, cases, disputes, written agreement, court's
decision, formation, inter alia, circumstances, allegations, subsidiary
Case Summary
Procedural Posture
Plaintiff trustee and plaintiff film company appealed the judgment of the United States District Court for the Western
District of Texas, applying equitable estoppel to compel arbitration under a distribution agreement in plaintiffs'
tortious interference action against defendant production company and defendant actor.
Overview
Plaintiff trustee and plaintiff film company brought an action against defendant production company and defendant
actor alleging tortious interference with a distribution agreement regarding plaintiffs' movie which defendant actor
had acted in. Defendants moved to compel arbitration under the distribution agreement. The trial court dismissed
plaintiffs' action so that the parties could proceed to arbitration, ruling that plaintiffs were equitably estopped from
avoiding arbitration based on defendants being non-signatories. Plaintiffs appealed, claiming that they were not
required to arbitrate with defendants, because defendants were not parties to the distribution agreement, and
because defendants could not rely on equitable estoppel. The court affirmed, holding that the trial court did not
abuse its discretion in dismissing the plaintiffs' action under equitable estoppel, because plaintiffs' claims were so
intertwined with and dependent upon the distribution agreement that the arbitration agreement within the distribution
agreement should have been given effect.
Outcome
Mallory McCarty
Page 2 of 15
210 F.3d 524, *524; 2000 U.S. App. LEXIS 7365, **1
Judgment affirmed because plaintiffs' claims against defendant production company and defendant actor were so
intertwined with and dependent upon the movie distribution agreement that the arbitration agreement within the
distribution agreement should have been given effect.
Civil Procedure > Pretrial Matters > Alternative Dispute Resolution > General Overview
HN1[ ] Arbitration is favored in the law. Accordingly, parties to such agreements cannot avoid them by casting
their claims in tort, rather than in contract.
Civil Procedure > ... > Alternative Dispute Resolution > Arbitration > General Overview
Business & Corporate Compliance > ... > Pretrial Matters > Alternative Dispute Resolution > Mandatory ADR
Contracts Law > ... > Estoppel > Equitable Estoppel > General Overview
HN2[ ] Proceedings against parties and non-parties to the arbitration agreement are stayed pending the outcome
of arbitration, when the action against the non-party is dependent upon interpretation of the underlying contract.
Similarly, in certain limited instances, pursuant to an equitable estoppel doctrine, a non-signatory-to-an-arbitration-
agreement-defendant can nevertheless compel arbitration against a signatory-plaintiff.
Contracts Law > Breach > General Overview
Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement
HN3[ ] 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 effectively thwarted.
Mallory McCarty
Page 3 of 15
210 F.3d 524, *524; 2000 U.S. App. LEXIS 7365, **1
Contracts Law > Formation of Contracts > Consideration > General Overview
Business & Corporate Compliance > ... > Formation of Contracts > Consideration > Detrimental Reliance
Contracts Law > ... > Consideration > Enforcement of Promises > General Overview
Contracts Law > ... > Estoppel > Equitable Estoppel > Elements of Equitable Estoppel
HN4[ ] Detrimental reliance is one of the elements for the usual application of equitable estoppel.
Civil Procedure > Judgments > Preclusion of Judgments > General Overview
Civil Procedure > ... > Preclusion of Judgments > Estoppel > General Overview
Civil Procedure > ... > Preclusion of Judgments > Estoppel > Judicial Estoppel
Civil Procedure > Appeals > Standards of Review > Clearly Erroneous Review
HN5[ ] Whether to utilize equitable estoppel is within the district court's discretion; the appellate court reviews to
determine only whether it has been abused. To constitute an abuse of discretion, the district court's decision must
be either premised on an application of the law that is erroneous, or on an assessment of the evidence that is
clearly erroneous.
Counsel: For CHARLES O GRIGSON, RIVER CITY FILMS INC, ULTRA MUCHOS INC, Plaintiffs - Appellants:
Ben J Cunningham, George & Donaldson, Austin, TX. Renea Hicks, Austin, TX.
For CREATIVE ARTISTS AGENCY L L C, MATTHEW DAVID MCCONAUGHEY, Defendants - Appellees: William
Joseph Boyce, Fulbright & Jaworski, Houston, TX. M Scott Incerto, Fulbright & Jaworski, Austin, TX.
Judges: Before DUHE, BARKSDALE, and DENNIS, Circuit Judges. DENNIS, Circuit Judge, dissenting.
Opinion by: RHESA HAWKINS BARKSDALE
Opinion
[*525] RHESA HAWKINS BARKSDALE, Circuit Judge:
Solely at issue is whether the district court abused its discretion by applying equitable estoppel to compel arbitration
for an action centered on tortious interference with a contract with an arbitration clause, brought by signatories to
the contract against non-signatories, the court holding that, because this action is intertwined with, and dependent
upon, that contract, its arbitration agreement should be given effect. We AFFIRM.
I.
"Return of the Texas Chain Saw Massacre" (the movie) was filmed in 1993-94; then "obscure actors" Matthew
McConaughey and Renee Zellweger acted in it. The movie was produced by Ultra Muchos, Inc., and River City
Films, Inc. The trustee for the movie's owners is Charles Grigson.
[*526] In October 1995, Ultra Muchos and River City entered into a distribution agreement with Columbia TriStar
Home Video, Inc. It was given exclusive distribution rights and complete discretion on how to exercise [**2] them;
the producers were to receive a percentage of the movie's gross revenue. And, by separate, earlier agreement, the
owners were to receive a portion of the producers' percentage.
Mallory McCarty
Page 4 of 15
210 F.3d 524, *526; 2000 U.S. App. LEXIS 7365, **2
In the period post-acting in the movie and prior to the fall of 1996, McConaughey signed an agency contract with
Creative Artists Agency, L.L.C. The movie's distribution was delayed by TriStar to take advantage of Zellweger and
McConaughey's success in subsequent movies. Subsequently, however, TriStar gave the movie only a limited
distribution.
In district court in mid-1997, Grigson, as trustee, sued Ultra Muchos, River City, and TriStar for breach of the
distribution agreement. But, Grigson quickly and voluntarily had the action dismissed that fall, when TriStar sought
to enforce the distribution agreement's arbitration clause, which contains a forum selection provision (Los Angeles
County, California).
In late 1997, a few months after the voluntary dismissal of the first action, Grigson, now joined by Ultra Muchos and
River City, filed this action in state court against McConaughey and Creative Artists (Defendants) for, inter alia,
tortious interference with the distribution agreement, claiming [**3] that such interference occurred between
McConaughey's signing with Creative Artists and the movie's limited distribution. In this regard, Defendants
allegedly pressured TriStar to limit the release because they viewed it as an improper exploitation of
McConaughey's success post-acting in the movie.
After the action was removed to federal court on the basis of diversity of citizenship, Defendants, although non-
signatories to the distribution agreement, moved to compel arbitration under the agreement. The same district court
that had permitted the voluntary dismissal of Grigson's first action ruled that Grigson, Ultra Muchos, and River City
(Appellants) were equitably estopped from relying upon Defendants' being non-signatories. This was based upon
holding that, because the claims are so intertwined with, and dependent upon, the distribution agreement, its
arbitration clause should be given effect. Accordingly, in the light of the forum selection provision in the arbitration
clause, the court dismissed the action so that the parties could proceed in the mandated forum (Los Angeles
County, California).
II.
HN1[ ] Arbitration is favored in the law. See Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24-25, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983). [**4] Accordingly, parties to such agreements cannot avoid them by
casting their claims in tort, rather than in contract. See e.g., Acevedo Maldonado v. PPG Indus., Inc., 514 F.2d
614, 616 (1st Cir. 1975). Likewise, HN2[ ] proceedings against parties and non-parties to the arbitration
agreement are stayed pending the outcome of arbitration, when the action against the non-party is dependent upon
interpretation of the underlying contract. See Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir.
1999). Similarly, as discussed infra, in certain limited instances, pursuant to an equitable estoppel doctrine, a non-
signatory-to-an-arbitration-agreement-defendant can nevertheless compel arbitration against a signatory-plaintiff.
In the distribution agreement, Ultra Muchos, River City, and TriStar agreed
that any dispute or controversy relating to any of the matters referred to in clauses (d)(i),(ii), or (iii), above, shall
be decided by a Rent-A-Judge, mutually selected by the parties (or, if they cannot agree, by the Presiding
Judge of the Los Angeles Superior Court) appointed in accordance with California Code of Civil
Procedure [**5] Section 638, sitting without a jury, in Los Angeles County California, [*527] and the Parties
hereby submit to the jurisdiction of such court.
The parties to this action agree that this procedure is the equivalent of arbitration, which would be subject to the
Federal Arbitration Act, 9 U.S.C. § 1 et seq. The clauses referenced in the arbitration provision concern
(i) the validity and interpretation of this agreement, (ii) the performance by the Parties of their respective
obligations hereunder, and (iii) all other causes of action (whether sounding in contract or in tort) arising out of
or relating to this Agreement….
Because the owners seek compensation through the distribution agreement, Grigson admits that he is a third party
beneficiary of that agreement; and that, therefore, he is required, as are the signatory-producers, to arbitrate with
TriStar all disputes concerning that agreement. Appellants contend, however, that they are not required to arbitrate
Mallory McCarty
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with Defendants, because they are not parties to the distribution agreement; and because, in the alternative,
Defendants do not fall within what Appellants view as the quite limited [**6] bases for application of equitable
estoppel to compel arbitration: either a special relationship to the distribution agreement signatories, or a role in
carrying out the agreement's obligations. Creative Artists and McConaughey counter that, because the charged
tortious interference is intertwined with the distribution agreement, they are entitled, through application of equitable
estoppel, to compel arbitration.
This is an issue of first impression for our circuit. Other circuits have, in a few instances, allowed a non-signatory to
a contract with an arbitration clause to compel arbitration under an equitable estoppel theory, including when the
action is intertwined with, and dependent upon, that contract. E.g., Sunkist Soft Drinks, Inc. v. Sunkist Growers,
Inc., 10 F.3d 753, 757 (11th Cir. 1993), cert. denied, 513 U.S. 869, 130 L. Ed. 2d 123, 115 S. Ct. 190 (1994);
Hughes Masonry Co., Inc. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 841 n.9 (7th Cir. 1981).
The Eleventh Circuit has taken the lead in applying equitable estoppel under the intertwined-claims basis. See also
McBro Planning & Dev. Co. v. Triangle Elec. Constr. Co., 741 F.2d 342 (11th Cir. 1984). [**7] The test, which
rejects the narrow strictures urged by Appellants, see Sunkist, 10 F.3d at 757-58, is framed nicely by that circuit in
MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999):
Existing case law demonstrates that HN3[ ] 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 [**8] meaningless and the federal
policy in favor of arbitration effectively thwarted.
(Internal citations and quotation marks omitted; emphasis added.)
We agree with the intertwined-claims test formulated by the Eleventh Circuit. Each case, of course, turns on its
facts. Such equitable estoppel is much more readily applicable when the case presents both independent bases
advanced by the Eleventh Circuit for applying the intertwined-claims [*528] doctrine. That is the situation here. The
linchpin for equitable estoppel is equity -- fairness. For the case at hand, to not apply this intertwined-claims basis to
compel arbitration would fly in the face of fairness.
For the above-quoted statement from MS Dealer Serv. Corp. that equitable estoppel is applied in order to fulfill
federal pro-arbitration policy, the Eleventh Circuit quoted from our court's decision in Sam Reisfeld & Son Import
Co. v. S. A. Eteco, 530 F.2d 679, 681 (5th Cir. 1976), which used an intertwined-claims rationale for staying judicial
proceedings against two defendants, with links to a third, pending arbitration with plaintiff. Unlike third-defendant,
the other two were not signatories [**9] to the arbitration agreement with plaintiff. Our court held, accordingly, that
the district court had "discretion" to stay the judicial proceedings as to all three defendants, even though, as noted,
two were not parties to the arbitration agreement: "the charges against these two defendants were based on the
same operative facts and were inherently inseparable from the claims against" third-defendant, a signatory to the
agreement. Id. Accordingly, our court concluded that the district court had not abused its discretion.
Although Reisfeld does not apply equitable estoppel per se, its ratio decidendi comports with that for application of
that doctrine to allow a defendant non-signatory to an arbitration agreement to compel arbitration with a plaintiff-
signatory. In short, although arbitration is a matter of contract and cannot, in general, be required for a matter
involving an arbitration agreement non-signatory, a signatory to that agreement cannot, in those instances
described in MS Dealer Serv. Corp., "have it both ways": it cannot, on the one hand, seek to hold the non-signatory
liable pursuant to duties imposed by the agreement, [**10] which contains an arbitration provision, but, on the other
hand, deny arbitration's applicability because the defendant is a non-signatory. MS Dealer Serv. Corp., 177 F.3d at
Mallory McCarty
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210 F.3d 524, *528; 2000 U.S. App. LEXIS 7365, **10
947; Hughes Masonry Co., 659 F.2d at 838-39. Again, to allow such inconsistent positions would be inequitable, to
say the least.
Moreover, as noted, it would be especially inequitable where, as here, a signatory non-defendant is charged with
interdependent and concerted misconduct with a non-signatory defendant. In such instances, that signatory, in
essence, becomes a party, with resulting loss, inter alia, of time and money because of its required participation in
the proceeding. Concomitantly, detrimental reliance by that signatory cannot be denied: it and the signatory-plaintiff
had agreed to arbitration in lieu of litigation (generally far more costly in terms of time and expense); but, the plaintiff
is seeking to avoid that agreement by bringing the action against a non-signatory charged with acting in concert
with that non-defendant signatory. Of course, HN4[ ] detrimental reliance is one of the elements for the usual
application of equitable estoppel. [**11] E.g., In re Coastal Plains, 179 F.3d 197, 207 (5th Cir. 1999), cert. denied,
120 S. Ct. 936 (U.S. 2000).
Accordingly, HN5[ ] whether to utilize equitable estoppel in this fashion is within the district court's discretion; we
review to determine only whether it has been abused. E.g., Scholle Corp. v. Blackhawk Molding Co., 133 F.3d
1469, 1471 (Fed. Cir. 1998); Hoefler v. Babbitt, 139 F.3d 726, 727 (9th Cir.), cert. denied, 525 U.S. 825, 119 S. Ct.
70, 142 L. Ed. 2d 55 (1998). See In Re Coastal Plains, Inc., 179 F.3d at 205 (judicial estoppel). To constitute an
abuse of discretion, the district court's decision must be either premised on an application of the law that is
erroneous, or on an assessment of the evidence that is clearly erroneous. Id.
The district court did not abuse its discretion by concluding "that Plaintiffs' claims are so intertwined with and
dependent upon the Distribution Agreement that the arbitration agreement within the Distribution [*529] Agreement
should be given effect". This conclusion is compelled [**12] by comparing the complaint (the operative facts for
purposes of the motion to compel arbitration) with the distribution agreement (an exhibit to the complaint). This is
quickly and amply demonstrated with but a few examples.
The distribution agreement is not the only contract for which tortious interference is claimed. Creative Artists is also
charged with such interference with McConaughey's actor's contract for the movie (another exhibit to the
complaint); he is charged with breach of that contract. Among other things, he was required by that actor's contract
to allow use of "his name and photographs … for commercial and advertising purposes".
The complaint uses that specific requirement in the actor's contract in describing how, for the theatrical release (as
defined in the distribution agreement) mandated by the distribution agreement, TriStar
had planned to distribute Chainsaw movie posters prominently featuring the likeness and name of
McConaughey and, in fact, had printed posters reflecting this plan. Creative Artists, acting for McConaughey,
contacted Columbia Tristar and successfully pressured it to retreat from its plan for the posters on the grounds
that [**13] McConaughey's fame should not be exploited in such a manner in connection with the Chainsaw
movie.
This is but part of the charged interference. In addition, the complaint alleges that the theatrical release was
delayed initially to take advantage of Zellweger's post-movie success in another movie, also released by TriStar;
that the plan changed to take advantage of both actors' success; that Creative Artists, on behalf of McConaughey,
"pressured" TriStar to not make a major release of the movie and, instead, to make only a limited one, to
Appellants' great financial detriment; and that, because of Defendants' actions, "TriStar failed to exercise its good
faith judgment in promoting, exploiting, and distributing" the movie. (Emphasis added.)
As is obvious from the foregoing, and as the district court concluded, these allegations and claims are intertwined
with, and dependent upon, the distribution agreement. In addition to Appellants relying on the terms of the
agreement in asserting their claims, TriStar and Defendants are charged with interdependent and concerted
misconduct.
The distribution agreement, in describing the movie, lists Zellweger and two others as [**14] "starring" in it;
McConaughey is not so listed. All rights to the movie are given to TriStar; and, subject to it making a required
Mallory McCarty
Page 7 of 15
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minimum expenditure in connection with the theatrical release, TriStar has "absolute discretion concerning the
exploitation of the [movie] in any and all media". (Emphasis added.)
In that provision, which obviously lies at the heart of this action, Appellants
agreed that the good faith judgment of [TriStar] regarding any matter affecting the exploitation of the [movie]
shall be binding and conclusive upon [Appellants] ([TriStar] shall make the determination, within its sole
discretion, whether or not to release the [movie] in a given media and/or in a given territory).
(Emphasis added.) "Territory" includes, with some exceptions, "the entire universe", while "media" includes, but is
not limited to, movie theaters.
And, as noted, the distribution agreement's arbitration clause pertains, inter alia, to the "interpretation of [the
distribution] agreement, … the performance by the Parties of their respective obligations thereunder, and … all
other causes of action (whether sounding in contract [**15] or in tort) arising out of or relating to this Agreement".
(Emphasis added.)
In short, the scope of the distribution, the "discretion", both "absolute" and "sole", vested in TriStar, and its "good
faith judgment" are at the center of this dispute. Among other things, TriStar is [*530] charged with, as a result of
the claimed interference ("pressure"), not using its "good faith judgment". Although not sued (an obvious attempt to
make an end-run around the arbitration clause, as discussed infra), TriStar nevertheless will be involved extensively
-- and, no doubt, quite expensively -- in this dispute, including whether it performed properly under the distribution
agreement.
As stated, the foregoing are but a few examples of the intertwining of the claims with the distribution agreement,
including the claimed concerted actions by Defendants (non-signatories), with TriStar, a signatory. How possible
damages might be computed, in the light of the detailed "accounting" provisions of the agreement, is but another
example.
This action is quite similar to Grigson's first action -- against TriStar, discussed below. After quickly instituting a
voluntary dismissal of that action, [**16] when TriStar moved to compel arbitration, Appellants brought this one
against McConaughey and Creative Artists, non-signatories to the distribution agreement, for, inter alia, interfering
with that agreement. As noted, this is a quite obvious, if not blatant, attempt to bypass the agreement's arbitration
clause.
In Grigson's first action, against the two producers (who joined Grigson in this second action) and TriStar, Grigson
charged TriStar, as it is also alleged to have done in the action at hand, with "breaching the 'good faith judgment'
clause … of the distribution agreement". In the alternative, TriStar was charged with fraud. And, the producers,
charged with failing to exploit the movie in breach of their contract with the owners, cross-claimed against TriStar.
One of the exhibits to the complaint is a 7 January 1997 letter to TriStar from one of the persons owning rights to
the movie, in which he stated that he and another similarly-situated person (who had also directed the movie) were
"very eager to know what [was] being done by [TriStar] to fully explore the financial possibilities of [the movie]", and
then advised: "It goes without saying that [TriStar] has [**17] absolute discretion in making those determinations but
this does not change my obligation to my investors to see that those decisions are based on what is best for this
film". (Emphasis added.) When TriStar moved promptly to compel arbitration, the owners and cross-claim
producers quickly folded their tents. The action, filed in district court on 9 June 1997, was dismissed without
prejudice on 10 September 1997.
The action at hand was filed two and one-half months later, on 22 December 1997. This time, it was filed in state
court. TriStar was no longer a defendant. Its earlier-charged failure to use its contractually required "good faith
judgment" was now alleged to have been caused by "pressure" from the new defendants, Creative Artists and
McConaughey. In reality, the two actions are the same. In essence, TriStar is a defendant. Each action turns on the
meaning of the distribution agreement's numerous -- often intricate -- provisions, which are unique to the film
industry, and on TriStar's conduct in relation to that agreement.
Mallory McCarty
Page 8 of 15
210 F.3d 524, *530; 2000 U.S. App. LEXIS 7365, **17
Arguably, the inconsistent positions by Grigson and the two producers in the first and second actions bump up on, if
indeed do not satisfy, [**18] the prerequisites for judicial estoppel. See In re Coastal Plains, 179 F.3d at 205-07
(purpose of doctrine is to prevent parties "playing fast and loose with the courts"). Judicial estoppel is not raised;
but, because that doctrine protects the judicial system, id., we can apply it sua sponte in certain instances. See
United States For Use of Am. Bank v. C.I.T. Constr. Inc., 944 F.2d 253, 258 (5th Cir. 1991).
In any event, comparison of the two actions demonstrates, quite vividly, why the district court, which presided over
both actions, did not abuse its discretion in compelling arbitration in the second, by applying the equitable estoppel
doctrine [*531] crafted for such situations. The claims are intertwined with, and dependent upon, the distribution
agreement, including, but not limited to, Defendants (non-signatories) and TriStar (non-defendant signatory) being
charged with interdependent and concerted misconduct. Indeed, this action is the quintessential situation for when
the doctrine should be applied.
III.
For the foregoing reasons, the judgment is
AFFIRMED.
Dissent by: DENNIS
Dissent
DENNIS, Circuit [**19] Judge, dissenting:
"Nearly anything can be called estoppel. When a lawyer or a judge does not know what other name to give for his
decision to decide a case in a certain way, he says there is an estoppel." 1 The trouble with that kind of use of the
estoppel label by the majority in this case making circuit precedent is that it will seriously hinder this court in
upholding the basic principle that a person has a right to a court's decision about the merits of a dispute unless he
has agreed to submit it to arbitration. Because the majority decision conflicts with the Supreme Court's recent
emphatic affirmations of that principle, and the precedents of this circuit, I respectfully dissent.
In First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 131 L. Ed. 2d 985, 115 S. Ct. 1920 (1995), the Supreme
Court reaffirmed [**20] important contractual arbitration principles: (1) Contract Governs Whether A Dispute Is
Arbitrable Or Litigable: "Arbitration is simply a matter of contract between the parties; it is a way to resolve those
disputes-but only those disputes-that the parties have agreed to submit to arbitration." 2 "[A] party who has not
agreed to arbitrate will normally have a right to a court's decision about the merits of its dispute[.]" 3 (2) State-Law
Contract Principles Govern Standing And Obligation To Arbitrate: "When deciding whether the parties agreed to
arbitrate a certain matter…courts generally…should apply ordinary state-law principles that govern the formation of
contracts." 4 [**22] (3) Parity Of Contractual Enforcement: "After all, the basic objective in this area is not to resolve
1 Statement
of Samuel Williston, 4 ALI Proceedings 61, 89-90 (1926) (quoted by 4 RICHARD A. LORD, WILLISTON ON
CONTRACTS § 8.5, at 73 (4th ed. 1992)) [hereinafter WILLISTON].
2 First
Options, 514 U.S. at 943 (citing AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 89 L. Ed. 2d
648, 106 S. Ct. 1415 (1986); Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57-58, 131 L. Ed. 2d 76, 115 S. Ct.
1212 and n.9 (1995); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 271, 130 L. Ed. 2d 753, 115 S. Ct. 834 (1995);
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-26, 87 L. Ed. 2d 444, 105 S. Ct. 3346 (1985)).
3 514 U.S. 938 at 942, 131 L. Ed. 2d 985, 115 S. Ct. 1920.
4 Id.
at 944 (citing Mastrobuono, 514 U.S. at 62-63 & n.9; Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford
Junior Univ., 489 U.S. 468, 475-76, 103 L. Ed. 2d 488, 109 S. Ct. 1248 (1989); Perry v. Thomas, 482 U.S. 483, 492-93 n.9, 96 L.
Ed. 2d 426, 107 S. Ct. 2520 (1987); 1 GABRIEL M. WILNER, DOMKE COMM ARBITRATION § 4:04, at 15 (Rev. Ed. 1993))
[hereinafter DOMKE].
Mallory McCarty
Page 9 of 15
210 F.3d 524, *531; 2000 U.S. App. LEXIS 7365, **22
disputes in the quickest manner possible, no matter what the parties' wishes, 5 but to ensure that commercial
arbitration agreements, like other contracts '"are enforced according to their terms,"' 6 and according to the
intentions of the parties[.]" 7 (4)Standard of Review: "Review of…a district court decision confirming an arbitration
award [*532] on the ground that the parties agreed [**21] to submit their dispute to arbitration, should proceed like
review of any other district court decision finding an agreement between parties, e.g., accepting findings of fact that
are not 'clearly erroneous' but deciding questions of law de novo." 8 (Internal citations placed in footnotes).
Air Line Pilots Ass'n v. Miller, 523 U.S. 866, 140 L. Ed. 2d 1070, 118 S. Ct. 1761 (1998), strongly confirmed these
principles in holding that non-union pilots challenging the agency fee collected by the union could not be required to
arbitrate their challenges because they had not agreed to do so: "Ordinarily, 'arbitration is a matter of contract and a
party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'" Id. at 876
(citing Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582, 4 L. Ed. 2d 1409, 80 S. Ct. 1347 (1960)); [**23]
see also First Options, 514 U.S. at 942 ("a party who has not agreed to arbitrate will normally have a right to a
court's decision about the merits of its dispute").
As a general rule, an arbitration clause cannot be invoked by a non-party to the arbitration contract, and only parties
to the arbitration agreement are bound to arbitrate. See 1 GABRIEL M. WILNER, DOMKE COMM ARBITRATION §
10:00, at 1 (Rev. Ed. 1993) (citing, inter alia, Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d 1287 (3d Cir. 1996); Gingiss
Int'l v. Bormet, 58 F.3d 328 (7th Cir. 1995); United States v. Harkins Builders, Inc., 45 F.3d 830 (4th Cir. 1995))
[hereinafter DOMKE]. The federal policy favoring arbitration is strong, but it alone cannot authorize a non-party to
invoke arbitration or require a non-signatory to arbitrate. See id. Nonetheless, a non-signatory may be bound by or
acquire rights under an arbitration agreement under ordinary state-law principles of agency or contract. Id.; First
Options, 514 U.S. at 944.
Courts have recognized a number of theories arising out of common law principles of contract and agency [**24]
law under which non-signatories may be bound to the arbitration agreements of others. For example, 1)
incorporation by reference; 2) assumption by conduct; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel. See
Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773, 776-80 (2d Cir. 1995) (citing as examples Matter of
Arbitration Between Keystone Shipping Co. & Texport Oil Co., 782 F. Supp. 28, 31 (S.D.N.Y. 1992)(incorporation
by bill of lading); Gvozdenovic v. United Air Lines, Inc., 933 F.2d 1100, 1105 (2d Cir.)(assumption by conduct), cert.
denied, 502 U.S. 910, 116 L. Ed. 2d 248, 112 S. Ct. 305 (1991); Interbras Cayman Co. v. Orient Victory Shipping
Co., S.A., 663 F.2d 4, 6-7 (2d Cir. 1981) (agency); Carte Blanche (Singapore) Pte., Ltd. v. Diners Club Int'l. Inc., 2
F.3d 24, 26 (2d Cir. 1993)(veil-piercing); Wm. Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d
131, 138-39 (2d Cir. 1991)(same); Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d
Cir. 1993) (non-signatory bound to arbitration [**25] contract by estoppel)).
In theory, under ordinary state-law principles of equitable and promissory estoppel, a non-party to a contract
containing an arbitration clause may invoke the clause and compel a signatory party to arbitrate when the signatory
reasonably should have expected that, because of his statements or conduct, the non-signatory would be induced
to rely justifiably on the contract and would be injured thereby if the signatory refused to recognize the non-
signatory's rights or entitlements with respect to the contract. 9 However, there [*533] have been few, if any, cases
5 514U.S. 938 at 947, 131 L. Ed. 2d 985, 115 S. Ct. 1920 (citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-20, 84 L.
Ed. 2d 158, 105 S. Ct. 1238 (1985)).
6 Id. (citing Mastrobuono, 514 U.S. at 54 (quoting Volt Information Sciences, 489 U.S. at 479)).
7 Id. (citing Mitsubishi Motors, 473 U.S. at 626; Allied-Bruce, 513 U.S. at 271).
8 First Options, 514 U.S. at 947-48 (citing Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 1509 (3d Cir. 1994)).
9 See, e.g., WILLISTON, supra note 1, §§ 8.3 and 8.4; RESTATEMENT (SECOND) OF CONTRACTS § 90(1) ("A promise which
the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which
Mallory McCarty
Page 10 of 15
210 F.3d 524, *533; 2000 U.S. App. LEXIS 7365, **25
in which a non-signatory has successfully invoked an arbitration clause against a party signatory to the contract
under ordinary equitable or promissory estoppel principles. In a relatively few arbitration cases, a non-signatory to
the arbitration agreement has been allowed to compel arbitration under a spurious estoppel theory when the
peculiar integrated or interlocking circumstances of the parties' relationships, related contracts, contractually
assigned responsibilities, conduct, and disputes would allow the inference that the signatory and non-signatory
parties have by an agreement implied in fact become [**26] bound reciprocally by the arbitration clause or the
contract of which it is a part. See MS Dealer Service Corp. v. Franklin, 177 F.3d 942 (11th Cir. 1999); Sunkist Soft
Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753 (11th Cir.), cert. denied, 513 U.S. 869, 130 L. Ed. 2d 123, 115 S.
Ct. 190 (1994); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315 (4th Cir. 1988); McBro
Planning & Development Co. v. Triangle Elec. Const. Co., Inc., 741 F.2d 342 (11th Cir. 1984); Hughes Masonry
Co., Inc. v. Greater Clark County School Bldg. Corp., 659 F.2d 836 (7th Cir. 1981); cf. 1 DOMKE § 10:07, at 18-20.
[**27] In truth, however, the bases of facts and reasoning upon which the courts in those cases ordered a signatory
to an arbitration agreement to arbitrate a dispute with a non-signatory have the earmarks of a foundation for an
agreement implied in fact rather than an ordinary equitable or promissory estoppel. In the courts' opinions the non-
signatory is said to have standing to compel a signatory to arbitrate, rather than litigate, a justiciable claim against
the non-signatory, if, in addition to other significant factors, there is a close relationship between signatory and non-
signatory entities and the signatory's claim against the non-signatory is intertwined with an arbitrable dispute under
the contract. However, the facts in those cases which made the relationships "close" and the claims "intertwined,"
viz., the disputants' voluntary and knowing formation of (and performance under) interlocking or integrated
contracts, their bargained for exchanges of promises and/or performances between themselves and others, and, in
Sunkist and J.J. Ryan, the parent-subsidiary corporate relationship, indicate the existence of an implied in fact
agreement rather than an ordinary equitable [**28] or promissory estoppel.
"An agreement implied in fact is 'founded upon a meeting of minds, which, although not embodied in an express
contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances,
their tacit understanding.'" Hercules, Inc. v. United States, 516 U.S. 417, 424, 134 L. Ed. 2d 47, 116 S. Ct. 981
(1996)(quoting Baltimore & Ohio R. Co. v. United States, 261 U.S. 592, 597, 67 L. Ed. 816, 43 S. Ct. 425 (1923)).
10 [**30] The doctrine of equitable estoppel generally provides "that a representation of past or existing fact made to
a party who relies upon it reasonably may not thereafter be denied by the party making the representation if
permitting the denial would result in injury or damage to the party who so relies." 11 The [*534] widely accepted
general statement of promissory estoppel, which developed against the backdrop of equitable estoppel, is set forth
by RESTATEMENT (SECOND) OF CONTRACTS § 90(1): "A promise which the promisor should reasonably
expect to induce action or forbearance on the part of the promisee or a third person and which does induce such
action or forbearance is binding [**29] if injustice can be avoided only by enforcement of the promise. The remedy
granted for breach may be limited as justice requires." In determining whether a person is bound either by an
agreement implied in fact or by the ordinary principles of equitable or promissory estoppel, it should be kept in mind
that "just as assent may be manifested by words or other conduct, sometimes including silence, so intention to
make a promise may be manifested in language or by implication from other circumstances, including course of
dealing or usage of trade or course of performance." 12 A brief review of Hughes, McBro, Sunkist and MS Dealer
shows ample evidence of assents and promises that may have more appropriately warranted basing those
does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy
granted for breach may be limited as justice requires."); cf. 1 DOMKE § 10.07, at 18.
10 See 1 WILLISTON § 1.5, at 18-20 (citing, inter alia, Wood v. Ingram, 275 S.W. 397 (Tex.Civ.App. 1925)(writ dism w.o.j.)), and
stating: "The Restatement (Second)[Of Contracts §§ 4 & comment a; 91 & comment a]….indicates that a promise may be stated
in words or may be inferred wholly or partly from conduct….a contract by conduct is, in essence, an implied in fact contract….the
Restatement, as well as the numerous cases, make the concept abundantly clear." Id. at 24-25; see also 4 WILLISTON §§ 8.3
and 8.4.
11 4 WILLISTON § 8.3, at 28-30 (citing, inter alia, Morton v. Samuels, 268 S.W.2d 490 (Tex.Civ.App. 1954, writ ref'd n.r.e.)).
12 RESTATEMENT (SECOND) OF CONTRACTS § 4, comment a.
Mallory McCarty
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decisions on agreements implied in fact, or perhaps on ordinary promissory estoppel, rather than upon the highly
abstract new theory of an "estoppel" loosely based on "close" relationships, "intertwined" claims, and other variable
factors.
The facts in McBro and Hughes were highly suggestive of an implied in fact agreement between the parties to be
mutually bound by the contract containing the arbitration clause. 13 In each case a construction contractor entered a
contract with the owner of the proposed facility containing an arbitration clause. The same contract designated a
non-signatory party as construction manager and outlined the duties of the owner, construction contractor,
construction manager, and, in one case, the architect, with respect to the construction project. The construction
managers in both cases had not signed the owner-contractor agreement but had signed separate contracts
containing similar arbitration clauses with either the owner or the owner's architect. By performing duties and
accepting benefits under the interlocking and integrated system of construction contracts and relationships
the [**31] contractors impliedly agreed to be bound to arbitrate disputes with the construction managers concerning
the performance of the managers' duties assigned by and performed under the owner-contractor agreement,
although the managers had only signed the related but separate contract documents between themselves and the
owner or its architect.
[**32] In Sunkist a non-signatory parent corporation was granted standing to arbitrate disputes arising out of the
performance of a contract containing an arbitration clause between the parent's wholly owned subsidiary and the
other signatory to the contract. The court relied not only on the close relationships of the entities and the close
resemblance of the arbitrable and litigable claims but also on a form of corporate veil piercing: "'When the charges
against a parent company and its subsidiary are based on the same facts and are [*535] inherently inseparable, a
court may refer claims against the parent to arbitration even though the parent is not formally a party to the
arbitration.'" Sunkist, 10 F.3d at 757 (quoting J.J. Ryan, 863 F.2d at 320-21). The Fourth Circuit in J.J. Ryan relied
on the foregoing veil piercing language quoted from its opinion and merely noted in passing that the same result
had been reached under a theory of equitable estoppel in McBro. See J.J. Ryan, 863 F.2d at 321.
In MS Dealer, Sharon Franklin agreed to purchase a car from Jim Burke Motors and signed a buyer's order with
Burke. The buyer's order [**33] incorporated by reference a retail installment contract between Franklin and Burke
which provided that Franklin was being charged $ 990.00 for a service contract under which MS Dealer Service
Corporation (apparently designated by name in the buyer's order) agreed to provide services for Franklin's car. (The
court of appeal's opinion suggests that MS Dealer entered an oral or written contract with Burke or Franklin or both
to provide services for Franklin's car.) The buyer's order contained an arbitration clause which provided that "all
disputes and controversies of every kind and nature between buyer and Jim Burke Motors, Inc. arising out of or in
connection with the purchase of this vehicle will be resolved by arbitration." Also, in another passage, the buyer's
order stated that "all disputes and controversies of every kind and nature between the parties hereto arising out of
or in connection with this contract" shall be submitted to arbitration. MS Dealer did not sign the buyer's order or the
installment contract.
Franklin sued Burke and MS Dealer in state court claiming that MS Dealer improperly conspired and colluded with
Burke and Chrysler Credit Corporation, the assignee of [**34] the retail installment contract, in a scheme to defraud
her by imposing an excessive charge of $ 990.00 for the service contract and dividing the excess amount. Burke
filed a motion in state court to compel Franklin to arbitrate, which was granted and resulted in an arbitration award
in favor of Burke and a dismissal of the state suit against Burke. MS Dealer sued Franklin in federal district court to
13 See II IAN R. MACNEIL ET AL., FEDERAL ARBITRATION LAW, § 18.2.3 (Supp. 1999) (analyzing the Eleventh Circuit cases
of McBro Planning & Development Co. v. Triangle Elec. Const. Co., Inc., 741 F.2d 342 (11th Cir. 1984) and acknowledging the
opinion's heavy reliance on Hughes Masonry Co. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836 (7th Cir. 1981), the
editors conclude: "It should be noted that the action estopping Triangle was apparently its contracting with Hospital in the first
place and performing under that contract. Thus the court could just as well have put the result in terms of consent. That is to say,
Hospital and McBro could have reasonably understood from Triangle's contracting with the hospital with knowledge of the terms
of the Hospital-McBro contract that Triangle was consenting to be bound by the arbitration clause. The decision is probably most
useful in simply broadening out conceptions of consent, rather than in introducing any truly separate doctrine.").
Mallory McCarty
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compel her to arbitrate her claims against it. The court of appeals reversed the district court's dismissal of MS
Dealer's petition and granted the defendants' motion to stay the action and compel arbitration.
The MS Dealer court, in concluding that Franklin was equitably estopped from avoiding arbitration with MS Dealer,
stated:
It is important to note that Franklin's obligation to pay the $ 990.00 charge arose under the Buyers Order and
that she specifically alleges that MS Dealer worked hand-in-hand with Jim Burke and Chrysler Credit
Corporation in this alleged fraudulent scheme. Her 'allegations of such pre-arranged, collusive behavior
establish[] that [her] claims against [MS Dealer are] intimately founded in and intertwined with the obligations
imposed by the [**35] [Buyers Order].'
MS Dealer, 177 F.3d at 948 (quoting Boyd v. Homes of Legend, Inc., 981 F. Supp. 1423, 1433 (M.D.Ala. 1997)).
As in Hughes and McBro, the circumstances of interlocking and integrated contracts would allow the inference that
both Franklin and MS Dealer had agreed to arbitrate any dispute between them arising out of or connected with
Franklin's purchase of the automobile. Indeed, the ambiguous buyer's order contract reasonably could be construed
to include MS Dealer as one of the "parties hereto." Further, Franklin reasonably should have understood that MS
Dealer agreed to provide the service contract in exchange for the compensation it was to receive under the buyer's
order and the retail installment contract and would call upon her to arbitrate any dispute related to the formation or
performance of the service contract. Moreover, because Franklin's allegations of Burke's fraudulent overcharging
[*536] for the service contract was clearly an arbitrable dispute arising out of and connected with the purchase of
the vehicle, MS Dealer's alleged conspiracy and collusion with Burke in the fraudulent overcharge was an
essential [**36] part of the arbitrable dispute between Franklin and Burke.
Nevertheless, the Eleventh Circuit chose to use the spurious estoppel theory or label and, in justifying its decision,
attempted to draw from the case some abstract "equitable estoppel" explanatory principles:
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 non-signatory. Sunkist Soft
Drinks, 10 F.3d at 757. When each of a signatory's claims against a non-signatory '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. Id. at 758. Second, 'application of equitable estoppel is
warranted … when the signatory [to the contract containing the arbitration clause] raises allegations of …
substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the
signatories to the contract.' Boyd, 981 F. Supp. at 1433.
MS Dealer, 177 F.3d at 947. [**37] The remainder of the MS Dealer opinion, however, in its painstaking analysis of
the facts and reasoning based on all of the circumstances involved, indicates no intention that the foregoing
principles should be applied as free-standing rules of law. The Eleventh Circuit concluded that Franklin was
compelled to arbitrate her dispute with MS Dealer only after pointing out facts indicating that both parties had
actually manifested their mutual assent to a bargain in which they exchanged promises of performances with each
other and with Jim Burke Motors; that the buyer's order incorporating the arbitration clause and the retail installment
contract, which incorporated the service contract with MS Dealer, were all parts of the bargain of which Franklin,
MS Dealer, and Burke were aware or should have been aware before they entered the agreement; and that, if MS
Dealer was a co-conspirator with Burke in defrauding Franklin as she alleged, her claim against MS Dealer was part
of her dispute with Burke, with whom she was a co-signatory of the arbitration agreement. See id. at 947-49.
On the other hand, the Second Circuit, in Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773 (2d Cir.
1995), [**38] refused to accept "anything short of requiring a full showing of some accepted theory under agency or
contract law" before compelling arbitration between a signatory and a non-signatory. Id. at 780. In Thomson, the
court of appeals reversed the district court's order compelling a non-signatory parent corporation to arbitrate a
dispute with a third party under an arbitration agreement signed by the parent's subsidiary corporation prior to the
parent's acquisition of the subsidiary. The district court had determined that the claims of the third party, E & S, did
Mallory McCarty
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not fall within any of the traditional theories for binding a non-signatory, but nevertheless ordered Thomson, the
non-signatory, to arbitrate a dispute with E & S, applying a "hybrid approach" based on Thomson's conduct in
voluntarily becoming an affiliate of its subsidiary, Rediffusion, on the degree of control Thomson exercised over
Rediffusion, and on the interrelatedness of the issues. In so doing, the Second Circuit held, "the district court
improperly extended the law of this Circuit and diluted the protections afforded nonsignatories by the 'ordinary
principles of contract and agency.' A nonsignatory [**39] may not be bound to arbitrate except as dictated by some
accepted theory under agency or contract law." Id. at 780 (quoting McAllister Bros., Inc. v. A & S Transp. Co., 621
F.2d 519, 524 (2d Cir. 1980))(internal citation omitted).
[*537] The Thomson court addressed a situation in which a signatory seeks to compel a non-signatory, the inverse
of the pattern in MS Dealer, Sunkist, J.J. Ryan, McBro and Hughes. Nonetheless, Thomson lends support to the
conclusion that the Hughes-McBro line of cases lacked a valid basis in the ordinary principles of estoppel or veil-
piercing for compelling the signatories to arbitrate with the non-signatories. Instead, as Thomson implicitly suggests,
in MS Dealer, McBro and Hughes, the only valid basis for compelling the signatories to arbitrate with the non-
signatories was that their knowing participation in the reticulated transactional arrangements, and their performance
and conduct thereunder, allowed the inference that they agreed to be mutually bound by the contract including the
arbitration clause. After taking Sunkist, J.J. Ryan, and McBro into account, the Second Circuit [**40] in Thomson
distinguished them as inapposite to the case before it on several grounds, including: (1) when Thomson acquired
Rediffusion as its subsidiary, Thomson explicitly disavowed any obligations under the working agreement, including
the arbitration clause, between Rediffusion and E & S, see Thomson, 64 F.3d at 777; (2) "veil piercing
determinations are fact specific and 'differ[] with the circumstances of each case.'", Id. at 777-78 (quoting American
Protein Corp. v. AB Volvo, 844 F.2d 56, 60 (2d Cir.), cert. denied, 488 U.S. 852, 102 L. Ed. 2d 109, 109 S. Ct. 136
(1988)); "E & S has not demonstrated that Thomson exerted the degree of control over Rediffusion necessary to
justify piercing the corporate veil.", 64 F.3d at 778; (3) "Thomson…cannot be estopped from denying the existence
of an arbitration clause to which it is a signatory because no such clause exists. At no point did Thomson indicate a
willingness to arbitrate with E & S." Id. at 779; (4) "the district court…improperly extended the limited theories upon
which this Court is willing to enforce an arbitration agreement against a non-signatory. [**41] The district court's
hybrid approach dilutes the safeguards afforded to a non-signatory by the 'ordinary principles of contract and
agency' and fails to adequately protect parent companies, the subsidiaries of which have entered into arbitration
agreements." Id. at 780.
The Second Circuit's adherence to "ordinary principles of contract and agency" in Thomson was consistent with the
Supreme Court's admonition and example it set in First Options as to the application of ordinary state law principles
of contracts to determine whether the parties agreed to arbitrate a certain matter. As mentioned above, the Court in
First Options instructed:
When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally
(though with a qualification we discuss below) should apply ordinary state-law principles that govern the
formation of contracts….The relevant state law here, for example, would require the court to see whether the
parties objectively revealed an intent to submit the arbitrability issue to arbitration. [citing an Illinois case for the
law of the state whose law governed the workout agreement and a Pennsylvania [**42] case for the law of the
state where the Kaplans objected to arbitrability]
First Options, 514 U.S. at 944 (internal citations omitted).
The plaintiffs brought the present suit against Creative Artists and McConaughey in a Texas state court asserting a
Texas state tort claim for interference with contract. Thus, the ordinary state law principles of Texas governing the
formation of contracts should be applied to determine whether the plaintiffs agreed to arbitrate this matter with the
defendants. The trial court acknowledged that neither of the defendants were signatories to the contract between
the plaintiffs and Columbia TriStar. The trial court did not find that the plaintiffs and defendants had entered [*538]
an agreement, express or implied in fact, to arbitrate the tortious interference with contract claim. Instead, the trial
court determined that the plaintiffs were bound by equitable estoppel to arbitrate the matter with the defendants. On
appeal the defendants also rely solely on equitable estoppel.
Mallory McCarty
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All American jurisdictions adopt and apply a theory of promissory estoppel grounded in section 90 of the contracts
restatements. 3 ERIC MILLS HOLMES, CORBIN [**43] ON CONTRACTS, § 8.12, at 58 (Joseph M. Perillo ed., rev.
ed. 1997) [hereinafter CORBIN]. This theory is an outgrowth of and includes the earlier doctrine of equitable
estoppel. See 1 E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS § 2.19, at 137-40 (1990 and Supp.
1998); 3 CORBIN § 8.11, at 46. Recent Texas decisions cite and apply the second Restatement § 90. See 3
CORBIN § 8.12, at 188 (citing City of Beaumont v. Excavators & Contractors, Inc., 870 S.W.2d 123, 136, 154
(Tex.App. 1993, writ denied) (citing RESTATEMENT (SECOND) OF CONTRACTS § 90); Traco, Inc. v. Arrow
Glass Co., Inc., 814 S.W.2d 186, 190 (Tex.App. 1991, writ denied); First State Bank in Archer City v. Schwarz Co.,
687 S.W.2d 453 (Tex.App.1985, writ ref'd n.r.e.)). The current three-prong Texas promissory estoppel requisites,
however, were fashioned from the first Restatement in the 1960s: (1) a promise, (2) foreseeability of reliance by the
promisor, and (3) substantial reliance by the promisee to its detriment. Id. (citing, e.g., English v. Fischer, 660
S.W.2d 521, 524 (Tex. 1983); Randle v. NCNB Texas Nat'l Bank, 812 S.W.2d 381 (Tex.App. 1991); [**44] Aubrey
v. W.O. Workman, 384 S.W.2d 389, 395 (Tex.Civ.App. 1964, writ ref'd n.r.e.)). Later decisions added: (4) reliance
on the promise must be reasonable, and (5) the promise will be enforced if necessary to avoid injustice. Id. (citing
Texas cases).
Applying the Texas state-law principles governing the formation of contracts and promissory estoppel, it is evident
that the plaintiffs should not be compelled to arbitrate their tortious interference with contract claim with Creative
Artists and McConaughey. There was no agreement between these parties, express or implied, to arbitrate that
dispute. None of the requisites of section 90 of the RESTATEMENT (SECOND) OF CONTRACTS or of the Texas
three-prong promissory estoppel have been established. There is no evidence that the plaintiffs promised the
defendants anything, that they could foresee any reliance by the defendants, or that the defendants relied on a
promise by the plaintiffs to defendants' detriment. 14
[**45] For all of these reasons, I believe that the majority has fallen into a number of serious, harmful legal errors in
the present case. The amorphous, misnamed estoppel theories of MS Dealer, Sunkist, McBro, and Hughes conflict
with and endanger the basic principles that the Supreme Court has held must be adhered to in compelling a person
to submit to commercial arbitration, viz., (1) a person cannot be required to submit to arbitration any dispute which
he has not agreed so to submit, (2) a person who has not agreed to arbitrate will normally have a right to a court's
decision about the merits of its dispute, and (3) ordinary state-law principles governing the formation of contracts
should be applied when deciding whether the parties agreed to arbitrate a certain matter. This court is [*539] not
bound by the court of appeals' decisions in the Hughes-McBro line of cases and should not attempt to follow them.
However, the majority erroneously attempts to follow MS Dealer and compounds its error by mistaking MS Dealer's
highly abstract explanatory "equitable estoppel" principles for the Eleventh Circuit's complete ratio decidendi.
Consequently, the majority overlooks [**46] the significance of the material facts upon which the MS Dealer
decision is actually based. In contrast with the present uncomplicated case, MS Dealer involved an integrated
network of interlocking agreements anchored in a buyer's order containing an arbitration agreement. The
signatories of the buyer's order, Franklin and Jim Burke Motors, and the non-signatory of those two documents, MS
Dealer, struck a bargain in which each person agreed to exchange promises of performance with the others. See
RESTATEMENT (SECOND) OF CONTRACTS § 17. Each of the three parties manifested mutual assent to the
bargain or exchanges of promises by intentional conduct from which he or she knew or had reason to know the
other parties would infer such assent. See RESTATEMENT (SECOND) OF CONTRACTS §§ 18, 19. Each of the
parties, including Franklin in particular, knew or had reason to know that the buyer's order contained an arbitration
agreement and incorporated by reference the retail installment contract and the vehicular service contract. Thus,
14 The district court apparently relied on Sunkist, McBro and two Texas decisions, Carlin v. 3V Inc., 928 S.W.2d 291 (Tex.App.--
Houston [14th Dist.] 1996, no writ) and Fridl v. Cook, 908 S.W.2d 507(Tex.App.-El Paso 1995, writ dism'd w.o.j.). These
decisions are not relevant to the present case. Sunkist and McBro are inapposite for the reasons stated earlier. Carlin is inapt
because its essential holding was simply that an assignee of an assignor's rights and duties under a contract assumes and is
bound by the arbitration clause in the contract when the assignee asserts a breach of contract claim under the contract against
the other signatory party to the contract. Fridl is irrelevant because its main holding was simply that a breach of contract claim
based on a contract containing an arbitration clause is subject to arbitration.
Mallory McCarty
Page 15 of 15
210 F.3d 524, *539; 2000 U.S. App. LEXIS 7365, **46
the rationale of MS Dealer can be viewed as limited by its material facts and even as an enforcement of an
agreement implied in fact. Consequently, [**47] if MS Dealer merely enforces an agreement implied in fact, it does
no violence to the principles that a party cannot be forced to submit to arbitration a dispute that he has not agreed
to so submit according to the application of ordinary state-law principles that govern the formation of contracts. The
majority, on the other hand, by disregarding the important material facts underlying MS Dealer, and by adopting and
applying only that decision's skeletal explanatory theory, unleashes an indeterminate precedent capable in its
application of sweeping countless parties' disputes into arbitration without even a semblance of their agreement
under ordinary state-law principles of contracts, agency or equitable estoppel.
The majority also misstates the applicable standard of review, although the error may not have had any effect upon
its decision. In First Options, the Supreme Court held that the standard a court of appeals should apply when
reviewing a district court decision that refuses to vacate or confirms an arbitration award should proceed by
accepting findings of fact that are not clearly erroneous but deciding questions of law de novo. See First Options,
514 U.S. at 948. [**48] "We believe…that the majority of Circuits is right in saying that courts of appeals should
apply ordinary, not special, standards when reviewing district court decisions upholding arbitration awards. For one
thing, it is undesirable to make the law more complicated by proliferating review standards without good reasons."
Id. This court followed First Options in General Motors Corp. v. Pamela Equities Corp., 146 F.3d 242, 246 (5th Cir.
1998) and F.C. Schaffer & Assocs., Inc. v. Demech Contractors, Ltd., 101 F.3d 40, 43 (5th Cir. 1996). Accordingly,
the standard of review should be the same in this case in which we are reviewing a district court's decision that
compels parties either to submit a dispute to arbitration (that they contend they have not agreed to so submit) or to
abandon their right to a court's decision about the merits of the dispute. Previous decisions of this circuit and others
have said that we review the grant or denial of a motion to compel arbitration de novo. See Webb v. Investacorp,
Inc., 89 F.3d 252, 257 (5th Cir. 1996); Snap-On Tools Corp. v. Mason, 18 F.3d 1261, 1264 (5th Cir. 1994); [**49]
Armijo v. Prudential Ins. Co. of Am., 72 F.3d 793, 796 (10th Cir. 1995); Kidd v. Equitable Life Assurance Soc'y of
the United States, 32 F.3d 516, 518 (11th Cir. [*540] 1994); Sunkist, 10 F.3d at 756; Britton v. Co-op Banking
Group, 4 F.3d 742, 744 (9th Cir. 1993); Trap Rock Indus., Inc. v. Local 825, Int'l Union of Operating Engineers,
AFL-CIO, 982 F.2d 884, 887 (3d Cir. 1992); MidAmerica Federal Sav. and Loan Ass'n v. Shearson/American
Express, Inc., 886 F.2d 1249, 1259 (10th Cir. 1989). Paradoxically, the majority opinion states that we review to
determine only whether the district court has abused its discretion in applying equitable estoppel, but that an
application of law that is erroneous, or an assessment of the evidence that is clearly erroneous, constitutes an
abuse of discretion. These contradictory statements of the standard can only lead to confusion. In my opinion,
abuse of discretion does not belong in our standard for reviewing whether the ordinary state-law requisites of
promissory or equitable estoppel have been met, but the district court may well have discretion in limiting [**50] the
remedy as justice requires. See RESTATEMENT (SECOND) OF CONTRACTS § 90(1).
End of Document
Mallory McCarty
Caution
In re Kellogg Brown & Root, Inc.

Supreme Court of Texas
December 1, 2004, Argued ; May 20, 2005, Delivered
NO. 03-1129
Reporter
166 S.W.3d 732 *; 2005 Tex. LEXIS 393 **; 48 Tex. Sup. J. 678
IN RE KELLOGG BROWN & ROOT, INC., RELATOR
Subsequent History: Writ of mandamus granted In re MaCgregor (FIN) Oy, 2005 Tex. App. LEXIS 9329 (Tex.
App. Houston 1st Dist., Nov. 10, 2005)
Prior History: [**1] ON PETITION FOR WRIT OF MANDAMUS.

MacGregor (FIN) Oy v. Kellogg, Brown & Root, Inc. (In re MacGregor (FIN) Oy), 126 S.W.3d 176, 2003 Tex. App.
LEXIS 5903 (Tex. App. Houston 1st Dist., 2003)
Core Terms
arbitration, non-signatory, fabrication, subcontract, collateral, estoppel, arbitration provision, direct benefit, trial
court, state law, ownership, elevator, court of appeals, moot, arbitration agreement, arbitration clause, services,
trunks, liens, federal court, contracts, possessed, parties, quantum meruit claim, quantum meruit, subcontractor,
declaration, mandamus relief, equitable, materials
Case Summary
Procedural Posture
Relator sub-subcontractor sought mandamus relief from a judgment of the court of appeals (Texas), which ordered
a trial court to vacate its order denying a contractor's motion to compel the sub-subcontractor to pursue its claims in
an ongoing arbitration between the contractor and a subcontractor and to issue an order compelling the sub-
subcontractor to arbitrate all claims.
Overview
At issue was whether the sub-subcontractor, as a non-signatory to a contract containing an arbitration clause
governed by the Federal Arbitration Act, 9 U.S.C.S. §§ 1-16, had to arbitrate its claims against the subcontractor
and the contractor, the signatories to the contract. The court held that the sub-subcontractor could not be so
compelled. Under direct benefits estoppel, although a non-signatory's claim might relate to a contract containing an
arbitration provision, that relationship did not, in itself, bind the non-signatory to the arbitration provision. Instead, a
non-signatory should be compelled to arbitrate a claim only if it sought, through the claim, to derive a direct benefit
from the contract containing the arbitration provision. In its quantum meruit claim against the contractor, the sub-
subcontractor sought payment for services rendered under its contract with the subcontractor. Thus, the court of
appeals abused its discretion to the extent it compelled the sub-subcontractor to arbitrate its quantum meruit claim
against the contractor. The court did not decide whether other arguments existed to compel the sub-subcontractor
to arbitrate the validity of its liens.
Outcome
Mallory McCarty
Page 2 of 11
166 S.W.3d 732, *732; 2005 Tex. LEXIS 393, **1
The court conditionally granted mandamus relief and ordered the court of appeals to vacate its order compelling the
sub-subcontractor to arbitrate all claims. The writ was to issue only if the court of appeals failed to comply.
Civil Procedure > ... > Justiciability > Mootness > General Overview
HN1[ ] A case becomes moot if a controversy ceases to exist between the parties at any stage of the legal
proceedings, including the appeal. A case is not rendered moot simply because some of the issues become moot
during the appellate process.
Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview
Business & Corporate Compliance > ... > Pretrial Matters > Alternative Dispute Resolution > Validity of ADR Methods
Evidence > Inferences & Presumptions > General Overview
Evidence > Burdens of Proof > General Overview
International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration
HN2[ ] A party seeking to compel arbitration under the Federal Arbitration Act (FAA) must establish that: (1) there
is a valid arbitration agreement; and (2) the claims raised fall within that agreement's scope. Doubts regarding an
agreement's scope are resolved in favor of arbitration because there is a presumption favoring agreements to
arbitrate under the FAA. However, the presumption arises only after the party seeking to compel arbitration proves
that a valid arbitration agreement exists because the purpose of the FAA was to make arbitration agreements as
enforceable as other contracts, not more so.
Administrative Law > Agency Adjudication > Alternative Dispute Resolution
Civil Procedure > ... > Jurisdiction > Subject Matter Jurisdiction > General Overview
Civil Procedure > ... > Subject Matter Jurisdiction > Jurisdiction Over Actions > Concurrent Jurisdiction
Civil Procedure > Preliminary Considerations > Federal & State Interrelationships > General Overview
Civil Procedure > ... > Arbitration > Federal Arbitration Act > General Overview
Mallory McCarty
Page 3 of 11
166 S.W.3d 732, *732; 2005 Tex. LEXIS 393, **1
International Trade Law > Dispute Resolution > International Commercial Arbitration > Arbitration
HN3[ ] Under the Federal Arbitration Act (FAA), ordinary principles of state contract law determine whether there
is a valid agreement to arbitrate. Because arbitration is contractual in nature, the FAA generally does not require
parties to arbitrate when they have not agreed to do so. Federal and Texas state courts have recognized, however,
that it does not follow that under the FAA an obligation to arbitrate attaches only to one who has personally signed
the written arbitration provision; instead, under certain circumstances, principles of contract law and agency may
bind a non-signatory to an arbitration agreement. Although state law determines the validity of an arbitration
agreement, courts have applied both federal and state law to determine the related, but distinct, issue of whether
non-signatory plaintiffs should be compelled to arbitrate their claims. The FAA does not specify whether state or
federal law governs, and the United States Supreme Court has not directly addressed the issue. Federal courts of
appeals, however, have frequently applied federal substantive law when deciding whether a non-signatory must
arbitrate. Federal and state courts have concurrent jurisdiction to enforce the FAA.
Administrative Law > Agency Adjudication > Alternative Dispute Resolution
Business & Corporate Law > ... > Duties & Liabilities > Causes of Action & Remedies > General Overview
Business & Corporate Law > ... > Duties & Liabilities > Causes of Action & Remedies > Breach of Contract
Labor & Employment Law > Collective Bargaining & Labor Relations > Labor Arbitration > Enforcement
HN4[ ] Federal courts have recognized six theories, arising out of common principles of contract and agency law,
that may bind non-signatories to arbitration agreements: (1) incorporation by reference; (2) assumption; (3) agency;
(4) alter ego; (5) equitable estoppel, and (6) third-party beneficiary. Under direct benefits estoppel, a non-signatory
plaintiff seeking the benefits of a contract is estopped from simultaneously attempting to avoid the contract's
burdens, such as the obligation to arbitrate disputes. Thus, a non-signatory plaintiff may be compelled to arbitrate if
it seeks to enforce terms of a contract containing an arbitration provision. For example, if a non-signatory's breach-
of-warranty and breach-of-contract claims are based on certain terms of a written contract, then the non-signatory
cannot avoid an arbitration provision within that contract. If, however, a non-signatory's claims can stand
independently of the underlying contract, then arbitration generally should not be compelled under this theory.
Consistent with the federal doctrine of direct benefits estoppel, the Texas Supreme Court has held that a non-
signatory plaintiff may be compelled to arbitrate if its claims are based on a contract containing an agreement to
arbitrate.
Civil Procedure > Pleading & Practice > Pleadings > Rule Application & Interpretation
Contracts Law > Remedies > Equitable Relief > General Overview
HN5[ ] Quantum meruit is an equitable remedy that is based upon the promise implied by law to pay for beneficial
services rendered and knowingly accepted. A party generally cannot recover under quantum meruit when there is a
valid contract covering the services or materials furnished. A party to a contract may, however, seek alternative
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relief under both contract and quasi-contract theories. Pleading in the alternative does not defeat the effect of an
arbitration clause that broadly covers all disputes between signatories that arise out of the underlying agreement.
Contracts Law > Contract Conditions & Provisions > General Overview
HN6[ ] Under "direct benefits estoppel," a non-signatory plaintiff cannot be compelled to arbitrate on the sole
ground that, but for the contract containing the arbitration provision, it would have no basis to sue. The work to be
performed under a second-tier subcontract will inherently be related to and, to a certain extent, defined by contracts
higher in the chain. Under "direct benefits estoppel," although a non-signatory's claim may relate to a contract
containing an arbitration provision, that relationship does not, in itself, bind the non-signatory to the arbitration
provision. Instead, a non-signatory should be compelled to arbitrate a claim only if it seeks, through the claim, to
derive a direct benefit from the contract containing the arbitration provision.
Contracts Law > Third Parties > Beneficiaries > General Overview
HN7[ ] The intention to contract or confer a direct benefit to a third party must be clearly and fully spelled out or
enforcement by the third party must be denied.
Business & Corporate Compliance > ... > Contracts Law > Types of Contracts > Construction Contracts
Real Property Law > Construction Law > Contracts
HN8[ ] In construction contracts, in the absence of an express agreement to the contrary, a subcontractor is not in
privity with the owner.
Commercial Law (UCC) > Documents of Title (Article 7) > General Overview
Commercial Law (UCC) > Documents of Title (Article 7) > Warehouse Receipts > Liens
Business & Corporate Compliance > ... > Sales of Goods > Remedies > General Overview
Business & Corporate Compliance > ... > Perfections & Priorities > Liens > Warehousemen's Liens
Real Property Law > ... > Liens > Nonmortgage Liens > General Overview
HN9[ ] The self-executing constitutional lien attaches to buildings and special-order articles that are made or
repaired by mechanics, material men, and artisans who have a direct contractual relationship with the owner of the
property. Tex. Const. art. XVI, § 37. The warehouseman's lien arises against the bailor on the goods covered by a
warehouse receipt or on the proceeds thereof in his possession for charges for storage or transportation, insurance,
labor, or charges present or future in relation to the goods, and for expenses necessary for preservation of the
goods. Tex. Bus. & Com. Code Ann. § 7.209(a)(1).
Counsel: For the RELATOR Kellogg Brown & Root, Inc.: Mr. Jack D. Carnegie, Mr. John L. Hagan, Jones Day,
Houston, TX., Mr. Kevin B. Finkel, Johnson Finkel Deluca & Kennedy, P.C., Houston, TX.
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For REAL PARTIES MacGregor (Fin) OY: Mr. Jeffrey Raizner, Johnson Finkel DeLuca & Kennedy, P.C., Houston,
TX. Mr. Ira E. Hoffman, Grayson, Kubli & Hoffman, P.C., McLean, VA.,Mr. Jeff H. Galloway, Hughes Hubbard &
Reed, New York, NY., Mr. John Fellas, Hughes Hubbard & Reed, LLP, New York, NY., Mr. Jack F. Burleigh,,
Houston, TX.
For OTHER Gulf Coast Holdings, Inc.: Mr. Jeffrey T. Nobles, Beime Maynard & Parsons, LLP, Houston, TX., Mr.
Clint Alexander Corrie, Bieme Maynard & Parsons, LLP, Dallas, TX., Mr. Joseph Lawrence Mira, Dallas, TX., Mr.
Robert Bryan Tabor, Houston, TX., Mr. John D. White, Jones Walker Waechter Poitevent Carrere & Denegre, The
Woodlands, TX..
Judges: CHIEF JUSTICE JEFFERSON delivered the opinion of the Court. JUSTICE JOHNSON did not participate
in the decision.
Opinion by: Wallace B. Jefferson
Opinion
[*734] In this original proceeding, the question is whether Kellogg Brown & [**2] Root, Inc. ("KBR"), as a non-
signatory to a contract containing an arbitration clause, must arbitrate its claims against Unidynamics, Inc.
("Unidynamics") and MacGREGOR (FIN) Oy ("MacGregor")--the signatories to the contract. The trial court denied
MacGregor's motion, which sought to compel KBR to pursue its claims in an ongoing arbitration between
MacGregor and Unidynamics. The court of appeals held that the trial court abused its discretion and conditionally
granted mandamus relief, ordering the trial court to vacate its order denying MacGregor's motion and "issue an
order compelling KBR to arbitrate all claims." 126 S.W.3d 176, 184. KBR sought mandamus relief in this Court.
Approximately two months after KBR filed its petition here, the arbitration between MacGregor and Unidynamics
concluded. As a result, the relief MacGregor requested in the lower courts--that KBR be compelled "to pursue its
claims in the arbitration between MacGregor (FIN) and Unidynamics"--is no longer available. The case is not moot,
however, because the parties continue to dispute whether KBR should be compelled to "arbitrate all claims"
pursuant to the court of appeals' order. Id. at 184. [**3] Because we conclude that KBR cannot be so compelled,
we conditionally grant mandamus relief and order the court of appeals to vacate its order.
I Factual Background
In October 1999, MacGREGOR (USA), Inc. contracted with Ingalls Shipbuilding, Inc. ("Ingalls") to build elevator
trunks for two cruise ships. MacGREGOR (USA) assigned the contract to its sister company, [*735] MacGREGOR
(FIN) Oy 1 [**4] ("MacGregor"). In August 2000, MacGregor subcontracted part of the job to Unidynamics, which
agreed to fabricate a set of the elevator trunks for one of the ships. 2 In June 2001, Unidynamics and KBR entered
into a second-tier subcontract, under which KBR agreed to furnish labor, equipment, and facilities to fabricate the
elevator trunks. In the fabrication subcontract between MacGregor and Unidynamics, the parties agreed that: "Any
disputes arising from the interpretation or application of this contract including any document pertaining thereto,
shall be settled by arbitration in accordance with General Conditions (ECE 188), (Appendix 10)." 3 The second-tier
subcontract between Unidynamics and KBR did not contain an arbitration provision.
1 The term "Oy" for Finnish companies is an abbreviation of "osakeyhtio" ("osake" means "share," "yhtio" means "society"). See
http://encyclopedia.laborlawtalk.com/Oy (last visited May 18, 2005, and available in Clerk of Court's file).
2 InOctober 2000, MacGregor and Unidynamics entered into another subcontract, under which Unidynamics agreed to
preassemble and install the elevator trunks. That subcontract is not at issue in this case.
3 The arbitration provision in ECE 188 provided: "Any dispute arising out of the Contract shall be finally settled, in accordance
with the Rules of Conciliation and Arbitration of the International Chamber of Commerce ["ICC"], by one or more arbitrators
designated in conformity with those Rules."
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After the ship buyer declared bankruptcy in November 2001, Ingalls directed MacGregor to cease work and notify
its subcontractors to do the same. MacGregor directed Unidynamics to comply with "the same instructions that
Ingalls gave MacGregor." Unidynamics conveyed those instructions to KBR. On or around November 5, 2001, KBR
ceased work, stored the elevator trunks and other equipment, and sent Unidynamics invoices for unpaid fabrication
services and storage costs. Because KBR had not been paid in full, it asserted liens on the elevator trunk
fabrications, parts, and other materials (the "collateral").
[**5] A dispute then arose between MacGregor and Unidynamics regarding who owned the collateral and who
owed KBR for the fabrication services and storage costs. The dispute stemmed from MacGregor and Unidynamics'
Agreement Concerning Passing of Title (the "Title Agreement"), executed on December 5, 2001, and fully
incorporated into their fabrication subcontract. Among other things, the Title Agreement provided that full title to the
collateral would pass irrevocably to MacGregor immediately after MacGregor made two payments to Unidynamics,
which were to occur no later than December 19, 2001. The Title Agreement further required Unidynamics to release
the collateral to MacGregor upon MacGregor's request. It is undisputed that MacGregor timely paid Unidynamics;
however, Unidynamics asserted that the payments were ineffective to pass title to MacGregor. When MacGregor
demanded that Unidynamics release the elevator trunks, Unidynamics refused. The collateral remained in KBR's
possession.
II Procedural Background
In May 2002, pursuant to the arbitration provision in the fabrication subcontract, MacGregor asked the International
Chamber of Commerce ("ICC") to arbitrate its dispute with [**6] Unidynamics. Among other things, MacGregor
sought: (1) damages for breach of contract by Unidynamics for failure to release the collateral, (2) a determination
[*736] as to which defendant owned the collateral, and (3) a determination regarding MacGregor's proportionate
responsibility for the storage costs KBR billed Unidynamics. Unidynamics filed an answer and asserted
counterclaims. MacGregor and Unidynamics then commenced arbitration in Paris, France.
While the arbitration was proceeding, both MacGregor and Unidynamics demanded that KBR release the collateral.
KBR refused the demands and, on September 17, 2002, filed suit against both companies in Harris County. KBR
claimed that Unidynamics breached its contract and, in the alternative, that it was entitled to recover quantum
meruit damages against Unidynamics and MacGregor. KBR also sued for declaratory relief to determine which
defendant owned the collateral. Subject to the court's ruling on ownership, KBR sought a judicial declaration that it
possessed valid constitutional and statutory liens against the collateral in its possession. 4 MacGregor answered
and sought a temporary restraining order, temporary injunction, and permanent [**7] injunction directing KBR to
release the collateral. Unidynamics opposed MacGregor's application, arguing that the court action should be
abated because the collateral's ownership was "the very issue . . . being arbitrated before the ICC." MacGregor,
Unidynamics, and KBR then negotiated an agreement, which the trial court entered as an Agreed Order. Pursuant
to that order, MacGregor agreed to post a $ 1,000,000 bond and, upon presentation of the bond, KBR agreed to
release the collateral to MacGregor. 5 MacGregor posted the bond on October 28, 2002.
[**8] Meanwhile, on October 18, 2002, MacGregor filed a motion to abate the state court proceedings pending its
arbitration with Unidynamics or, in the alternative, to compel KBR to pursue its claims in the ongoing arbitration
between MacGregor and Unidynamics. The trial court denied MacGregor's motion. On December 19, 2002,
MacGregor filed an interlocutory appeal and a petition for writ of mandamus in the court of appeals, contending that
the trial court abused its discretion. The court of appeals dismissed the interlocutory appeal as moot and
conditionally granted mandamus relief, ordering the trial court "to vacate its order denying MacGregor's plea in
4 See TEX. CONST. art. XVI, § 37; TEX. BUS. & COM. CODE § 7.209.
5 The parties agreed that the bond would be enforceable and payable in Texas, and that it would "constitute an unconditional
promise to pay upon demand accompanied by proof of Final Judgment adjudicating the validity and amount, if any, of [KBR's]
lien or liens against . . . the collateral."
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abatement and motion to compel arbitration, to issue an order compelling KBR to arbitrate all claims, and to stay all
proceedings pending arbitration." 6 126 S.W.3d at 184-85.
[**9] On December 9, 2003, KBR petitioned this Court for a writ of mandamus. On February 4, 2004, while the
petition was pending before us, the arbitration between MacGregor and Unidynamics concluded, and the ICC
issued a final arbitration award. KBR does not contest that award.
III Mootness
As a preliminary matter, we must decide whether the ICC's final arbitration [*737] award moots this mandamus
proceeding. HN1[ ] A case becomes moot if a controversy ceases to exist between the parties at any stage of the
legal proceedings, including the appeal. Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 642, 48 Tex. Sup. Ct. J. 474
(Tex. 2005); Bd. of Adjustment of San Antonio v. Wende, 92 S.W.3d 424, 427, 45 Tex. Sup. Ct. J. 674 (Tex. 2002);
Williams v. Lara, 52 S.W.3d 171, 184, 44 Tex. Sup. Ct. J. 998 (Tex. 2001). This case stems from the lower courts'
action on MacGregor's motion to "compel[] KBR to pursue its claims in the arbitration between [MacGregor] and
Unidynamics." Because that arbitration is over, KBR can no longer be compelled to "join the arbitration." See 126
S.W.3d at 183 (concluding that the trial court abused its discretion by refusing to compel KBR to join the ongoing
arbitration). The question, then, [**10] is whether this proceeding is moot.
A case is not rendered moot simply because some of the issues become moot during the appellate process. See
Allstate, 159 S.W.3d at 642 (holding that a dispute concerning attorney's fees preserved a live controversy in an
otherwise moot appeal); Camarena v. Tex. Employment Comm'n, 754 S.W.2d 149, 151, 31 Tex. Sup. Ct. J. 563
(Tex. 1988) (same). In this case, the court of appeals ordered the trial court "to issue an order compelling KBR to
arbitrate all claims." 126 S.W.3d at 184. Although it is no longer possible for KBR to join the Paris arbitration, the
court of appeals' ultimate directive has no temporal component. It requires KBR to "arbitrate all claims."
The live controversy in this proceeding is whether KBR must arbitrate those claims that remain now that the
arbitration between MacGregor and Unidynamics has concluded. KBR's petition consisted of: (1) a breach-of-
contract claim against Unidynamics; (2) in the alternative, a quantum meruit claim against Unidynamics and
MacGregor; and (3) a declaratory judgment action to determine the collateral's owner and to establish that KBR
possessed valid liens. The arbitrator determined that, [**11] pursuant to the Title Agreement between MacGregor
and Unidynamics, title to the collateral passed from Unidynamics to MacGregor on December 10, 2001. KBR is
satisfied with this resolution of the ownership dispute, and thus, we need not address whether the ownership
dispute must be arbitrated. Additionally, we need not address whether KBR should be compelled to arbitrate its
claims against Unidynamics, because the parties now agree that those claims are not subject to arbitration. Our
inquiry is accordingly limited to determining whether KBR must arbitrate its quantum meruit and lien-validity claims
against MacGregor.
IV Discussion
The parties do not dispute the court of appeals' holding that the arbitration provision at issue is governed by the
Federal Arbitration Act ("FAA"). See 9 U.S.C. §§ 1-16; 126 S.W.3d at 181. In general, HN2[ ] a party seeking to
compel arbitration under the FAA must establish that: (1) there is a valid arbitration agreement, and (2) the claims
raised fall within that agreement's scope. In re FirstMerit Bank, 52 S.W.3d 749, 753, 44 Tex. Sup. Ct. J. 900 (Tex.
2001); In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573, 42 Tex. Sup. Ct. J. 377 (Tex. 1999). [**12]
Doubts regarding an agreement's scope are resolved in favor of arbitration because there is a presumption favoring
agreements to arbitrate under the FAA. In re FirstMerit Bank, 52 S.W.3d at 753; Cantella & Co. v. Goodwin, 924
S.W.2d 943, 944, 39 Tex. Sup. Ct. J. 856 (Tex. 1996). However, "the presumption arises only after the party
seeking to compel arbitration proves that a valid arbitration agreement exists," J.M. Davidson, Inc. v. Webster,
[*738] 128 S.W.3d 223, 227, 47 Tex. Sup. Ct. J. 196 (Tex. 2003), because "the purpose of the FAA was to make
6 As of the date of this opinion, the trial court has not acted on the court of appeals' orders. Proceedings have not resumed in the
trial court since the court of appeals ordered a stay on January 9, 2003. See 126 S.W.3d at 180-81.
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arbitration agreements as enforceable as other contracts, not more so." Bridas S.A.P.I.C. v. Gov't of Turkm., 345
F.3d 347, 354 n.4 (5th Cir. 2003) (citations omitted); see also E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 293,
151 L. Ed. 2d 755, 122 S. Ct. 754 (2002) ("The FAA directs courts to place arbitration agreements on equal footing
with other contracts . . . .").
HN3[ ] Under the FAA, ordinary principles of state contract law determine whether there is a valid agreement to
arbitrate. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 131 L. Ed. 2d 985, 115 S. Ct. 1920 (1995);
Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 264 (5th Cir. 2004); [**13] J.M. Davidson, Inc., 128 S.W.3d at
227-28; In re Halliburton Co., 80 S.W.3d 566, 568, 45 Tex. Sup. Ct. J. 720 (Tex. 2002). Because arbitration is
contractual in nature, the FAA generally "does not require parties to arbitrate when they have not agreed to do so."
Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478-79, 103 L. Ed. 2d 488, 109 S.
Ct. 1248 (1989) ("Arbitration under the [FAA] is a matter of consent, not coercion . . . ."), quoted in E.E.O.C., 534
U.S. at 293-94; see also Bridas, 345 F.3d at 361 (citing J. Douglas Uloth & J. Hamilton Rial, III, Equitable Estoppel
as a Basis for Compelling Nonsignatories to Arbitrate--A Bridge Too Far?, 21 REV. LITIG. 593, 632 (2002)).
Federal and Texas state courts have recognized, however, that "it does not follow . . . that under the [FAA] an
obligation to arbitrate attaches only to one who has personally signed the written arbitration provision"; instead,
under certain circumstances, principles of contract law and agency may bind a non-signatory to an arbitration
agreement. Fisser v. Int'l Bank, 282 F.2d 231, 233 (2d Cir. 1960), [**14] quoted in Int'l Paper Co. v.
Schwabedissen Maschinen & Anlagen, 206 F.3d 411, 416 (4th Cir. 2000), and Thomson-CSF, S.A. v. Am.
Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995); see also Bailey, 364 F.3d at 267 (quoting Thomson-CSF, 64
F.3d at 776); In re FirstMerit Bank, 52 S.W.3d at 755 (citing Nationwide of Bryan, Inc. v. Dyer, 969 S.W.2d 518,
520 (Tex. App.--Austin 1998, no pet.)); S.W. Tex. Pathology Assocs. v. Roosth, 27 S.W.3d 204, 208 (Tex. App.--
San Antonio 2000, pet. dism'd w.o.j.).
Although state law determines the validity of an arbitration agreement, courts have applied both federal and state
law to determine the related, but distinct, issue of whether non-signatory plaintiffs should be compelled to arbitrate
their claims. See, e.g., Bailey, 364 F.3d at 267-68 (applying federal law); Bridas, 345 F.3d at 355-63 (applying
federal law); Fleetwood Enters. v. Gaskamp, 280 F.3d 1069, 1074-77 (5th Cir. 2002) (applying state law); Roosth,
27 S.W.3d at 208-09 (applying state law); Dyer, 969 S.W.2d at 520 [**15] (applying state law); Lakeland
Anesthesia, Inc. v. United Healthcare of La., Inc., 871 So. 2d 380, 392-95 (La. Ct. App. 2004) (applying federal and
state law). The FAA does not specify whether state or federal law governs, and the United States Supreme Court
has not directly addressed the issue.
Federal courts of appeals, however, have frequently applied federal substantive law when deciding whether a non-
signatory must arbitrate. See, e.g., Bailey, 364 F.3d at 267 n.6; Bridas, 345 F.3d at 355-63; InterGen N.V. v.
Grina, 344 F.3d 134, 142-50 (1st Cir. 2003); Dominion Austin Partners v. Emerson, 248 F.3d 720, 728 (8th Cir.
2001); Int'l Paper Co., 206 F.3d at 417 n.4; Thomson-CSF, 64 F.3d at 778-79. The Fourth and Fifth Circuits have
reasoned that "'federal substantive law of arbitrability'. . . resolves this question," because the determination of
whether a non-signatory is bound "presents no state [*739] law question of contract formation or validity." R.J.
Griffin & Co. v. Beach Club II Homeowners Ass'n, 384 F.3d 157, 160 n.1 (4th Cir. 2004) (quoting Int'l Paper Co.,
206 F.3d at 417 n.4); [**16] Bailey, 364 F.3d at 267 n.6 (same). We are not convinced that state law plays no role
in making this determination. See Roosth, 27 S.W.3d at 208-09 (applying state law); Dyer, 969 S.W.2d at 520
(applying state law). Nevertheless, we are mindful of the extensive body of federal precedent that has explored the
extent to which non-signatories can be compelled to arbitrate. Moreover, we recognize that it is important for federal
and state law to be as consistent as possible in this area, because federal and state courts have concurrent
jurisdiction to enforce the FAA. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25, 74 L.
Ed. 2d 765, 103 S. Ct. 927 (1983). Our decision today rests on state law, but it is informed by persuasive and well-
reasoned federal precedent.
HN4[ ] Federal courts have recognized six theories, arising out of common principles of contract and agency law,
that may bind non-signatories to arbitration agreements: (1) incorporation by reference; (2) assumption; (3) agency;
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(4) alter ego; (5) equitable estoppel, and (6) third-party beneficiary. See, e.g., Bridas, 345 F.3d at 356. 7 [**18]
Here, [**17] MacGregor asserts that KBR is bound to arbitrate under the doctrine of "direct benefits estoppel"--a
type of equitable estoppel that federal courts apply in the arbitration context. See, e.g., Bailey, 364 F.3d at 268;
Bridas, 345 F.3d at 361-62; DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269
F.3d 187, 199-201 (3d Cir. 2001); Int'l Paper Co., 206 F.3d at 418. 8
Under "direct benefits estoppel," a non-signatory plaintiff seeking the benefits of a contract is estopped from
simultaneously attempting to avoid the contract's burdens, such as the obligation to arbitrate disputes. R.J. Griffin
& Co. at 160-61; Bailey, 364 F.3d at 268; Int'l Paper Co., 206 F.3d at 418 ("The doctrine recognizes that a party
may be estopped from asserting that the lack of his signature precludes enforcement of the contract's arbitration
clause when he has consistently maintained that other provisions of the same contract should be enforced to
benefit him."); Thomson-CSF, 64 F.3d at 778. Thus, a non-signatory plaintiff may be compelled to arbitrate if it
seeks to enforce terms of a contract containing an arbitration provision. See R.J. Griffin & Co., 384 F.3d at 161-64;
Bailey, 364 F.3d at 268; Bridas, 345 F.3d at 361-62 [**19] ("Direct benefits estoppel applies when a nonsignatory
'knowingly exploits the agreement containing the arbitration clause.'") (quoting E.I. DuPont de Nemours & Co., 269
F.3d at 199); Int'l Paper Co., 206 F.3d at 418. For example, if a non-signatory's breach-of-warranty and breach-of-
contract claims are based on certain terms of a written contract, then the non-signatory cannot avoid an arbitration
provision within that contract. See Int'l Paper Co., 206 F.3d at 418. If, however, a non-signatory's [*740] claims can
stand independently of the underlying contract, then arbitration generally should not be compelled under this theory.
See, e.g., R.J. Griffin & Co., 384 F.3d at 164; Bridas, 345 F.3d at 362.
Consistent with the federal doctrine of "direct benefits estoppel," this Court has held that a non-signatory plaintiff
may be compelled to arbitrate if its claims are "based on a contract" containing an agreement to arbitrate. In re
FirstMerit Bank, 52 S.W.3d at 755 ("[A] litigant who sues based on a contract subjects him or herself to the
contract's terms."). In FirstMerit Bank, the [**20] non-signatory plaintiffs sued the signatory defendant for, among
other things, breach of contract, revocation of acceptance, and breach of warranty. Id. at 752-53, 755. By bringing
the breach-of-contract and breach-of-warranty claims, the plaintiffs sought benefits that stemmed directly from the
contract's terms. We concluded that, by seeking to enforce the contract, the non-signatory plaintiffs "subjected
themselves to the contract's terms, including the Arbitration Addendum." Id. at 756; see also Roosth, 27 S.W.3d at
208 ("The nonsignatory cannot enforce specific terms of the agreement while seeking to avoid the arbitration
provision.").
The issue here is whether KBR sought to enforce terms of the fabrication subcontract by (1) bringing a quantum
meruit claim against MacGregor, or (2) seeking a declaration that it possessed valid liens. We begin with quantum
meruit.
HN5[ ] Quantum meruit is an equitable remedy that "'is based upon the promise implied by law to pay for
beneficial services rendered and knowingly accepted.'" Vortt Exploration Co., Inc. v. Chevron U.S.A., Inc., 787
S.W.2d 942, 944, 33 Tex. Sup. Ct. J. 409 (Tex. 1990) [**21] (quoting Truly v. Austin, 744 S.W.2d 934, 936, 31 Tex.
Sup. Ct. J. 228 (Tex. 1988)). A party generally cannot recover under quantum meruit when there is a valid contract
covering the services or materials furnished. Murray v. Crest Constr., Inc., 900 S.W.2d 342, 345, 38 Tex. Sup. Ct.
J. 925 (Tex. 1995); Woodard v. S.W. States, Inc., 384 S.W.2d 674, 675, 8 Tex. Sup. Ct. J. 145 (Tex. 1964)
("Recovery on an express contract and on quantum meruit are inconsistent."). A party to a contract may, however,
seek alternative relief under both contract and quasi-contract theories. Pleading in the alternative does not defeat
7 Most federal courts, however, list only five of these theories, omitting third-party beneficiary as a separate ground. See Local
Union No. 38, Sheet Metal Workers' Int'l Ass'n v. Custom Air Sys., Inc., 357 F.3d 266, 268 (2d Cir. 2004); Javitch v. First Union
Sec., Inc., 315 F.3d 619, 629 (6th Cir. 2003); Fleetwood, 280 F.3d at 1076; Employers Ins. of Wausau v. Bright Metal
Specialties, Inc., 251 F.3d 1316, 1322 (11th Cir. 2001); Bel-Ray Co. v. Chemrite (PTY) Ltd., 181 F.3d 435, 446 (3d Cir. 1999);
Int'l Paper Co., 206 F.3d at 417; Thomson-C.S.F., 64 F.3d at 776.
8 While not all federal courts use the phrase "direct benefits estoppel," we adopt that terminology from Bridas to describe this
form of estoppel. See 345 F.3d at 361-62.
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the effect of an arbitration clause that broadly covers all disputes between signatories that arise out of the
underlying agreement. But in this case, KBR is not a signatory to the fabrication subcontract between MacGregor
and Unidynamics; therefore, the scope of that subcontract's arbitration clause does not answer whether KBR must
arbitrate.
To advance its estoppel theory, MacGregor contends that KBR's quantum meruit claim is "based on" the fabrication
subcontract in the sense that KBR's labor and services were linked inextricably to that subcontract. It is true, of
course, that KBR was [**22] fabricating trunks that were at the contract's core and that, in performing the work, KBR
relied on the fabrication subcontract's specifications. However, HN6[ ] under "direct benefits estoppel," a non-
signatory plaintiff cannot be compelled to arbitrate on the sole ground that, but for the contract containing the
arbitration provision, it would have no basis to sue. The work to be performed under a second-tier subcontract will
inherently be related to and, to a certain extent, defined by contracts higher in the chain. See BLACK'S LAW
DICTIONARY 1464 (8th ed. 2004) (defining subcontractor as "one who is awarded a portion of an existing contract
by a contractor, esp. a general contractor"). If this were a sufficient basis for binding a non-signatory subcontractor,
arbitration agreements would become easier to enforce than other contracts, counter to the FAA's purpose. See
InterGen, 344 F.3d at [*741] 145-46 (noting that federal courts have "been hesitant to estop a nonsignatory
seeking to avoid arbitration").
We conclude that, under "direct benefits estoppel," although a non-signatory's claim may relate to a contract
containing an arbitration provision, that relationship does [**23] not, in itself, bind the non-signatory to the arbitration
provision. Instead, a non-signatory should be compelled to arbitrate a claim only if it seeks, through the claim, to
derive a direct benefit from the contract containing the arbitration provision. See Bailey, 364 F.3d at 268; MAG
Portfolio Consult, GMBH v. Merlin Biomed Group LLC, 268 F.3d 58, 61 (2d Cir. 2001) ("The benefits must be direct-
-which is to say, flowing directly from the agreement."); Int'l Paper Co., 206 F.3d at 417-18; Thomson-CSF, 64
F.3d at 778-79; In re FirstMerit Bank, 52 S.W.3d at 755 . 9
[**24] In its quantum meruit claim against MacGregor, KBR seeks payment for services rendered. KBR provided
services pursuant to its contract with Unidynamics. KBR's asserted right to payment therefore stems directly from
the KBR-Unidynamics contract, not the fabrication subcontract. The fabrication subcontract includes no provision
for paying KBR. In fact, KBR is effectively precluded from asserting rights under that contract, which expressly
provides that "Approved use of any subcontractor creates no contractual relationship between the subcontractor
and [MacGregor]." 10 Thus, we conclude that the court of appeals abused its discretion to the extent it compelled
KBR to arbitrate its quantum meruit claim against MacGregor.
[**25] Having determined that KBR's quantum meruit claim is not subject to arbitration, we turn to KBR's lien-
validity claims. KBR sought a judicial declaration that it possessed valid constitutional and warehouseman's
statutory liens. See TEX. CONST. art. XVI, § 37; TEX. BUS. & COM. CODE § 7.209(a)(1). HN9[ ] The self-
9 Federal courts have also applied "direct benefits estoppel" to bind "non-signatories who, during the life of the contract, have
embraced the contract despite their non-signatory status but then, during litigation, attempt to repudiate the arbitration clause in
the agreement." E.I. DuPont de Nemours & Co, 269 F.3d at 200; see also InterGen, 344 F.3d at 146 (holding equitable
estoppel theory inapplicable to non-signatory that did not seek to derive direct benefits from contracts "during their currency");
Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (holding non-signatory who received
lower insurance rates and ability to sail under French flag due to contract was bound by arbitration clause within contract); In re
VMS Ltd. P'ship Sec. Litig., 26 F.3d 50, 52 (7th Cir. 1994) (holding wife bound by arbitration clause that only her husband signed
as she accepted benefits of investment services). We do not reach this application of "direct benefits estoppel" here.
MacGregor's argument for arbitration rests not on KBR's actions during the life of the fabrication subcontract, but on KBR's
attempt to benefit from that contract through litigation.
10 See MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651, 42 Tex. Sup. Ct. J. 656 (Tex. 1999) ("HN7[ ] The
intention to contract or confer a direct benefit to a third party must be clearly and fully spelled out or enforcement by the third
party must be denied."); City of LaPorte v. Taylor, 836 S.W.2d 829, 831 (Tex. App.--Houston [1st Dist.] 1992, no writ)
("Generally, HN8[ ] in construction contracts, in the absence of an express agreement to the contrary, a subcontractor is not in
privity with the owner . . . .").
Mallory McCarty
Page 11 of 11
166 S.W.3d 732, *741; 2005 Tex. LEXIS 393, **25
executing constitutional lien attaches to buildings and special-order articles that are made or repaired by
mechanics, material men, and artisans who have a direct contractual relationship with the owner of the property.
See TEX. CONST. art. XVI, § 37; CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 240, 46 Tex. Sup. Ct. J. 366 (Tex.
2002) ("For constitutional liens that [*742] are self-executing, there are no technical requirements . . . ."); First Nat'l
Bank v. Whirlpool Corp., 18 Tex. Supp. 101, 517 S.W.2d 262, 268 (Tex. 1974) (holding that "the constitutional lien
on manufactured chattels is available . . . only upon articles made especially for a purchaser pursuant to a special
order and in accordance with the purchaser's plans or specifications"); Hayek v. W. Steel Co., 478 S.W.2d 786,
790, 15 Tex. Sup. Ct. J. 232 (Tex. 1972); Strang v. Pray, 89 Tex. 525, 35 S.W. 1054, 1056 (Tex. 1896). [**26] The
warehouseman's lien arises "against the bailor on the goods covered by a warehouse receipt or on the proceeds
thereof in his possession for charges for storage or transportation . . ., insurance, labor, or charges present or future
in relation to the goods, and for expenses necessary for preservation of the goods . . . ." TEX. BUS. & COM. CODE
§ 7.209(a)(1); see also Flores v. Didear Van & Storage Co., 489 S.W.2d 406, 407-09 (Tex. Civ. App.--Corpus
Christi 1972, no writ) (discussing validity and enforceability of warehouseman's lien).
In this Court, MacGregor's sole argument for compelling arbitration of KBR's lien-validity claims is that the claims
require a determination of ownership, and thus, they are "based on" the Title Agreement within the fabrication
subcontract. 11 Ownership was, of course, a central issue before and during the Paris arbitration. When the
arbitration award resolved the ownership dispute, it also eliminated the only rationale that MacGregor has asserted
thus far for arbitrating the liens' validity.
[**27] .
We do not decide whether other arguments may exist to compel KBR to arbitrate the validity of its liens. To the
extent a lien dispute still remains, the trial court is in the best position to determine, on principles we have declared
today, whether it must be arbitrated.
V Conclusion
We conditionally grant mandamus relief and order the court of appeals to vacate its order compelling KBR to
"arbitrate all claims." See 126 S.W.3d at 184. The writ will issue only if the court of appeals fails to comply.
Wallace B. Jefferson
Chief Justice
End of Document
11 KBR's petition included the following:
29. Ownership. Given the Defendants' competing claims known to Plaintiff by the Defendants, Plaintiff seeks a declaration from
the Court as to which Defendant(s) possesses the ownership rights, title and interest in the elevator shaft fabrications,
component parts and other materials . . . .
30. Constitutional Lien. Subject to the determination of ownership, Plaintiff also seeks a judicial declaration that Plaintiff
possesses a valid constitutional lien to the elevator shaft fabrications, component parts and other materials pursuant to Article
16, § 37 of the Texas Constitution.
31. Statutory Lien. Subject to the determination of ownership, Plaintiff also seeks a judicial declaration that Plaintiff possesses a
valid statutory lien to the elevator shaft fabrications, component parts and other materials pursuant to § 7.209 of the Texas
Business and Commerce Code.
(Emphasis added.)
Mallory McCarty
Caution
In re Rubiola
September 16, 2010, Argued; March 11, 2011, Opinion Delivered
NO. 09-0309
Reporter
IN RE JOSEPH CHARLES RUBIOLA ET AL., RELATORS
Subsequent History: Released for Publication April 22, 2011.
Prior History: In re Rubiola, 2009 Tex. App. LEXIS 1564 (Tex. App. San Antonio, Mar. 4, 2009)
Core Terms
parties, arbitration, arbitration agreement, non-signatory, compel arbitration, mortgage company, arbitration clause,
financing, mortgage, mandamus, repairs
Case Summary
Procedural Posture
Relators sought mandamus relief from the decision of the trial court (Texas), denying their motion to compel
arbitration.
Overview
In a mandamus proceeding, relators sought to compel arbitration under an arbitration agreement they did not sign.
The real parties in interest, who were signatories to the arbitration agreement, objected to arbitration. The Supreme
Court of Texas held that the parties who actually agreed to arbitrate could also grant third parties the right to
enforce their arbitration agreement. Relators here were granted that right. The trial court therefore erred in denying
the motion to compel arbitration under section 4 of the Federal Arbitration Act, 9 U.S.C.S. § 4.
Outcome
Relator's request for mandamus relief was conditionally granted. The writ will issue only if the trial court fails to
enforce the arbitration agreement.
Business & Corporate Compliance > ... > Arbitration > Federal Arbitration Act > Scope
HN1[ ] The Federal Arbitration Act (FAA) generally governs arbitration provisions in contracts involving interstate
commerce. 9 U.S.C.S. § 2. Parties may also expressly agree to arbitrate under the FAA.
Mallory McCarty
Page 2 of 7
334 S.W.3d 220, *220; 2011 Tex. LEXIS 194, **194
Business & Corporate Compliance > ... > Arbitration > Federal Arbitration Act > Orders to Compel Arbitration
HN2[ ] See 9 U.S.C.S. § 4.
Civil Procedure > ... > Writs > Common Law Writs > Mandamus
HN3[ ] A party denied the right to arbitrate pursuant to an agreement subject to the FAA does not have an
adequate remedy by appeal and is entitled to mandamus relief to correct a clear abuse of discretion.
HN4[ ] A party seeking to compel arbitration under the FAA must establish that (1) there is a valid arbitration
clause; and (2) the claims in dispute fall within that agreement's scope.
HN5[ ] Whether a non-signatory can compel arbitration pursuant to an arbitration clause questions the existence
of a valid arbitration clause between specific parties and is therefore a gateway matter for the court to decide.
Contracts Law > Contract Interpretation > Intent
Business & Corporate Compliance > ... > Contracts Law > Formation of Contracts > Execution
HN6[ ] Under the FAA, ordinary principles of state contract law determine whether there is a valid agreement to
arbitrate. An obligation to arbitrate not only attaches to one who has personally signed the written arbitration
agreement but may also bind a non-signatory under principles of contract law and agency. Generally, parties must
sign arbitration agreements before being bound by them. Although arbitration agreements apply to nonsignatories
only in rare circumstances, the question of who is actually bound by an arbitration agreement is ultimately a function
of the intent of the parties, as expressed in the terms of the agreement.
HN7[ ] Courts prohibit the enforcement of an arbitration agreement by non-signatories where (1) the contract does
not expressly grant third parties the ability to participate in the arbitration; (2) the parties have not contemplated the
idea; and (3) non-signatory involvement would constitute an invasion of the consensual nature of arbitration.
Mallory McCarty
Page 3 of 7
334 S.W.3d 220, *220; 2011 Tex. LEXIS 194, **194
Evidence > Inferences & Presumptions > Presumptions
HN8[ ] When deciding whether claims fall within an arbitration agreement, courts employ a strong presumption in
favor of arbitration.
Civil Procedure > ... > Pleadings > Complaints > General Overview
HN9[ ] To determine whether a claim falls within the scope of the arbitration agreement, courts must focus on the
factual allegations of the complaint, rather than the legal causes of action asserted.
Counsel: For Rubiola, Joseph Charles, RELATOR: Mr. Bernard Lee Shub, The Law Office of Ben Shub, San
Antonio, TX; Ms. Elizabeth Conry Davidson, Attorney at Law, San Antonio, TX.
For Salmon, Brian, REAL PARTY IN INTEREST: Mr. Bryan A. Woods, Law Office of Bryan A. Woods, San Antonio,
TX.
Judges: [**1] JUSTICE MEDINA delivered the opinion of the Court. David M. Medina, Justice.
Opinion by: David M. Medina
Opinion
[*222] ON PETITION FOR WRIT OF MANDAMUS
In this original mandamus proceeding, Relators seek to compel arbitration under an arbitration agreement they did
not sign. The real parties in interest, who are signatories to the arbitration agreement, object to arbitration and
contend that Relators cannot compel arbitration because Relators are not parties to the arbitration agreement. The
trial court apparently agreed because it denied Relators' motion to compel arbitration. The underlying arbitration
agreement, however, designated certain non-signatories as parties to the agreement.
We must decide whether the parties who actually agree to arbitrate may also grant third parties the right to enforce
their arbitration agreement and, if so, whether the signatories here intended to grant such rights to these Relators.
We conclude that parties to an arbitration agreement may grant non-signatories the right to compel arbitration and
that the Relators here were granted that right. The trial court therefore erred in denying the motion to compel
arbitration, and we conditionally grant the writ.
The underlying case concerns [**2] the sale and financing of a home. Brian and Christina Salmon agreed to
purchase the home from Greg Rubiola and his wife Catherine. The transaction was handled by J.C. Rubiola, Greg's
brother, who served as the listing broker for the property. The Salmons and Rubiolas signed a standard form Texas
real estate sales contract, which did not contain an arbitration clause.
Greg and J.C. Rubiola operate a number of real estate related businesses in San Antonio. The Rubiola brothers
buy and sell real estate through Rubiola Management, L.L.C., which is the general partner of Rubiola Realty, Ltd.
Mallory McCarty
Page 4 of 7
334 S.W.3d 220, *222; 2011 Tex. LEXIS 194, **2
and Rubiola Properties, Ltd. Greg and J.C. are also president and vice-president, respectively, of Rubiola Mortgage
Company, a corporation the brothers use to obtain financing for real estate buyers. The Rubiola brothers' business
interests are operated at the same location under the name Rubiola Mortgage and Realty, which they advertise as
a one-stop shop for customers' real estate needs: offering the ability to buy, sell, build, finance, and manage real
estate through a single company.
After agreeing to purchase Greg Rubiola's home, the Salmons applied for mortgage financing with Rubiola
Mortgage Company, [**3] using J.C. Rubiola as their mortgage broker and loan officer. As part of the loan process,
the Salmons executed an arbitration agreement with the mortgage company. This agreement provided that:
Arbitrable disputes include any and all controversies or claims between the parties of whatever type or manner,
including without limitation, all past, present and/or future credit facilities and/or agreements involving the
parties. This arbitration provision shall survive any termination, amendment, or expiration of the agreement in
which this agreement is contained, unless all of the parties expressly agree in writing.
The agreement further defined "parties" to include:
Rubiola Mortgage Company, and each and all persons and entities signing this agreement or any other
agreements between or among any of the parties as part of this transaction. "The parties" shall also include
individual partners, affiliates, [*223] officers, directors, employees, agents, and/or representatives of any party
to such documents, and shall include any other owner and holder of this agreement.
J.C. Rubiola signed the agreement on behalf of Rubiola Mortgage Company, and the Salmons signed a form
acknowledging J.C.'s dual role [**4] as a real estate agent and mortgage broker. The sale closed, and the Salmons
moved into their new home.
Several months later, the Salmons sued the Rubiolas and other entities and individuals involved in repairing the
home (collectively referred to as the Rubiolas). 1 The Salmons alleged that J.C. Rubiola, acting as both the listing
agent and a principal involved in the home's construction and repair, made a series of misrepresentations that
induced the Salmons to purchase the home. They also alleged violations of the Deceptive Trade Practices Act and
negligent supervision of repairs made to the home. The Salmons sought either to rescind the sale or to collect
damages. The Rubiolas answered and moved to compel arbitration, relying on the arbitration agreement signed by
the Salmons and Rubiola Mortgage Company during financing.
The trial court denied the Rubiolas' motion to compel, causing the Rubiolas to seek mandamus relief in the court of
appeals. The court of appeals also [**5] refused to compel arbitration, and the Rubiolas filed the present
mandamus proceeding, seeking again to enforce the underlying arbitration agreement as a non-signatory.
II
HN1[ ] The Federal Arbitration Act (FAA) generally governs arbitration provisions in contracts involving interstate
commerce. See 9 U.S.C. § 2; see also In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 127 (Tex. 1999) (per
curiam). Parties may also expressly agree to arbitrate under the FAA. In re AdvancePCS Health, L.P., 172 S.W.3d
603, 605-06 & n.3 (Tex. 2005) (per curiam). The arbitration agreement here expressly provides for arbitration under
the FAA, and although the Salmons oppose arbitration, generally, they do not contest the application of the FAA.
HN2[ ] Under Section 4 of the FAA, "[a] party aggrieved by the alleged failure, neglect, or refusal of another to
arbitrate under a written agreement for arbitration may petition . . . for an order directing that such arbitration
proceed in the manner provided for in such agreement." 9 U.S.C. § 4; see In re Halliburton Co., 80 S.W.3d 566, 573
(Tex. 2002). HN3[ ] "A party denied the right to arbitrate pursuant to an agreement subject to the FAA does not
have an adequate remedy by appeal [**6] and is entitled to mandamus relief to correct a clear abuse of discretion."
In re Labatt Food Serv., L.P., 279 S.W.3d 640, 642-43 (Tex. 2009).
1 J.C.
Rubiola, Gregory Rubiola, Catherine Rubiola, JGL-Design Build, L.L.C., Michael Cortez individually and d/b/a The Heights
Design and Construction are defendants in the underlying suit and Relators in this Court.
Mallory McCarty
Page 5 of 7
334 S.W.3d 220, *223; 2011 Tex. LEXIS 194, **6
III
HN4[ ] A party seeking to compel arbitration under the FAA must establish that (1) there is a valid arbitration
clause, and (2) the claims in dispute fall within that agreement's scope. In re Kellogg Brown & Root, Inc., 166
S.W.3d 732, 737 (Tex. 2005). The Rubiolas contend that the arbitration agreement, executed during financing, is
broad enough to cover all of the Salmon's claims against them. The Salmons argue, however, that the arbitration
agreement extends only to disputes under the financing agreement, as opposed to the real estate [*224] sales
agreement, and that its breadth cannot be used by non-signatories to compel arbitration. This disagreement raises
two issues: do the Rubiolas, as non-signatories to the arbitration agreement, have authority to compel the Salmons
to arbitrate, and, if so, does the arbitration clause cover the Salmons' claims. The first issue questions the validity of
the arbitration clause, while the second questions the clause's scope.
HN5[ ] Whether a non-signatory can compel arbitration pursuant to an arbitration clause questions [**7] the
existence of a valid arbitration clause between specific parties and is therefore a gateway matter for the court to
decide. In re Weekley Homes, L.P., 180 S.W.3d 127, 130 (Tex. 2005); Sherer v. Green Tree Servicing LLC, 548
F.3d 379, 381 (5th Cir. 2008). HN6[ ] Under the FAA, ordinary principles of state contract law determine whether
there is a valid agreement to arbitrate. In re Kellogg Brown & Root, Inc., 166 S.W.3d at 738 (citing First Options of
Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995)). An obligation to arbitrate not
only attaches to one who has personally signed the written arbitration agreement but may also bind a non-signatory
under principles of contract law and agency. Id. at 738. Generally, however, parties must sign arbitration
agreements before being bound by them. See Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 528 (5th
Cir. 2000) (noting that "arbitration is a matter of contract and cannot, in general, be required for a matter involving
an arbitration agreement non-signatory"). Although "[a]rbitration agreements apply to nonsignatories only in rare
circumstances[,]" the question of "[w]ho is actually bound by an arbitration agreement is [ultimately] [**8] a function
of the intent of the parties, as expressed in the terms of the agreement." Bridas S.A.P.I.C. v. Gov't of Turkmenistan,
345 F.3d 347, 355, 358 (5th Cir. 2003). Here the question is not whether a non-signatory may be compelled to
arbitrate but rather whether a non-signatory may compel arbitration.
The Salmons argue that because none of the Rubiolas signed the arbitration agreement, except J.C., who signed
only as the representative of Rubiola Mortgage Company, that none of them are entitled to compel the Salmons to
arbitrate. The Salmons thus equate signing with being a party to the agreement. The arbitration agreement,
however, expressly provides that certain non-signatories are to be parties to the agreement. The agreement defines
parties to include "Rubiola Mortgage Company, and each and all persons and entities that sign this agreement or
any other agreements between or among any of the parties as part of this transaction." Parties further include
"individual partners, affiliates, officers, directors, employees, agents, and/or representatives of any party to such
documents."
The Rubiolas argue, and we agree, that the arbitration agreement's broad definition of parties, at [**9] a minimum,
made J.C. and Greg Rubiola parties to the arbitration agreement. 2 Rubiola Mortgage Company signed the
arbitration agreement, and the Rubiola brothers are clearly officers and representatives of the mortgage company
[*225] and thus non-signatory parties to the arbitration agreement under the agreement's terms. Because the
arbitration agreement expressly provides that certain non-signatories are considered parties, we conclude that such
parties may compel arbitration under the agreement. See Sherer, 548 F.3d at 382 (noting that trial court's
application of equitable estoppel to determine whether non-signatory might compel arbitration, was unnecessary
because the terms of the Loan Agreement clearly identify when a party might be compelled to arbitrate with a non-
signatory); Bridas, 345 F.3d at 356 (noting that ordinary principles of contract and agency law may be called upon
2 J.C.and Greg Rubiola are the President and Vice President of Rubiola Mortgage Company. JGL Design Builders LL.C. is a
Texas limited liability corporation, owned and managed by J.C. and Greg Rubiola. Michael Cortez individually and d/b/a the
Heights Design and Construction was the original contractor hired by the Rubiolas to remediate the mold and water damage at
the property.
Mallory McCarty
Page 6 of 7
334 S.W.3d 220, *225; 2011 Tex. LEXIS 194, **9
to bind a non-signatory to an agreement whose terms have not clearly done so); see also Carolyn Lamm, Defining
The Party - Who is a Proper Party in an International Arbitration Before the American Arbitration Association and
Other International Institutions, 34 GEO. WASH. INT'L L. REV. 711, 720 (2003) (noting [**10] that HN7[ ] courts
prohibit enforcement by non-signatories "where (1) the contract does not expressly grant third parties the ability to
participate in the arbitration; (2) the parties have not contemplated the idea; and (3) non-signatory involvement
would constitute an invasion of the consensual nature of arbitration."). But even though the Rubiolas are identified
as non-signatories who may compel arbitration, there remains the question whether the Salmons' underlying claims
fall within the arbitration agreement's scope.
HN8[ ] When deciding whether claims fall within an arbitration agreement, courts employ a strong presumption in
favor of arbitration. Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) (per curiam) (holding that
"[f]ederal and state law strongly favor arbitration," and that "a presumption exists [**11] in favor of agreements to
arbitrate under the FAA"); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995) (holding that under the
FAA "any doubts as to whether claims fall within the scope of the agreement must be resolved in favor of
arbitration," and that "[t]he policy in favor of enforcing arbitration agreements is so compelling that a court should
not deny arbitration 'unless it can be said with positive assurance that an arbitration clause is not susceptible of an
interpretation which would cover the dispute at issue'"). The Rubiolas advance three arguments for why the
arbitration clause covers the Salmons' claims: (1) the language of the clause covers the claims, (2) J.C.'s alleged
actions occurred while he was acting under both the mortgage and real estate contracts, so his alleged actions
were factually intertwined with the mortgage agreement, and (3) the two instruments should be read together
because they were executed contemporaneously as part of the same transaction and because the mortgage
agreement was essential to the overall deal. The Salmons argue, on the other hand, that the arbitration clause does
not cover their claims because those claims relate only [**12] to J.C.'s role as the listing agent to the real estate
contract. The Salmons further deny that their alleged facts intertwine with the mortgage agreement, or that the
contracts should be construed together because they were signed by different parties at different times and without
reference to each other.
HN9[ ] To determine whether a claim falls within the scope of the agreement, courts must "focus on the factual
allegations of the complaint, rather than the legal causes of action asserted." Marshall, 909 S.W.2d at 900. The
factual allegations in the Salmons' complaint center around a variety of alleged misrepresentations that J.C. Rubiola
made in his capacity as the listing agent to the real estate [*226] transaction. J.C. allegedly promised that certain
repairs would be made to the Salmons' satisfaction after closing. When they were not and other serious problems
materialized after closing, J.C. allegedly made more promises to fix the problems or to repurchase the home if the
repairs were not satisfactory.
The underlying arbitration agreement defines arbitrable disputes to include "any and all controversies between the
parties of whatever type or manner, including without limitation, all past, [**13] present and/or future credit facilities
and/or agreements involving the parties." The Rubiola brothers were, as we have already concluded, non-signatory
parties to the arbitration agreement, which broadly covers all controversies between the parties and all past,
present or future agreements involving the parties. This language indicates that the arbitration agreement was not
limited to the financing part of the transaction but rather extended to the real estate sales contract and the Salmons'
complaints regarding that sale.
The Salmons argue, however, that including the real estate sales contract as part of the transaction subject to
arbitration is contrary to the terms of that contract. The real estate contract stated that it constituted the entire
agreement between the parties and further provided that the parties could enforce it in court. The contract,
however, also states that it could be amended by a later writing. In the arbitration agreement, executed a month
later as part of the process for obtaining financing, the Salmons agreed to arbitrate all controversies between the
parties and all past agreements involving the parties.
***
Mallory McCarty
Page 7 of 7
334 S.W.3d 220, *226; 2011 Tex. LEXIS 194, **13
We conclude that signatories to an arbitration [**14] agreement may identify other parties in their agreement who
may enforce arbitration as though they signed the agreement themselves. We further conclude that the underlying
arbitration agreement in this case identified the Rubiolas as parties to the agreement and that they accordingly had
the right to compel arbitration. Finally, we conclude that the trial court's order denying arbitration is an abuse of
discretion for which we conditionally grant Relators' request for mandamus relief. TEX. R. APP. P. 52.8(c). The writ
will issue only if the trial court fails to enforce the arbitration agreement.
David M. Medina
Justice
Opinion Delivered: March 11, 2011
End of Document
Mallory McCarty
Caution
In re Weekley Homes, L.P.

November 30, 2004, Argued ; October 28, 2005, Opinion Delivered
No. 04-0119
Reporter
IN RE WEEKLEY HOMES, L.P.
Prior History: In re Weekley Homes, L.P., 176 S.W.3d 740, 2005 Tex. LEXIS 817 (Tex., 2005)
Core Terms
arbitration, nonparty, arbitration clause, estoppel, binding, repairs, nonsignatory, equitable, direct benefit, arbitration
agreement, federal law, trial court, benefits, compel arbitration, contract claim, prevents, courts
Case Summary
Procedural Posture
The Texas Court of Appeals denied appellant home construction company's request for mandamus relief to enforce
arbitration agreements as governed by the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., after the trial court
concluded that the FAA applied to all claims by appellee homeowner against the company. The company sought
mandamus relief.
Overview
The company moved to compel arbitration of all claims under the FAA. The trial court refused to compel arbitration
of the homeowner's daughter's claim because she did not sign the Purchase Agreement. The supreme court noted
that the daughter made no claim on the contract, claiming only that she developed asthma from dust created by the
company's repairs of the home. A contractor performing repairs had an independent duty under Texas tort law not
to injure bystanders by its activities, or by premises conditions it left behind. There was nothing to suggest that the
daughter's claim was different from what any bystander might assert, or what she might assert if the contractor
were not the company. The daughter could not equitably object to the arbitration clause attached to the contract
where she obtained substantial actions from the company by demanding compliance with provisions of the contract.
Once the daughter, as a non-party, deliberately sought substantial and direct benefits from the contract, and the
company agreed to comply, equity prevented her from avoiding the arbitration clause that was part of the
agreement.
Outcome
The writ of mandamus was conditionally granted and the trial court was ordered to vacate that part of its order
denying the company's motion, and to enter a new order compelling arbitration of the daughter's claim.
Mallory McCarty
Page 2 of 10
180 S.W.3d 127, *127; 2005 Tex. LEXIS 989, **989
HN1[ ] Nonparties may be bound to an arbitration clause when the rules of law or equity would bind them to the
contract generally.
Civil Procedure > ... > Writs > Common Law Writs > Mandamus
HN2[ ] Mandamus relief is proper to enforce arbitration agreements governed by the Federal Arbitration Act, 9
U.S.C.S. § 1 et seq.
Civil Procedure > Preliminary Considerations > Federal & State Interrelationships > Choice of Law
HN3[ ] Under the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq., absent unmistakable evidence that the
parties intended the contrary, it is the courts rather than arbitrators that must decide "gateway matters" such as
whether a valid arbitration agreement exists. Whether an arbitration agreement is binding on a nonparty is one of
those gateway matters. Texas courts apply Texas procedural rules in making that determination. Those rules call
for determination by summary proceedings, with the burden on the moving party to show a valid agreement to
arbitrate. It is not entirely clear what substantive law governs whether a nonparty must arbitrate. Generally under
the FAA, state law governs whether a litigant agreed to arbitrate, and federal law governs the scope of an
arbitration clause. Whether a nonparty must arbitrate can involve aspects of either or both. Pending an answer from
the United States Supreme Court, the supreme court applies state law while endeavoring to keep it as consistent as
possible with federal law.
HN4[ ] The Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., preempts any state requirements that apply only to
arbitration clauses.
HN5[ ] Texas law has long recognized that nonparties may be bound to a contract under various legal principles.
Although the supreme court has never considered these principles in the context of arbitration, it recently noted that
contract and agency law may bind a nonparty to an arbitration agreement. Indeed, if Texas law would bind a
nonparty to a contract generally, the Federal Arbitration Act, 9 U.S.C.S. § 1 et seq., would appear to preempt an
exception for arbitration clauses alone.
HN6[ ] A nonparty may be compelled to arbitrate if it seeks, through the claim, to derive a direct benefit from the
contract containing the arbitration provisions. This rule is consistent with federal law of direct benefits estoppel.
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HN7[ ] Under both Texas and federal, law, whether a claim seeks a direct benefit from a contract containing an
arbitration clause turns on the substance of the claim, not artful pleading. Claims must be brought on the contract
(and arbitrated) if liability arises solely from the contract or must be determined by reference to it. On the other
hand, claims can be brought in tort (and in court) if liability arises from general obligations imposed by law.
HN8[ ] Nonparties face a choice when they may plead in either contract or tort, but pleading the former invokes an
arbitration clause broad enough to cover both (as most do). If they pursue a claim on the contract, then they must
pursue all claims--tort and contract--in arbitration. Conversely, if they choose not to sue on the contract, they may
pursue the tort claims in court, but the contract claims will thereby likely be waived under the election-of-remedies
doctrine. Given these options, it is not clear at this point that nonparties will always choose to forfeit potentially
viable contract claims solely to avoid arbitration.
HN9[ ] A nonparty may seek or obtain direct benefits from a contract by means other than a lawsuit. In some
cases, a nonparty may be compelled to arbitrate if it deliberately seeks and obtains substantial benefits from the
contract itself. The analysis here focuses on the nonparty's conduct during the performance of the contract. Thus,
for example, a firm that uses a trade name pursuant to an agreement containing an arbitration clause cannot later
avoid arbitration by claiming to have been a nonparty. Nor can nonsignatories who received lower insurance rates
and the ability to sail under the French flag due to a contract avoid the arbitration clause in that contract.
Business & Corporate Compliance > ... > Formation of Contracts > Consideration > Promissory Estoppel
HN10[ ] The Texas Supreme Court has never addressed such an estoppel claim in the arbitration context. But it
has long recognized in other contexts the defensive theory of promissory estoppel. When a promisor induces
substantial action or forbearance by another, promissory estoppel prevents any denial of that promise if injustice
can be avoided only by enforcement. Promissory estoppel does not create liability where none otherwise exists,
but prevents a party from insisting upon his strict legal rights when it would be unjust to allow him to enforce them.
Estate, Gift & Trust Law > ... > Trustees > Duties & Powers > Claims Against & By
HN11[ ] Under Texas law, a suit involving a trust generally must be brought by or against the trustee, and can be
binding on the beneficiaries whether they join it or not. If a trustee's agreement to arbitrate can be avoided by
simply having the beneficiaries bring suit, the strong state policy favoring arbitration would be effectively thwarted.
HN12[ ] Direct-benefits estoppel requires a colorable claim to the benefits; a meddlesome stranger cannot compel
arbitration by merely pleading a claim that quotes someone else's contract.
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Business & Corporate Compliance > ... > Formation of Contracts > Consideration > Promissory Estoppel
HN13[ ] Like the equitable doctrine of promissory estoppel, the supreme court does not understand direct-benefits
estoppel to create liability for noncontracting parties that does not otherwise exist.
HN14[ ] When a nonparty consistently and knowingly insists that others treat it as a party, it cannot later turn its
back on the portions of the contract, such as an arbitration clause, that it finds distasteful. A nonparty cannot both
have his contract and defeat it too.
Judges: [**1] JUSTICE BRISTER delivered the opinion of the Court. JUSTICE WILLETT did not participate in the
decision.
Opinion by: BRISTER
Opinion
[*129] ON PETITION FOR WRIT OF MANDAMUS
We are asked to decide whether Weekley Homes, L.P., a party to a contract containing an arbitration clause, can
compel arbitration of a personal injury claim brought by Patricia Von Bargen, a nonparty. We have previously
compelled arbitration by nonparties to an arbitration agreement when they brought suit "based on a contract," 1
which Von Bargen purports to avoid here.
But as both state and federal courts have recognized, HN1[ ] nonparties may be bound to an arbitration clause
when the rules of law or equity would bind them to the contract generally. Because we find those rules applicable
here, we conditionally grant mandamus relief.
I. Background
In the summer of 2000, Vernon [**2] Forsting contracted with Weekley for construction of a 4,000 square foot home
at a purchase price of $ 240,000. At the time, Forsting was a seventy-eight year-old widower with an assortment of
health problems. His intention in purchasing such a large home was to live with his daughter, Von Bargen (his only
child) and her husband and three sons.
Von Bargen and her husband negotiated directly with Weekley on many issues before and after construction--
paying a $ 1,000 deposit, selecting the floor plan, signing a letter of intent as, "purchasers," and making custom
design choices. But only Forsting executed the various financing and closing documents on the home, including the
Real Estate Purchase Agreement that contained the following arbitration clause:
Any claim, dispute or cause of action between Purchaser and Seller …, whether sounding in contract, tort, or
otherwise, shall be resolved by binding arbitration . . . . Such claims, disputes or causes of action include, but
are not limited to, those arising out of or relating to … the design, construction, preparation, maintenance or
repair of the Property.
1 In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755, 44 Tex. Sup. Ct. J. 900 (Tex. 2001).
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Shortly after closing, Forsting transferred the home to the [**3] Forsting Family Trust, a revocable trust established
ten years earlier whose sole beneficiary was Von Bargen. At his deposition, Forsting testified that the only reason
he signed the Purchase Agreement individually rather than as trustee was because he "forgot to put [the home] in
the trust." Forsting and Von Bargen served as the only trustees of the Trust, the purpose of which was to transfer
Forsting's property to Von Bargen after his death.
According to the plaintiffs' pleadings, numerous problems arose with the home after completion. When the family
moved out of the house briefly so Weekley could perform some of those repairs, it was Von Bargen who requested
and received reimbursement. Indeed, Von Bargen admitted handling "almost . . . all matters related to the house,
the problems and the warranty work and even the negotiations."
Unsatisfied with the home and Weekley's efforts to repair it, Forsting, Von Bargen, and the Trust filed suit against
Weekley in December 2002. Forsting and the Trust asserted claims for negligence, breach of contract, statutory
violations, and breach of warranty. Von Bargen sued only for personal injuries, alleging Weekley's negligent repairs
caused [**4] her to develop asthma.
Weekley moved to compel arbitration of all claims under the Federal Arbitration [*130] Act (FAA). 2 The trial court
concluded the FAA applied, and granted the motion as to all claims by Forsting and the Trust. But the trial court
refused to compel arbitration of Von Bargen's claim because she did not sign the Purchase Agreement.
HN2[ ] Mandamus relief is proper to enforce arbitration agreements governed by the FAA. 3 After the Fifth Court
of Appeals denied Weekley's request for such relief, Weekley filed a similar request in this Court.
[**5] II. Governing Law
Neither party challenges the trial court's conclusion that the FAA governs the arbitration clause here. 4 HN3[ ]
Under the FAA, absent unmistakable evidence that the parties intended the contrary, it is the courts rather than
arbitrators that must decide "gateway matters" such as whether a valid arbitration agreement exists. 5 [**6] Whether
an arbitration agreement is binding on a nonparty is one of those gateway matters. 6
Texas courts apply Texas procedural rules in making that determination. 7 Those rules call for determination by
summary proceedings, 8 with the burden on the moving party to show a valid agreement to arbitrate. 9
2 See 9 U.S.C. §§ 1-16.
3 Inre Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 n.2, 42 Tex. Sup. Ct. J. 377 (Tex. 1999) (per curiam); EZ Pawn Corp.
v. Mancias, 934 S.W.2d 87-88, 40 Tex. Sup. Ct. J. 104 (Tex. 1996) (per curiam).
4 Although Von Bargen asserts that her personal injury claim cannot be arbitrated under the Texas Arbitration Act as i t was not
signed by an attorney, see TEX. CIV. PRAC. & REM. CODE § 171.002(a)(3), (c), she does not challenge the trial court's
conclusion that the FAA governs here. HN4[ ] The FAA not only contains no such limitation, but also preempts any state
requirements that apply only to arbitration clauses. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87, 134 L. Ed. 2d 902,
116 S. Ct. 1652 (1996).
5 GreenTree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 156 L. Ed. 2d 414, 123 S. Ct. 2402 (2003); PacifiCare Health Sys., Inc. v.
Book, 538 U.S. 401, 407 n.2, 155 L. Ed. 2d 578, 123 S. Ct. 1531 (2003).
6 John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546-47, 11 L. Ed. 2d 898, 84 S. Ct. 909 (1964).
7 Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 268, 36 Tex. Sup. Ct. J. 205 (Tex. 1992).
8 Id. at 269.
9 J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227, 47 Tex. Sup. Ct. J. 196 (Tex. 2003).
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But as we recently noted, it is not entirely clear what substantive law governs whether a nonparty must arbitrate. 10
Generally under the FAA, state law governs whether a litigant agreed to arbitrate, 11 [**8] and federal law governs
the scope of an arbitration clause. 12 Whether [*131] a nonparty must arbitrate can involve aspects of either [**7]
or both. Pending an answer from the United States Supreme Court, 13 we apply state law while endeavoring to
keep it as consistent as possible with federal law. 14
Estoppel and Nonsignatories
HN5[ ] Texas law has long recognized that nonparties may be bound to a contract under various legal principles.
15Although we have never considered these principles in the context of arbitration, we recently noted that contract
and agency law may bind a nonparty to an arbitration agreement. 16 Indeed, if Texas law would bind a nonparty to a
contract generally, the FAA would appear to preempt an exception for arbitration clauses [**9] alone. 17
[**10] In the one case in which we have compelled nonparties to arbitrate, In re FirstMerit Bank, N.A., we stated
that "a litigant who sues based on a contract subjects him or herself to the contract's terms." 18 Because the
nonparties there asserted claims identical to the signatories' contract claims, we held all had to be arbitrated. 19
10In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738-39, 48 Tex. Sup. Ct. J. 678 (Tex. 2005); see also Howsam v. Dean
Witter Reynolds, Inc., 537 U.S. 79, 87, 154 L. Ed. 2d 491, 123 S. Ct. 588 (2002) (Thomas, J., concurring) (suggesting Supreme
Court sometimes looks to federal law and sometimes law chosen by parties); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d
260, 267 n.6 (5th Cir. 2004) (noting that whether state or federal law of arbitrability applies "is often an uncertain question").
11 Doctor'sAssocs., 517 U.S. at 686-87; First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 131 L. Ed. 2d 985, 115 S. Ct.
1920 (1995); Perry v. Thomas, 482 U.S. 483, 492, n.9, 96 L. Ed. 2d 426, 107 S. Ct. 2520 (1987). Parties may also agree that
state law governs their arbitration. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476, 103 L. Ed.
2d 488, 109 S. Ct. 1248 (1989).
12 Moses H. Cone Mem'I Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983).
13 The United States Supreme Court has not answered this question, though it has applied federal substantive law to bind a
nonparty to labor-union arbitration, a field in which federal law has traditionally yielded little deference to state labor-law
principles. See John Wiley & Sons, 376 U.S. at 548 (citing Textile Workers Union of Am. v. Lincoln Mills, 353 U.S. 448, 456, 1 L.
Ed. 2d 972, 77 S. Ct. 912 (1957)).
14 Kellogg, 166 S.W.3d at 739.
15 See, e.g., TEX. BUS. CORP. ACT art. 2.21(A)(2) (holding shareholders maybe liable for corporation's contracts under alter
ego theory if they cause corporation to perpetrate actual fraud for their direct personal benefit); Stine v. Stewart, 80 S.W.3d 586,
590, 45 Tex. Sup. Ct. J. 966 (Tex. 2002) (holding third-party beneficiary could enforce contract); Biggs v. U.S. Fire Ins. Co., 611
S.W.2d 624, 629, 24 Tex. Sup. Ct. J. 204 (Tex. 1981) (holding agent acting within the scope of apparent authority binds the
principal).
16 Kellogg,166 S.W.3d at 738. Accordingly, it is no longer true, that "the [Texas] decisions do not even mention the possibility of
additional bases for binding non-signatories to arbitration." Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1076 (5th Cir.
2002).
17 Doctor's Assocs., 517 U.S. at 686-87; Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281, 130 L. Ed. 2d 753, 115 S. Ct.
834 (1995) ("What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit),
but not fair enough to enforce its arbitration clause. The Act makes any such state policy unlawful, for that kind of policy would
place arbitration clauses on an unequal 'footing,' directly contrary to the Act's language and Congress' intent.").
18 52 S.W.3d at 755.
19 Id. at 755-56.
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We did not describe in FirstMerit what it means to sue "based on a contract." Von Bargen asserts a narrow
interpretation that would apply only to explicit contract claims, and thus not to hers for personal injury; Weekley
argues for a broad application to any claim that "arises from or relates to" the contract involved.
We recently adopted an approach between these two extremes, holding that HN6[ ] a nonparty may be compelled
to arbitrate "if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration
provisions." 20 As we noted, this rule is consistent [**11] with federal law of "direct benefits estoppel." 21
HN7[ ] Under both Texas and federal, law, whether a claim seeks a direct benefit from a contract containing an
arbitration [*132] clause turns on the substance of the claim, not artful pleading. 22 Claims must be brought on the
contract (and arbitrated) if liability arises solely from the contract or must be determined by reference to it. 23 [**12]
On the other hand, claims can be brought in tort (and in court) if liability arises from general obligations imposed by
law. 24
We question Weekley's conclusion that this rule will inevitably drive claimants to plead only noncontractual claims
to avoid arbitration. HN8[ ] Nonparties face a choice when they may plead in either contract or tort, but pleading
the former invokes an arbitration clause broad enough to cover both (as most do). If they pursue a claim "on the
contract," then they must pursue all claims--tort and contract--in arbitration. 25 Conversely, if they choose not to sue
"on the contract," they may pursue the tort claims in court, [**13] but the contract claims will thereby likely be
waived under the election-of-remedies doctrine. 26 Given these options, it is not clear at this point that nonparties
will always choose to forfeit potentially viable contract claims solely to avoid arbitration.
In this case, Von Bargen purports to make [**14] no claim on the Weekley contract, claiming only that she
developed asthma from dust created by Weekley's repairs of the home. While Weekley's duty to perform those
repairs arose from the Purchase Agreement, a contractor performing repairs has an independent duty under Texas
tort law not to injure bystanders by its activities, 27 or by premises conditions it leaves behind. 28 There is nothing in
20 Kellogg, 166 S.W.3d at 741.
21 Id.
22 Hughes Masonry Co., Inc. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 838-39 (7th Cir. 1981); Southwestern Bell
Tel. Co. v. DeLanney, 809 S.W.2d 493, 495, 34 Tex. Sup. Ct. J. 402 (Tex. 1991).
23 Int'l
Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000); DeWitt County Elec.
Coop., Inc. v. Parks, 1 S.W.3d 96, 105, 42 Tex. Sup. Ct. J. 979 (Tex. 1999); DeLanney, 809 S.W.2d at 494.
24 See, e.g., R.J. Griffin & Co. v. Beach Club II Homeowners Ass'n, 384 F.3d 157, 163-164 (4th Cir. 2004); InterGen N.V. v.
Grina, 344 F.3d 134, 145-46 (1st Cir. 2003); Westmoreland v. Sadoux, 299 F.3d 462, 467 (5th Cir. 2002); Fleetwood Enters.,
Inc. v. Gaskamp, 280 F.3d 1069, 1076-77 (5th Cir. 2002); DeLanney, 809 S.W.2d at 494; see also Formosa Plastics Corp. USA
v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47, 41 Tex. Sup. Ct. J. 289 (Tex. 1998).
25 See, e.g., Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271, 36 Tex. Sup. Ct. J. 205 (Tex. 1992) (holding DTPA claim was
factually intertwined with contract claim and thus subject to arbitration clause).
26 Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851, 23 Tex. Sup. Ct. J. 502 (Tex. 1980) (holding election-of-remedies
doctrine prevents pursuit of inconsistent rights or remedies when result would be manifest injustice); cf. Medina v. Herrera, 927
S.W.2d 597, 598-99, 39 Tex. Sup. Ct. J. 627 (Tex. 1996) (holding election-of-remedies doctrine barred pursuit of both workers'
compensation claim and suit against employer for intentional act).
27 See Redinger v. Living, Inc., 689 S.W.2d 415, 417, 28 Tex. Sup. Ct. J. 404 (Tex. 1985) (noting general contractor on a
construction site in control of the premises may be subject to direct liability for negligence arising from: (1) a premises defect, or
(2) an activity or instrumentality).
28 Strakos v. Gehring, 360 S.W.2d 787, 790, 5 Tex. Sup. Ct. J. 462 (Tex. 1962).
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the sparse record here to suggest Von Bargen 's claim is different from what any bystander might assert, or what
she might assert if the contractor were not Weekley.
But [**15] HN9[ ] a nonparty may seek or obtain direct benefits from a contract by means other than a lawsuit. In
some cases, a nonparty may be compelled to arbitrate if it deliberately seeks and obtains substantial benefits from
the contract itself. 29 [**16] The analysis here focuses on the [*133] nonparty's conduct during the performance of
the contract. 30 Thus, for example, a firm that uses a trade name pursuant to an agreement containing an arbitration
clause cannot later avoid arbitration by claiming to have been a nonparty. 31 Nor can nonsignatories who received
lower insurance rates and the ability to sail under the French flag due to a contract avoid the arbitration clause in
that contract. 32
HN10[ ] This Court has never addressed such an estoppel claim in the arbitration context. 33 [**17] But we have
long recognized in other contexts the defensive theory of promissory estoppel. 34 When a promisor induces
substantial action or forbearance by another, promissory estoppel prevents any denial of that promise if injustice
can be avoided only by enforcement. 35 Promissory estoppel does not create liability where none otherwise exists,
36 but "prevents a party from insisting upon his strict legal rights when it would be unjust to allow him to enforce
them." 37
Here, Von Bargen has not merely resided in the home. Claiming the authority of the Purchase Agreement, she
directed how Weekley should construct many of its features, repeatedly demanded extensive repairs to "our home,"
38 personally requested and received financial reimbursement for expenses "I incurred" while those repairs were
made, and conducted settlement negotiations with Weekley (apparently never consummated) about moving the
family to a new home. Having obtained these substantial actions from Weekley by demanding compliance with
provisions of the contract, Von Bargen cannot equitably object to the arbitration [**18] clause attached to them.
29 Astra Oil Co., Inc. v. Rover Navigation, Ltd., 344 F.3d 276, 281 (2d Cir. 2003) (holding affiliate of signatories could enforce
arbitration clause as opposing party treated affiliate as part of charter contract during occurrences involved); Am. Bureau of
Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (holding nonsignatories who received lower insurance
rates and ability to sail under French flag due to contract were bound by arbitration clause in it); see also Matter of VMS Ltd.
P'ship Sec. Litig., 26 F.3d 50, 52 (7th Cir. 1994) (holding wife bound by settlement agreement related to investment services
contract signed only by her husband, but under which she had accepted services as well); see also InterGen, 344 F.3d at 146
(holding equitable estoppel inapplicable as nonsignatory never sought to derive direct benefits from contracts during their
currency).
30 E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 200 n.7 (3d Cir.2001).
31 Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993).
32 Tencara Shipyard, 170 F.3d at 353.
33 SeeKellogg, 166 S.W.3d at 741 n.9 (reserving question of whether to apply direct-benefits estoppel to benefits obtained from
contract rather than subsequent litigation).
34 See, e.g., 'Moore' Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 16 Tex. Sup. Ct. J. 11 (Tex.1972).
35 Trammel Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636, 40 Tex. Sup. Ct. J. 425 (Tex. 1997).
36 Hruska v. First State Bank of Deanville, 747 S.W.2d 783, 785, 31 Tex. Sup. Ct. J. 292 (Tex. 1988).
37 Wheeler v. White, 398 S.W.2d 93, 96, 9 Tex. Sup. Ct. J. 105 (Tex. 1965).
38 Invarious lists submitted in the months after the sale, Von Bargen demanded repairs to sagging floors, buckling walls and
windows, cracking brick work, as well as replacing the front door, repainting the back door and the kitchen cabinets, regrouting
the bathrooms and entry way, replacing the fireplace screen, closing gaps at carpet seams, removing drainage problems in the
yard, and repairing a noisy garage door.
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In addition to these benefits, Forsting and the Trust have sued Weekley on claims which are explicitly based on the
contract. HN11[ ] Under Texas law, a suit involving a trust generally must be brought by or against the trustee,
and can be binding on the beneficiaries whether they join it or [*134] not. 39 Although Von Bargen did not purport to
sue as either trustee or beneficiary, she was both, and any recovery will inure to her direct benefit as the sole
beneficiary and equitable titleholder of the home. 40 [**20] As one Texas court has noted, if a trustee's agreement to
arbitrate [**19] can be avoided by simply having the beneficiaries bring suit, "the strong state policy favoring
arbitration would be effectively thwarted." 41
While we based our decision in FirstMerit Bank on the nonparties' contract-based claims, more was involved in that
case than the format of the pleadings. HN12[ ] Direct-benefits estoppel requires a colorable claim to the benefits;
a meddlesome stranger cannot compel arbitration by merely pleading a claim that quotes someone else's contract.
The nonparties in FirstMerit Bank were the daughter and son-in-law of the signatories, the actual occupants of the
mobile home, and (according to the briefs) the future owners to whom the signatories planned to transfer title. It is
hard to see what direct benefits they expected from that contract that Von Bargen did not expect from this one.
HN13[ ] Like the equitable doctrine of promissory estoppel, we do not understand direct-benefits estoppel to
create liability for noncontracting parties that does not otherwise exist. As Von Bargen and Weekley had no contract
between them, estoppel alone cannot grant either a right to [**21] sue for breach. 42 Nor do we understand the
doctrine to apply when the benefits alleged are insubstantial or indirect. But once Von Bargen deliberately sought
substantial and direct benefits from the contract, and Weekley agreed to comply, equity prevents her from avoiding
the arbitration clause that was part of that agreement.
We recognize that direct-benefits estoppel has yet to be endorsed by the United States Supreme Court, and that its
application and boundaries are not entirely clear. 43 For example, while federal courts often state the test as
whether a nonsignatory has "embraced the contract," 44 the [*135] metaphor gives little guidance in deciding what
particular conduct embraces or merely shakes hands with it. Indeed, the equitable nature of the doctrine may
39 See TEX. PROP. CODE §§ 111.004(7), 115.011, 115.015; Huie v. DeShazo, 922 S.W.2d 920, 926, 39 Tex. Sup. Ct. J. 288
(Tex. 1996)(holding trusts are not legal entities); Transamerican Leasing Co. v. Three Bears, Inc., 586 S.W.2d 472, 476-77, 22
Tex. Sup. Ct. J. 516 (Tex. 1979) (holding beneficiaries were bound by judgment against trust and trustees, as some participated
in trial in their capacity as trustees, and remainder showed neither prejudice, conflict of interest, nor inadequate representation
by trustees).
40 Perfect Union Lodge No. 10 v. Interfirst Bank of San Antonio, N.A., 748 S.W.2d 218, 220, 31 Tex. Sup. Ct. J. 277 (Tex. 1988)
(holding trust beneficiaries hold equitable title to trust property); cf. Javitch v. First Union Sec., Inc., 315 F.3d 619, 627 (6th Cir.
2003) (holding arbitration agreements were binding on receiver who succeeded to interests of entities that signed them); Hays &
Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1153-54 (3d Cir. 1989) (holding arbitration agreements were
binding on successor trustee in bankruptcy).
41 Merrill Lynch, Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 879 (Tex. App.--Waco 1992, writ denied).
42 See Sun Oil Co. v. Madeley, 626 S.W.2d 726, 734, 25 Tex. Sup. Ct. J. 101 (Tex. 1981) (holding estoppel based on division
orders could not permanently amend underlying lease).
43 See,e.g., J. Douglas Uloth & J. Hamilton Rial, III, Equitable Estoppel as a Basis for Compelling Nonsignatories to Arbitrate--A
Bridge Too Far?, 21 REV. LITIG. 593 (2002).
44 See,e.g., InterGen, 344 F.3d at 145; DuPont, 269 F.3d at 200; Peltz ex rel. Peltz v. Sears, Roebuck & Co., 367 F. Supp. 2d
711, 721 (E.D.Pa. 2005); In re Universal Serv. Fund Tel. Billing Practices Litig., 300 F. Supp. 2d 1107, 1138 (D.Kan. 2003);
Amkor Tech., Inc. v. Alcatel Bus. Sys., 278 F. Supp. 2d 519, 521-22 (E.D.Pa. 2003); Cherry Creek Card & Party Shop, Inc. v.
Hallmark Mktg. Corp., 176 F. Supp. 2d 1091, 1098 (D.Colo. 2001).
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render firm standards inappropriate, requiring [**22] trial courts to exercise some discretion based on the facts of
each case. 45
[**23] But we agree with the federal courts that HN14[ ] when a nonparty consistently 46 and knowingly 47 insists
that others treat it as a party, it cannot later "turn[] its back on the portions of the contract, such as an arbitration
clause, that it finds distasteful." 48 A nonparty cannot both have his contract and defeat it too.
[**24] While Von Bargen never based her personal injury claim on the contract, her prior exercise of other
contractual rights and her equitable entitlement to other contractual benefits prevents her from avoiding the
arbitration clause here. Accordingly, the trial court abused its discretion in failing to compel arbitration. We
conditionally grant the writ of mandamus and order the trial court to vacate that part of its order denying Weekley's
motion, and to enter a new order compelling arbitration of Von Bargen's claim. We are confident the trial court will
comply, and our writ will issue only if it does not.
Scott Brister
Justice
End of Document
45 See, e.g., Bridas S.A.P.I.C. v. Turkmenistan, 345 F.3d 347, 360 (5th Cir. 2003) ("The use of equitable estoppel is within a
district court's discretion."); accord, Hill v. G.E. Power Sys., Inc., 282 F.3d 343, 348 (5th Cir. 2002); Grigson v. Creative Artists
Agency, 210 F.3d 524, 528 (5th Cir. 2000).
46 See lnt'l Paper, 206 F.3d at 418 (estopping nonsignatory from denying agreement to arbitrate "when he has consistently
maintained that other provisions of the same contract should be enforced to benefit him.") (emphasis added).
47 See Bridas, 345 F.3d at 361-62 ("Direct[-]benefits estoppel applies when a nonsignatory 'knowingly exploits the agreement
containing the arbitration clause.'") (emphasis added) (citing DuPont, 269 F.3d at 199); Tencara Shipyard, 170 F.3d at 353
(requiring nonsignatories to arbitrate pursuant to provision in contract they neither requested nor executed, as they had duty to
obtain that contract and received copies of it).
48 DuPont, 269 F.3d at 200; accord Astra Oil Co., 344 F.3d at 281.
Mallory McCarty
Caution
Marciano v. Mony Life Ins. Co.

United States District Court for the Eastern District of Pennsylvania
January 22, 2007, Decided ; January 23, 2007, Filed; January 23, 2007, Entered
CIVIL ACTION NO. 05-4748
Reporter
470 F. Supp. 2d 518 *; 2007 U.S. Dist. LEXIS 4599 **
MICHAEL E. MARCIANO, et al., Plaintiffs, v. MONY LIFE INSURANCE COMPANY, et al., Defendants.
Core Terms
NASD, arbitration, Securities, compel arbitration, parties, entities, arbitration agreement, immersion, Bylaws, natural
person, disputes, Plaintiffs', signatory, courts, registered, securities industry, non-signatory, subsidiary, giving rise,
registration, sentence, factors, agreed to arbitrate, interpreting, customers, join, corporate parent, applies, matters,
motion to compel arbitration
Case Summary
Procedural Posture
Plaintiffs, former employees, sued defendants, an insurer and affiliated companies, for actions that precipitated the
employees' departure from the insurer's organization. The insurer moved to compel arbitration under the National
Association of Securities Dealers (NASD) Code of Arbitration. The employees had asserted claims for defamation,
wrongful discharge, intentional infliction of emotional distress, and breach of contract, inter alia.
Overview
The insurer was not a member of the NASD. The employees worked for a securities firm affiliated with the insurer,
and that firm was a member of the NASD. The employees claimed that they were improperly sanctioned by the
insurer in order to appease NASD regulators. The issue before the court was whether the employees agreed to
submit to arbitration a dispute between themselves and the insurer when they executed a contract - called a "Form
U-4" - that required arbitration between the employees and an insurer subsidiary. The parties disputed whether the
insurer was an "associated person" and/or "certain other" under the meaning of Nat'l Ass'n Sec. Dealers Manual,
Code Arb. P.R. 10201(a). The court held that the employees were "associated persons" under the NASD Code.
The insurer was a "certain other" under the NASD Code. Disputes between "associated persons" and "certain
others" were required to be arbitrated under the NASD Code. In the Form U-4, the employees agreed to arbitrate
any dispute between themselves and others that was required to be arbitrated under the NASD Code. Therefore,
the employees, upon executing the Form U-4, agreed to arbitrate their dispute against the insurer.
Outcome
The insurer was allowed to compel the employees to arbitrate the dispute. The employees were ordered to submit
to an NASD arbitration with all defendants. The proceedings in the instant court were stayed pending the outcome
of the arbitration.
Mallory McCarty
Page 2 of 22
470 F. Supp. 2d 518, *518; 2007 U.S. Dist. LEXIS 4599, **4599
Securities Law > Regulators > Self-Regulating Entities > National Association of Securities Dealers
HN1[ ] With the Form U-4, an employee enters into an agreement with the National Association of Securities
Dealers (NASD) to arbitrate with the employee's employer (the NASD member firm) any disputes that may arise.
The employer, in turn, is obligated by virtue of its membership in the NASD to arbitrate disputes with its employees.
The employee and employer do not execute their own arbitration agreement.
HN2[ ] Nat'l Ass'n Sec. Dealers Manual, Code Arb. P.R. 10101 defines the universe of "matters eligible for
submission" for arbitration as any dispute, claim, or controversy arising out of or in connection with the business of
any member of the National Association of Securities Dealers, or arising out of the employment or termination of
employment of associated person(s) with any member: (a) between or among members; (b) between or among
members and associated persons; or (c) between or among members or associated persons and public customers,
or others.
HN3[ ] Nat'l Ass'n Sec. Dealers Manual, Code Arb. P.R. 10201(a) limits the universe of eligible matters to those
"required for submission" for arbitration to a dispute, claim, or controversy eligible for submission under the Nat'l
Ass'n Sec. Dealers Manual R. 10100 Series between or among members and/or associated persons, and/or certain
others, arising in connection with the business of such member(s) or in connection with the activities of such
associated person(s), or arising out of the employment or termination of employment of such associated person(s)
with such member, shall be arbitrated under the National Association of Securities Dealers Code, at the instance of:
(1) a member against another member; (2) a member against a person associated with a member or a person
associated with a member against a member; and (3) a person associated with a member against a person
associated with a member.
HN4[ ] The National Association of Securities Dealers (NASD) Manual explicitly incorporates the definitions
provided in the NASD Bylaws. Nat'l Ass'n Sec. Dealers Manual R. § 121. The Bylaws define an "associated person"
as: (1) a natural person who is registered or has applied for registration under the Rules of the NASD; or (2) a sole
proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar
status or performing similar functions, or a natural person engaged in the investment banking or securities business
who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or
exempt from registration with the NASD under these Bylaws or the Rules of the NASD. NASD Bylaws Art. I(cc).
HN5[ ] The Federal Arbitration Act requires a court to apply federal substantive law were an arbitration agreement
is connected to a transaction involving interstate commerce.
Mallory McCarty
Page 3 of 22
HN6[ ] Under the Federal Arbitration Act (FAA), 9 U.S.C.S. §§ 3, 4, 6, on the motion of a party, a court must stay
proceedings and order the parties to arbitrate the dispute if the court finds that the parties have agreed in writing to
do so. The FAA leaves no place for the exercise of discretion by a district court.
HN7[ ] A party seeking to compel arbitration must show (1) that a valid agreement to arbitrate exists between the
parties and (2) that the specific dispute falls within the scope of the agreement.
Civil Procedure > ... > Summary Judgment > Burdens of Proof > Nonmovant Persuasion & Proof
HN8[ ] In determining whether a valid agreement to arbitrate exists between the parties, the United States Court
of Appeals for the Third Circuit has instructed district courts to give the party opposing arbitration the benefit of all
reasonable doubts and inferences that may arise or, in other words, to apply the familiar Fed. R. Civ. P. 56(c)
summary judgment standard.
HN9[ ] While there is a presumption that a particular dispute is within the scope of an arbitration agreement, there
is no such "presumption" or "policy" that favors the existence of a valid agreement to arbitrate. On the contrary, the
federal policy favoring arbitration does not extend to situations in which the identity of the parties who have agreed
to arbitrate is unclear.
HN10[ ] A non-National Association of Securities Dealers (NASD) member, even though it is a parent corporation
of a NASD member that is employees' direct employer, is not an "associated person" within the meaning of the
NASD Code of Arbitration Procedure.
HN11[ ] The National Association of Securities Dealers' (NASD) definition of "associated person" excludes
corporate entities. Moreover, the NASD has amended the definition to make clear its intention that "associated
person" refers only to natural persons. The NASD intends to confine its definition of associated persons to natural
persons.
Mallory McCarty
Page 4 of 22
HN12[ ] The proper focus in determining whether a party is a "certain other" for purposes of the National
Association of Securities Dealers Code of Arbitration Procedure is the sufficiency of a party's immersion in the
underlying dispute.
HN13[ ] In the context of the National Association of Securities Dealers Code of Arbitration Procedure, a person
who is neither a member nor an associated person is nevertheless appropriately joined in the arbitration where (1)
that party plays an active role in the securities industry, (2) is a signatory to a securities-industry arbitration
agreement (or is an instrument of another party to the arbitration), and (3) has voluntarily participated in the
particular events giving rise to the controversy underlying the arbitration.
HN14[ ] A court treats McMahan's "sufficient immersion" language as the operative "test" to determine whether a
person who is neither a member of the National Association of Securities Dealers nor an associated person is
nevertheless appropriately joined in the arbitration and the three factors listed by the McMahan court will serve to
inform the "sufficient immersion" test.
HN15[ ] Courts have held that a party is a "certain other" for purposes of the National Association of Securities
Dealers Code of Arbitration Procedure when claims against it and a related entity are intertwined or interrelated.
Governments > Legislation > Interpretation
HN16[ ] Under the principle of ejusdem generis, when a general term follows a specific one, the general term
should be understood as a reference to subjects akin to the one with specific enumeration.
HN17[ ] "Certain others" in Nat'l Ass'n Sec. Dealers Manual, Code Arb. P.R. 10201(a) likely refers to parties
similar to "associated persons" or members, though not strictly so, whose presence in an National Association of
Securities Dealers arbitration would benefit all parties involved.
Mallory McCarty
Page 5 of 22
HN18[ ] The United States Court of Appeals for the Third Circuit, while not speaking directly to the definition of
"certain other," in Nat'l Ass'n Sec. Dealers Manual, Code Arb. P.R. 10201(a) has also counseled that the Form U-4
arbitration provision and the National Association of Securities Dealers Code of Arbitration Procedure should be
read expansively to include parties not explicitly listed therein.
HN19[ ] See Nat'l Ass'n Sec. Dealers Manual, Code Arb. P.R. 10201(a).
HN20[ ] Under a court's reading of Nat'l Ass'n Sec. Dealers Manual, Code Arb. P.R. 10201(a), a "certain other"
cannot compel arbitration under the National Association of Securities Dealers Code of Arbitration Procedure, but a
dispute between an "associated person" or member and a "certain other" is nonetheless still "required" to be
arbitrated. This reading of the provision eliminates any surplusage.
Governments > Legislation > Interpretation
HN21[ ] It is a general rule of statutory construction that words in statutes should not be construed as excess
verbiage.
HN22[ ] A court reads Nat'l Ass'n Sec. Dealers Manual, Code Arb. P.R. 10201(a) to say that disputes between or
among members and/or "associated persons" and/or "certain others" are required to be arbitrated under the
National Association of Securities Dealers Code of Arbitration Procedure and a member can compel arbitration
against another member, a member can compel arbitration against an "associated person," an "associated person"
can compel arbitration against a member, and an "associated person" can compel arbitration against an
"associated person."
HN23[ ] Only members or "associated persons" may "insist" on arbitration on arbitration under the National
Association of Securities Dealers Code (NASD) of Arbitration Procedure. Notably missing from Nat'l Ass'n Sec.
Dealers Manual, Code Arb. P.R. 10201(a)(1), (2), (3) is the term "certain others," which appears only at the
beginning of the main paragraph. "Certain others" are not authorized to compel arbitration under the NASD Code of
Arbitration Procedure.
Mallory McCarty
Page 6 of 22
HN24[ ] The National Association of Securities Dealers Code of Arbitration Procedure uses the word "instance,"
which is defined by Black's Law Dictionary as "urgent solicitation or insistence." The Delaware Court of Chancery,
interpreting Nat'l Ass'n Sec. Dealers Manual, Code Arb. P.R. 10201(a), interprets "instance" to mean "at the
suggestion or instigation of."
HN25[ ] "Certain others" cannot compel arbitration under the National Association of Securities Dealers Code of
HN26[ ] Nat'l Ass'n Sec. Dealers Manual, Code Arb. P.R. 10201(a) is relevant not just for listing which parties may
compel arbitration, but also for stating the instances when a dispute "shall be arbitrated." According to P.R.
10201(a), a dispute between associated persons and certain others shall be arbitrated under the National
Association of Securities Dealers Code (NASD) of Arbitration Procedure. The mandatory "shall" means that
disputes between "associated persons" and "certain others" are required to be arbitrated under the NASD Code of
Securities Law > ... > Scope of Provisions > Definitions > General Overview
HN27[ ] The definition of "person" in the Securities Exchange Act is controlling for the meaning of "person" in the
National Association of Securities Dealers Form U-4. The definition of "person" includes non-natural entities.
HN28[ ] National Association of Securities Dealers (NASD) Form U-4 obligates signatories to arbitrate any dispute
between themselves and any other person (or entity) that is required to be arbitrated under the of NASD Code of
Arbitration Procedure. Disputes between "associated persons" and "certain others" are required to be arbitrated
under the NASD Code of Arbitration Procedure. Therefore, a "certain other" can compel arbitration under the Form
U-4.
Counsel: [**1] For MICHAEL E. MARCIANO, JOSEPH MARCIANO, Plaintiffs: ETHAN N. HALBERSTADT,
HALBERSTADT CURLEY LLC, CONSHOHOCKEN, PA.
Mallory McCarty
Page 7 of 22
For MONY LIFE INSURANCE COMPANY, MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, MONY
SECURITIES CORP., THE MONY GROUP, INC., MONY BROKERAGE, INC., AXA ADVISORS, LLC, AXA
FINANCIAL, INC., Defendants: MICHAEL J. GLASHEEN, MCCARTER & ENGLISH, LLP, PHILADELPHIA, PA.
Judges: EDUARDO C. ROBRENO, J.
Opinion by: EDUARDO C. ROBRENO
Opinion
[*520] MEMORANDUM
EDUARDO C. ROBRENO, J.
January 22, 2007
TABLE OF CONTENTS
I. INTRODUCTION
II. BACKGROUND
A. Procedural and Factual History
B. The Arbitration Agreement and the NASD Provisions
1. Form U-4
2. NASD Provisions
III. DISCUSSION
A. Law
1. Federal law applies
2. The legal standard under the Federal Arbitration Act
B. Analysis
1. Each party's definition under the NASD Code
a. The Marcianos are "associated persons" under the NASD
code
b. MONY Life is not an "associated person" under the NASD
code
c. MONY Life is a "certain other" under the NASD code
(i) The proper McMahan "test"
(ii) McMahan's "sufficient immersion" test
(iii) A textual analysis of the NASD provision
(iv) The Third Circuit's guidance in Prudential
(v) Application of the "sufficient immersion" test to the
situation at bar
2. Each party's powers and responsibilities under the NASD
Code and Form U-4
a. A "certain other" cannot compel arbitration under the
NASD Code
b. A "certain other" can compel arbitration against an
"associated person" under Form U-4
3. Application
Mallory McCarty
Page 8 of 22
a. MONY Life (a "certain other") cannot compel arbitration

under the NASD Code
b. MONY Life (a "certain other") can compel arbitration
against the Marcianos ("associated persons" under Form U-4
IV. CONCLUSION
[**2] [*521] I. INTRODUCTION
Plaintiffs have sued MONY Life Insurance Company (MONY Life) and affiliated companies for actions that
precipitated Plaintiffs' departure from the MONY organization. MONY Life has moved to compel arbitration under
the National Association of Securities Dealers (NASD) Code of Arbitration. MONY Life, however, is not a member of
the NASD. The arbitration agreement at issue is between Plaintiffs and the NASD, and the agreement expressly
obligates Plaintiffs to arbitrate with a MONY Life subsidiary.
The issue before the Court is whether MONY Life may compel arbitration of a dispute between Plaintiffs and MONY
Life involving a matter within the scope of a securities industry arbitration agreement between Plaintiffs and the
NASD that mandates arbitration between Plaintiffs and a MONY Life subsidiary. Or, put another way, whether
Plaintiffs agreed to submit to arbitration a dispute between themselves and MONY Life when they executed a
contract that requires, by its express terms, arbitration between Plaintiffs and a MONY Life subsidiary.
The Court concludes that under the circumstances in this case MONY Life may compel Plaintiffs to arbitrate the
dispute.
II. BACKGROUND
[**3] A. Procedural and Factual History
Plaintiffs commenced this action in the Philadelphia County Court of Common Pleas on July 8, 2005; on September
2, 2005, Defendants removed the case to the Eastern District of Pennsylvania, based on diversity jurisdiction.
According to the Complaint, Plaintiffs, brothers Michael E. Marciano and Joseph Marciano (collectively, Marcianos),
had worked as insurance salespeople (among other positions) for MONY 1 since 1979 and 1986, respectively. On
July 7, 2004, after an investigation into the purchase and solicitation of a private securities transaction, MONY
sanctioned both brothers. The sanctions included suspension and a fine. Joseph Marciano resigned immediately,
and Michael Marciano resigned shortly after the period of suspension was over and he had paid the fine. Plaintiffs
contend they were improperly sanctioned by MONY in order to appease NASD regulators. They assert claims for
defamation, wrongful discharge, intentional infliction of emotional distress, intentional interference with existing and
prospective contractual relations, misrepresentation/fraud, negligence and failure to supervise, and breach of
contract.
[**4] The Complaint names seven defendants: MONY Securities Corporation; The MONY Group, Inc.; MONY
Brokerage, Inc.; MONY Life Insurance Company; Mutual Life Insurance Company of New York; AXA Advisors, LLC;
and AXA Financial, Inc. Defendants can be conveniently grouped into three categories 2: the MONY Life
defendants (MONY Life Insurance Company and Mutual Life Insurance Company of New York), the [*522] MONY
Securities defendants (MONY Securities Corporation, The MONY Group, Inc., and MONY Brokerage, Inc.), and the
AXA defendants (AXA Advisors, LLC, and AXA Financial, Inc.).
1 Plaintiffs'
Complaint alleges simply that "MONY" is the liable party, without differentiating between the various MONY entities.
As is clear from the discussion below, precisely which MONY entities Plaintiffs worked for, signed their arbitration agreement
with, and were sanctioned by is of some dispute and bears on the outcome of the motion.
2 The corporate structure of the defendant companies is drawn from the declaration of Paul F. Bird, the director of investigations
for the internal audit department of AXA Financial, Inc., the ultimate corporate parent at issue. See Doc. No. 8, Ex. K.
Mallory McCarty
Page 9 of 22
As to the MONY Life defendants, the Mutual Life Insurance Company of New York was demutualized in 1998 and
no longer exists. Its successor company is MONY Life Insurance Company (MONY Life). [**5] MONY Life is the
parent company of MONY Securities Corporation and MONY Brokerage, Inc., which were Plaintiffs' direct
employers. Thus, MONY Life is the relevant defendant.
None of the MONY Securities defendants is presently at issue. MONY Securities Corporation and MONY
Brokerage, Inc., were Plaintiffs' direct employers. The two entities were wholly-owned subsidiaries of both The
MONY Group, Inc., a holding company that was dissolved July 8, 2004, and of MONY Life Insurance Company.
Plaintiffs conceded that MONY Securities Corporation, 3 MONY Brokerage, Inc., and The MONY Group, Inc., could
properly compel arbitration, and the Court has so ordered (doc. no. 17).
The AXA defendants are not independently relevant to the outcome of this motion. AXA Financial, Inc., is the
ultimate corporate parent of the entities [**6] involved in this case. In 2004, it acquired MONY. AXA Advisers, LLC,
is a subsidiary of AXA Financial, Inc. The claims against the AXA defendants are premised solely on successor
liability. Whatever decision the Court reaches with respect to MONY Life (arbitration or not) will apply to the AXA
defendants. See 1 Domke on Commercial Arbitration § 13:12 (2002) (noting that, as a general rule, a successor
corporation has the same rights and responsibilities of its predecessor under an arbitration agreement).
All Defendants moved to compel arbitration (doc. no. 3). The Court granted the motion in part (doc. no. 17),
ordering Plaintiffs to arbitrate the dispute with the MONY Securities defendants (which were members of the NASD)
and ordering discovery to proceed while the Court took the arbitrability of the dispute with respect to the MONY Life
and AXA defendants (which were not members of the NASD) under advisement.
On Defendants' interlocutory appeal, the Third Circuit ordered a stay of discovery, except for discovery necessary
to determine arbitrability, until the Court decides the remaining Defendants' motion to compel arbitration (doc. no.
32).
On remand, the parties took limited [**7] discovery on the issue of arbitrability. They have submitted supplemental
briefs on Defendants' motion to compel arbitration. 4
B. The Arbitration Agreement and the NASD Provisions
Plaintiffs were independent contractors with both MONY Life and MONY Securities. In order to become registered
representatives with MONY Securities, which [*523] was a necessary step in allowing them to offer insurance
securities [**8] products for sale, Plaintiffs signed registered representative agreements with the NASD. In
becoming registered representatives, Plaintiffs also signed Form U-4, which provides that disputes between the
applicant and his firm will be arbitrated according the rules of the NASD.
1. Form U-4
Self-regulating organizations (SROs) operating in the securities and investment fields require member firms to
compel certain employees and independent contractors to register with the SRO as a condition of employment.
Relevant here, the NASD is one of the SROs that requires employees' registration. MONY Securities is a member
firm of the NASD.
3 Note
that MONY Securities Corporation ceased being a member of the NASD on March 3, 2006, after this action had
commenced. Its cessation of its membership in the NASD has no bearing on the case.
4 There have been a plethora of responses and replies to the original motion to compel arbitration (doc. no. 3). Before the initial
hearing on the motion on January 4, 2006, Plaintiffs responded to the motion (doc. nos. 5 & 6); Defendants replied (doc. no. 8);
and Plaintiffs sur-replied (doc. no. 9). Per the Court's Order of August 4, 2006 (doc. no. 43), Plaintiffs submitted a supplemental
response to the motion to compel (doc. no. 45) and Defendants replied (doc. no. 46). Then, Plaintiffs moved for leave to file a
sur-response (doc. no. 47) and Defendants moved for leave to file a sur-reply (doc. no. 48).
Mallory McCarty
Page 10 of 22
Registration with the SRO entails, inter alia, completing a Form U-4. The form is titled "uniform application for
securities industry registration or transfer." The provision relevant here provides:
I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or
any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organizations
with which I register, as indicated in item 10 as may be amended from time to time. 5
The NASD is the [**9] organization indicated in item 10 of Plaintiffs' Form U-4s.
It is important to note the unique situation of Form U-4 in the universe of arbitration agreements. In the typical
situation, two parties enter into an agreement to arbitrate with each other any dispute that may arise. HN1[ ] With
the Form U-4, on the other hand, an employee enters into an agreement with the NASD to arbitrate with the
employee's employer (the NASD member firm) any disputes that may arise. The employer, in turn, is obligated by
virtue of its membership in the NASD to arbitrate disputes with its employees. The employee and employer do not
execute their own arbitration [**10] agreement.
2. NASD provisions
Form U-4 explicitly refers to the NASD's rules, constitutions, or bylaws, as they may be amended. 6 Relevant here
are the NASD's Bylaws and Manual, available at http://nasd.complinet.com/nasd/display/index.html.
Within the NASD Manual is the NASD Code of Arbitration Procedures (NASD Code), § 10000 et seq., which
governs the procedures for arbitration.
Specifically, HN2[ ] NASD Code § 10101 defines the universe of "matters eligible for submission" for arbitration:
[A]ny dispute, claim, or controversy arising out of or in connection with the business of any member of the
Association, or arising [**11] out of the employment or termination of employment of associated person(s) with
any member . . .:
(a) between or among members;
[*524] (b) between or among members and associated persons; [or]

(c) between or among members or associated persons and public customers, or others . . . .
NASD Code § 10101.
HN3[ ] Section 10201(a), in turn, limits the universe of eligible matters to those "required [for] submission":
[A] dispute, claim, or controversy eligible for submission under the Rule 10100 Series between or among
members and/or associated persons, and/or certain others, arising in connection with the business of such
member(s) or in connection with the activities of such associated person(s), or arising out of the employment or
termination of employment of such associated person(s) with such member, shall be arbitrated under this
Code, at the instance of:
(1) a member against another member;
(2) a member against a person associated with a member or a person associated with a member against a
member; and
(3) a person associated with a member against a person associated with a member.
NASD Code § 10201(a) (emphasis added).
5 Thisis the language on the Form U-4 signed by Joseph Marciano on August 7, 1985, and by Michael Marciano on July 13,
1987. Joseph Marciano signed a second Form U-4 on March 12, 1996, which, in addition to the above-quoted language,
included the following: "and that any arbitration award rendered against me may be entered as a Judgment in any court of
competent jurisdiction."
6 The version of the NASD's rules applicable to this case are those in force on July 8, 2005, the date Plaintiffs filed suit in state
court. Relatedly, the Third Circuit has held that by singing the Form U-4, a registrant obligates himself to comply with
amendments to the NASD's rules. Seus v. John Nuveen & Co., 146 F.3d 175, 187 (3d Cir. 1998).
Mallory McCarty
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[**12] The parties dispute whether MONY Life is an "associated person" 7 and/or "certain other" under the meaning
of this section. HN4[ ] The NASD Manual explicitly incorporates the definitions provided in the NASD Bylaws.
NASD Manual § 121. The Bylaws define an "associated person" as:
(1) a natural person who is registered or has applied for registration under the Rules of the Association; [or] (2)
a sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying
a similar status or performing similar functions, or a natural person engaged in the investment banking or
securities business who is directly or indirectly controlling or controlled by a member, whether or not any such
person is registered or exempt from registration with the NASD under these By-Laws or the Rules of the
Association . . . .
NASD Bylaws Art. I(cc). Unfortunately, the term "certain other" is nowhere defined by the NASD.
[**13] III. DISCUSSION
A. Law
1. Federal law applies
At the outset, note that the Court is sitting in diversity, see Doc. No. 12 (denying Plaintiffs' motion to remand), and
therefore would ordinarily apply state substantive law, see Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817,
82 L. Ed. 1188 (1938). However, HN5[ ] the Federal Arbitration Act (FAA) requires the Court to apply federal
substantive law here because the arbitration agreement is connected to a transaction involving interstate
commerce. State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710, 713 n.1 (3d Cir. 2000); see also Wright &
Miller, Federal Practice and Procedure § 3569, at 173 (1984) ("[I]n a diversity suit . . ., the substantive rules
contained in the [Federal Arbitration] Act, based as it is on the commerce and admiralty powers, are to be applied
regardless of state law.").
Whether the arbitration agreement is connected to a transaction involving interstate commerce is a factual
determination that must be made by the Court. State Farm, 233 F.3d at 713 n.1. Here, Plaintiffs, [*525]
Pennsylvania residents, were employees of MONY Securities, [**14] a New York corporation with its principal
place of business in New York. 8 Plaintiffs executed the Form U-4 with the NASD, which operates under the
oversight of the federal Securities and Exchange Commission. See Thomas James Assocs., Inc. v. Jameson, 102
F.3d 60, 61 (2d Cir. 1996). Therefore, Form U-4's arbitration agreement is connected to interstate commerce.
Although the Court is sitting in diversity, it will apply the federal substantive law that has emerged from interpretation
of the FAA. 9
[**15]
2. The legal standard under the Federal Arbitration Act
HN6[ ] Under the FAA, on the motion of a party, a court must stay proceedings and order the parties to arbitrate
the dispute if the court finds that the parties have agreed in writing to do so. 9 U.S.C. §§ 3, 4, 6. "[T]he Act leaves
no place for the exercise of discretion by a district court . . . ." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213,
218, 105 S. Ct. 1238, 84 L. Ed. 2d 158 (1985).
7 Regrettably, the NASD Code uses the terms "associated person" and "person associated with a member" interchangeably.
8 According to Defendants, all MONY and AXA defendants have their principal places of business in New York, and they are all
incorporated in either New York or Delaware. (Doc. No. 1, at 2.)
9 Nevertheless, the analysis is the same under both federal and Pennsylvania law. See State Farm, 233 F.3d at 713 n.1 ("[T]here
is no meaningful difference between federal and Pennsylvania law when reviewing the scope of an arbitration clause.");
PaineWebber, Inc. v. Hartmann, 921 F.2d 507, 510 n.3 (3d Cir. 1990) ("[T]he federal Arbitration Act and the Pennsylvania
Uniform Arbitration Act, and the case law that has developed under each, are functionally equivalent as regards the authority of
a district court to review an agreement to arbitrate and to stay or compel arbitration."), overruled on other grounds by Howsam v.
Dean Witter Reynolds, 537 U.S. 79, 85, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002).
Mallory McCarty
Page 12 of 22
HN7[ ] A party seeking to compel arbitration must show (1) that a valid agreement to arbitrate exists between the
parties and (2) that the specific dispute falls within the scope of the agreement. 10 Trippe Mfg. Co. v. Niles Audio
Corp., 401 F.3d 529, 532 (3d Cir. 2005); PaineWebber, 921 F.2d at 511.
[**16] HN8[ ] In determining whether a valid agreement to arbitrate exists between the parties, 11 the Third Circuit
has instructed district courts to give the party opposing arbitration "the benefit of all reasonable doubts and
inferences that may arise," or, in other words, to apply the familiar Federal Rule of Civil Procedure 56(c) summary
judgment standard. Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 & n.9 (3d Cir. 1980); see
also Berkery v. Cross Country Bank, 256 F. Supp. 2d 359, 364 n.3 (E.D. Pa. 2003) (Robreno, J.) (applying the
summary judgment standard to a motion to compel arbitration).
[**17] HN9[ ] While there is a presumption that a particular dispute is within the scope of an arbitration
agreement, Volt [*526] Info. Scis., Inc. v. Bd. of Trustees, 489 U.S. 468, 475, 109 S. Ct. 1248, 103 L. Ed. 2d 488
(1989), there is no such "presumption" or "policy" that favors the existence of a valid agreement to arbitrate. On the
contrary, "[t]he federal policy [favoring arbitration] does not extend to situations in which the identity of the parties
who have agreed to arbitrate is unclear." McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir. 1994); see also Fleetwood
Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002) ("[The] federal policy favoring arbitration does not
apply to the determination of whether there is a valid agreement to arbitrate between the parties."). 12
10 TheCourt is to look to the same two factors under Pennsylvania law: "whether an agreement to arbitrate was entered into and
whether the dispute involved falls within the scope of the arbitration provision." Flightways Corp. v. Keystone Helicopter Corp.,
459 Pa. 660, 331 A.2d 184, 185 (Pa. 1975).
11 There are five traditional theories under which a signatory can bind a non-signatory to an arbitration agreement: "(1)
incorporation by reference, (2) assumption, (3) agency, (4) veil-piercing/alter ego, and (5) estoppel." Trippe, 401 F.3d at 532.
However, Defendants have not argued that these five theories, or one of them, can be used by a non-signatory to force a
signatory to arbitrate. In addition, the Third Circuit has not applied these theories in a securities setting. Therefore, the Court
finds that these five theories are inapplicable here.
12 In this area of jurisprudence, language to the effect of "there is a presumption in favor of arbitration" has been a source of
confusion. Compare Par-Knit, 636 F.2d at 54 (directing that all reasonable inferences be drawn in favor of the party opposing
arbitration), with Trippe, 401 F.3d at 532 ("When determining both the existence and the scope of an arbitration agreement,
there is a presumption in favor of arbitrability."). It now appears that there are two lessons from this so-called "presumption."
One, the presumption applies only to the scope of an open-ended arbitration agreement, never to the existence of such an
agreement or to the identity the parties who might be bound by such an agreement. If A and B have an agreement to arbitrate
any dispute that arises between them, there is a presumption that, if a dispute arises between them, the dispute is within the
scope of the agreement. However, if a dispute arises between A and C, even if B and C are closely related, there is no
"presumption" that A has agreed to arbitrate its dispute with C.
Two, the "presumption" is not an evidentiary burden in a formal sense, but rather more of a policy statement. Prior to 1925,
based on the English common law tradition, judicial enforcement of arbitration agreements was disfavored. Congress enacted
the FAA in 1925 in order "to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate." Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-20, 105 S. Ct. 1238, 84 L. Ed. 2d 158 (1985); see Moses H. Cone Mem'l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983) (holding that the FAA "is a congressional
declaration of a liberal federal policy favoring arbitration agreements"). To this extent, it is the policy of the United States to favor
arbitration.
In this case, the Court will not apply the so-called presumption favoring arbitrability because this motion hinges on whether these
parties have agreed to arbitrate their claims, not on whether the dispute is within the scope of the arbitration agreement. See
E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 294, 122 S. Ct. 754, 151 L. Ed. 2d 755 (2002) ("While ambiguities in the language
of the agreement should be resolved in favor of arbitration, we do not override the clear intent of the parties, or reach a result
inconsistent with the plain text of the contract, simply because the policy favoring arbitration is implicated. . . . It goes without
saying that a contract cannot bind a nonparty."); Cone, 460 U.S. at 24-25 ("The Arbitration Act establishes that, as a matter of
federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration . . . ." (emphasis
added)).
Mallory McCarty
Page 13 of 22
[**18] [*527] B. Analysis
The Court must interpret the relevant provisions of Form U-4 and the NASD Code to determine whether MONY Life
can compel arbitration against the Marcianos. This involves placing the parties in the proper nomenclature of the
NASD in order to determine their respective rights and obligations.
First, the Court determines the proper placement of each party under the definitions provided by the NASD Code.
The Marcianos are "associated persons" and MONY Life is a "certain other." MONY Life is not an "associated
person."
Second, the Court explains the powers of each party under the NASD Code and Form U-4. A "certain other" cannot
compel arbitration under the NASD Code. A "certain other" can, however, compel arbitration against an "associated
person" under Form U-4. Third, the Court draws the preceding analyses together to conclude that MONY Life can
compel the Marcianos to arbitrate the dispute. Although MONY Life cannot compel arbitration under the NASD
Code, it can compel arbitration under Form U-4.
Finally, even under an alternate reading of the NASD Code, MONY Life (a "certain other") is nonetheless able to
join an arbitration initiated by MONY Securities (an NASD [**19] member) against the Marcianos ("associated
persons").
1. Each party's definition under the NASD Code
a. The Marcianos are "associated persons" under the NASD Code.
The NASD Bylaws define an "associated person" as, inter alia, "a natural person who is registered or has applied
for registration under the Rules of the Association." NASD By-Laws Art. I(cc). The Marcianos are natural persons.
They were registered under the rules of the NASD. Therefore, they are "associated persons" within the meaning of
the NASD Code.
b. MONY Life is not an "associated person" under the NASD Code.
The NASD Bylaws define an "associated person" as a natural person. And the NASD Manual explicitly adopts the
definitions contained in the NASD Bylaws. NASD Manual § 121. Therefore, as a non-natural entity, MONY Life
does not qualify as an "associated person." See Tays v. Covenant Life Ins. Co., 964 F.2d 501, 503 (5th Cir. 1992)
("[T]he definition of associated person in the NASD by-laws seems calculated to exclude corporate entities . . . .");
Mehling v. N.Y. Life Ins. Co., 163 F. Supp. 2d 502, 511 (E.D. Pa. 2001) (Kauffman, J.) ("[T]he [**20] term 'person'
covers only natural persons, and not corporate entities."). Indeed, the First Circuit arrived at the same conclusion in
a case similar to the one at bar. Dealing with an "intricate corporate hierarchy," the court concluded thatHN10[ ] a
non-NASD member, even though it was a parent corporation of the NASD member that was the employees' direct
employer, was not an "associated person" within the meaning of the NASD Code. Paul Revere Variable Annuity
Ins. Co. v. Kirschhofer, 226 F.3d 15, 19-22 (1st Cir. 2000). 13
The Third Circuit's opinion in In re Prudential Insurance Co. of America Sales Practice Litigation, 133 F.3d 225 (3d Cir. 1998), is
not to the contrary. As noted in Section III.B.1.c.(iv), infra, the Prudential court discussed the purpose of Form U-4 specifically
and the utility of arbitration as a method of dispute resolution in the securities industry generally. 133 F.3d at 229-30. The
securities industry is heavily-regulated, the parties operating in the industry are particularly sophisticated, and arbitration is
widely accepted and is the almost-exclusive means of dispute resolution among and between actors in the industry. Arbitration
agreements in the securities industry are almost sui generis.
As the Prudential court stated, by executing Form U-4, a party evidences her intent to arbitrate a dispute with a wide range of
other parties. Id. at 230. These other parties may be termed beneficiaries to the contract. As discussed above, Section II.B.1,
supra, in the securities industry, an employee and employer are required to arbitrate their dispute by virtue of their registration
with (for the employee) and membership in (for the employer) the NASD, even though the employee and employer do not
execute an independent arbitration agreement.
Mallory McCarty
Page 14 of 22
MONY Life incorrectly relies on In re Prudential Insurance Co. of America [*528] Sales Practice Litigation, 133 F.3d
225 (3d Cir. 1998), [**21] for the proposition that MONY Life is an "associated person." The Prudential court held
that the plaintiff employees were "associated persons" under the NASD Code. Id. at 230 n.7. It also held that
Prudential, the corporate parent of the employees' direct employer, could compel arbitration because it was itself a
member of NASD. Id. at 229. It did not hold that Prudential, the entity at issue, was an "associated person." 14
[**22] MONY Life's reliance on McMahan Securities Co. L.P. v. Forum Capital Markets L.P., 35 F.3d 82 (2d Cir.
1994), is also unavailing. In McMahan, the Second Circuit did hold that entities are included in the NASD definition
of "associated persons." Id. at 87. It arrived at this decision by examining the NASD Bylaws definition of "associated
person" and looking to the expansive definition of "person" in both the NASD Rules of Fair Practice (a set of rules
separate from the NASD Code) and the Securities and Exchange Act. Id. At the time, the Bylaws definition referred
to " every sole proprietor, partner, officer, director, or branch manager of any member, or any natural person . . . ."
Id. (citing NASD Manual P 1101(m) (1994) (emphasis in McMahan)).
However, the Second Circuit implicitly overruled McMahan on this point when it decided in Burns v. New York Life
Insurance Co., 202 F.3d 616, 620 (2d Cir. 2000) (per curiam), thatHN11[ ] the NASD's definition of "associated
person" "exclude[s] corporate entities." Moreover, the NASD amended the definition in 1999 to make clear its
intention that "associated person" refers [**23] only to natural persons. See NASD, NASD Announces Changes to
the By-Laws Associated Person Definition (99-95), available at
http://nasd.complinet.com/nasd/display/display.html?rbid=1189&element_id=1159002037 ("[T]he amendments
insert the word 'other' into subsection 2 of the definition of 'person associated with a member' to clarify that the
subsection describes only natural persons."). "This new definition leaves no ambiguity that the NASD intended to
confine its definition of 'associated persons' [to natural persons]." Sands Bros. & Co. v. Nasser, 2003 U.S. Dist.
LEXIS 23406, 2004 WL 26550, at *4 n.6 (S.D.N.Y. Jan. 5, 2004).
Therefore, MONY Life, as a corporate entity, is not an "associated person" under the NASD Code.
c. MONY Life is a "certain [**24] other" under the NASD Code.
The crux of the motion to compel arbitration is whether MONY Life is a "certain other" under the NASD Code.
Unfortunately, unlike "associated person," the NASD nowhere defines "certain other." Courts are left to fill in the
gaps as to what the NASD meant when it enacted a rule that required arbitration between, inter alia, "associated
persons" and "certain others." See NASD Code § 10201(a).
[*529] The Court concludes that HN12[ ] the proper focus in determining whether a party is a "certain other" is the
sufficiency of a party's immersion in the underlying dispute. This conclusion is reached by examining the Second
Circuit's decision in McMahan and the cases interpreting McMahan. In addition, the conclusion is validated by a
textual analysis of the NASD Code, including application of the statutory construction principle of ejusdem generis,
and is consistent with the Third Circuit's teachings in Prudential.
13 One difference between Paul Revere and the case at bar is significant. In Paul Revere, the plaintiffs, in an effort to avoid
arbitration, voluntarily dismissed their direct employer (the NASD member) from the case. 226 F.3d at 18. Here, not only have
Plaintiffs not dismissed their direct employer, MONY Securities (the NASD member), from the case, they have already agreed to
arbitrate their claims against it.
14 MONY Life also states that in Prudential, "the Third Circuit applied the definition of an associated person under the Securities
Exchange Act to determine the entities that may constitute an 'associated person' under the NASD rule." (Doc. No. 46, at 11.)
Again, this is wrong. The court held that the plaintiff employee "would certainly be an 'associated person' for purposes of the
Securities Exchange Act, which uses similar language as the NASD's definition and provides the statutory basis for the NASD."
Id. at 230 n.7. The court never mentioned that Prudential would be an "associated person" under the Securities Exchange Act
definition. Moreover, the First Circuit explicitly rejected such an argument in Paul Revere, holding that the NASD definition of
"associated person," not the Securities Exchange Act definition, was controlling in a situation such as the one at bar, and that
the NASD definition applies only to natural persons. 226 F.3d at 21.
Mallory McCarty
Page 15 of 22
(i) The proper McMahan "test"
MONY Life insists that it is a "certain other" under the definition provided by the Second Circuit in McMahan.
Plaintiffs argue, based on the same McMahan language, that MONY [**25] Life is not a "certain other." 15
[**26] Both sides recognize that most courts that have been faced with interpreting "certain others" have looked to
the following discussion in McMahan:
[The non-signatory, non-NASD member], though not a partner of any member, is sufficiently immersed in the
underlying controversy for it to be considered a "certain other" party under [the NASD Code]. HN13[ ] A
person who is neither a member nor an associated person is nevertheless appropriately joined in the arbitration
where [1] that party plays an active role in the securities industry, [2] is a signatory to a securities-industry
arbitration agreement (or is an instrument of another party to the arbitration), and [3] has voluntarily participated
in the particular events giving rise to the controversy underlying the arbitration.
35 F.3d at 87-88 (alterations omitted) (numerals added for clarification). 16
[**27] At the outset, there is an incongruity between the "sufficient immersion" language from McMahan 's first
sentence and the three related factors announced in its second sentence. Of the three factors, only the third
(whether the party has "voluntarily participated in the particular events giving rise to the controversy underlying the
arbitration") deals with the underlying dispute and is thus related to the "sufficient immersion" language. The first
two factors deal with the party's role in the securities industry: how active it is in the industry and whether it has
signed a securities-related arbitration agreement (or is the instrument of a party that has done so).
[*530] Moreover, the analytical underpinnings of the two McMahan sentences are also slightly different. "Sufficient
immersion," in the first sentence, applies when all parties were involved in the events giving rise to the dispute. A
party that is not strictly an "associated person" or "member" under the NASD Code could qualify as a "certain other"
if it is sufficiently involved in the dispute giving rise to the litigation (or arbitration). Thus, if there is one common set
of facts applicable to all parties, then, in [**28] the interest of efficiency, these facts should be heard by one
adjudicative body.
On the other hand, the "instrument" language from the second factor applies when a parent corporation was not
involved with the events giving rise to the dispute, but rather is only involved in the dispute through the actions of its
subsidiary. 17 Thus, it makes little sense to adjudicate the dispute against the parent and the subsidiary separately,
15 Plaintiffs
also assert that McMahan is not good law on this point because the "certain other" language on which the McMahan
court based its decision has been removed from the NASD Code. (Doc. No. 6, at 6 n.4.) Plaintiffs are simply incorrect: NASD
Code § 10201(a) is materially the same as it was when McMahan was decided.
The basis for the confusion seems to be that two federal district courts had "noted" that the "certain others" language was
removed in subsequent amendments to the NASD Code. See Sands Bros., 2003 U.S. Dist. LEXIS 23406, 2004 WL 26550, at
*4; World Fin. Group, Inc. v. Steele, 2002 U.S. Dist. LEXIS 17376, 2002 WL 31045354, at *3 (S.D. Ind. Aug. 15, 2002). These
courts used the supposed Code amendments as the basis for holding that McMahan's language about "certain others" who
could compel arbitration was no longer good law. In fact, the language of the Code is still materially the same as it was at the
time McMahan was decided. See Westminster Fin. Cos. v. Briarcliff Capital Corp., 156 Ohio App. 3d 266, 2004 Ohio 782, 805
N.E.2d 191, 200 (Ohio Ct. App. 2004) ("[W]e find no legal basis for the conclusions reached in World Financial Group and Sands
Bros. . . . .").
16 Although McMahan was decided by the Second Circuit, a court well respected for its jurisprudence in securities industry
matters, this Court is not bound by the its decision. The Court will look to relevant authority, McMahan included, to determine if
MONY Life is a "certain other" under the NASD Code.
17 Plaintiffs
seize on the word "instrument" from the second factor and use its common sense definition to find that while a
subsidiary can be an instrument of a parent or an employee an instrument of an entity, a parent corporation can never be an
instrument of a subsidiary corporation, (Doc. No. 45, at 7-9.), and they cite Phoenix Cos. v. Abrahamsen, 2005 U.S. Dist. LEXIS
Mallory McCarty
Page 16 of 22
because (1) there is still only one set of common facts, (2) the parent has no independent knowledge of the events
giving rise to the dispute, and (3) the parent is the party ultimately responsible for the outcome.
[**29] Under these circumstances, Plaintiffs seek to frame McMahan into a three-pronged conjunctive test, which
requires satisfaction of all three prongs before a party may qualify as a "certain other" under the Code. (Doc. No. 6,
at 6.) Arguing that MONY Life does not meet all three prongs (Plaintiffs concede the third "prong"--voluntary
participation in the events giving rise to the dispute--is met), Plaintiffs conclude that MONY Life is not a "certain
other."
Defendants, alternatively, see the language from McMahan as an amorphous whole. (Doc. No. 8, at 7.) Under
Defendants' construction, the prongs merely inform the application of definition of "sufficient immersion" in the first
sentence. Thus, Defendants encourage the Court to look at the totality of the circumstances and the McMahan
court's intent to find that MONY Life is a "certain other."
Viewed in this crucible, the Court must decide whether the three factors listed in the second sentence of McMahan
inform the "sufficient immersion" test from the first sentence, or, rather, whether the three factors constitute the test
in and of themselves.
The authorities are split and the Third Circuit has not addressed the [**30] issue. Some courts look solely to the
three factors. See, e.g., Variable Annuity Life Ins. Co. v. Joiner, 2006 U.S. Dist. LEXIS 42461, 2006 WL 1737443, at
*3 (S.D. Ga. June 23, 2006); Pruco Secs. Corp. v. Montgomery, 2003 U.S. Dist. LEXIS 18456, 2003 WL 22383034,
at *4 (D.N.D. Oct. 15, 2003); Basil Inv. Corp. v. Hampshire Funding, Inc., 1998 U.S. Dist. LEXIS 2220, 1998 WL
88399, at *4 (E.D. Pa. Feb. 19, 1998) (Reed, J.) (finding "the reasoning of McMahan to be persuasive," adopting
McMahan 's three-part "test," and holding that the entity in question was a "certain other" under the Code). Other
courts look solely to the "sufficient immersion" language. See, e.g., Parrott v. Pasadena Capital Corp., 1998 U.S.
Dist. LEXIS 2281, 1998 WL 91076, at *4 (S.D.N.Y. Mar. 3, 1998). Still other [*531] courts look to both. See, e.g.,
Gates v. Veravest Invs., Inc., 2004 U.S. Dist. LEXIS 10104, 2004 WL 1173145, at *7-8 (D. Or. May 25, 2004);
Heller v. MC Fin. Servs., 1998 U.S. Dist. LEXIS 5547, 1998 WL 190288, at *3 (S.D.N.Y. Apr. 21, 1998). However,
Plaintiffs have not pointed to any case in which a court has explicitly treated McMahan as a conjunctive three-part
test.
Defendants' construction supplies a reasonable explanation that gives full [**31] play to the entire thrust of the
McMahan court's opinion. On the other hand, Plaintiffs' construction, by focusing exclusively on the three factors
from McMahan, would read out of McMahan 's definition of "certain other" the requirement that a party be "sufficient
immersed" in the underlying dispute.
Therefore, HN14[ ] the Court will treat McMahan 's "sufficient immersion" language as the operative "test," and the
three factors listed by the McMahan court will serve to inform the "sufficient immersion" test.
(ii) McMahan's "sufficient immersion" test
The Court must now endeavor to apply McMahan's "sufficient immersion" language.HN15[ ] Courts have held
that a party is a "certain other" when claims against it and a related entity are intertwined or interrelated. For
instance, in Parrott, because the dispute arose from one set of events, the claims against the non-signatory
defendants were "inextricably intertwined" with the claims against the signatory defendant. 18 1998 U.S. Dist. LEXIS
2281, 1998 WL 91076, at *4. And in Paul Revere Variable Annuity Insurance Co. v. Thomas, the court looked to
Parrott (but not McMahan for guidance on when claims are "inextricably [**32] intertwined." 66 F. Supp. 2d 217,
43615, 2006 WL 2847812 (S.D.N.Y. Sept. 28, 2006), for support. It is undisputed that MONY Securities is the instrument of
MONY Life, not vice versa.
However, Plaintiffs have failed to articulate why "certain others" should be limited to instruments of members, instead of defining
"certain others" as parts of members' corporate family or "affiliated companies."
18 InParrott, the signatory defendant and the non-signatory defendants were only "affiliated entities," a weaker relationship than
the parent-subsidiary relationship at issue here. Id.
Mallory McCarty
Page 17 of 22
225 (D. Mass. 1999), aff'd sub nom., Paul Revere Variable Annuity Insurance Co. v. Kirschhofer, 226 F.3d 15 (1st
Cir. 2000). The court stated:
Because [the plaintiffs'] claims against [the signatory defendant] and the other [non-signatory defendants] are
based on [one] contract, they are all governed by the same set of facts and implicate the same legal
arguments. Moreover, it is evident that the [signatory defendant and non-signatory defendants] are all closely
affiliated with each other despite being organized as separate entities.
Id.; see also Myrick v. GTE Main Street Inc., 73 F. Supp. 2d 94, 97 (D. Mass. 1999) (finding non-signatory
defendants to be "certain others" because the claims against them and the signatory defendants were "inextricably
related").
[**33] Therefore, the Court will look to the sufficiency of MONY Life's immersion in the underlying dispute, the
analysis of which is informed by the degree of interrelatedness of the claims against MONY Life and MONY
Securities.
(iii) A textual analysis of the NASD provision
The Court's judgment is also informed by an examination of the text of the provision at issue. If the NASD had
intended for arbitration to be mandatory only when it was between or among members and "associated persons," it
would not have included "certain others" at the end of the list. The NASD's use of the term "certain others" must,
then, serve some purpose. The term likely refers to parties who, while not strictly members or "associated persons,"
nonetheless are so similar to members or "associated persons" that it makes sense to include them in an
arbitration. On the other hand, the Court must [*532] be mindful not to define "certain others" too expansively, lest
"certain others" be read as "all others."
To this end, by analogy, applying the logic of the statutory construction principle of ejusdem generis is useful.
HN16[ ] "Under the principle of ejusdem generis, when a general term follows a [**34] specific one, the general
term should be understood as a reference to subjects akin to the one with specific enumeration." Norfolk & W. Ry.
Co. v. Am. Train Dispatchers' Ass'n, 499 U.S. 117, 129, 111 S. Ct. 1156, 113 L. Ed. 2d 95 (1991). For instance, in
Circuit City Stores, Inc. v. Adams, the Supreme Court held that the phrase "other class of workers" in the FAA
clause "seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce"
should be limited to transportation workers. 532 U.S. 105, 114, 121 S. Ct. 1302, 149 L. Ed. 2d 234 (2001). And in
Farrand v. Lutheran Bhd., the Seventh Circuit, interpreting a different section of the NASD Code, held that the
phrase "or others" in the clause "between or among members and public customers, or others" probably meant
clients who for some reason were not technically customers. 993 F.2d 1253, 1254-55 (7th Cir. 1993); see also MP
III Holdings v. Hartford Cas. Ins. Co., 2005 U.S. Dist. LEXIS 10654, 2005 WL 1320127, at *4 (E.D. Pa. May 31,
2005) (Shapiro, J.) (interpreting "or other paper" in 28 U.S.C. § 1446(b)'s "copy of an amended pleading, motion,
order or other paper" to include only court-filed [**35] documents).
Therefore, HN17[ ] "certain others" in § 10201(a) likely refers to parties similar to "associated persons" or
members, though not strictly so, whose presence in an NASD arbitration would benefit all parties involved.
(iv) The Third Circuit's guidance in Prudential
HN18[ ] The Third Circuit, while not speaking directly to the definition of "certain other," has also counseled that
the Form U-4 arbitration provision and the NASD Code of Arbitration should be read expansively to include parties
not explicitly listed therein:
[W]e do not find Prudential [the corporate parent] is without standing here simply because it is not a signatory
to the arbitration argument; nor will we deny standing because Pruco [the direct employer] is listed as the only
"firm" referenced in Form U-4. Instead, we turn to the text of the Form U-4 arbitration agreement to see if there
is an express and unequivocal intent that the plaintiffs would arbitrate their claims against, inter alia, Prudential,
and whether both parties to the contract express an intention to benefit the third party in the contract itself.
....
Mallory McCarty
Page 18 of 22
. . . [T]he arbitration agreement and the NASD Code [**36] of Arbitration establish certain classes of
individuals--member firms of the NASD, customers, and so on--who would benefit from the applicant's
agreement with the NASD. . . . A holding that would restrict the right of these third parties to invoke arbitration
because they had not signed Form U-4 would essentially require the NASD and the applicants to seek explicit
textual recognition of all intended beneficiaries, whether known or unknown. We think such a requirement
would frustrate the purpose and text of Form U-4 . . . .
133 F.3d at 229-30. The court ultimately held that Prudential (the non-signatory corporate parent) could properly
compel arbitration under the NASD Code because [*533] it was itself an NASD member firm. 19 [**37] Id. at 230.
Although the Prudential court never explicitly discussed the term "certain other" in the NASD Code, the court's
discussion of the entities and persons contemplated in the Form U-4 and the NASD Code is nevertheless
instructive in interpreting "certain others": courts are to give expansive scope 20 to the identity of parties that are
intended beneficiaries of the arbitration agreement.
(v) Application of the "sufficient immersion" test to the situation at bar
With these teachings (McMahan, the text of the NASD provision and the principle of ejusdem generis, and
Prudential in mind, the Court turns to the facts of this dispute. The second and third McMahan "factors" are not in
dispute: Defendants have put forth no evidence or argument that MONY Life is a signatory to a securities-industry
arbitration agreement (factor 2), and Plaintiffs have conceded that MONY Life voluntarily participated in the events
giving rise to the dispute (factor 3). The first McMahan "factor"--the extent of MONY Life's role in the securities
industry--though disputed, 21 is not controlling.
[**38] The real question is whether MONY Life is "sufficiently immersed" in the underlying dispute, including
whether the claims against MONY Life are inextricably intertwined with the claims against MONY Securities.
Each of the seven counts in the complaint prays for relief against all defendants, jointly and severally. The
Complaint groups "MONY Life Insurance Company, Mutual Life Insurance Company of New York, MONY
Securities Corp., The MONY Group, Inc., and MONY Brokerage, Inc." together as "MONY." Compl. P 2(e). In short,
in the Complaint, Plaintiffs do not distinguish between the actions taken by each Defendant, nor do they allege
there was any independent action by MONY Life. 22 It appears that It appears that Plaintiffs believed they worked
for "MONY" and, believing they had been wronged by "their employer," instituted this action against all MONY
entities, without regard for which entities might specifically have been responsible for the alleged wrongdoing.
[**39] According to Robert Wright, senior vice president of MONY Life (before its merger with AXA), MONY Life
acted as the corporate parent of MONY Securities, sharing the corporate functions of, inter alia, a law department,
compliance department, and human resources department. (Deposition of Robert Wright at 12-14, 49, 72-73, Doc.
No. 45 ex. B.) MONY Life and MONY Securities acted in concert; the actions of each are indistinguishable.
Indeed, the extent of the interrelatedness and immersion in the underlying dispute is best phrased by Plaintiffs
themselves: "MONY Securities Corp., the entity registered as a member with the NASD as a broker dealer, was
19 Therefore, the above-quoted language is dicta.
20 See note 12, supra, for a discussion of the concept of a "presumption" of arbitrability.
21 Plaintiffs claim that MONY Life does not manufacture securities, (Doc. No. 45, at 6); Defendants counter that it does. (Doc. No.
46, at 3-4.)
22 Intheir sur-reply to Defendants' motion to compel arbitration, Plaintiffs belatedly assert that MONY Life "committed direct acts
which have independently given rise to liability on the part of the Life Insurance defendants," and that MONY Life was Plaintiffs'
"only statutory employer." (Doc. No. 9, at 6.) Plaintiffs do not, however, assert independent action by MONY Life in the
Complaint.
Mallory McCarty
Page 19 of 22
nothing more than a pawn of MONY Life Insurance [*534] Company during the investigation and sanctioning of
Plaintiffs." (Doc. No. 45, at 2.)
Therefore, MONY Life qualifies as a "certain other" under the NASD Code.
2. Each party's powers and responsibilities under the NASD Code and Form U-4
a. A "certain other" cannot compel arbitration under the NASD Code.
There are three plausible ways to read NASD Code § 10201(a), 23 [**41] which is titled "required submission." 24
One is to say that arbitration is required only when instituted [**40] by one of the parties specified in subdivisions (1)
through (3). To read the provision this way would make the parties specified in the opening paragraph (members,
"associated persons," and "certain others") surplusage. Indeed, matters between "associated persons" (or
members) and "certain others" would never be required to be arbitrated because "certain others" are not listed as
parties within the four specified scenarios in subdivisions (1) through (3).
The second way to read the section is to break it in two, reading the language until "under this Code" as one part
and the language beginning "at the instance of" as the second part. The opening paragraph would then list the
matters required to be arbitrated: between or among members and/or "associated persons" and/or "certain others."
The second part would provide the parties that could institute or compel arbitration under the Code: members
against member; member against "associated person"; "associated person" against member; and "associated
person" against "associated person." Thus, HN20[ ] under this reading, a "certain other" cannot compel arbitration
under the Code, but a dispute between an "associated person" or member and a "certain other" is nonetheless still
"required" to be arbitrated. This reading of the provision would eliminate any surplusage. See Alaska Dep't of Envtl.
Conservation v. E.P.A., 540 U.S. 461, 489 n.13, 124 S. Ct. 983, 157 L. Ed. 2d 967 (2004) ("It is . . . a cardinal [**42]
principle of statutory construction that a statute ought, upon the whole, to be so construed that, if it can be
prevented, no clause, sentence, or word shall be superfluous, void, or insignificant." (internal citations and
quotations marks omitted)); United States v. Johnson, 462 F.2d 423, 428 (3d Cir. 1972) HN21[ ] ("[I]t is a general
rule of statutory construction that words in statutes should not be construed as excess verbiage."). The latter
reading of the Code is more appropriate.
Section 10201(a) evidences the NASD's intent that disputes between or among members, "associated persons,"
and "certain others" should be arbitrated. However, the NASD recognized that it lacks jurisdiction over "certain
others," who, by [*535] their definition, have no relationship or agreement with the NASD. Thus, the NASD cannot
compel a [*536] "certain other" to arbitrate, nor can a "certain other" rely on the NASD Code to compel a member
or "associated person" to arbitrate. This why the NASD did not include "certain other" in the four scenarios in which
a party can compel arbitration. However, although it lacks power over "certain others," it nonetheless expressed its
intent in the opening paragraph [**43] of § 10201(a) that "certain others" should be part of certain arbitrations.
HN22[ ] Thus, the Court reads § 10201(a) to say (1) that disputes between or among members and/or "associated
persons" and/or "certain others" are required to be arbitrated under the Code and (2) that (i) a member can compel
23 Section 10201(a) of the NASD Code provides:
HN19[ ] [A] dispute, claim, or controversy eligible for submission under the Rule 10100 Series between or among
members and/or associated persons, and/or certain others, arising in connection with the business of such member(s) or in
connection with the activities of such associated person(s), or arising out of the employment or termination of employment
of such associated person(s) with such member, shall be arbitrated under this Code, at the instance of:
(1) a member against another member;
(2) a member against a person associated with a member or a person associated with a member against a member; and
(3) a person associated with a member against a person associated with a member.
24 Two readings are provided here; the third, an alternate reading, is provided in note 26, infra.
Mallory McCarty
Page 20 of 22
arbitration against another member, (ii) a member can compel arbitration against an "associated person," (iii) an
"associated person" can compel arbitration against a member, and (iv) an "associated person" can compel
arbitration against an "associated person."
Looking to the final phrase of the main paragraph,HN23[ ] only members or "associated persons" may "insist" 25
on arbitration on arbitration under the Code. Notably missing from subsections (1), (2), and (3) is the term "certain
others," which appears only at the beginning of the main paragraph. As the Second Circuit has held, "'certain
others' are not authorized to compel arbitration under the NASD Code." Burns, 202 F.3d at 622.
[**44] Therefore, HN25[ ] "certain others" cannot compel arbitration under the Code.
b. A "certain other" can compel arbitration against an "associated person" under Form U-4.
HN26[ ] NASD Code § 10201(a) is relevant not just for listing which parties may compel arbitration, but also for
stating the instances when a dispute "shall be arbitrated." According to § 10201(a), a "dispute . . . between . . .
associated persons [and] certain others . . . shall be arbitrated under this Code." The mandatory "shall" means that
disputes between "associated persons" and "certain others" are required to be arbitrated under the Code. In their
Form U-4s, Plaintiffs agreed to arbitrate any dispute "that may arise between me and . . . any other person, that is
required to be arbitrated under the rules" of the NASD.
The Court is confronted with whether the term "person" in the Form U-4 means only natural persons, as it does in
the NASD Code, or includes entities, as it does in the Securities Exchange Act, 15 U.S.C. § 78c(a)(9); see S.E.C. v.
J.W. Barclay & Co., 442 F.3d 834, 842 (3d Cir. 2006). As noted above, Form U-4 is used by numerous SROs, not
just the NASD, [**45] and is standard in the industry. Moreover, the form is otherwise expansive. Therefore, HN27[
] the definition of "person" in the Securities Exchange Act is controlling for the meaning of "person" in the Form U-
4. The definition of "person" includes non-natural entities.
HN28[ ] Form U-4 obligates signatories to arbitrate any dispute between themselves and any other person (or
entity) that is required to be arbitrated under the NASD Code. Disputes between "associated persons" and "certain
others" are required to be arbitrated under the Code. Therefore, a "certain other" can compel arbitration under the
Form U-4.
3. Application
a. MONY Life (a "certain other") cannot compel arbitration under the NASD Code.
According to the terms of § 10201(a) and its interpretation here, only "associated persons" and NASD members can
compel arbitration under the Code, and then only in certain situations. MONY Life is neither a member nor an
"associated person." (It is a "certain other.") Therefore, MONY Life cannot compel arbitration under the Code.
b. MONY Life (a "certain other") can compel arbitration against the Marcianos ("associated persons") under
Form U-4.
Plaintiffs are [**46] "associated persons" under the NASD Code. MONY Life is a "certain other" under the NASD
Code. Disputes between "associated persons" and "certain others" are required to be arbitrated under the NASD
Code. In the Form U-4, Plaintiffs agreed to arbitrate any dispute between themselves and others that is required to
be arbitrated under the NASD Code.
25 HN24[ ] The NASD Code uses the word "instance," which is defined by Black's Law Dictionary as "urgent solicitation or
insistence." Black's Law Dictionary 800 (7th ed. 1999). The Delaware Court of Chancery, interpreting the same NASD Code
section, interpreted "instance" to mean "at the suggestion or instigation of." Cantor Fitzgerald, L.P. v. Prebon Sec. (USA) Inc.,
731 A.2d 823, 827 (Del. Ch. 1999).
Mallory McCarty
Page 21 of 22
Therefore, Plaintiffs, upon executing the Form U-4, agreed to arbitrate their dispute against MONY Life. On the
basis of this agreement, MONY Life can compel Plaintiffs to proceed to arbitration. 26
[**47] [*537] IV. CONCLUSION
Plaintiffs are ordered to submit to an NASD arbitration with all Defendants. The proceedings in this Court are stayed
pending the outcome of the arbitration. 27
An appropriate order follows.
ORDER
AND NOW, this 22nd day of January 2007, [**48] following a hearing on the record on January 16, 2007, it is
hereby ORDERED that Defendant's motion to compel arbitration (doc. no. 3) is GRANTED for the reasons stated in
the accompanying Memorandum.
IT IS FURTHER ORDERED that all Defendants shall submit to an arbitration before the National Association of
Securities Dealers
26 Some courts have read NASD Code § 10201(a) as permitting a "certain other" to join an arbitration demanded by a member
and/or "associated person." As noted in Section III.B.2.a., supra, although a "certain other" can never compel arbitration--or be
compelled to arbitrate--under the Code, disputes "between or among members and/or associated persons, and/or certain others
" are nonetheless "required" to be arbitrated. NASD Code § 10201(a) (emphasis added).
Under this interpretation, the NASD included "certain others" to indicate that, while "certain others" may not compel arbitration
under the Code, they are nevertheless entitled to join a properly initiated arbitration. See Burns, 202 F.3d at 621 ("One who is a
'certain other' may participate in a NASD arbitration, but is not a party who can compel arbitration under the NASD Code.");
McMahan, 35 F.3d 82 at 87-88 (stating that a "certain other" can be "appropriately joined in the arbitration"); Flynn v. Greenwich
Global, 2002 Conn. Super. LEXIS 2044, 32 Conn. L. Rptr. 397, 2002 WL 1573422, at *4 (Conn. Super. Ct. June 19, 2002) ("The
reference to 'certain others' as potential parties in Rule 10201 was intended to allow for joinder in the arbitration if there were
nonmembers involved in a dispute between 'members' and ['associated persons']." (citing Burns, 202 F.3d at 621-22)). In
Farrand, when the Seventh Circuit was faced with interpreting "or others" in a different section of the NASD Code, it commented
that "[p]erhaps the term ['others'] establishes a form of pendent party jurisdiction: 'others' may be added to the arbitration of a
dispute between a member and a public customer." 993 F.2d at 1255.
Applying this construction of § 10201(a) here, MONY Securities, an NASD member, has properly initiated an NASD arbitration
against the Maricanos, "associated persons," under the NASD Code. MONY Life, as a "certain other," while not strictly able to
compel arbitration under the Code, might nonetheless still be entitled to participate in a properly initiated arbitration. On this
alternative basis, the Court could compel the Maricanos to submit their dispute against MONY Life to the NASD arbitration.
This reading of the Code, while plausible, is not entirely convincing. In the section on matters eligible for arbitration, the NASD
included disputes "between or among members or associated persons and public customers, or others." NASD Code §
10101(c). So the Code already provides a mechanism whereby "others" are permitted to arbitrate disputes with members and/or
"associated persons." To read § 10201(a) to say that "certain others" (a more limited class than "others") are permitted to join an
arbitration would thus be redundant.
In addition, if the NASD had intended for "certain others" to merely be able to join arbitrations between or among members and
"associated persons," it probably would not have written § 10201(a) to say that disputes between "members and/or associated
persons and/or certain others" are required to arbitrated.
27 The Court takes notice of Plaintiffs' reluctance to submit their dispute to NASD arbitration. After all, Plaintiffs allege that MONY
scapegoated them to appease NASD regulators. Presumably, in light of the nature of the dispute, Plaintiffs do not think that an
NASD arbitrator (whomever he or she may be) will provide them a fair hearing. Nevertheless, it is not the Court's role, at this
stage, to determine whether an arbitrator will be fair. Under the FAA, if Plaintiffs (or Defendants, for that matter) are unsatisfied
with the outcome or procedures of the arbitration, and if appropriate, the proper remedy is to raise the issue with the Court after
the arbitration has taken place. See 9 U.S.C. § 10(a).
Mallory McCarty
Page 22 of 22
(NASD).
IT IS FURTHER ORDERED that this case is STAYED pending the outcome of the NASD arbitration.
IT IS FURTHER ORDERED that Plaintiffs' motion for leave to file a sur-response (doc. no. 47) is GRANTED
IT IS FURTHER ORDERED that Defendants' motion for leave to file a sur-reply (doc. no. 48) is GRANTED.
AND IT IS SO ORDERED.
EDUARDO C. ROBRENO, J.
End of Document
Mallory McCarty
Caution
Roe v. Ladymon
Court of Appeals of Texas, Fifth District, Dallas
July 30, 2010, Opinion Filed
No. 05-08-00417-CV
Reporter
318 S.W.3d 502 *; 2010 Tex. App. LEXIS 6087 **
KIMBERLEA A. ROE, Appellant v. BLANE LADYMON AND METRO TOWNHOMES & HOMES, L.L.P., Appellees
Subsequent History: Released for Publication September 10, 2010.
Prior History: [**1] On Appeal from the 191st Judicial District Court, Dallas County, Texas. Trial Court Cause No.
07-06669-J.
Core Terms
arbitration, parties, arbitration agreement, binding, courts, arbitration clause, individually, non-signatory, trial court,
partnership, contracts, vacating, agreed to arbitrate, successor, unmistakably, signatory, arbitration provision,
arbitration award, disputes, continuance, confirmed, partner, argues, agreement to arbitrate, limited liability,
obligations, Contractor, nonparty, disclosed principal, parties agree
Case Summary
Procedural Posture
Appellant client sought review of an order from the 191st Judicial District Court, Dallas County (Texas), which
vacated an arbitrator's award of damages against appellee partner in an action for damages in connection with the
remodeling of the client's home. Appellee contractor challenged an order upholding the arbitrator's award of
damages against it.
Overview
The client entered into an agreement with the contractor, a limited liability partnership, for the renovation of her
home. The partner signed the contract in his capacity as a partner. Unsatisfied with the work, the client demanded
arbitration against both the contractor and the partner. The arbitrator ruled that the contractor and the partner were
jointly and severally liable for the client's damages. The trial court confirmed the award against the contractor but
vacated the award against the partner. On appeal, the court found that the partner, individually, was not a party to
the contract containing the arbitration clause, and he did not clearly and unmistakably agree to allow the arbitrator
to decide issues of arbitrability. The partner clearly indicated that he was signing the contract on behalf of the
contractor. Therefore, the primary responsibility to decide the issue of arbitrability belonged to the trial court, not the
arbitrator. The contractor did not show that the arbitrator committed misconduct in denying its request for a
continuance or that the arbitrator engaged in evident partiality. The trial court did not err by confirming the award
against the contractor.
Outcome
The court affirmed the judgment of the trial court.
Mallory McCarty
Page 2 of 22
318 S.W.3d 502, *502; 2010 Tex. App. LEXIS 6087, **1
HN1[ ] Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which
he has not agreed so to submit.
HN2[ ] Arbitration is a matter of consent, not coercion. The Federal Arbitration Act does not require parties to
arbitrate when they have not agreed to do so; its purpose is to make arbitration agreements as enforceable as other
contracts, but not more so.
HN3[ ] A person seeking to compel arbitration must first establish the existence of an arbitration agreement
subject to the Federal Arbitration Act and show that the claims raised fall within the scope of that agreement.
HN4[ ] While Texas law governs procedural matters in state court cases regarding arbitration, the Federal
Arbitration Act, if applicable, controls the substantive grounds for vacating, modifying, or correcting an arbitration
award.
HN5[ ] Disputes about the scope of an arbitration agreement are resolved in favor of arbitration. However, the
presumption favoring arbitration arises only after the party seeking to compel arbitration proves that a valid
arbitration agreement exists.
Mallory McCarty
Page 3 of 22
318 S.W.3d 502, *502; 2010 Tex. App. LEXIS 6087, **1
HN6[ ] The presumption in favor of arbitration applies only to the scope of an open-ended arbitration agreement,
never to the existence of such an agreement or to the identity of the parties who might be bound by such an
agreement.
HN7[ ] Like other contracts, non-parties are normally not bound by arbitration agreements between others. But
just as other contracts can become binding on non-parties, principles of contract law and agency may bind a
nonsignatory to an arbitration agreement. Thus, nonsignatories to a contract containing an arbitration clause may
be required to arbitrate if rules of law or equity would bind them to the contract generally.
Civil Procedure > Appeals > Standards of Review > General Overview
HN8[ ] An appellate court conducts an ordinary review of a trial court's initial referral to arbitration and a
deferential review only of an arbitrator's award.
Civil Procedure > Appeals > Standards of Review > Questions of Fact & Law
HN9[ ] A trial court's determination of an arbitration agreement's validity is a legal question subject to de novo
review.
HN10[ ] Arbitration, being a matter of contract, is a way to resolve disputes, but only those disputes that the
parties have agreed to submit to arbitration. The "who decides" question of arbitrability also turns upon the
agreement of the parties, and a court must defer to an arbitrator's arbitrability decision when the parties submitted
that matter to arbitration.
Mallory McCarty
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318 S.W.3d 502, *502; 2010 Tex. App. LEXIS 6087, **1
Contracts Law > Formation of Contracts > General Overview
HN11[ ] When deciding whether parties agreed to arbitrate a certain matter, courts should apply ordinary state-law
principles governing the formation of contracts, with an important qualification applicable when courts decide
whether a party has agreed that arbitrators should decide arbitrability: courts should not assume that the parties
agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so. This qualification
reverses the presumption favoring arbitration with respect to silence or ambiguity about who primarily should decide
arbitrability. This differing treatment is justified given the principle that a party can be forced to arbitrate only those
issues it specifically has agreed to submit to arbitration.
HN12[ ] A question of arbitrability is an issue for judicial determination unless the parties clearly and unmistakably
provide otherwise. Not all potentially dispositive gateway questions constitute questions of arbitrability. Questions of
arbitrability encompass the kind of narrow circumstance where contracting parties would likely have expected a
court to have decided the gateway matter, where they are not likely to have thought that they had agreed that an
arbitrator would do so, and, consequently, where reference of the gateway dispute to the court avoids the risk of
forcing parties to arbitrate a matter that they may well not have agreed to arbitrate.
Contracts Law > Formation of Contracts > General Overview
HN13[ ] Whether parties have agreed to submit a particular dispute to arbitration is an issue for judicial
determination. Where a dispute at issue concerns contract formation, the dispute is generally for courts to decide.
HN14[ ] Under the Federal Arbitration Act, whether an arbitration agreement binds a nonsignatory is a gateway
matter to be determined by courts rather than arbitrators unless the parties clearly and unmistakably provide
otherwise.
Mallory McCarty
Page 5 of 22
318 S.W.3d 502, *502; 2010 Tex. App. LEXIS 6087, **1
HN15[ ] If a court determines that parties clearly and unmistakably agreed to submit arbitrability to an arbitrator, it
should defer to the arbitrator's decision on the issue. However, absent clear and unmistakable evidence that the
parties agreed to the contrary, the primary power to decide such issues lies with the courts, not an arbitrator. Doing
so avoids the risk of forcing parties to arbitrate a matter that they may well not have agreed to arbitrate.
HN16[ ] When addressing whether a nonsignatory to an arbitration agreement can be required to arbitrate, looking
to the intent of the contracting parties on the issue of arbitrating arbitrability does not avoid the risk of forcing parties
to arbitrate a matter that they may well not have agreed to arbitrate. Therefore, a court should decide whether an
arbitration contract binds a person who did not sign the contract.
HN17[ ] While nonsignatories to an arbitration agreement can be bound to arbitrate under principles of contract
and agency law, such issues, dealing as they do with nonsignatories, are gateway issues of arbitrability that the
courts are primarily responsible for deciding, not an arbitrator. Only if a nonsignatory has clearly and unmistakably
agreed to submit the issue to arbitration will the courts be bound to a deferential review of an arbitrator's decision
that the nonsignatory is bound by the arbitration agreement.
Business & Corporate Law > ... > Authority to Act > Contracts & Conveyances > Liability of Agents
HN18[ ] An agent contracting for the benefit of a disclosed principal is not liable on the contract.
HN19[ ] Unless otherwise agreed, a person making or purporting to make a contract with another as agent for a
disclosed principal does not become a party to the contract.
HN20[ ] An agent of a disclosed principal, even one who negotiates and signs a contract for her principal, does
not become a party to the contract.
Mallory McCarty
Page 6 of 22
318 S.W.3d 502, *502; 2010 Tex. App. LEXIS 6087, **1
Business & Corporate Compliance > ... > Limited Liability Partnerships > Business & Corporate Law > Limited Liability
Partnerships
HN21[ ] Being a partner in a registered limited liability partnership, and thus its "representative," does not make
the partner personally liable for the obligations of the limited liability partnership.
Partnerships
HN22[ ] Tex. Rev. Civ. Stat. Ann. art. 6132b-3.08(a)(1) (Supp. 2009) provides that a partner in a registered limited
liability partnership is not individually liable, directly or indirectly, by contribution, indemnity, or otherwise, for debts
and obligations of the partnership incurred while the partnership is a registered limited liability partnership.
HN23[ ] An appellate court reviews de novo a trial court's decision of whether a non-party to an arbitration
agreement can be compelled to arbitrate the claims against him.
Contracts Law > Contract Conditions & Provisions > General Overview
Contracts Law > Standards of Performance > Assignments > General Overview
HN24[ ] Successors and assigns clauses generally speak to what happens when a party to a contract dies or
ceases to exist as a legal entity. They make a contract expressly assignable and have the effect of making a
successor or assignee obligated to perform the assignor's obligations without an express agreement of assumption.
Partnerships
Business & Corporate Law > Limited Partnerships > Dissolution & Winding Up
HN25[ ] See Tex. Rev. Civ. Stat. Ann. art. 6132b-9.05(h)(3) (Supp. 2009).
Mallory McCarty
Page 7 of 22
318 S.W.3d 502, *502; 2010 Tex. App. LEXIS 6087, **1
HN26[ ] Allowing nonsignatories to invoke an arbitration provision against someone who signed the arbitration
agreement prevents a signatory from avoiding arbitration with a nonsignatory when the issues the nonsignatory is
seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed. But because
arbitration is guided by contract principles, the reverse is not also true: a signatory may not estop a nonsignatory
from avoiding arbitration regardless of how closely affiliated the nonsignatory is with another signing party.
HN27[ ] The purpose of the Federal Arbitration Act (FAA) is to put arbitration agreements on equal footing with
other contracts, to make them as enforceable as other contracts, but not more so. Because an agent for a disclosed
principal is not liable on the principal's contract, concluding such an agent is bound by an arbitration clause in that
contract when he would not be bound by other provisions would make arbitration agreements easier to enforce than
other contracts, contrary to the FAA's purpose.
HN28[ ] 9 U.S.C.S. § 10(a)(4) provides that a court may make an order vacating an award where the arbitrators
exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject
matter submitted was not made.
HN29[ ] Under the Federal Arbitration Act (FAA), an appellate court reviews a trial court's decision to confirm an
arbitration award de novo. The appellate court's review of the award itself, however, is exceedingly deferential and
narrow. An arbitration award must be confirmed unless it is vacated, modified, or corrected under one of the limited
grounds in 9 U.S.C.S. §§ 10 and 11. 9 U.S.C.S. §§ 9-11.
HN30[ ] An arbitrator's misconduct in refusing to postpone an arbitration hearing after a showing of sufficient
cause is one ground for vacating an arbitration award. 9 U.S.C.S. § 10(a)(3). However, because the purpose of the
policy favoring arbitration is to promote expeditious resolution of disputes, a court's review of an arbitrator's decision
to postpone or not postpone a hearing is quite limited. An award may also be vacated for evident partiality of the
arbitrator. 9 U.S.C.S. § 10(a)(2).
HN31[ ] Parties to an arbitration agreement knowingly give up the procedural protections of the court system.
Mallory McCarty
Page 8 of 22
318 S.W.3d 502, *502; 2010 Tex. App. LEXIS 6087, **1
HN32[ ] "Evident partiality" of an arbitrator within the meaning of 9 U.S.C.S. § 10(a)(2) means more than the mere
appearance of bias.
HN33[ ] An arbitrator has broad discretion in fashioning a remedy appropriate to a case.
Counsel: For APPELLANT: John J. Marek, Addison, TX.
For APPELLEE: Greg C. Noschese, David Jefrie Mizgala, Munsch Hardt Kopf & Harr, P.C., Dallas, TX.
Judges: Before Chief Justice Wright and Justices Morris and Moseley. Opinion By Justice Moseley.
Opinion by: JIM MOSELEY
Opinion
[*506] Kimberlea A. Roe obtained an arbitration award against Blane Ladymon and Metro Townhomes & Homes,
L.L.P. (Metro LLP), a Texas registered limited liability partnership. The trial court confirmed the award against Metro
LLP, but vacated the award against Ladymon. Roe and Metro LLP appeal.
This case requires us to determine who--the arbitrator or the court--has the primary responsibility to decide whether
a party to the dispute is bound by an arbitration provision in a contract between other parties. The answer to that
question determines how we review the decision on whether the party is bound by the arbitration provision. We also
consider whether the trial court erred by confirming the award against Metro LLP.
We conclude that Ladymon individually is not a party to the contract containing the arbitration clause, and he did not
"clearly and unmistakably" agree to allow the arbitrator to decide issues of arbitrability. Therefore, the primary
responsibility to decide the issue belongs to [**2] the court, not the arbitrator. We also conclude that the trial court--
reviewing the issue de novo--did not err by finding that Ladymon was not individually bound by the arbitration
provision. Lastly, we conclude the trial court--applying the deferential standard applicable to arbitration awards--did
not err by confirming Roe's award against Metro LLP. Thus, we affirm the trial court's judgment.
[*507] I. Background
In 2003, Roe contracted for Metro LLP to renovate her home. The contract defined Roe as the "Owner" and Metro
LLP as the "Contractor." Ladymon signed the contract in his capacity as a partner of Metro LLP. Metro LLP's
partners included Ladymon, Metro Townhomes and Homes, Inc. (Metro Inc.), and others.
The contract is a form prepared by the Home Builders Association of Greater Dallas. Paragraph 18 of the contract
contained a detailed mediation/arbitration provision. That provision broadly defined a "Dispute" as "any controversy
or claim or matters in question between the parties," and provided that the Owner and Contractor agreed to submit
any Dispute to mediation, and to submit any unresolved Dispute to the American Arbitration Association (AAA) for
binding arbitration pursuant to [**3] Federal Arbitration Act (FAA). 1 See 9 U.S.C. §§ 1-16 (2006).
1 The entire arbitration provision states:
Mallory McCarty
Page 9 of 22
318 S.W.3d 502, *507; 2010 Tex. App. LEXIS 6087, **3
On July 5, 2004, Ladymon, as president of Metro Inc., filed two documents with the Texas Secretary of State. One
withdrew Metro LLP's registration as a registered limited liability partnership and the other was a certificate of
limited partnership for Metro Townhomes Limited Partnership (Metro LP). The certificate stated [*508] that Metro
LLP was converting to a limited partnership, Metro LP. The certificate identified Metro Inc. as Metro LP's sole
general partner and identified Ladymon [**6] as a limited partner. Ladymon testified his accountant advised him to
change the form of the business for tax purposes. He testified there was no transfer or formal assignment of Roe's
contract to Metro LP, and the partners continued to do the work on the project. Roe did not have actual knowledge
of these filings.
Unsatisfied with the remodeling work, Roe demanded arbitration against both Metro LLP and Ladymon in June
2006. Attached to her arbitration demand was a demand letter addressed to Metro LLP and Ladymon. It alleged
several construction defects and failures with the remodeling project and claimed damages under a number of legal
theories. 2 Although we do not have a complete record of the arbitration proceedings or a transcript of the
arbitration hearing, the record reflects that after an August 2006 preliminary hearing, which Ladymon attended, the
arbitrator entered a scheduling order setting deadlines for disclosing witnesses, experts, and exhibits. The arbitrator
also set the arbitration hearing for February 2007; the hearing was later rescheduled for May 7, 2007.
Roe served her witness, expert, and exhibit list on April 23, 2007. The next day, Ladymon faxed a letter (on Metro
Inc. letterhead) to the arbitrator requesting a sixty-day continuance based on Roe's allegedly late disclosures, the
need to retain experts to respond to Roe's experts, and the need to hire an attorney for the arbitration hearing. On
May 3, 2007, the AAA notified the parties that the arbitrator denied the continuance. Roe filed an additional
disclosure of witnesses and attached several pages of new exhibits on May 4, 2007.
18. MEDIATION-ARBITRATION/LIMITATION OF CLAIMS: It is the policy of the State of Texas to encourage the peaceable
resolution of disputes through alternative dispute resolution procedures. Owner and Contractor hereby agree that any
controversy or claim or matters in question between the parties including, but not limited to, any matter arising out of or
relating to (a) this Contract, and any amendments thereto, (b) any breach thereof, (c) the construction transaction reflected
in the Contract, (d) the design or construction of the Improvements, (e) any alleged fraud, misrepresentations or breach of
warranties, express or implied, (f) claims for defective design or construction of the Improvements, (g) intentional and/or
negligent infliction of emotional distress, (h) violations of the Texas Deceptive Trade Practices-Consumer Protection Act, (i)
violations of the Texas Residential Construction Liability Act, and/or (j) any other cause of action relating to or arising out of
the construction and/or sale of the Improvements by Contractor, (herein referred to collectively as a "Dispute"), [**4] shall
be submitted to mediation with the American Arbitration Association ("AAA") where the parties will endeavor to resolve the
Dispute in an amicable manner. In the event any Dispute cannot be resolved by mediation, the Dispute shall be submitted
to the American Arbitration Association (the "AAA") for binding arbitration pursuant to Title 9 of the United States Code,
which the parties hereto acknowledge and agree applies to the transaction involved herein, and in accordance with the
Construction Industry Arbitration Rules of the AAA or such other rules as the AAA may deem applicable. If Title 9 of the
United States Code is inapplicable to any such claim, dispute or controversy for any reason, such arbitration shall be
conducted by the AAA pursuant to the Texas General Arbitration Act and in accordance with the Construction Industry
Arbitration Rules of the AAA or such other rules as the AAA may deem applicable. In any such arbitration proceeding: (i) all
federal and state law (including Chapter 27 of the Texas Property Code) and all statutes of limitations which would
otherwise be applicable shall apply; and (ii) the proceeding shall be conducted by a single arbitrator. The arbitrator
[**5] shall be selected by the process of appointment from a panel pursuant to the applicable procedures of the AAA. Any
award rendered in any such arbitration proceeding shall be final and binding, and judgment upon any such award may be
entered in any court having jurisdiction.
If any party to this Contract files a proceeding in any court to resolve any such controversy, dispute or claim, such action
shall not constitute a waiver of the right of such party or a bar to the right of any other party to seek arbitration of that or any
other claim, dispute or controversy, and the court shall, upon motion of any party to the proceeding, direct that such
controversy, dispute or claim be arbitrated in accordance herewith.
2 These theories include breach of the implied warranty of habitability, breach of express and implied warranties, [**7] breach of
contract, negligence, fraud, and violations of the Texas Residential Construction Liability Act and the Deceptive Trade Practices-
Consumer Protection Act ("DTPA").
Mallory McCarty
Page 10 of 22
318 S.W.3d 502, *508; 2010 Tex. App. LEXIS 6087, **7
Metro LLP and Ladymon retained an attorney to represent them. At the beginning of the May 7, 2007 hearing, they
filed five written objections to the arbitration proceeding, again requested a continuance, and requested that
Ladymon be dismissed from the proceeding. Objections four and five 3 pertained to whether Ladymon was required
to arbitrate Roe's claims against him:
OBJECTION 4: Respondent Blane Ladymon has been named in his individual capacity but he has not signed
an agreement [**8] to arbitrate in his individual capacity.
OBJECTION 5: Respondent Blane Ladymon has been named in his individual capacity yet there have been no
allegations in the demand for arbitration as to why or how he is liable. Nor is there any allegation that would
support an award or finding that the limited liability provided by the entity should be disregarded.
The arbitrator denied the continuance, reserved ruling on Ladymon's objections until after the parties submitted
post-hearing briefs, and proceeded with the hearing.
Ladymon's post-hearing brief argued that he signed the contract solely as a partner in a registered limited liability
partnership (Metro LLP) and thus had no [*509] personal liability. See TEX. REV. CIV. STAT. ANN. art. 6132b-
3.08(a)(1) (Vernon Supp. 2009). When Metro LLP withdrew its registration, it converted to a limited partnership
(Metro LP) as allowed by law, and Ladymon became a limited partner in Metro LP. Ladymon argued that the
contracts and obligations of the old partnership were assigned to [**9] the new partnership by operation of law, and
thus no formal assignment of Roe's contract to Metro LP was required. See TEX. REV. CIV. STAT. ANN. art.
6132b-9.05(h)(1)-(3) (Vernon Supp. 2009). And, Ladymon argued, as a limited partner he had no personal liability
for the partnership's obligations. See TEX. REV. CIV. STAT. ANN. art. 6132a-1, § 3.03(a), (b)(1) (Vernon Supp.
2009).
Roe's post-hearing brief argued that, even though Ladymon did not sign the arbitration agreement in his individual
capacity, he was bound to arbitrate the claims against him because he was an officer, agent, or representative of
the entity that signed the agreement and was not a stranger to the contract. She also argued that because the
contract provided it was binding upon the parties and "their respective . . . representatives [and] successors . . . ,"
Ladymon was bound to arbitrate as a representative and successor to Metro LLP. Her successor liability argument
was based on Ladymon's deposition testimony that, to his knowledge, when Metro LLP was "dissolved" there was
no formal assignment of the contract with Roe, but he continued to do the work.
On June 5, 2007, the arbitrator signed an award. He overruled [**10] Ladymon's objections and ruled Metro LLP
and Ladymon were jointly and severally liable for Roe's damages. Roe filed this suit to confirm the arbitration
award. Metro LLP and Ladymon filed an answer and application to vacate the award.
After hearing evidence and argument, the trial court rendered final judgment. As to Ladymon, the judgment stated:
Defendant Ladymon timely and properly objected to the arbitrator regarding the arbitrator's lack of jurisdiction
over him in a personal capacity. Furthermore, whether or not Defendant Ladymon was personally liable for the
debts of defendant [Metro LLP] is a separate issue from whether or not Defendant Ladymon was bound by the
arbitration clause.
The trial court then held that the arbitrator exceeded his authority in rendering an award against Ladymon
individually, stating: "The arbitrator was without jurisdiction and the determination of the arbitrator's jurisdiction is a
matter of arbitrability under First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S. Ct. 1920, 131 L. Ed. 2d
985 (1995) and is exclusively reserved to this Court."
As to Metro LLP, the court's judgment stated that the court was bound by the "exceedingly deferential standard of
review that [**11] must be given to arbitral awards." It concluded that Metro LLP did not prove that it received a
fundamentally unfair hearing based on the arbitrator's refusal to postpone the hearing or based on evident partiality
of the arbitrator. Thus, the trial court confirmed the award against Metro LLP, but vacated the award against
Ladymon individually.
3 Thefirst three objections argued Roe's late disclosures of witnesses and damage calculations and the failure of the parties to
mediate prior to arbitration required a continuance.
Mallory McCarty
Page 11 of 22
318 S.W.3d 502, *509; 2010 Tex. App. LEXIS 6087, **11
Both Roe and Metro LLP appealed. Roe's brief identifies a single issue on appeal: whether the trial court erred in
vacating the award against Ladymon individually. In its cross-appeal, Metro LLP asserts the trial court erred by
confirming (and not vacating) the award against it. 4
[*510] II. Roe's Appeal--Arbitrability of Claims Against Ladymon
Roe asserts the arbitrator did not exceed his authority by determining that her claims against Ladymon were subject
to arbitration, and that the arbitrator's decision on that issue was correct. She asks this Court to reverse the trial
court's judgment vacating [**12] the award against Ladymon and render judgment confirming the arbitration award
against Ladymon.
A. Applicable Law
1. Introduction
We begin with the foundational principle that HN1[ ] "arbitration is a matter of contract and a party cannot be
required to submit to arbitration any dispute which he has not agreed so to submit." AT&T Techs., Inc. v.
Commc'ns. Workers of Am., 475 U.S. 643, 648, 106 S. Ct. 1415, 89 L. Ed. 2d 648 (1986) (quoting United
Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960)). 5 The United
States Supreme Court "has repeatedly emphasized that HN2[ ] arbitration 'is a matter of consent, not coercion,'
that the [FAA] 'does not require parties to arbitrate when they have not agreed to do so,' and its purpose is to make
arbitration agreements 'as enforceable as other contracts, but not more so.'" In re Merrill Lynch Trust Co. FSB, 235
S.W.3d 185, 192 (Tex. 2007) (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468,
479, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989); EEOC v. Waffle House, Inc., 534 U.S. 279, 293, 122 S. Ct. 754,
151 L. Ed. 2d 755 (2002) (also quoting Volt, 489 U.S. at 478); and Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395, 404 n.12, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967)).
HN3[ ] A person seeking to compel arbitration must first establish the existence of an arbitration agreement
subject to the FAA and show that the claims raised fall within the scope of that agreement. In re Kellogg Brown &
Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005); In re Merrill Lynch, Pierce, Fenner & Smith, Inc., 195 S.W.3d 807, 813
(Tex. App.-Dallas 2006, orig. proceeding). Here, the arbitration provision states it is governed by the FAA, and the
parties agreed before the trial court and on appeal that the FAA applies. Thus, we conclude the FAA is applicable to
this dispute. See In re Kellogg Brown & Root, 80 S.W.3d 611, 617 (Tex. App.-Houston [1st Dist.] 2002, orig.
proceeding) [**14] (when parties agree to arbitrate under the FAA, they are not required to establish that the
transaction at issue involves or affects interstate commerce). HN4[ ] While Texas law governs procedural matters
in state court cases regarding arbitration, the FAA, if applicable, controls the substantive grounds for vacating,
modifying, or correcting an arbitration award. See In re Chestnut Energy Partners, Inc., 300 S.W.3d 386, 399 (Tex.
App.-Dallas 2009, pet. denied).
HN5[ ] Disputes about the scope of an arbitration agreement are resolved in favor [*511] of arbitration. In re
Kellogg Brown & Root, Inc., 166 S.W.3d at 737. However, this presumption favoring arbitration "arises only after the
4 Metro LLP is named as an appellee and as the cross-appellant in its brief. The briefs of the parties refer to Metro LLP as the
party to the arbitration award and the trial court's judgment. No party complains or suggests that Metro LP is the correct party.
5 Although we look to decisions of the lower federal courts and other state [**13] courts, only decisions of the United States
Supreme Court, the Texas Supreme Court, and prior decisions of this Court are binding precedent. See In re Morgan Stanley &
Co., 293 S.W.3d 182, 189-90 (Tex. 2009); Penrod Drilling Corp. v. Williams, 868 S.W.2d 294, 296 (Tex. 1993) ("While Texas
courts may certainly draw upon the precedents of the Fifth Circuit, or any other federal or state court, in determining the
appropriate federal rule of decision, they are obligated to follow only higher Texas courts and the United States Supreme
Court.").
Mallory McCarty
Page 12 of 22
318 S.W.3d 502, *511; 2010 Tex. App. LEXIS 6087, **13
party seeking to compel arbitration proves that a valid arbitration agreement exists." Id. (quoting J.M. Davidson, Inc.
v. Webster, 128 S.W.3d 223, 227 (Tex. 2003)). 6
HN7[ ] Like other contracts, nonparties are normally not bound by arbitration agreements between others. See 21
R. LORD, WILLISTON ON CONTRACTS § 57:19 (4th ed. 2003). But just as other contracts can become binding on
nonparties, principles of contract law and agency may bind a non-signatory to an arbitration agreement. Thus non-
signatories to a contract containing an arbitration clause may be required to arbitrate if rules of law or equity would
bind them to the contract generally. See In re Labatt Food Serv., L.P., 279 S.W.3d 640, 644 (Tex. 2009); see also
In re Weekley Homes, L.P., 180 S.W.3d 127, 131 (Tex. 2005) ("Indeed, if Texas law would bind a nonparty to a
contract generally, the FAA would appear to preempt an exception for arbitration clauses alone."). 7
2. Who Primarily Decides Arbitrability?
The parties to this appeal disagree about a preliminary--but critical--question of law: who has the primary power to
decide whether Ladymon is required to arbitrate--the arbitrator or a court? The answer determines the applicable
standard of review: if the question is primarily for the arbitrator to decide, courts will review the arbitrator's
determination of that issue [**17] with great deference, but if the question is primarily for the court to decide, courts
will review the question independently or de novo. See First Options, 514 U.S. at 942; Perry Homes v. Cull, 258
S.W.3d 580, 587 (Tex. 2008) (HN8[ ] courts conduct ordinary review of trial court's initial referral to arbitration and
deferential review only of arbitrator's award); J.M. Davidson, Inc., 128 S.W.3d at 227 (HN9[ ] "The trial court's
determination of the arbitration agreement's validity is a legal question subject to de novo review.").
On appeal, Roe asserts both that the trial court incorrectly interpreted and applied First Options, and that a proper
application of First Options would result in affirming the arbitration award against Ladymon. Roe also argues,
apparently [*512] alternatively, that First Options is distinguishable from this case. Because of its centrality to the
issues and arguments before us, we discuss First Options in some length.
First Options involved an agreement between two companies--First Options and MK Investments, Inc. (MKI), a
company wholly owned by Manuel Kaplan and his wife. Based on an arbitration clause in the contract, First Options
demanded arbitration against MKI and Kaplan. [**18] MKI submitted to arbitration but the Kaplans filed an objection
with the arbitration panel, denying their dispute with First Options was arbitrable. The arbitrators decided they had
the power to rule on the dispute's merits and ruled in favor of First Options. The trial court confirmed the award but
the court of appeals reversed, stating that courts should independently decide whether an arbitration panel has
jurisdiction over a dispute. First Options, 514 U.S. at 940-41.
The Supreme Court characterized the issue as a narrow one:
6 As explained in Marciano v. Mony Life Ins. Co., HN6[ ] the presumption in favor of arbitration
applies only to the scope of an open-ended arbitration agreement, never to the existence of such an agreement or to the
identity [sic] the parties who might be bound by such an agreement. If A and B have an agreement to arbitrate any dispute
that arises between them, there [**15] is a presumption that, if a dispute arises between them, the dispute is within the
scope of the agreement. However, if a dispute arises between A and C, even if B and C are closely related, there is no
"presumption" that A has agreed to arbitrate its dispute with C.
Marciano v. Mony Life Ins. Co., 470 F. Supp. 2d 518, 526, n.12 (E.D. Pa. 2007).
7 State law generally governs whether a person has agreed to arbitrate, and federal law governs [**16] the scope of the
arbitration agreement. Labatt, 279 S.W.3d at 643. The question whether non-signatories are bound by an arbitration agreement
is distinct and may involve either or both issues. Id. Although the Supreme Court has not directly addressed whether state or
federal law governs, it recently spoke of the issue in purely state-law terms. See Arthur Andersen LLP v. Carlisle, 129 S. Ct.
1896, 1902, 173 L. Ed. 2d 832 (2009) (neither § 2 nor § 3 of the FAA "purports to alter background principles of state contract
law regarding the scope of agreements (including the question of who is bound by them)"). Until the question is resolved, we are
governed by the Texas Supreme Court's directive to apply "state substantive law and endeavor to keep it consistent with federal
law." Labatt, 279 S.W.3d at 643.
Mallory McCarty
Page 13 of 22
318 S.W.3d 502, *512; 2010 Tex. App. LEXIS 6087, **16
To understand just how narrow, consider three types of disagreement present in this case. First, the Kaplans
and First Options disagree about whether the Kaplans are personally liable for MKI's debt to First Options. That
disagreement makes up the merits of the dispute. Second, they disagree about whether they agreed to
arbitrate the merits. That disagreement is about the arbitrability of the dispute. Third, they disagree about who
should have the primary power to decide the second matter. Does that power belong primarily to the arbitrators
(because the court reviews their arbitrability decision deferentially) or to the court (because the court makes up
its [**19] mind about arbitrability independently)? We consider here only this third question.
Id. at 942 (emphases added).
We quote the above text to illustrate that, contrary to one of Roe's arguments, First Options is not distinguishable
from this case in any meaningful way. This case presents the same three types of disagreements present in First
Options. First, Roe and Ladymon disagree as to whether Ladymon is personally liable to Roe--the merits of Roe's
claim. Second, they disagree about whether they agreed to arbitrate the merits--the arbitrability of the dispute.
Third, they disagree about who should have the primary power to decide the second matter--the arbitrator or the
courts. Indeed, this third issue is the subject of our current discussion.
In First Options, the Supreme Court observed that HN10[ ] arbitration, being a matter of contract, is "a way to
resolve those disputes--but only those disputes--that the parties have agreed to submit to arbitration." Id. at 943.
The Court held that the "who decides" question of arbitrability also turns upon the agreement of the parties, and that
"a court must defer to an arbitrator's arbitrability decision when the [**20] parties submitted that matter to
arbitration." Id. (emphasis added). 8
However, the Court went on to discuss how a court should decide whether the parties agreed to submit arbitrability
to the arbitrator. The Court stated that, HN11[ ] when deciding whether the parties agreed [*513] to arbitrate a
certain matter, courts should apply ordinary state-law principles governing the formation of contracts, with an
important qualification
applicable when courts decide whether a party has agreed that arbitrators should decide arbitrability: Courts
should not assume that the parties agreed to arbitrate arbitrability unless there is "clea[r] and unmistakabl[e]"
evidence that they did so.
Id. at 944 (citing AT&T, 475 U.S. at 649; Warrior & Gulf Nav. Co., 363 U.S. at 583 n.7). The Court recognized this
qualification reverses the presumption favoring arbitration with respect to "silence or ambiguity about [**21] 'who
(primarily) should decide arbitrability'. . . ." Id. at 944-45. But as the Court noted, this differing treatment is justified
given the principle that a party can be forced to arbitrate only those issues it specifically has agreed to submit to
arbitration. Id. at 945.
Reviewing the record, the Court then concluded that First Options could not show that "the Kaplans clearly agreed
to have the arbitrators decide (i.e. to arbitrate) the question of arbitrability." Id. at 946. Therefore, the question of
whether the Kaplans were required to arbitrate their dispute with First Options was "subject to independent review
by the courts." Id. at 947.
Seven years later, the Supreme Court reiterated that HN12[ ] a "question of arbitrability" is an issue for judicial
determination unless the parties clearly and unmistakably provide otherwise. Howsam v. Dean Witter Reynolds,
Inc., 537 U.S. 79, 83, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002). In applying this interpretive rule, the Court in
8 The Court continued:
If, on the other hand, the parties did not agree to submit the arbitrability question itself to arbitration, then the court should
decide that question just as it would decide any other question that the parties did not submit to arbitration, namely,
independently.
Id. at 943 (citations omitted).
Mallory McCarty
Page 14 of 22
318 S.W.3d 502, *513; 2010 Tex. App. LEXIS 6087, **21
Howsam explained that not all "potentially dispositive gateway question[s]" constitute "questions of arbitrability." Id.
It defined the latter phrase to encompass
the kind of narrow circumstance where contracting parties would likely have expected a court [**22] to have
decided the gateway matter, where they are not likely to have thought that they had agreed that an arbitrator
would do so, and, consequently, where reference of the gateway dispute to the court avoids the risk of forcing
parties to arbitrate a matter that they may well not have agreed to arbitrate.
Id. at 83-84. As examples of such "questions of arbitrability," the Court cited cases involving disputes about whether
an arbitration contract bound parties who did not sign the agreement (First Options, 514 U.S. at 943-44), whether
an arbitration agreement survived a corporate merger and bound the resulting corporation (John Wiley & Sons, Inc.
v. Livingston, 376 U.S. 543, 84 S. Ct. 909, 11 L. Ed. 2d 898 (1964)), and whether an arbitration clause in a
concededly binding contract applied to a particular type of controversy (AT&T, 475 U.S. at 651-52). See Howsam,
537 U.S. at 84. 9
Recently, the Supreme Court again confirmed that HN13[ ] whether parties [**23] have agreed to submit a
particular dispute to arbitration is an issue for judicial determination and that "where the dispute at issue concerns
contract formation, the dispute is generally for courts to decide." Granite Rock Co. v. Int'l Bhd. of Teamsters, 130 S.
Ct. 2847, 2855-56, 177 L. Ed. 2d 567 [*514] (2010); 10 see also Rent-A-Center, W., Inc. v. Jackson, 130 S. Ct.
2772, 2777, 177 L. Ed. 2d 403 (2010) (citing First Options for the principle that arbitration is a matter of contract).
The Texas Supreme Court has also stated that HN14[ ] under the FAA, "[w]hether an arbitration agreement binds
a non[-]signatory is a gateway matter to be determined by courts rather than arbitrators unless the parties clearly
and unmistakably provide otherwise." Labatt, 279 S.W.3d at 643 [**24] (citing In re Weekley Homes, 180 S.W.3d at
130 and Howsam, 537 U.S. 79, 83-84, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002)).
We conclude that whether Roe can require Ladymon to arbitrate her claims against him individually is an "issue of
arbitrability." See Howsam, 537 U.S. at 83. HN15[ ] If the court determines that the parties "clearly and
unmistakably agreed" to submit arbitrability to the arbitrator, it should defer to the arbitrator's decision on the issue.
See First Options, 514 U.S. at 943. However, absent "clear and unmistakable evidence" that the parties agreed to
the contrary, the primary power to decide such issues lies with the courts--not an arbitrator. See First Options, 514
U.S. at 944; Howsam, 537 U.S. at 84. Doing so "avoids the risk of forcing parties to arbitrate a matter that they may
well not have agreed to arbitrate." Howsam, 537 U.S. at 83-84.
3. Whose Agreement Are We Looking For?
However, when looking for "clear and unmistakable evidence" that the parties agreed to arbitrate the issue of
arbitrability, whose agreement are we looking for--that of the parties to the contract containing the arbitration clause
or the would-be parties to the sought-for arbitration?
We find it significant that when the Supreme [**25] Court in First Options looked for clear evidence of an agreement
to arbitrate arbitrability, it did not even address the terms of the arbitration agreement. In other words, the Court
looked for "clear and unmistakable evidence" that the parties to the dispute before the courts (First Options and the
Kaplans) agreed to arbitrate the issue of arbitrability, not the parties to the contract containing the arbitration clause
(First Options and MKI). See First Options, 514 U.S. at 946-47 (noting that First Options could not show the
9 In
contrast, the Court in Howsam noted that it had found the phrase "question of arbitrability" not applicable in other kinds of
general, "procedural" circumstances where parties would likely expect that an arbitrator would decide the gateway matter. See
Howsam, 537 U.S. at 84-85.
10 Quoting both Volt and First Options, the Court made clear that the federal policy favoring arbitration cannot be "divorced from
the first principle that underscores all of our arbitration decisions: Arbitration is strictly 'a matter of consent,' and thus 'is a way to
resolve those disputes--but only those disputes--that the parties have agreed to submit to arbitration.'" Granite Rock, 130 S. Ct.
at 2857 (quoting Volt, 489 U.S. at 479; First Options, 514 U.S. at 943).
Mallory McCarty
Page 15 of 22
318 S.W.3d 502, *514; 2010 Tex. App. LEXIS 6087, **25
Kaplans clearly agreed to have the arbitrators decide arbitrability). This is understandable, as in First Options it was
undisputed that the Kaplans were not parties to the agreement containing the arbitration clause.
Moreover, HN16[ ] when addressing whether a non-signatory to the arbitration agreement can be required to
arbitrate, looking to the intent of the contracting parties on the issue of arbitrating arbitrability does not avoid the
"risk of forcing parties to arbitrate a matter that they may well not have agreed to arbitrate." Howsam, 537 U.S. at
83-84. 11 [*515] Therefore, a court should decide whether an arbitration contract binds a person who did not sign
the contract. [**26] Id. (citing First Options, 514 U.S. at 943-46). 12
HN17[ ] While non-signatories to an arbitration agreement can be bound to arbitrate under principles of contract
and agency law, such issues--dealing as they do with non-signatories--are gateway "issues of arbitrability" that the
courts are primarily responsible for deciding--not the arbitrator. See Howsam, 537 U.S. at 84. And only if the non-
signatory has "clearly and unmistakably agreed" to submit that issue to arbitration will the courts be bound to a
deferential review of the arbitrator's decision that the non-signatory is bound by the arbitration agreement.
4. Is There "Clear and Unmistakable Evidence" Ladymon Agreed to Arbitrate Arbitrability?
Roe asserts there is clear and unmistakable evidence that Ladymon agreed to arbitrate whether he was bound by
the arbitration agreement based [**28] on three arguments: (1) Ladymon actually signed the contract and is bound
as a representative of Metro LLP; (2) the arbitration clause refers to the AAA rules and those rules allow the
arbitrator to decide his own jurisdiction; and (3) Ladymon did not specifically object to the arbitrator's jurisdiction, he
participated in the arbitration, and he invoked the power of the arbitrator by filing his objection.
a. Did Ladymon Agree by Signing as a Partner of Metro LLP?
Roe argues Ladymon consented to arbitrate claims against him individually because he was "a signatory to the
contract" and "a representative of Metro." Ladymon did sign the contract as a partner of Metro LLP 13 and initialed
11 When a non-signatory resists arbitration, looking at what the signatories to the arbitration agreement said about arbitrability
creates a "chicken and egg" situation:
But what if the challenge to the contract is that it never came into being? Since "arbitration is a matter of contract", the issue
must be one for the court to decide. Otherwise, an arbitrator would be put in the position of deciding whether he was
authorized to decide the parties' dispute, concluding either that he was not authorized, a logical circularity, or that he was,
and raising himself by his own bootstraps. Thus, whether a person is bound by a contract he never signed is an issue for
the court.
In re Morgan Stanley & Co., 293 S.W.3d 182, 192-93 (Tex. 2009) (Hecht, J., dissenting) (citations omitted); see also Dwayne E.
Williams, Binding Nonsignatories to Arbitration Agreements, 25 FRANCHISE L.J. 175, 182 (2006) (arguing the question is
always for the courts to decide because the arbitrator cannot use the doctrines that may bind a non-signatory to an arbitration
clause to bootstrap his own jurisdiction).
12 Thus, "courts should order arbitration of a dispute only [**27] where the court is satisfied that neither the formation of the
parties' arbitration agreement nor (absent a valid provision specifically committing such disputes to an arbitrator) its
enforceability or applicability to the dispute is in issue. Where a party contests either or both matters, 'the court' must resolve the
disagreement." Granite Rock, 130 S. Ct. at 2857-58 (citing First Options, 514 U.S. at 943).
13 The signature block for the contractor reads:
CONTRACTOR:
METRO TOWNHOMES & HOMES, L.L.P.
By: /s/ Blane Ladymon
Printed Name: Blane Ladymon
Its: Partner
Mallory McCarty
Page 16 of 22
318 S.W.3d 502, *515; 2010 Tex. App. LEXIS 6087, **27
each page in the blank for "Contractor." However, the contract identifies the parties to the contract as Roe, the
owner, and Metro LLP, the contractor; Ladymon individually is not identified as a party.
Moreover, Ladymon's signature on the contract does not render him personally a party to the contract because he
clearly indicated he was signing on behalf of [**29] contractor, Metro LLP, and not on his own behalf. See Eppler,
Guerin & Turner, Inc. v. Kasmir, 685 S.W.2d 737, 738 (Tex. [*516] App.-Dallas 1985, writ ref'd n.r.e.) (HN18[ ] an
agent contracting for the benefit of a disclosed principal is not liable on the contract); see also Fed. Deposit Ins. Co.
v. K-D Leasing Co., 743 S.W.2d 774, 776 (Tex. App.-El Paso 1988, no writ) (agent's signature below principal's
name preceded by preposition "by" indicated agent signed on behalf of disclosed principal only, and thus agent was
not liable on contract); RESTATEMENT (SECOND) OF AGENCY § 320 (1958) (HN19[ ] "Unless otherwise
agreed, a person making or purporting to make a contract with another as agent for a disclosed principal does not
become a party to the contract."). 14
Further, HN21[ ] being a partner in a registered limited liability partnership, and thus its "representative," does not
make the partner personally liable for the obligations [**30] of the limited liability partnership. HN22[ ] TEX. REV.
CIV. STAT. ANN. art. 6132b-3.08(a)(1) (Vernon Supp. 2009) ("a partner in a registered limited liability partnership is
not individually liable, directly or indirectly, by contribution, indemnity, or otherwise, for debts and obligations of the
partnership incurred while the partnership is a registered limited liability partnership"). While an agent of a disclosed
principal may agree to substitute his own responsibility for that of the principal or to add his responsibility to that of
the principal, there is no indication here that Ladymon did so merely by signing the contract as a partner of a limited
liability partnership. 15
Roe also asserts First Options is "completely distinguishable from the facts in this case because the parties
opposing arbitration in First Options [the Kaplans] never signed the contract containing the arbitration clause,
whereas . . . Ladymon did sign the arbitration contract in this case." Roe appears to be incorrect; although not
discussed by the Supreme Court's opinion, the court of appeals decision in First Options reveals that Kaplan (the
president, a director, and sole shareholder of MKI) signed the original agreement containing the arbitration clause
on behalf of MKI. See Kaplan v. First Options of Chi., Inc., 19 F.3d 1503, 1506-07 (3d Cir. 1994), aff'd, 514 U.S.
938, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995). 16 In any event, Ladymon's signature in this case was only in his
representative capacity and we see no distinction between First Options and this case on the basis of that
signature.
We reject Roe's argument that Ladymon's execution of the document on behalf of Metro LLP is evidence that he
clearly and unmistakably agreed the arbitrator could decide whether he is bound to arbitrate claims against him
individually.
[*517] b. Did Ladymon Agree Based on Roe's and Metro LLP's Agreement to Arbitrate Pursuant to the AAA Rules?
Roe states that "the parties agreed that the AAA Construction Industry Rules governed the proceedings and Rule
R-8 provides that the Arbitrator has the power and authority to arbitrate any jurisdictional issues--not the [c]ourts."
14 See also Bel-Ray Co. v. Chemrite Ltd., 181 F.3d 435, 445 (3d Cir. 1999) ("Generally, of course, HN20[ ] an agent of a
disclosed principal, even one who negotiates and signs a contract for her principal, does not become a party to the contract.");
RESTATEMENT (SECOND) OF AGENCY § 156 & cmt. a (1958).
15 Insupport of her argument, Roe also relies on a provision in the Roe-Metro LLP contract stating that the contract was "binding
upon and inure[s] to the benefit of the parties hereto and their respective . . . representatives," but cites no authority that a
general clause dealing with assignment of a contract alters the liability of an agent for a disclosed principal. As discussed below,
we do not see how this assignment language substitutes or adds the agent's (Ladymon's) personal responsibility to that of the
[**31] principal (Metro LLP).
16 After
later settlement negotiations, the Kaplans, MKI, and First Options signed four separate documents, only one of which
contained an arbitration clause and only First Options, MKI and another entity signed that document. Id. Individually, the Kaplans
signed only a letter agreement that did not include [**32] an arbitration clause. Id.
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However, as discussed above, the entities who agreed to arbitrate under the AAA rules are Metro LLP and Roe, not
Ladymon. As was the case in First Options, the terms of the contracting parties' agreement to arbitrate is not
evidence that a non-contracting party--here Ladymon--agreed to arbitrate or to do so under AAA rules, much less
clear and unmistakable evidence of such an agreement. See First Options, 514 U.S. at 946-47.
We cannot say that Ladymon clearly and unmistakably agreed to submit gateway issues to an arbitrator simply
because Roe and Metro LLP agreed to arbitrate in accordance with rules selected [**33] by the AAA. Thus we
reject Roe's argument that her agreement with Metro LLP to arbitrate in accordance with the AAA rules shows that
Ladymon clearly and unmistakably agreed to submit the gateway issue to the arbitrator.
c. Did Ladymon Waive by His Argument Before the Arbitrator?
Roe also argues that by objecting to the arbitrator that he was not subject to arbitration, Ladymon waived any
objection to the arbitrator deciding whether Ladymon was bound to arbitrate Roe's claims against him individually.
She argues Ladymon's objection that he never signed an arbitration agreement individually is not an objection to
the arbitrator's authority to decide the dispute. We disagree. Ladymon's objection--that he never agreed to arbitrate
disputes against him individually--is an objection that the arbitrator had no power to bind him to a resolution of those
disputes.
Roe also argues Ladymon participated in the arbitration proceedings and actually invoked the arbitrator's power to
decide the question of arbitrability by filing his objection requesting he be dismissed. The Supreme Court rejected
such an argument in First Options, 514 U.S. at 946 ("To the contrary, insofar as the Kaplans were forcefully
[**34] objecting to the arbitrators deciding their dispute with First Options, one naturally would think that they did not
want the arbitrators to have binding authority over them."). Just as the Kaplans did not manifest an intent to be
bound by the arbitrators' decision by filing a memorandum objection to the arbitrators' jurisdiction over them, so too
Ladymon's submission of a written objection to the arbitrator's jurisdiction over him individually did not manifest an
intention that he would be bound by the arbitrator's decision. This conclusion is supported by the obvious
explanation for Ladymon's presence before the arbitrator (as a partner of Metro LLP) and because of authority like
First Options that a person might argue arbitrability to the arbitrator without losing his right to independent court
review. Id.
Roe's argument that Ladymon waived his objection to the arbitrator's power over him by objecting to the arbitrator
is, of course, circular. It would be a harsh rule indeed to require a person to preserve an issue by arguing it to the
arbitrator 17 and [*518] at the same time conclude he waived the issue by making the objection. We conclude
Ladymon, by objecting to the arbitrator's jurisdiction [**35] over him, did not thereby submit himself to the very
jurisdiction he was challenging. See First Options, 514 U.S. at 946. We reject Roe's waiver argument.
d. Conclusion
Whether the arbitration agreement binds Ladymon as a non-signatory is for the courts to decide, unless there is
"clear and mistakable evidence" that Ladymon [**36] agreed the arbitrator would make that decision. See Howsam,
537 U.S. at 84; First Options, 514 U.S. at 944. On this record, Roe has not shown that Ladymon "clearly agreed to
have the arbitrator[] decide (i.e., to arbitrate) the question of arbitrability." First Options, 514 U.S. at 946. Because
the non-contracting party (here Ladymon) "did not clearly agree to submit the question of arbitrability to arbitration,
the [district court] was correct in finding that the arbitrability of the [Ladymon/Roe] dispute was subject to
independent review by the courts." Id. at 947. Therefore, the trial court had the primary responsibility to decide the
17 See, e.g., AGCO Corp. v. Anglin, 216 F.3d 589, 593 (7th Cir. 2000) ("If a party willingly and without reservation allows an issue
to be submitted to arbitration, he cannot await the outcome and then later argue that the arbitrator lacked authority to decide the
matter. . . . If, however, a party clearly and explicitly reserves the right to object to arbitrability, his participation in the arbitration
does not preclude him from challenging the arbitrator's authority in court.") (citations omitted); see also, TEX. CIV. PRAC. &
REM. CODE ANN. § 171.088(a)(4) (Vernon 2005) (recognizing ground for vacating award for lack of an agreement to arbitrate
where applicant raised objection in arbitration hearing). Because the FAA applies here, the Texas statutory grounds for vacating
an arbitration award do not apply in this case. See Chestnut Energy Partners, 300 S.W.3d at 399.
Mallory McCarty
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question of whether Ladymon is bound by the arbitration provision in Roe's contract with Metro LLP. Accordingly,
the trial court correctly concluded the arbitrability of the Roe-Ladymon dispute was subject to its de novo
determination, i.e. without deference to the arbitrator's prior decision on the issue.
B. Did the Trial Court Correctly Determine Ladymon Was Not Bound by the Arbitration Agreement?
Having determined the courts have the primary power to decide the question, we turn to the correctness of the trial
court's decision: can Ladymon, a nonparty [**37] to the arbitration agreement, be compelled to arbitrate the claims
against him? For the same reasons discussed above, HN23[ ] we review the trial court's decision de novo. 18
As mentioned above, in some circumstances rules of contract law or agency can bind a nonparty to a contract,
including an arbitration provision. See In re Weekley Homes, 180 S.W.3d at 129 ("both state and federal courts
have recognized [that] nonparties may be bound to an arbitration clause when the rules of law or equity would bind
them to the contract generally"); In re Kellogg Brown & Root, Inc., 166 S.W.3d at 738.
We have addressed and rejected Roe's arguments that Ladymon is bound by the arbitration provision because he
signed the agreement on behalf of Metro LLP and that he waived his objections [**38] to arbitrating [*519] the
claims against him. Roe's remaining arguments are that the trial court erred by vacating the arbitrator's award
against Ladymon because, even though he was a nonparty, he was bound to arbitrate her claims against him as a
successor to Metro LLP and as an agent of Metro LLP under the rule in In re Vesta Insurance Group, Inc., 192
S.W.3d 759 (Tex. 2006) (per curiam).
1. Is Ladymon Bound as a Successor to Metro LLP?
Roe argues that Ladymon consented to arbitrate her claims against him individually because he was "a successor"
to Metro LLP, and that Paragraph 29(b) 19 of the contract (the "successors and assigns" clause) requires him to
arbitrate even if he did not sign the contract individually. HN24[ ] Such clauses generally speak to what happens
when a party to the contract dies or ceases to exist as a legal entity. They make a contract expressly assignable
and have the effect of making a successor or assignee obligated to perform the assignor's obligations without an
express agreement of assumption. 20
Roe's argument that Ladymon became a successor to Metro LLP is based on his deposition testimony that there
was no formal assignment of the contract and he continued to complete the project after Metro LLP converted to
Metro LP. However, we conclude the record does not support Roe's contention that Ladymon individually became a
successor to Metro LLP after its conversion.
The partnership filings submitted to the arbitrator in Ladymon's post-hearing brief, and which are contained in the
trial court's record, show that Metro LLP withdrew its registration as a limited liability partnership and the same day
converted to a limited partnership, Metro LP, with Ladymon becoming [**40] a limited partner in that partnership.
See TEX. REV. CIV. STAT. ANN. art. 6132b-9.05. By partnership law, Metro LLP's obligations transferred to Metro
LP as a result of this conversion. Id. art. 6132b-9.05(h)(3) (HN25[ ] "all liabilities and obligations of the converting
18 See Myer v. Americo Life, Inc., 232 S.W.3d 401, 407 (Tex. App.-Dallas 2007, no pet.); see also First Options, 514 U.S. at 947-
48 (noting that "courts of appeals should apply ordinary, not special, standards when reviewing district court decisions upholding
arbitration awards"). The issues before us are legal questions reviewed de novo; the facts regarding whether Ladymon was
bound by the arbitration agreement are undisputed.
19 Paragraph 29(b), states: "This Contract shall be binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, representatives, successors [**39] and assigns where permitted by this Contract."
20 See Penick v. Eddleman, 291 S.W. 194, 195 (Tex. Comm'n App. 1927, judgm't adopted); Kirby Lumber Co. v. R.L. Lumber
Co., 279 S.W. 546, 549 (Tex. Civ. App.--Beaumont 1926, no writ); 6A C.J.S. Assignments § 34 (2004) ("Parties to a contract
may also agree to make an otherwise unassignable contract assignable by inserting a provision to the effect that the contract
binds the parties' successors and assigns."); 29 R. LORD, WILLISTON ON CONTRACTS §§ 74:40, 74F:3 (4th ed. 2003).
Mallory McCarty
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entity shall continue to be liabilities and obligations of the converted entity in its new organizational form without
impairment or diminution by reason of the conversion"). Thus, notwithstanding Ladymon's lay opinions about the
legal effect of the partnership filings, Metro LP--and not Ladymon--was the successor to Metro LLP's contract with
Roe. 21
As described above, Ladymon was not personally liable on Metro LLP's contract before its conversion to Metro LP,
22 nor was he after the conversion. 23 Thus, we [*520] reject Roe's argument that Ladymon was bound [**41] to
arbitrate the claims against him individually because he was a successor to Metro LLP.
2. Is Ladymon Bound as Agent for Metro LLP?
Roe argues Ladymon must arbitrate the claims against him individually because he was an agent or representative
of Metro LLP and "agents and representatives of parties to contracts containing arbitration clauses are properly
bound to arbitrate with the entity that signed the agreement," citing In re Vesta Insurance Group, Inc., 192 S.W.3d
at 762-63.
In re Vesta involved a different situation than the one before us. There, a signatory to a contract containing an
arbitration clause filed a tortious interference suit against non-signatory officers and agents of the other party to the
contract. 192 S.W.3d at 762-63. The signatory plaintiff was resisting arbitration while the non-signatory defendants
sought to hold the signatory plaintiff to abide by his agreement to arbitrate. Id. The court recognized that estoppel
principles may require a nonparty to arbitrate if it seeks [**42] through its claim to obtain a direct benefit from the
contract containing the arbitration clause. 24 Id. In re Vesta stands for the proposition that a signatory plaintiff
cannot avoid its agreement to arbitrate disputes simply by bringing tortious interference claims against the officers,
agents, or affiliates of the other signatory to the contract. Id. Here, the party resisting arbitration did not sign the
agreement to arbitrate. Thus In re Vesta does not support the argument that Roe, a signatory, may force Ladymon,
a non-signatory, to arbitrate against his will by claiming he is an agent or representative of Metro LLP.
The application of the estoppel theory is illustrated by Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347, 361
(5th Cir. 2003). In Bridas, the Fifth Circuit recognized that HN26[ ] allowing non-signatories to invoke an arbitration
provision against someone who signed the arbitration agreement prevents "a signatory from avoiding arbitration
with a non[-]signatory when the issues the non[-]signatory is seeking to resolve in arbitration are intertwined with the
agreement that the estopped party has signed." Id. (quoting Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d
773, 779 (2d Cir. 1995)). But "[b]ecause arbitration is guided by contract principles, the reverse is not also true: a
signatory may not estop a non[-]signatory from avoiding arbitration regardless of how closely affiliated the non[-
]signatory is with another signing party." Id. (quoting MAG Portfolio Consultant, GMBH v. Merlin Biomed Group
L.L.C., 268 F.3d 58, 62 (2d Cir. 2001)) (emphasis added); see also Merrill Lynch, Pierce, Fenner & Smith, Inc., 195
S.W.3d at 814-15.
21 We reached the same conclusion in connection with another contract between Metro LLP and a different homeowner. See In
re Hawthorne Townhomes, L.P., 282 S.W.3d 131, 138-39 (Tex. App.-Dallas 2009, orig. proceeding) (concluding Metro LP was
the successor to Metro LLP and bound by the arbitration provision in a contract with the homeowner signed by Ladymon on
behalf of Metro LLP).
22 See TEX. REV. CIV. STAT. ANN. art. 6132b-3.08(a)(1).
23 Ladymon was not liable on that contract as a limited partner of Metro LP. See TEX. REV. CIV. STAT. ANN. art. 6132a-1 §
3.03(a), (b)(1).
24 Thisis referred to as "direct benefits estoppel." See Merrill Lynch, Pierce, Fenner & Smith, Inc., 195 S.W.3d at 816. Equitable
estoppel will also estop a signatory plaintiff from refusing to arbitrate claims related to the contract containing an arbitration
clause against non-signatory defendants. Id. at 814-15 (discussing Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527
(5th Cir. 2000)); see also Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 304 (Tex. 2006) ("A person who has agreed to arbitrate
with one party may in some cases be required to arbitrate [**43] related disputes with others.").
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This case presents the "reverse" situation referred to in Bridas and MAG Portfolio. Here, unlike In re Vesta, the non-
signatory [**44] (Ladymon) does not want to arbitrate Roe's claims against him individually, and there is no
evidence he agreed to do so. Nor is there any basis to "estop" him from refusing to arbitrate because he [*521]
never agreed to arbitrate. 25 As we discussed earlier, by signing the contract as an agent for a disclosed principal,
Ladymon did not become personally bound by the terms of that contract, including the arbitration clause. 26
3. Conclusion
HN27[ ] The purpose of the FAA is to put arbitration agreements on equal footing with other contracts, to make
them "as enforceable as other contracts, but not more so." Prima Paint Corp., 388 U.S. at 404 n.12. Because an
agent for a disclosed principal is not liable on the principal's contract, concluding [**46] such an agent is bound by
an arbitration clause in that contract when he would not be bound by other provisions would make arbitration
agreements "easier to enforce than other contracts, contrary to the [Federal] Arbitration Act's purpose." Merrill
Lynch Trust, 235 S.W.3d at 194 ("As other contracts do not become binding on nonparties due to concerted
misconduct, allowing arbitration contracts to become binding on that basis would make them easier to enforce than
other contracts, contrary to the Arbitration Act's purpose."); In re Kellogg Brown & Root, Inc., 166 S.W.3d at 740.
We conclude the trial court correctly determined that the gateway issue of arbitrability was for the court to decide
and that Ladymon is not individually bound by the arbitration provision in Metro LLP's contract with Roe. Thus, the
arbitrator exceeded his power by entering an award against Ladymon jointly and severally with Metro LLP. See
HN28[ ] 9 U.S.C. § 10(a)(4) (court may make an order vacating an award "where the arbitrators exceeded their
powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted
was not made"). We overrule Roe's sole issue on appeal.
III. [**47] Metro LLP's Cross-Appeal
We turn now to Metro LLP's cross-appeal. Metro LLP argues the trial court should have vacated the award because
the arbitrator (1) refused to postpone the arbitration hearing after a showing of sufficient cause to do so, and (2)
demonstrated evident partiality in favor of Roe.
A. Applicable Law
HN29[ ] Under the FAA, we review the trial court's decision to confirm an arbitration [*522] award de novo. See
Myer, 232 S.W.3d at 407. Our review of the award itself, however, is exceedingly deferential and narrow. See id.;
see also Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1320 (5th Cir. 1994). An arbitration award must be
confirmed unless it is vacated, modified, or corrected under one of the limited grounds in sections 10 and 11 of the
FAA. See 9 U.S.C. §§ 9-11; see also Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 805-06 (Tex. App.-Dallas 2008,
pet. denied).
25 We recognize that in In re Hawthorne, Ladymon was also a non-signatory defendant; there, however, he chose to arbitrate
with an unwilling signatory, Branch. In re Hawthorne, 282 S.W.3d at 135. While a non-signatory defendant (like Ladymon) may
"estop" a signatory plaintiff (like Branch) from avoiding arbitration of claims relating to the plaintiff's arbitration contract, a
signatory plaintiff (like Roe) cannot "estop" a non-signatory defendant (like Ladymon) from resisting arbitration regardless of how
closely related Ladymon is to the other signing party (Metro LLP). See Merrill Lynch, Pierce, Fenner & Smith, 195 S.W.3d at
815. A person may not, of course, gamble on the outcome of litigation or arbitration and then switch to the other forum. See
AGCO Corp., 216 F.3d at 593; [**45] Perry Homes, 258 S.W.3d at 600. At least where a nonparty, like Ladymon, objects that
he never signed an agreement to arbitrate, we see no legal rule preventing him from choosing litigation in this case simply
because he chose arbitration in another case under a different contract with a different party. Therefore, our holding in In re
Hawthorne is not inconsistent with our holding here. Moreover, the arbitration provision in Hawthorne was quite different from the
provision here and expressly included disputes between the purchaser and the builder and their "representatives, employees,
subcontractors, independent contractors, or agents." Hawthorne, 282 S.W.3d at 136, 139.
26 See Flink v. Carlson, 856 F.2d 44, 46 (8th Cir. 1988) ("Signing an arbitration agreement as agent for a disclosed principal is
not sufficient to bind the agent to arbitrate claims against him personally.").
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HN30[ ] The arbitrator's misconduct in refusing to postpone the arbitration hearing after a showing of sufficient
cause is one ground for vacating an arbitration award. 9 U.S.C. § 10(a)(3). However, because the purpose of the
policy favoring arbitration is to promote expeditious resolution of disputes, "a court's review of [**48] the arbitrator's
decision to postpone or not postpone the hearing is quite limited." ARW Exploration Corp. v. Aguirre, 45 F.3d 1455,
1463 (10th Cir. 1995). An award may also be vacated for "evident partiality" of the arbitrator. 9 U.S.C. § 10(a)(2).
B. Analysis
Metro [**49] LLP argues Roe disclosed her witnesses and documents long after the dates set in the original
scheduling order. It contends the untimely disclosures prevented it from adequately preparing for the hearing. The
scheduling order required Roe to disclose her witnesses and documents two weeks before the February hearing
date. The hearing was later reset to May 7, and Roe served her disclosure two weeks before the May hearing. She
also filed a supplemental disclosure on May 4, listing a new expert witness and additional documents supporting
her claims. The arbitrator denied Metro LLP's written objections and request for a continuance based on the nature
of the alleged construction defects disclosed in Roe's June 14, 2006 demand letter, the findings of the TRCC
inspection report in October 2006, the hearing had been continued once already, and Metro LLP had ample
opportunity to hire an attorney and prepare a response to Roe's claims.
Metro LLP argues the arbitrator's evident partiality was shown by his denying the continuance, and by his comment
during a break that Metro LLP needed to finish presenting its evidence and set a post-hearing briefing schedule so
that he could "finally get this [**50] lady some relief."
The trial court stated Metro LLP had raised serious concerns about the fairness of the arbitration proceedings, but
recognized that HN31[ ] parties to an arbitration agreement knowingly give up the procedural protections of the
court system. See Raiford v. Merrill Lynch, Pierce, Fenner & Smith, 903 F.2d 1410, 1413 (11th Cir. 1990) ("When
the parties agreed to submit to arbitration, they also agreed to accept whatever reasonable uncertainties might arise
from the process."). Reviewing the limited record before the court and applying the deferential standard, the trial
court concluded Metro LLP had not met its high burden to show the arbitrator committed misconduct in denying the
continuance or engaged in evident partiality.
We have reviewed the record and the trial court's decision and reach the same conclusion. Metro LLP does not
identify what evidence it could have obtained had it been granted a continuance and how it was prejudiced by the
denial of the continuance. See Laws v. Morgan Stanley Dean Witter, 452 F.3d 398, 400 (5th Cir. 2006) ("Absent
even a representation that the materials produced on the eve of arbitration were important to his case or that a
continuance might [**51] have altered the outcome of the arbitration, we cannot conclude that Laws was deprived
of a fair hearing."). Nor does the arbitrator's [*523] statement on this limited record rise to the level of evident
partiality required to vacate the award. See Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 234 (Tex. App.-
Houston [14th Dist.] 1993, writ denied) (HN32[ ] "'Evident partiality' within the meaning of section 10(a)(2) means
more than mere appearance of bias.").
Finally, Metro LLP argues the award should be modified to eliminate a double recovery of damages. See 9 U.S.C. §
11. While the award appears to include damages for both "loss of use" of the property during repairs and
"alternative housing," on this limited record and given the conflicting evidence presented to the arbitrator, we cannot
say the award includes a material miscalculation of figures or a mistake warranting modification of the award. The
award indicates these damages reflect the mortgage payments for six months and rental cost of alternative housing
for that period. HN33[ ] An arbitrator has broad discretion in fashioning a remedy appropriate to the case. See Am.
Laser Vision v. The Laser Vision Inst., L.L.C., 487 F.3d 255, 258-59 (5th Cir. 2007), [**52] abrogated on other
grounds by Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S. Ct. 1396, 170 L. Ed. 2d 254 (2008).
Accordingly, we reject Metro LLP's sole issue on its cross-appeal.
IV. Conclusion
We have overruled the sole issue presented in Roe's appeal and Metro LLP's cross-appeal. Accordingly, we affirm
the trial court's judgment.
Mallory McCarty
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JIM MOSELEY
JUSTICE
End of Document
Mallory McCarty
Caution
Sherer v. Green Tree Servicing LLC

November 10, 2008, Filed
No. 07-60567
Reporter
548 F.3d 379 *; 2008 U.S. App. LEXIS 23310 **
STEPHEN L SHERER, Plaintiff - Appellee v. GREEN TREE SERVICING LLC, Defendant - Appellant
Subsequent History: REVISED DECEMBER 2, 2008.
Prior History: [**1] Appeal from the United States District Court for the Southern District of Mississippi, Jackson.
Core Terms
arbitration, nonsignatory, equitable estoppel, servicer, compel arbitration, arbitration clause, loan agreement, district
court, parties, terms of the agreement, arbitration agreement, agreed to arbitrate, valid agreement
Case Summary
Procedural Posture
Appealing from the United States District Court for the Southern District of Mississippi, defendant loan servicer
argued error in the denial of its motion to compel arbitration of plaintiff consumer's Fair Debt Collection Practices
Act and Fair Credit Reporting Act claims. The servicer argued that even though it was not a party to the consumer's
loan agreement, that agreement's broad arbitration clause language required arbitration.
Overview
The Loan Agreement clearly identified when the consumer could be compelled to arbitrate with a nonsignatory: he
agreed to arbitrate any claims arising from "the relationships which result from the Agreement." A loan servicer was
just such a "relationship." Indeed, without the Loan Agreement, there would have been no loan to service, and no
party argued to the contrary. The consumer's claims, that the servicer improperly attempted to collect a pre-
payment penalty, arose from the servicer's conduct as a loan servicer and, therefore, fell within the terms of the
Loan Agreement's arbitration clause. Based on the Agreement's language, the consumer had validly agreed to
arbitrate with a nonsignatory, such as the loan servicer, and the language was sufficiently broad to permit the
servicer to compel arbitration. The language of the Loan Agreement demonstrated that the consumer had agreed to
arbitrate his claims that arose against nonsignatories whose "relationships resulted from the Agreement. He was
bound by the language of the Loan Agreement, and the servicer, as a nonsignatory whose relationship resulted
from the Loan Agreement, could compel the consumer to arbitrate his claims.
Outcome
The order of the district court was reversed and the case was remanded with instructions to grant the motion to
compel arbitration.
Mallory McCarty
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548 F.3d 379, *379; 2008 U.S. App. LEXIS 23310, **1
HN1[ ] An appellate court reviews de novo a district court's denial of a motion to compel arbitration.
HN2[ ] A two-step analysis is applied to determine whether a party may be compelled to arbitrate. First, the court
asks if the party has agreed to arbitrate the dispute. If so, the court then asks if any federal statute or policy renders
the claims nonarbitrable. That first step itself contains two questions: (1) is there a valid agreement to arbitrate the
claims and (2) does the dispute in question fall within the scope of that arbitration agreement. Courts apply the
federal policy favoring arbitration when addressing ambiguities regarding whether a question falls within an
arbitration agreement's scope, but does not apply this policy when determining whether a valid agreement exists.
HN3[ ] Who is actually bound by an arbitration agreement is a function of the intent of the parties, as expressed in
the terms of the agreement. When the agreement's terms do not expressly state whether a signatory may be
compelled to arbitrate with a nonsignatory, courts have drawn on various theories of contract and agency law,
including equitable estoppel, to determine a nonsignatory's rights and duties under an arbitration clause.
HN4[ ] The first step in determining whether a valid agreement to arbitrate exists is that the terms of the
agreement dictate who is actually bound by an arbitration agreement. If that fails, then a court looks to theories
such as equitable estoppel to determine whether a nonsignatory may compel arbitration. Courts have frequently
relied on theories such as equitable estoppel to determine whether the nonsignatory may invoke arbitration. The
frequency of that reliance, however, does not make the rule.
Counsel: For STEPHEN L SHERER, Plaintiff - Appellee: Oliver Stephen Montagnet, III, McCraney & Montagnet,
Jackson, MS.
For GREEN TREE SERVICING LLC, Defendant - Appellant: Michael Davis Simmons, Cosmich Simmons & Brown
PLLC, Jackson, MS.
Judges: Before KING, HIGGINBOTHAM, and WIENER, Circuit Judges.
Opinion
[*380] PER CURIAM:
Mallory McCarty
Page 3 of 5
548 F.3d 379, *380; 2008 U.S. App. LEXIS 23310, **1
Green Tree Servicing LLC appeals the district court's denial of a motion to compel the arbitration of Stephen
Sherer's Fair Debt Collection Practices Act and Fair Credit Reporting Act claims. Sherer is a party to a loan
agreement that underlies his statutory claims. Green Tree Servicing LLC is not a party to that loan agreement.
Nevertheless, the broad language of that agreement's arbitration clause requires arbitration in this case. For the
following reasons, we reverse the district court's order and remand for entry of an order compelling arbitration.
I. FACTUAL AND PROCEDURAL BACKGROUND
On January 2, 2002, Stephen Sherer executed a Manufactured Home Promissory Note, Security Agreement and
Disclosure Statement (the "Loan Agreement") with Conseco Bank, Inc. The Loan Agreement's arbitration clause
states that" [a]ll [**2] disputes, claims, or controversies arising from or relating to this Agreement or the
relationships which result from this Agreement ... shall be resolved by binding arbitration." Green Tree Servicing
LLC ("Green Tree") subsequently obtained the servicing rights to Sherer's loan. Before the loan was due, Sherer
paid the balance of his debt. Then, Green Tree allegedly charged Sherer a prepayment penalty that was contrary to
the terms of the Loan Agreement, attempted to collect that prepayment penalty and interest thereon, and reported
Sherer's failure to pay the penalty to various credit reporting agencies. Based on these facts, Sherer sued Green
Tree in the United States District Court for the Southern District of Mississippi under both the Fair Debt Collection
Practices Act, 15 U.S.C. § 1692 ("FDCPA"), and the Fair Credit Reporting Act, 15 U.S.C. § 1681 [*381] ("FCRA").
In response, Green Tree filed a motion to dismiss and compel arbitration, which the district court denied based on
its holding that equitable estoppel did not apply. Green Tree filed timely notice of appeal.
II. DISCUSSION
A. Overview Of Our Arbitration Clause Analysis
HN1[ ] We review de novo a district court's denial of a motion [**3] to compel arbitration. JP Morgan Chase & Co.
v. Conegie, 492 F.3d 596, 598 (5th Cir. 2007).
HN2[ ] A two-step analysis is applied to determine whether a party may be compelled to arbitrate. Id First, we ask
if the party has agreed to arbitrate the dispute. See id. ("The Court must first ascertain whether the parties agreed
to arbitrate the dispute."). If so, we then ask if "any federal statute or policy renders the claims nonarbitrable." Id.
(quoting Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 263 (5th Cir. 2004)). As neither party argues that a
federal statute or policy would bar arbitration here, the issue before us is limited to the analysis's first step.
That first step itself contains two questions: (1) is there a valid agreement to arbitrate the claims and (2) does the
dispute in question fall within the scope of that arbitration agreement. See id We apply the federal policy favoring
arbitration when addressing ambiguities regarding whether a question falls within an arbitration agreement's scope,
but we do not apply this policy when determining whether a valid agreement exists. Fleetwood Enters., Inc. v.
Gaskamp, 280 F.3d 1069, 1073-74 & n.5 (5th Cir. 2002); see Westmoreland v. Sadoux, 299 F.3d 462, 465 (5th Cir.
2002) [**4] ("[W]e will read the reach of an arbitration agreement between parties broadly, but that is a different
matter from the question of who may invoke its protections."). 1 Because the district court held, and neither party
challenges, that the claims would otherwise be within the scope of the arbitration clause "[h]ad the defendant
signed the contract," the present case turns solely on the first question of whether a valid agreement exists. Put
another way, we are asked to determine whether Sherer has agreed to arbitration with a nonsignatory, such as
Green Tree.
1 As authority for the proposition that only a signatory to an arbitration agreement can enforce it, Sherer points to the following
introductory sentence in Westmoreland: "[i]t is then not surprising that to be enforceable, an arbitration clause must be in writing
and signed by the party invoking it." 299 F.3d at 465. Sherer neglects to acknowledge, however, that the balance of the opinion
in Westmoreland addresses the exceptions to that proposition, focusing primarily on the availability of equitable estoppel (in the
absence of language in the arbitration clause similar to the language at issue here). See id. at 467 (applying [**5] the equitable
estoppel standard that we set out in Hill v. G E Power Systems, Inc., 282 F.3d 343, 348-49 (5th Cir. 2002), and concluding that,
under the particular circumstances of the case, the nonsignatory could not compel arbitration).
Mallory McCarty
Page 4 of 5
548 F.3d 379, *381; 2008 U.S. App. LEXIS 23310, **5
B. Is There A Valid Agreement To Arbitrate
HN3[ ] "Who is actually bound by an arbitration agreement is a function of the intent of the parties, as expressed
in the terms of the agreement." Bridas S.A.P.I.C. v. Gov't of Turkm., 345 F.3d 347, 355 (5th Cir. 2003). When the
agreement's terms do not expressly state whether a signatory may be compelled to arbitrate with a nonsignatory,
we have drawn on various theories of contract and agency law, including equitable estoppel, 2 to determine [*382]
a nonsignatory's rights and duties under an arbitration clause. See id. at 356 ("Ordinary principles of contract and
agency law may be called upon to bind a nonsignatory to an agreement whose terms have not clearly done so.").
Here, although the district court held that it must apply equitable estoppel to determine whether Green Tree may
compel arbitration, we do not need to apply such a theory because the terms of the Loan Agreement clearly identify
when Sherer may be compelled [**6] to arbitrate with a nonsignatory.
According to the broad terms of the Loan Agreement, Sherer has agreed to arbitrate any claims arising from "the
relationships which result from th[e] [a]greement." A loan servicer, such as Green Tree, is just such a "relationship."
Indeed, without the Loan Agreement, there would be no loan for Green Tree to service, and no party argues to the
contrary. Sherer's FDCPA and FCRA claims arise from Green Tree's conduct as Sherer's loan servicer and,
therefore, fall within the terms of the Loan Agreement's arbitration clause. Based on the Loan Agreement's
language, Sherer has validly agreed to arbitrate with a nonsignatory, such as the loan servicer Green Tree, and the
language is sufficiently broad to permit Green Tree to compel arbitration.
We are supported in this conclusion by the Eleventh Circuit's decision in Blinco v. Green Tree Servicing LLC, 400
F.3d 1308 (11th Cir. 2005). There, the Eleventh Circuit interpreted the same arbitration clause language in a
statutory claim [**7] against the same loan servicer. Id. at 1310. The court first held that a lawsuit against a loan
servicer was a claim arising from a relationship that resulted from the agreement. Id. at 1311 ("Indeed, it is difficult
to understand how Green Tree could be a servicer if there were no [n]ote, and more importantly, how Green Tree
could face statutory servicer liability if there were no [n]ote to service."). Then, the court held that Green Tree could
compel arbitration because "[t]he scope of the [n]ote's arbitration clause is sufficiently broad to allow non-
signatories to invoke the clause where, as here, they face claims derived from the [n]ote." Id. at 1312.
Sherer argues that our precedent requires us to apply a theory such as equitable estoppel in order to determine
whether a nonsignatory may compel arbitration and that we cannot, therefore, consider the terms of the agreement.
The district court agreed with this argument and felt bound to apply the equitable estoppel rubric that we
established in Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th Cir. 2000). But that approach skips
HN4[ ] the first step in determining whether a valid agreement to arbitrate exists: the "terms of [**8] the
agreement" dictate "[w]ho is actually bound by an arbitration agreement." See Bridas, 345 F.3d at 355. If that fails,
then we look to theories such as equitable estoppel to determine whether a nonsignatory may compel arbitration.
See id. at 356. None of the agreements that we have considered in our opinions involving nonsignatories expressly
addressed whether a nonsignatory may compel a signatory to arbitrate a claim; as a result, we frequently relied on
theories such as equitable estoppel to determine whether the nonsignatory may invoke arbitration. 3 The frequency
of that reliance, however, does not make the rule.
2 The other five theories we have considered are (1) incorporation by reference, (2) assumption, (3) agency, (4) veil-piercing or
alter ego, and (5) third-party beneficiary. Id. at 356.
3 See, e.g., id. at 351-52 ("The relevant part of ... the agreement stipulates that `[a]ny dispute, controversy or claim arising out of
or in relation to or in connection with th[e] [a]greement ... shall be exclusively and finally settled by arbitration, and any Party may
submit such a dispute, controversy or claim to arbitration."' (alterations and omissions in original)); Hill, 282 F.3d at 345-46
(noting that the defendant seeking to compel arbitration was not a party to the agreement in question and that the agreement
required the signatory parties "to submit any [**9] claims arising out of [the agreement] to arbitration"); Grigson, 210 F.3d at
525-27 (stating that the parties to the distribution agreement for the movie "Return of the Texas Chain Saw Massacre" agreed to
arbitrate, inter alia, "all other causes of action (whether sounding in contract or in tort) arising out of or relating to this
[a]greement"); Brief for Appellee at 7, Westmoreland, 299 F.3d 462 (No. 01-20793) ("[T]he parties hereby agree to ... binding
international arbitration in Paris, France.").
Mallory McCarty
Page 5 of 5
548 F.3d 379, *382; 2008 U.S. App. LEXIS 23310, **9
[*383] Sherer further argues that the Eleventh Circuit has undermined its holding in Blinco with its opinion in Becker
v. Davis, 491 F.3d 1292 (11th Cir. 2007). Contrary to Sherer's assertion, Becker did not affect the pertinent part of
Blinco's reasoning. Instead, Becker referred to the portion of Blinco that addressed when a nonsignatory may be
compelled to arbitrate. Blinco involved a promissory note signed only by a husband, and the court addressed the
additional issue concerning whether the nonsignatory wife may be compelled to arbitrate her claims. 400 F.3d at
1310. The court applied equitable estoppel in order to compel the wife to arbitrate because the terms of the
agreement did not [**10] address when a nonsignatory could be compelled to arbitrate (as opposed to when a
nonsignatory could compel arbitration). See id. at 1312. Because Becker involved a plaintiff suing in her individual
capacity for violations of an agreement that she signed in her capacity as a trustee, the Eleventh Circuit applied that
portion of Blinco that addressed equitable estoppel in order to determine whether the nonsignatory may be
compelled to arbitrate her claims where the agreement was silent on the matter. See Becker, 491 F.3d at 1296,
1299-1300.
Here, the language of the Loan Agreement demonstrates that Sherer has agreed to arbitrate his claims that arise
against nonsignatories whose "relationships . . . result from th[e] [a]greement." Sherer is bound by the language of
the Loan Agreement, and Green Tree, as a nonsignatory whose relationship resulted from the Loan Agreement,
may therefore compel Sherer to arbitrate his claims. 4
III. CONCLUSION
For the foregoing reasons, we REVERSE the order of the district court and REMAND with instructions to grant the
motion to compel arbitration.
End of Document
4 We need not and do not address the district court's holding on the availability of equitable estoppel.
Mallory McCarty
Tex. Gov’t Code § 22.001
This document is current through the 2015 regular session, 84th Legislature.
Texas Statutes & Codes Annotated by LexisNexis® > Government Code > Title 2 Judicial
Branch > Subtitle A Courts > Chapter 22 Appellate Courts > Subchapter A Supreme Court
Sec. 22.001. Jurisdiction.

(a) The supreme court has appellate jurisdiction, except in criminal law matters, coextensive with the limits of
the state and extending to all questions of law arising in the following cases when they have been brought
to the courts of appeals from appealable judgment of the trial courts:
(1) a case in which the justices of a court of appeals disagree on a question of law material to the decision;
(2) a case in which one of the courts of appeals holds differently from a prior decision of another court of
appeals or of the supreme court on a question of law material to a decision of the case;
(3) a case involving the construction or validity of a statute necessary to a determination of the case;
(4) a case involving state revenue;
(5) a case in which the railroad commission is a party; and
(6) any other case in which it appears that an error of law has been committed by the court of appeals,
and that error is of such importance to the jurisprudence of the state that, in the opinion of the supreme
court, it requires correction, but excluding those cases in which the jurisdiction of the court of appeals
is made final by statute.
(b) A case over which the court has jurisdiction under Subsection (a) may be carried to the supreme court
either by writ of error or by certificate from the court of appeals, but the court of appeals may certify a
question of law arising in any of those cases at any time it chooses, either before or after the decision of
the case in that court.
(c) An appeal may be taken directly to the supreme court from an order of a trial court granting or denying an
interlocutory or permanent injunction on the ground of the constitutionality of a statute of this state. It is the
duty of the supreme court to prescribe the necessary rules of procedure to be followed in perfecting the
appeal.
(d) The supreme court has the power, on affidavit or otherwise, as the court may determine, to ascertain the
matters of fact that are necessary to the proper exercise of its jurisdiction.
(e) For purposes of Subsection (a)(2), one court holds differently from another when there is inconsistency in
their respective decisions that should be clarified to remove unnecessary uncertainty in the law and
unfairness to litigants.
History
Enacted by Acts 1985, 69th Leg., ch. 480 (S.B. 1228), § 1, effective September 1, 1985; am. Acts 1987, 70th Leg.,
ch. 1106 (S.B. 841), § 1, effective June 20, 1987; am. Acts 2003, 78th Leg., ch. 204 (H.B. 4), § 1.04, effective
September 1, 2003.
Annotations
Mallory McCarty

Jody James Farms V Altman Group - Petition For Review

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FILED

Case No. 17-0062

IN THE SUPREME COURT OF TEXAS

JODY JAMES FARMS, JV,

THE ALTMAN GROUP, INC. AND LAURIE DIAZ,

PETITION FOR REVIEW

Attorneys for Petitioner

Judge Presiding at Trial:

Plaintiff/Appellant/Petitioner’s Counsel at Trial:

Plaintiff/Appellant/Petitioner’s Counsel on Appeal:

Defendants/Appellees/Respondents Counsel at Trial:

Defendants/Appellees/Respondent’s Counsel on Appeal:

IDENTITY OF PARTIES AND COUNSEL ......................................................... i

TABLE OF CONTENTS ....................................................................................... ii

INDEX OF AUTHORITIES ..................................................................................iv

STATEMENT OF THE CASE ..............................................................................vi

STATEMENT OF JURISDICTION ................................................................... vii

ISSUES PRESENTED ......................................................................................... viii

1. Can a non-signatory third party invoke the proverbial guilty by

association doctrine and force arbitration when no agreement to do so

2. Whether the arbitration agreement can be enforced by Altman and

Diaz through estoppel (unbriefed).

3. Whether Altman and Diaz were third-party beneficiaries who can

enforce the arbitration agreement (unbriefed).

4. Whether a non-party to an arbitration agreement can compel

5. Whether the trial court abused its discretion in enforcing the

arbitration award that the arbitrator had no authority to enter

SUMMARY OF ARGUMENT ............................................................................... 3

ISSUE NUMBER ONE ................................................................................ 4

3. In re Rubiola, 334 S.W.3d 220 (Tex. 2011) ................................................6, 9, 10

4. In re Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005)................................. 6, 7

Cases from other Jurisdictions

6. Baldwin v. Cavett, 502 F. App’x 350 (5th Cir. 2012) ......................................... 10

1. Texas Government Code Annotated §22.001(a)(2) (Vernon 2017) ................... vii

2. Texas Government Code Annotated §22.001(a)(6) (Vernon 2017) ................... vii

Law Review Articles/Secondary Materials

1. Carolyn Lamm, Defining The Party – Who is a Proper Party in an International

Court of Appeals: Seventh Court of Appeals; Justice Campbell, joined by Chief

question of law material to a decision of this case.

committed by the Seventh Court of Appeals at Amarillo of such importance to the

jurisprudence of this State that a decision by this Court is necessary to affect a

doctrine and force arbitration when no agreement to do so exists?

2. Whether the arbitration agreement can be enforced by Altman and Diaz

through estoppel (unbriefed).

the arbitration agreement (unbriefed).

4. Whether a non-party to an arbitration agreement can compel arbitration of

award that the arbitrator had no authority to enter (unbriefed).

Seventh Court of Appeals at Amarillo challenging the decision allowing a non-

approximately 2008. CR Supp. 51-58. Diaz is a registered insurance agent

Although courts favor arbitration, it is not the quintessential resolution to

litigants to arbitration when they never agreed to do so. Without an enforceable

arbitration agreement, a litigant should not be compelled to have an arbitrator

associated with an arbitration agreement they once entered regardless of the

their children, not the courts of this State.

Amarillo Court erected an impermissible road block on the path to resolution,

further weakening the strength and effect of contracts in this State.

1. Can a non-signatory third party invoke the proverbial guilty by

Although existing law makes a distinction between parties seeking to

enforce arbitration who are signatories to an enforceable arbitration agreement and

its disputes adjudicated in court. Without clarification of the distinction between

in the path leading to the courthouse. Although arbitration is favored, it is not

resolution. With a myriad of decisions increasingly diminishing a party’s right to

avoid arbitration, a distinction needs to be made by this Court when there is no