Carter v. Spiegel

Background

Jocelyn Carter sued Jeffrey Spiegel and Ryan Spiegel after investing in Fortune Film Fund Two, LLC (FF2), which allegedly invested in 1inMM Capital, LLC. The opinion describes 1inMM as part of Zachary Horwitz’s fraudulent movie-financing scheme. Carter alleged that SAC Advisory Group, LLC (SAC), managed by the Spiegels, acted as an unregistered placement agent or broker, failed to perform required investigation, and recommended the investment without confirming Horwitz’s representations.

Carter alleged claims for negligent misrepresentation, violations of California Corporations Code sections 25401 and 25501.5, and unjust enrichment. She also sought to represent a class of investors in three funds. Carter alleged that she invested in FF2 and lost her entire $400,000 investment.

Arbitration Agreement

The FF2 operating agreement named SAC and the people who signed counterpart signature pages as parties. Carter signed it as trustee of her revocable trust. Jeffrey signed it for himself. Ryan signed on behalf of SAC, rather than individually, so the court found that Ryan was not personally a party to the agreement.

The agreement required disputes among its parties to be submitted to binding arbitration after specified negotiation and alternative-dispute-resolution steps. It covered claims arising out of or related to the agreement and required arbitration in Fresno County, California. The agreement did not expressly authorize class arbitration.

Parties’ Arguments

The Spiegels argued that Carter’s claims fell within the arbitration clause under the Federal Arbitration Act and the California Arbitration Act. They also argued that, even if they were not both parties to the agreement, they could enforce it under equitable estoppel, a doctrine that can allow a non-signatory to invoke an arbitration clause in limited circumstances. They further argued that arbitration should proceed on an individual rather than class basis.

Carter argued that the clause’s silence about class actions required denial of the motion. She also argued that the clause applied only to disputes between FF2 members relating to the operating agreement and that the Spiegels were not members.

Court’s Analysis

The court rejected Carter’s class-arbitration argument. Relying on the Supreme Court’s decisions in Lamps Plus, Inc. v. Varela and Stolt-Nielsen S.A. v. AnimalFeeds International Corp., the court held that the absence of express authorization for class arbitration meant that, if the clause applied, Carter had to arbitrate her claims individually. The court also noted that Carter pleaded an individual injury because she alleged that she personally lost $400,000.

As to Jeffrey, the court held that he was a party to the operating agreement because he signed it. The fact that he held the investment through a revocable trust for estate-planning and tax purposes did not change that conclusion. The court then held that Carter’s claims against Jeffrey arose out of the agreement because the agreement enabled her investment in FF2, from which her alleged losses resulted. The arbitration clause’s broad language covered those claims.

As to Ryan, the court recognized that he was not a party to the agreement and that the Spiegels identified no other contract containing an arbitration clause signed by both Carter and Ryan. The court nevertheless held that Ryan could enforce the clause through equitable estoppel. It found that Carter’s claims against Ryan were closely connected to the FF2 operating agreement and that her allegations described coordinated, interdependent misconduct by Ryan and SAC, which was a signatory to the agreement. The court also reasoned that Carter’s claims against SAC would have been arbitrable had she named SAC as a defendant.

Disposition

The court granted the Spiegels’ motion to compel arbitration as to both defendants. It ordered arbitration on an individual basis under both the Federal Arbitration Act and the California Arbitration Act, and it stayed the case. The opinion excerpt does not state the court’s ultimate decision on the underlying misrepresentation, securities, or unjust-enrichment claims.