D. Joseph Long, individually v. Louis L. Silver, individually

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 D. JOSEPH LONG, individually and
derivatively as a shareholder of
Regency Home Fashions,
Incorporated,
Plaintiff-Appellee,
v.
LOUIS L. SILVER, individually and in
his fiduciary capacity as a
shareholder of Regency Home
Fashions, Incorporated and as
trustee of the express of the Louis
L. Silver living trust; ALL UNKNOWN
BENEFICIARIES of the Louis L. Silver
Living Trust; RONALD GROSSMAN, No. 00-1612 individually and in his fiduciary
capacity as an officer and
shareholder of Regency Homes,
Incorporated; KEVIN CREEGAN,
individually and in his fiduciary
capacity as an officer and
shareholder of Regency Homes,
Incorporated; REGENCY HOME
FASHIONS, INCORPORATED,
Defendants-Appellants,
and
HERTZ, HERSON & COMPANY, LLP,
certified public accountants,
Defendant. 
Appeal from the United States District Court
for the Western District of North Carolina, at Statesville.
Carl Horn, III, Chief Magistrate Judge.
(CA-00-22-5-H)

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Argued: March 2, 2001
Decided: April 27, 2001
Before WILKINS, WILLIAMS, and TRAXLER, Circuit Judges.
Vacated and remanded by published opinion. Judge Williams wrote
the opinion, in which Judge Wilkins and Judge Traxler joined.
COUNSEL
ARGUED: Alan Meredith Ruley, BELL, DAVIS & PITT, P.A.,
Winston-Salem, North Carolina, for Appellants. Paul E. Culpepper,
TATE, YOUNG, MORPHIS, BACH & TAYLOR, Hickory, North
Carolina, for Appellee. ON BRIEF: James R. Fox, BELL, DAVIS &
PITT, P.A., Winston-Salem, North Carolina, for Appellants. Thomas
C. Morphis, Sr., TATE, YOUNG, MORPHIS, BACH & TAYLOR,
Hickory, North Carolina, for Appellee.
OPINION
WILLIAMS, Circuit Judge:
Louis L. Silver, Ronald Grossman, Kevin Creegan, and Regency
Home Fashions, Inc. (collectively, "Regency"), appeal from the mag-
istrate judge’s denial of their motion to compel arbitration and to stay
litigation pending arbitration.1 Relying upon a line of cases that has
been rejected by this Circuit, the magistrate judge held that D. Joseph
Long’s claims against Regency did not fall within the ambit of the
two arbitration agreements at issue. We conclude that the magistrate
judge used the improper legal standard for determining whether
1The district court referred the case to a magistrate judge by consent
of the parties for all proceedings. 28 U.S.C.A. § 636(c) (West 1993 &
Supp. 2000); Fed. R. Civ. P. 73(b).
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Long’s claims were arbitrable and hold that Long’s claims against
Regency significantly relate to the two agreements at issue. Accord-
ingly, we vacate the magistrate judge’s order and remand the case to
the magistrate judge with instructions to compel arbitration and to
stay litigation pending the arbitration.
I.
In 1972, Long entered into an agreement with the Silver-Pilzer
Corporation ("the 1972 Agreement"). The 1972 Agreement recog-
nizes Long as a current employee and 20% owner in the Regency
Bedspread Corporation, of which Silver-Pilzer was an 80% owner. It
provides that Long would become a full-time employee in an execu-
tive capacity and a 5% equity owner of the Silver-Pilzer Corporation,
in exchange for redeeming his stock in the Regency Bedspread Cor-
poration in favor of Silver-Pilzer and for other consideration. The
1972 Agreement further states that Long will continue to be employed
by Silver-Pilzer or one of its subsidiaries for as long as he remains a
shareholder in Silver-Pilzer. The remainder of the 1972 Agreement
deals primarily with Long’s ability to dispose of his Silver-Pilzer
shares during his employment and upon termination of his employ-
ment. The 1972 agreement contains a very broad arbitration clause
that provides,
[a]ny and all disputes . . . arising out of or in connection
with this Agreement, or with respect to the construction and
interpretation thereof, or concerning the rights of any one or
more parties hereto against any one or more parties hereto,
or the respective obligations of each party hereto to each
other party hereto, shall be determined by arbitration in
accordance with . . . the then existing rules of the American
Arbitration Association.
(J.A. at 64.) The name of Regency Bedspread Corporation subse-
quently was changed to Regency Home Fashions, Inc. ("the Corpora-
tion"), and Long’s shares in Silver-Pilzer became shares in the
Corporation.
On May 12, 1999, all the shareholders in the Corporation entered
into a Shareholders’ Agreement ("the 1999 Agreement"). The 1999
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Agreement provides for general restrictions on share transfers, a right
of first refusal for non-selling shareholders, and the redemption of
each shareholder’s stock upon termination of that person’s employ-
ment with the Corporation or upon that person’s death. The 1999
Agreement also includes a very broad arbitration clause that provides,
[t]his agreement shall be construed and enforced in accor-
dance with the laws of the State of New York applicable to
contracts and agreements executed and to be performed
wholly in New York. The parties hereby irrevocably and
unconditionally agree that any dispute arising out of or relat-
ing to this Agreement or the breach, termination or validity
thereof will be submitted by the parties to binding arbitra-
tion by a single arbitrator to take place in New York City
under the rules of the American Arbitration Association then
in effect.
(J.A. at 81-82.) The 1999 Agreement further provides that it "super-
sedes any and all prior agreements" that pertain to its subject matter.
(J.A. at 83.)
Long claims that the shareholders threatened to terminate his
employment if he did not sign the 1999 Agreement, and that on May
13, 1999, Silver sent Long a letter informing him that if Long signed
the 1999 Agreement, Silver would maintain Long as an employee
until he reached the age of 70. Despite this promise, approximately
six months after Long signed the 1999 Agreement, Silver fired Long.
II.
On January 19, 2000, Long filed this civil action in the General
Court of Justice for the State of North Carolina, Superior Court Divi-
sion alleging nine claims arising from his shareholder and employ-
ment relationship with the Corporation: (1) frustration of reasonable
expectation; (2) breach of fiduciary duties; (3) breach of contract; (4)
failure to distribute profits proportionately; (5) fraud; (6) civil con-
spiracy; (7) unfair and deceptive trade practices; (8) punitive dam-
ages; and (9) a shareholder’s derivative action. Specifically, Long
alleged that Silver diverted funds properly belonging to the Corpora-
tion for Silver’s personal use and that the other shareholders, who
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became shareholders in 1999, breached their fiduciary duties to the
Corporation and to Long by contributing to Silver’s schemes to divert
funds.
On February 4, 2000, Regency removed the action to the United
States District Court for the Western District of North Carolina pursu-
ant to diversity jurisdiction under 28 U.S.C.A. § 1332 (West 1993 &
Supp. 2000). On March 2, 2000, Regency moved to stay the litigation
and to compel arbitration based upon the arbitration clauses in the
1972 and 1999 Agreements. On April 28, 2000, the magistrate judge
entered an order denying Regency’s motion. On May 8, 2000,
Regency filed a notice of appeal with this Court.
III.
Before turning to the merits of Regency’s appeal, we first must
determine whether diversity jurisdiction is proper.2 Although the mag-
istrate judge noted that removal "appears to be proper," and jurisdic-
tion has not been challenged by Long, (J.A. at 103), Long alleges in
his Complaint that Regency Home Fashions’ principal place of busi-
ness is North Carolina. If this assertion is true, we are bound to dis-
miss for lack of subject matter jurisdiction because Long also is a
citizen of North Carolina. See 28 U.S.C.A. § 1332(c)(1) (providing
that a corporation is a citizen of "any State by which it has been incor-
porated and of the State where it has its principal place of business").
In Mullins v. Beatrice Pocahontas Corp., 489 F.2d 260 (4th Cir.
1974) (per curiam), we noted that two divergent approaches exist for
purposes of ascertaining the "principal place of business" of a corpo-
ration under § 1332(c). "One approach makes the home office, or
place where the corporation’s officers direct, control, and coordinate
its activities, determinative. The other looks to the place where the
bulk of corporate activity takes place." See id. at 262 (internal quota-
2Although neither party addressed this issue, we are duty-bound to
clarify our subject matter jurisdiction because questions of subject matter
jurisdiction "‘concern the court’s very power to hear the case.’" Owens-
Illinois, Inc. v. Meade, 186 F.3d 435, 442 n. 4 (4th Cir. 1999) (quoting
2 James Wm. Moore et al., Moore’s Federal Practice § 12.30 [1] (3d ed.
1998)).
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tion marks omitted); see also Peterson v. Cooley, 142 F.3d 181, 184
(4th Cir. 1998) (noting that we have adopted neither test to the exclu-
sion of the other).
The facts that are determinative of the Corporation’s principal
place of business are not in dispute. Regency Home Fashion’s corpo-
rate headquarters, sales, and financial offices are located in New
York. In addition, the Corporation’s president, CEO, and other top
officers are all residents of New York. It has one manufacturing plant
in North Carolina. The Corporation has no other presence in North
Carolina.
Regardless of whether the nerve center or the place of operations
test applies, we hold that Regency Home Fashions’ principal place of
business is New York because the undisputed facts establish that the
bulk of the corporate activity takes place in New York and that the
Corporation’s "home office" is located in New York. See Peterson,
142 F.3d at 184 (noting that when a corporation has "multiple centers
of manufacturing, purchasing, or sales," we focus on "the place where
the bulk of corporate activity takes place" as opposed to the corpora-
tion’s "home office" (internal quotation marks omitted)).
We note that the nature of a corporation’s presence in a particular
state is determined on a case by case basis. See Athena Automotive,
Inc. v. DiGregorio, 166 F.3d 288, 291 (4th Cir. 1999). Long, how-
ever, has declined to present any factors to the district court or to this
Court that support a finding that the bulk of Regency Home Fashions’
activities takes place in North Carolina rather than in New York.
Indeed, when questioned at oral argument, counsel for Long repre-
sented that Long never intended to argue that diversity jurisdiction
was improper.3 Absent some other factors pointing to the substantial
3Waiver or estoppel principles cannot confer subject matter jurisdic-
tion on a court that would otherwise lack it. American Fire & Cas. Co.
v. Finn, 341 U.S. 6, 17-18 (1951). Nevertheless, where, as here, the
record is bereft of any support, beyond a single conclusory allegation in
Long’s Complaint, for the conclusion that the Corporation’s principal
place of business is in North Carolina and instead supports a finding that
the principal place of business is located in New York, we simply have
no basis from which to conclude otherwise.
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character of the Corporation’s activities in North Carolina, the fact
that one manufacturing facility is located in North Carolina does not
detract from our finding that the bulk of the Corporation’s activities
takes place in New York, in which all of the Corporation’s financial
and sales offices are located, as well as its headquarters and chief offi-
cers. Accordingly, we find no basis in the record to conclude that
North Carolina, rather than New York, is Regency Home Fashions’
principal place of business. Thus, diversity jurisdiction is proper.
IV.
Turning to the merits, Regency contends that the magistrate judge
erred by denying its motion to compel arbitration and to stay proceed-
ings pending arbitration. We review de novo the magistrate judge’s
conclusions regarding the arbitrability of the disputes between
Regency and Long. See United States v. Bankers Ins. Co., ___ F.3d
___, No. 00-1342, 2001 WL 293669 at *2 (4th Cir. March 27, 2001).
Although we have previously articulated the governing standard for
resolving the arbitrability of disputes, see American Recovery Corp.
v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 93 (4th Cir.
1996), the magistrate judge ignored this controlling precedent and
instead applied a legal standard that has been rejected by this Circuit.
After reviewing the arbitrability of Long’s claims under the proper
legal standard, we find that each of Regency’s claims falls within the
scope of the arbitration clauses of the 1972 and 1999 Agreements.
A.
The Federal Arbitration Act applies to contracts "evidencing a
transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract." 9 U.S.C.A. § 2 (West 1999).
The parties do not dispute that the FAA applies to the arbitration
clauses contained in the 1972 and 1999 Agreements. The Supreme
Court has announced its "healthy regard for the federal policy favor-
ing arbitration" and has explained that the Federal 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,
whether the problem at hand is the construction of the contract lan-
guage itself or an allegation of waiver, delay, or a like defense to
arbitrability." Moses H. Cone Memorial Hosp. v. Mercury Constr.
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Corp., 460 U.S. 1, 24-25 (1983). To that end, "the heavy presumption
of arbitrability requires that when the scope of the arbitration clause
is open to question, a court must decide the question in favor of arbi-
tration." Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co., 867
F.2d 809, 812 (4th Cir. 1989) (internal quotation marks omitted).
Thus, we may not deny a party’s request to arbitrate an issue "unless
it may be said with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted dispute."4
United Steelworkers of America v. Warrior & Gulf Navigation Co.,
363 U.S. 574, 582-83 (1960). Having established our principles for
review, we turn to Regency’s arguments.
B.
Regency first argues that the magistrate judge erred by failing to
apply the proper legal standard to determine the arbitrability of
Long’s claims against Regency. In American Recovery, we held that
a broadly-worded arbitration clause applies to disputes that do not
arise under the governing contract when a "significant relationship"
exists between the asserted claims and the contract in which the arbi-
tration clause is contained. See American Recovery, 96 F.3d at 93.
The arbitration clauses contained in the 1972 and 1999 Agreements
are worded in the same broad manner as the arbitration clause at issue
in American Recovery. See id. (holding that an arbitration clause that
provided arbitration for any dispute that "ar[ose] out of or related to"
the agreement was a broad clause, "capable of expansive reach"). The
1972 Agreement states that it applies to "[a]ny and all disputes . . .
arising out of or in connection with this Agreement." (J.A. at 64.)
Similarly, the 1999 Agreement states that it applies to "any dispute
arising out of or relating to this Agreement." (J.A. at 81); cf. Prima
Paint Corp. v. Flook & Conklin Mfg. Co., 388 U.S. 395, 398 (1967)
4Although both the 1972 and the 1999 Agreements contain New York
choice-of-law provisions, federal law continues to govern the arbitra-
bility of Long’s claims. See Smith Barney, Inc. v. Critical Health Sys. of
North Carolina, Inc., 212 F.3d 858, 861 n.1 (4th Cir. 2000) (stating, in
a case arising under an agreement containing a New York choice-of-law
provision, that "[b]ecause arbitration contracts must be construed in
accordance with federal law, we are not bound by New York state deci-
sions").
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(labeling as "broad" a clause that required arbitration of "[a]ny contro-
versy or claim arising out of or relating to this Agreement"); J.J. Ryan
& Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 321 (4th
Cir. 1988) (declaring that the scope of a clause providing for the arbi-
tration of "[a]ll disputes arising in connection with" a contract was
identical to that of a clause providing for the arbitrability of disputes
that "may arise out of or in relation to" an agreement and construing
the arbitration clause to "encompass a broad scope of arbitrable
issues."). Thus, the governing standard for determining the arbitra-
bility of Long’s claim is whether Long’s claims have a significant
relationship to the 1972 or 1999 Agreements.
Instead of applying the significant relationship test articulated in
American Recovery, the magistrate judge relied upon cases decided
under the standard enunciated in Mediterranean Enterprises v.
Ssangyong Corporation, 708 F.2d 1458, 1463-64 (9th Cir. 1983),
despite our explicit, unambiguous rejection of Mediterranean Enter-
prises in American Recovery when dealing with a broadly-worded
arbitration clause similar to those in the 1972 and 1999 Agreements.
See American Recovery, 96 F.3d at 92 ("We agree with CTI that the
standard in Mediterranean Enterprises was an improper foundation
for the district court’s decision."). The magistrate judge further con-
cluded that the 1972 and 1999 Agreements were narrow in scope,
indicating that "the parties could not have possibly intended to bind
themselves to arbitration of the claims raised." (J.A. at 106). As we
noted in American Recovery, however, although the intention of the
parties is relevant, "the intentions of parties to an arbitration agree-
ment are generously construed in favor of arbitrability." See American
Recovery, 96 F.3d at 94. Here, as in American Recovery, the parties
explicitly agreed on arbitration clauses "that by [their] plain language
ha[ve] a broad scope." See id. Thus, it is not inconsistent with the
intentions of the parties to give the arbitration clauses broad effect.
See id. Accordingly, we agree with Regency that the magistrate judge
erred by refusing to apply American Recovery to determine the
arbitrability of Long’s claims.
C.
Applying American Recovery’s significant relationship test and
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bearing in mind the strong federal policy favoring arbitration, we
examine each of Long’s claims seriatim.5
1.
In his first claim against Regency, Long contends that Regency’s
shareholders frustrated his reasonable expectations as a shareholder
and an employee of the Corporation. In his complaint, Long bases his
frustration of reasonable expectations claim on three types of expecta-
tions — (1) an expectation of continued employment; (2) an expecta-
tion of meaningful participation in the management and affairs of the
Corporation; and (3) an expectation of a reasonable payout for his
shares.
We agree with Regency that all of Long’s expectations derive from
the 1972 and 1999 Agreements; thus, Long’s frustration of reasonable
expectations claim is significantly related to both Agreements and is
arbitrable. Long’s expectation of continued employment for so long
as Long was a shareholder arises directly from the 1972 Agreement,
which states that Long would have continued employment for so long
as he remained a shareholder. Long’s expectation of meaningful par-
ticipation in the management and affairs of the Corporation also arises
directly from the 1972 agreement, which states that Long would be
employed in "an executive capacity" during his time as a shareholder.
(J.A. at 57.) Finally, Long’s expectation of a reasonable payout for his
shares derives directly from the 1999 Agreement, which superseded
the 1972 Agreement’s share redemption provisions. The value of
Long’s shares is based upon the redemption provisions set forth in the
1999 Agreement. Accordingly, proof of each aspect of Long’s reason-
able expectations claim depends on the terms and existence of the
1972 and 1999 Agreements. Thus, the magistrate judge erred by find-
ing this claim not to be arbitrable.
5We look to the provisions of the 1972 Agreement only to the extent
the provisions of the 1972 Agreement do not conflict with those of the
1999 Agreement. Where the provisions conflict, we rely upon the 1999
Agreement.
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2.
In his second claim against Regency, Long argues that Silver and
the other shareholders breached their fiduciary duties to Long as a
shareholder in the Corporation. Long’s breach of fiduciary duty claim
arises only by virtue of Long’s status as a shareholder, and the 1972
Agreement creates Long’s status as a shareholder. Because Long
would not have a valid breach of fiduciary duty claim but for the exis-
tence of the 1972 Agreement creating his status as a shareholder in
the Corporation, we hold that Long’s breach of fiduciary duty claim
is properly referable to arbitration. Cf. Harter v. Iowa Grain Co., 220
F.3d 544, 549-51 (7th Cir. 2000) (affirming the district court’s sub-
mission of a breach of fiduciary duty claim to arbitration).
3.
Long’s third claim is for breach of contract arising from Regency’s
termination of Long. Long contends that his termination breached the
portion of the 1972 Agreement that provides that Long was entitled
to continued employment for so long as he was a shareholder.
Because this breach of contract claim arises directly under the 1972
Agreement, it is clearly arbitrable. See J.J. Ryan & Sons, 863 F.2d at
321 (noting that claims involving the "literal terms or performance"
of the contract fall within the scope of even the most limited arbitra-
tion clauses).
4.
Long’s fourth claim is for failure to distribute profits proportion-
ately. In support of this claim, Long alleges that the Corporation
improperly redeemed shares from David Silver and that shares were
transferred between shareholders without authority, diluting Long’s
rights and profits as a shareholder. The 1999 Agreement sets forth the
rights of all the shareholders as to the proper redemption of shares and
authority to transfer share ownership. Accordingly, proof of Long’s
claim will necessarily depend upon the terms of the 1999 Agreement
and the construction of such terms. Thus, Long’s claim for failure to
distribute profits proportionately is significantly related to the 1999
Agreement. See American Recovery, 96 F.3d at 95 (noting that when
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proof of the claim is rooted in the terms and existence of the contract,
the claim is arbitrable).
5.
Long’s fifth claim is for fraud. Long alleges in his complaint that
he was fraudulently induced into entering into the 1999 Agreement,
in that the parties coerced him into signing the agreement by promis-
ing him that if he signed the agreement, Long would be employed
with the Corporation until he was seventy. As early as 1967, the
Supreme Court held that a claim of fraud that related to inducement
of an agreement generally is covered by an "arising out of or relating
to this agreement" arbitration clause. Prima Paint, 388 U.S. at 406;
see also Peoples Sec. Life Ins., 867 F.2d at 813-14 (holding that a
fraud in the inducement claim is arbitrable). Thus, Long’s fraud claim
is significantly related to the 1999 Agreement and is subject to arbi-
tration.
6.
Long’s sixth claim is for civil conspiracy. Long alleges that
Regency conspired to obtain Long’s signature on the 1999 Agreement
for the purpose of preventing him from challenging their past fraudu-
lent, self-serving dealings within the Corporation. To the extent
Long’s civil conspiracy claim is premised upon these allegations, sim-
ilar to the fraud in the inducement claim, the conspiracy claim is sig-
nificantly related to the 1999 Agreement and is, therefore, arbitrable.
See, e.g., J.J. Ryan & Sons, 863 F.2d at 322 (holding that claim of
conspiracy was significantly related to the contract and was, there-
fore, arbitrable); cf. Jeske v. Brooks, 875 F.2d 71, 75 (4th Cir. 1989)
(holding that allegations of fraud, lack of consideration, overreaching,
and unconscionability are arbitrable). To the extent the conspiracy
claim is related to the shareholders’ alleged breach of fiduciary duties
and failure to distribute profits properly, Long’s conspiracy claim is
referrable to arbitration because it is significantly related to both the
1972 and 1999 Agreements, in that proof of the claim depends on the
terms and existence of both agreements.
7.
Long’s seventh claim against Regency is for unfair and deceptive
trade practices, both individually and in the shareholders’ fiduciary
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capacities. To the extent this claim relates to the alleged fraud and/or
conspiracy in inducing Long to sign the 1999 Agreement, the claim
is arbitrable because it is significantly related to the 1999 Agreement.
See J.J. Ryan & Sons, 863 F.2d at 319 (holding that an unfair and
deceptive trade practice claim was "manifestly" in connection with
the agreement and, thus, subject to arbitration). To the extent this
claim relates solely to the alleged breaches of fiduciary duties, it is
significantly related to the 1972 Agreement because the 1972 Agree-
ment established Long’s status as a shareholder, thereby creating the
duties underlying the claim. Thus, we likewise find that Long’s unfair
and deceptive trade practices claim is subject to arbitration.
8.
Long’s eighth claim is for punitive damages with respect to all of
the above claims. Because the issue of punitive damages was not
exempted from the arbitration clauses by the governing agreements,
Long’s punitive damages claim is subject to arbitration. See Mastro-
buono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 59-60 (1995)
(holding that punitive damages claims are subject to arbitration unless
the contract exempts such claims from the coverage of the arbitration
clause).
9.
Long’s ninth claim is for a shareholder’s derivative action. The
1972 Agreement specifically provides that Long’s status as a share-
holder ceases immediately upon his termination. Similarly, the 1999
Agreement provides for the redemption of Long’s shares immediately
upon his termination. Because Long can only claim a shareholder’s
derivative action if he is in fact a shareholder, the terms of these two
agreements will necessarily be relevant to determining the viability of
his shareholder derivative suit. Accordingly, the claim is significantly
related to the two contracts and is properly referable to arbitration.
See American Recovery, 96 F.3d at 93-95 (holding that when the
proof of the claim is rooted in the existence or terms of the agreement,
the agreement is significantly related to the claim).
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V.
Long argues that, despite applying the wrong standard to determine
arbitrability, the magistrate judge was correct to deny arbitration
because the shareholders were not parties to the 1972 Agreement.
Long contends that the non-signatory shareholders cannot invoke the
arbitration clause in the 1972 Agreement against Long.6
A non-signatory may invoke an arbitration clause under ordinary
state-law principles of agency or contract. For example, in J.J. Ryan
& Sons, 863 F.2d 315 (4th Cir. 1988), we explained that when allega-
tions against "a parent company and its subsidiary are based on the
same facts and are inherently inseparable, a court may refer claims
against the parent to arbitration even though the parent is not formally
a party to the arbitration agreement." See id. at 320-21; see also Sun-
kist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757 (11th
Cir. 1993) (holding that because claims against the non-signatory
were "intimately founded in and intertwined with" a contract contain-
ing an arbitration clause, signatory was estopped from refusing to
arbitrate those claims (internal quotation marks omitted)); Hughes
Masonry Co. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d
836, 840-41 (7th Cir. 1981) (finding a signatory equitably estopped
from repudiating arbitration clause in agreement on which suit against
non-signatory was based).
In this context, we see little difference between a parent and its
subsidiary and a corporation and its shareholders, where, as here, the
shareholders are all officers and members of the Board of Directors
and, as the only shareholders, control all of the activities of the corpo-
ration. Cf. Thomson-CSF, S.A. v. American Arbitration Ass’n, 64 F.3d
773, 776 (2d Cir. 1995) (noting theories of contract and agency law
as examples under which a non-signatory can compel arbitration,
including agency and veil piercing/alter ego). As in J.J. Ryan, the
facts and claims against the Corporation and its shareholders are so
closely intertwined that Long’s claims against the non-signatory
shareholders of the Corporation are properly referable to arbitration
6Only Regency Home Fashions, via its predecessor, was a party to the
1972 Agreement. All of the shareholders, however, were parties to the
1999 Agreement.
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even though the shareholders are not formal parties to the 1972
Agreement. Likewise, the claims under the 1999 Agreement, of which
all shareholders were formal parties, are similar to and dependent
upon the claims under the 1972 Agreement. If the non-signatory
shareholders were forced to litigate the issues arising under the 1972
Agreement, the arbitration proceedings involving the 1972 Agreement
against the Corporation, as well as the arbitration proceedings involv-
ing the 1999 Agreement, "would be rendered meaningless and the
federal policy in favor of arbitration effectively thwarted." Sam Reis-
feld & Son Import Co. v. S.A. Eteco, 530 F.2d 679, 681 (5th Cir.
1976).
Moreover, Long seeks to claim the benefit of his shareholder status
and right to continued employment by virtue of the 1972 Agreement
against the non-signatories to the 1972 Agreement while "simulta-
neously attempting to avoid the terms of an arbitration provision con-
tained therein." United States v. Bankers Ins. Co., ___ F.3d ___, No.
00-1342, 2001 WL 293669 at * 6 (4th Cir. March 27, 2001). Allow-
ing Long to avoid the consequences of the 1972 Agreement while
invoking its benefits in a suit against the shareholders would "both
disregard equity and contravene [the FAA]." International Paper Co.
v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418
(4th Cir. 2000 (internal quotation marks omitted)). Because all the
parties in the present litigation were signatories to the 1999 Agree-
ment, the issues arising under and relating to the 1999 Agreement are
properly arbitrable. Additionally, because the facts and claims against
the Corporation and its shareholders are inextricably intertwined and
because Long is claiming the benefit of his shareholder and employee
status by virtue of the 1972 Agreement in his suit against the Corpora-
tion and the shareholders, we hold that the non-signatory shareholders
can compel arbitration against Long with respect to the issues arising
under and relating to the 1972 Agreement.
VI.
In summary, we hold that the district court erred by denying
Regency’s motion to compel arbitration and to stay proceedings pend-
ing arbitration because Long’s claims fall within the scope of the arbi-
tration clauses of the 1972 and 1999 Agreements. We further hold
that the non-signatory shareholders may invoke the arbitration clause
15 LONG v. SILVER

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of the 1972 Agreement against Long. We remand for further proceed-
ings consistent with this opinion.
VACATED AND REMANDED WITH INSTRUCTIONS
16 LONG v. SILVER

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