Unpublished Disposition, 931 F.2d 60 (9th Cir. 1990)Annotate this Case
James P. HULLUM, Loraine Hullum, The Meredith Group, Inc., aNevada corporation, Plaintiffs-Appellees,v.H. Jay SHERBONDY, Jr., et al., Defendants-Appellants.
United States Court of Appeals, Ninth Circuit.
Submitted April 19, 1991.* Decided April 23, 1991.
Before POOLE, D.W. NELSON and NOONAN, Circuit Judges.
H. Jay Sherbondy, Jr., and Julie Ann Sherbondy appeal pro se the district court's order denying their motion to compel arbitration of fraud and other claims by James P. Hullum, Loraine Hullum, and The Meredith Group, Inc. (collectively "the Hullums"). The Sherbondys contend that the district court erred by denying the motion on the basis that the parties' arbitration agreement was part of the Sherbondys' fraudulent scheme. The Hullums contend that this appeal is moot, and that the Sherbondys waived any right to arbitration. We affirm.
The Hullums filed a motion for summary judgment on April 3, 1990, and the motion was granted as to liability on April 30, 1990. That same day, the Sherbondys filed a motion to compel arbitration under 9 U.S.C. § 4. The district court denied the motion on May 14, 1990. On May 15, 1990, the district court entered partial judgment as to liability, reserving damages issues for further proceedings. The Sherbondys filed a notice of appeal on June 21, 1990. Remaining issues are still pending before the district court.
A decision on the merits after the filing of an appeal does not preclude review of the denial of arbitration because otherwise the statutory right to appeal would be meaningless. Britton v. Co-op Banking Group, 916 F.2d 1405, 1410, 1410 n. 6 (9th Cir. 1990). The Hullums contend that this appeal is nevertheless moot because the Sherbondys did not file their motion to compel arbitration until immediately before the district court granted summary judgment as to liability. This contention lacks merit because if the Sherbondys were to prevail on appeal, the district court's judgment could be vacated, and the parties could proceed to arbitration. See Britton, 916 F.2d at 1410, 1410 n. 6. The Hullums' contention is better analysed as an argument that the Sherbondys waived their right to arbitration by failing to file their motion to compel arbitration until immediately before the district court decided the motion for summary judgment. In light of our ruling on the issue whether the arbitration agreement was part of the fraudulent scheme, we do not reach the issue of waiver.
We review de novo the denial of a motion to compel arbitration. Britton, 916 F.2d at 1409. "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...." 9 U.S.C. § 4. Arbitration clauses are revocable on "such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.
General claims that a contract containing an arbitration clause was fraudulently induced will not invalidate the arbitration clause. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402-04 (1967); Sparling v. Hoffman Const. Co., 864 F.2d 635, 638 (9th Cir. 1988); Letizia v. Prudential Bache Securities, Inc., 802 F.2d 1185, 1188 n. 4 (9th Cir. 1986). Nevertheless, if the arbitration clause was itself fraudulently induced or used to effect a fraudulent scheme, then it will not be enforced. Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n. 14 (1974); Prima Paint, 388 U.S. at 402-04; Moseley v. Electronic & Missile Facilities, Inc., 374 U.S. 167, 171 (1963); Sparling, 864 F.2d at 638; Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 286 (9th Cir. 1988).
The Sherbondys based their motion to compel arbitration on an arbitration clause in a series of contracts for the management of investments for the Hullums. Declarations by investors and other evidence overwhelmingly demonstrated that the Sherbondys did not in fact invest the Hullums' money, and that the arbitration clause and other provisions of the management agreement were designed to prevent investors from inquiring into the Sherbondys' fraudulent scheme. Accordingly, the district court did not err by finding that the arbitration clause was revocable. See 9 U.S.C. § 2; Prima Paint, 388 U.S. at 402-04; Sparling, 864 F.2d at 638. We therefore affirm the denial of the motion to compel arbitration.