The United States Court of Appeals for the Fifth Circuit has held that corporate officers are not bound personally by an arbitration agreement and overturned an arbitral award.
In DK Joint Venture 1 v. Weyand, No. 09-11000 (5th Cir. August 4, 2011) six business entities (the “plaintiffs”) filed an arbitration demand against Richard Weyand and Peter Theiessen and fifteen corporations controlled by them (the “defendants”). Weyand and Thiessen were respectively the chief executive officer and chief financial officer. The plaintiffs alleged that defendants committed fraud, breach of contract, and breaches of fiduciary duty in order to induce their investment of money in a purported oil and gas venture.
The plaintiffs filed for arbitration pursuant to arbitration provisions contained in contracts between the plaintiffs and some of the defendant corporations. When Weyand and Thiessen resisted arbitration, the plaintiffs filed a motion to compel arbitration. The district court held that all defendants, including Weyand and Thiessen, were bound by the arbitration agreements.
The arbitration proceedings took place before a panel of three arbitrators appointed by the American Arbitration Association. The plaintiffs were awarded damages and fees totaling $13,317,381 against Weyand and $311,329 against Thiessen. Thereafter, plaintiffs filed a motion in federal district court, seeking confirmation of the arbitral award. The district court granted the motion and the defendants appealed.
The issue decided by the Fifth Circuit was whether Weyand and Thiessen, in their personal capacities, are bound by the arbitration agreements that were entered into by the defendant corporations. The court concluded that although the defendant corporations had entered into the contracts containing arbitration provisions, this alone did not cause their agents, Weyand and Thiessen, who were acting only as officers on behalf of the corporations, to be personally bound by those agreements. There being no valid basis for Weyand and Thiessen to be personally bound by the arbitration agreements, the court reversed and remanded.
Jeff Boggers represented the defendants in this case.