The Fifth Circuit Court of Appeals has affirmed an order denying a non-signatory's motion to compel arbitration where the plaintiffs did not rely on the agreement containing the arbitration agreement in its claims against the non-signatory, and where the claims against the non-signatory were not intertwined with any claims against a signatory to the contract.

In Palmer Ventures LLC v. Deutsche Bank AG, No. 06-30584, 2007 WL 4105219 (5th Cir. Nov. 19, 2007), a tax strategy employed by Deutsche Bank was deemed an illegal tax shelter by the IRS. Palmer Ventures filed suit, claiming that Deutsche Bank was aware of the potential illegality but continued marketing the tax strategy to others.

Deutsche Bank moved to compel arbitration, based on an arbitration provision in the agreement between Palmer Ventures and Deutsche Bank Securities, Inc. (DBSI), an indirect subsidiary of Deutsche Bank, which held the bank account in question. The district court denied Deutsche Bank's motion.

On appeal, the Court rejected Deutsche Bank's argument that it was entitled to demand arbitration under the principle of equitable estoppel.

First, Palmer Ventures did not rely on the terms of its agreement with DBSI, which contained the arbitration provision, in its claim against Deutsche Bank. See Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 528 (5th Cir. 2000). As the Court explained, even though the DBSI agreement may "play a role in the ultimate outcome of this suit, it is not a part of [Palmer Ventures'] causes of action."

Second, Deutsche Bank did not meet its burden of showing that Palmer Ventures' claims against Deutsche Bank rested on allegations of "substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract." In fact, Palmer Ventures did not contend that DBSI had committed any tortious conduct at all. DBSI's only part in the tax strategy was holding the bank account.

For those reasons, the Court affirmed the district court's denial of Deutsche Bank's motion to compel arbitration.