In reversing a federal district court order compelling arbitration, the Court of Appeals for the Eleventh Circuit held that enough evidence had been presented to make an investment firm's denial of the agreement to arbitrate "colorable," and remanded the case to trial to determine whether the firm was a signatory to the arbitration agreement.

In Magnolia Capital Advisors, Inc. v. Bear Stearns & Co., Nos. 07-10320 and 07-11222, 2008 WL 879973 (11th Cir. Apr. 3, 2008), Reinhard was the principal for Magnolia, an investment firm, and also a "registered representative" of Paragon Financial Group, an introducing broker dealer. Magnolia contracted with Bear Stearns, a clearing agent, and later sued Bear Stearns for breach of contract. In response, Bear Stearns moved to compel arbitration based on an arbitration clause in an "Options Form" contract that contained Magnolia's name and address, the President of Paragon's signature, and Reinhard's signature.

Magnolia argued that it was not party to the Options Form because Reinhard signed it as the representative of Paragon for his "AmSouth Bank" account, and that Magnolia was listed only as an interested party for the purpose of receiving information important to the management of the account. The district court granted Bear Stearn's motion to compel arbitration based on the face of the Options Form alone.

On appeal, the Court held that under section 4 of the Federal Arbitration Act, 9 U.S.C. § 4, once an agreement to arbitrate is put "in issue," the district court must proceed to trial to determine the validity of the agreement to arbitrate. In order to put the agreement in issue, "a party seeking to avoid arbitration must unequivocally deny that an agreement to arbitrate was reached and must offer some evidence to substantiate the denial." That evidence must be enough "to make the denial colorable."

In holding that Magnolia met the requirements of section 4, the Court noted that Magnolia: (1) unequivocally denied that Reinhard signed the Options Form as an agent of Magnolia; (2) produced Reinhard's affidavit in which he swears to have signed the agreement as a representative of Paragon, not Magnolia; and (3) produced two faxes from Paragon to Bear Stearns that listed Magnolia as an "interested party to receive confirms and statements" on the AmSouth account.

Applying the summary judgment standard, the Court found that there were genuine issues of fact concerning the formation of the agreement and remanded the case "for a trial as to the making of an agreement to arbitrate."