The Seventh Circuit Court of Appeals held that where a corporate merger contract contains an arbitration agreement encompassing disputes between corporate parties seeking recovery from an escrow fund, claims against individual corporate officers do not fall within the scope of the arbitration agreement.

In Duthie v. Matria Healthcare, Inc., No. 08-1699, 2008 WL 3931571 (7th Cir. Aug. 28, 2008), Duthie was the CEO for CorSolutions, which had agreed to merge with Matria. Duthie signed a merger contract with Matria in his capacity as CEO. An escrow fund had been created for the merger, and the contract contained an arbitration agreement that provided for the arbitration of claims seeking recovery from the escrow fund.

A dispute arose between CorSolutions and Matria, and CorSolutions initiated arbitration. Matria responded by filing suit in court, alleging misrepresentation and fraud by CorSolutions. The trial court compelled arbitration of Matria’s claim pursuant to the parties’ arbitration agreement because Matria sought recovery from the escrow fund.

In the arbitration proceedings, Matria asserted counterclaims against both CorSolutions and Duthie for fraud. Duthie moved to dismiss the claims against him for lack of jurisdiction, but the arbitration panel denied his motion. Duthie then sought an injunction and declaration in court that Matria’s claims against him were not arbitrable. The trial court issued the injunction, and Matria appealed.

On appeal, Matria argued that its claims against Duthie must be arbitrated because the arbitration agreement mandated that any claim involving fraud or misrepresentation arising out of the merger must be arbitrated.

The Court rejected Matria’s argument. Interpreting the long and complex merger contract, the Court held that nothing in the arbitration agreement expressly provided for the arbitration of claims against individual defendants for their personal assets. Rather, the agreement only provided for the arbitration of claims brought against the escrow fund. Matria had made claims against Duthie personally, seeking recovery from Duthie’s personal assets. Accordingly, the Court held that such claims were not within the scope of the arbitration agreement.

Furthermore, the Court found that the agreement only contemplated the arbitration of disputes between CorSolutions and Matria, not disputes between Matria and individual CorSolutions officers. Consequently, the Court reiterated that Matria’s claims against Duthie were not within the scope of the arbitration agreement.