                   IN THE SUPREME COURT OF MISSISSIPPI

                              NO. 2009-CA-00568-SCT

SIMMONS HOUSING, INC. AND SOUTHERN
ENERGY HOMES, INC.

v.

COLEMAN BRITT SHELTON AND JOSHUA
MASON SHELTON, BY AND THROUGH THEIR
MOTHER AND NEXT FRIEND, KIMBERLY
SHELTON


DATE OF JUDGMENT:                       03/16/2009
TRIAL JUDGE:                            HON. LAMAR PICKARD
COURT FROM WHICH APPEALED:              COPIAH COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANTS:               MUNCELLE MITCHELL
                                        JOE S. DEATON, III
                                        ALAN GOODMAN
                                        BARBARA MEEKS
                                        JAMES L. QUINN
ATTORNEYS FOR APPELLEES:                JEFFREY A. VARAS
                                        DONNA HODGES
NATURE OF THE CASE:                     CIVIL - CONTRACT
DISPOSITION:                            AFFIRMED AND REMANDED - 06/17/2010
MOTION FOR REHEARING FILED:
MANDATE ISSUED:




      BEFORE WALLER, C.J., RANDOLPH AND CHANDLER, JJ.

      WALLER, CHIEF JUSTICE, FOR THE COURT:

¶1.   Roy and Kimberly Shelton, individually and as next friends of their two minor

children, filed suit against Simmons Housing, Inc., and Southern Energy Homes, Inc., in

which they alleged several claims concerning an allegedly defective mobile home. The
circuit court compelled Roy’s and Kimberly’s claims to arbitration based on two agreements

they had signed in purchasing the mobile home. The circuit court refused, however, to

compel the minor, nonsignatory children’s claims to arbitration. Finding no error, we affirm.

                         FACTS AND PROCEDURAL HISTORY

¶2.    In December 1998, Roy and Kimberly Shelton purchased a mobile home from

Simmons Housing, Inc., in Brookhaven, Mississippi. Roy, Kimberly, and Jackey Simmons,

President of Simmons Housing, Inc., executed a retail-installment contract that included an

arbitration provision.1 These same parties also entered a separate “Binding Arbitration

Agreement.” 2

       1
           The arbitration provision in paragraph 14 stated, in pertinent part, that:

       All disputes or controversies arising from or relating to this Contract or the
       parties thereto shall be resolved by binding arbitration by one arbitrator
       selected by Assignee with consent of Buyer(s). This agreement is made
       pursuant to a transaction in interstate commerce and shall be governed by the
       Federal Arbitration Act at 9 U.S.C. Section 1. Judgment upon the award
       rendered may be entered in any court having jurisdiction. The parties agree
       and understand that they choose arbitration instead of litigation to resolve
       disputes. The parties understand that they have a right to litigate disputes in
       court, but that they prefer to resolve their disputes through arbitration, except
       as provided herein. THE PARTIES VOLUNTARILY AND KNOWINGLY
       WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL EITHER
       PURSUANT TO ARBITRATION UNDER THIS CLAUSE OR PURSUANT
       TO A COURT ACTION BY ASSIGNEE (AS PROVIDED HEREIN). The
       parties agree and understand that all disputes arising under case law, statutory
       law and all other laws including, but not limited to, all contract, tort and
       property disputes will be subject to binding arbitration in accord with this
       Contract. . . .

       2
           The Binding Arbitration Agreement stated, in pertinent part, that:

       All disputes not barred by applicable statues of limitations or otherwise barred
       by law, resulting from or arising out of the design, manufacture, warranty or

                                                2
¶3.    On November 22, 2005, Roy and Kimberly together with their two children, Coleman

Britt Shelton and Joshua Mason Shelton, (collectively “the Sheltons”) filed suit against

several entities and individuals, including Simmons Housing, Inc., and Southern Energy

Homes, Inc., the manufacturer of the mobile home.3 The Sheltons asserted numerous claims

including breach of contract, breach of warranties under the Uniform Commercial Code,

strict liability, negligence, misrepresentation, fraud, and violations of the Magnuson-Moss

Warranty Act, 15 U.S.C. § 2301 et seq. (2000). They primarily alleged that the mobile home

was unfit for habitation due to mold and mildew.

¶4.    The defendants removed the case to the United States District Court for the Southern

District of Mississippi based on the Sheltons’ federal-law claim under the Magnuson-Moss


       repair of the manufactured home, (including but not limited to: the terms of
       the warranty, the terms of this arbitration agreement and all clauses herein
       contained, their breadth and scope, and any term of any agreement
       contemporaneously entered into by the parties concerning any goods or
       services manufactured or provided by Southern Energy Homes, Inc.; the
       condition of the manufactured home; the conformity of the manufactured
       home to federal building standards; the representations, promises,
       undertakings, warranties or covenants made by Southern Energy Homes, Inc.,
       (if any); or otherwise dealing with the manufactured home); will be submitted
       to BINDING ARBITRATION, pursuant to the provisions of 9 U.S.C. section
       1, et. seq. . . . . Any party to this agreement who fails or refuses to arbitrate in
       accordance with the terms of this pre-dispute binding arbitration agreement
       shall, in addition to any other relief awarded through arbitration, be taxed by
       the arbitrator or arbitrators with all of the costs, including reasonable attorneys
       fees, of the other party who has to resort to judicial or other means of
       compelling arbitration in accordance with the terms herein contained. THIS
       ARBITRATION SHALL BE IN LIEU OF ANY CIVIL LITIGATION IN
       ANY COURT, AND IN LIEU OF ANY TRIAL BY JURY.

       3
         The other defendants not made parties to this appeal are Green Tree Financial
Servicing Corp., American Bankers Insurance Co. of Florida, Assurant Solutions, and twenty
John Does.

                                                3
Warranty Act. But after the Sheltons dismissed their Magnuson-Moss Warranty Act claim,

the federal district court remanded the case to the Circuit Court of Copiah County.

¶5.    On remand, Simmons Housing, Inc., and Southern Energy Homes, Inc., filed motions

to compel arbitration. The circuit court granted Simmons Housing, Inc.’s motion to enforce

arbitration. In response, the Sheltons filed a motion for reconsideration, arguing that their

minor children’s claims should not be subject to arbitration because the minor children’s

claims were separate, distinct, and grounded in tort law. Southern Energy Homes, Inc., also

moved the circuit court to provide specifically that the Sheltons’ claims against it were

subject to binding arbitration as well.

¶6.    On May 17, 2009, the circuit court granted the Sheltons’ motion for reconsideration,

and modified and reversed its earlier ruling in part. The circuit court ruled that Roy’s and

Kimberly’s claims must be submitted to binding arbitration. Conversely, it determined that

the Shelton children’s claims were not subject to arbitration. The circuit court found that the

Shelton children were not third-party beneficiaries of the agreements and were not bound to

arbitration by any rule of agency or estoppel. It thus denied Simmons Housing, Inc.’s and

Southern Energy Homes, Inc.’s motions to compel arbitration as to the Shelton children’s

claims.

¶7.    Simmons Housing, Inc., and Southern Energy Homes, Inc., now appeal to this Court,

asserting that the Shelton children are bound to arbitration as third-party beneficiaries or

based on principles of equitable estoppel.

                                          DISCUSSION




                                              4
       Whether the Shelton children are bound to the terms of arbitration
       agreements that their parents signed, but they did not.

¶8.    This Court reviews de novo the grant or denial of a motion to compel arbitration.

Qualcomm v. American Wireless Group, 980 So. 2d 261, 268 (Miss. 2007) (quoting East

Ford, Inc. v. Taylor, 826 So. 2d 709, 713 (Miss. 2002)).

¶9.    A strong federal policy favoring arbitration is well-established. E.g., Adams v.

Greenpoint Credit, LLC, 943 So. 2d 703, 708 (Miss. 2006) (citations omitted). Nonetheless,

a party generally is not required to arbitrate disputes unless that party previously has agreed

to do so. Qualcomm, 980 So. 2d at 269 (quoting Adams at 708). Yet there are well-

recognized exceptions to this rule. A nonsignatory may be bound to an arbitration agreement

under ordinary principles of contract and agency. Terminix Int’l, Inc. v. Rice, 904 So. 2d

1051, 1058 (Miss. 2004) (quoting Washington Mut. Fin. Group, LLC v. Bailey, 364 F.3d

260, 267 (5th Cir. 2004)). Accordingly, this Court has stated that “a signatory may enforce

an arbitration agreement against a non-signatory if the non-signatory is a third-party

beneficiary or if the doctrine of equitable estoppel applies.” Qualcomm, 980 So. 2d at 269

(citing Adams, 943 So. 2d at 708).

       Third-Party Beneficiary

¶10.   Third-party-beneficiary status arises from the terms of the contract.           Burns v.

Washington Savings, 251 Miss. 789, 796, 171 So. 2d 322, 325 (1965) (citing 17A C.J.S.

Contracts § 519(4) (1963)). A person or entity may be deemed a third-party beneficiary if:

(1) the contract between the original parties was entered for that person’s or entity’s benefit,

or the original parties at least contemplated such benefit as a direct result of performance; (2)



                                               5
the promisee owed a legal obligation or duty to that person or entity; and (3) the legal

obligation or duty connects that person or entity with the contract. Burns, 171 So. 2d at 325

(citing 17A C.J.S. Contracts § 519(4) (1963)). In Yazoo & M.V.R. Co. v. Sideboard, 161

Miss. 4, 133 So. 669 (1931), this Court offered the following analysis for determining third-

party-beneficiary status:

       (1) When the terms of the contract are expressly broad enough to include the
       third party either by name as one of a specified class, and (2) the said third
       party was evidently within the intent of the terms so used, the said third party
       will be within its benefits, if (3) the promisee had, in fact, a substantial and
       articulate interest in the welfare of the said third party in respect to the subject
       of the contract.

Sideboard, 161 Miss. at 15.

¶11.   A third-party beneficiary also must benefit directly from the contract. Adams, 943

So. 2d at 709 (individual was not a third-party beneficiary where she did not sign the

contract, was not alluded to in the contract, and had received no benefits from the contract).

A mere incidental or consequential benefit is insufficient. Adams, 943 So. 2d at 708 (quoting

Burns, 171 So. 2d at 325).

¶12.   Simmons Housing, Inc., and Southern Energy Homes, Inc., argue that the Shelton

children are third-party beneficiaries of the agreements signed by their parents. They

contend that that the Shelton children directly benefitted from the contract by living in the

mobile home, and that Roy and Kimberly had a legal duty to provide shelter for their

children.

¶13.   The United States Court of Appeals for the Fifth Circuit confronted a similar set of

facts in Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069 (5th Cir. 2002). There, the



                                                6
Gaskamp parents purchased a mobile home from Fleetwood. Id. at 1071. The parents signed

certain documents that contained an arbitration provision. Id. After moving into the home,

the parents and their children began to experience health problems. Id. Consequently, the

Gaskamp parents filed suit individually and as next friends of their children against

Fleetwood and several other defendants. Id. at 1072. The Fifth Circuit, applying Texas law,4

found that the children were not third-party beneficiaries of their parents’ contract, and thus

could not be required to arbitrate under that theory. Id. at 1075-76, 1077-78. The contract

made no mention of the Gaskamp children and “[a]ny intention to confer a direct benefit

[was] far from being ‘clearly and fully spelled out.’” Id. at 1076. Significantly, the fact that

the Gaskamp children had lived with their parents in the mobile home made them incidental,

not direct, beneficiaries. Id.

¶14.   While Gaskamp is not binding on this Court, we consider it persuasive for this case.

The Shelton children were not referenced or alluded to in the contract. Additionally, their

living in the mobile home did not make them direct beneficiaries. Accordingly, we find that

the Shelton children are not third-party beneficiaries to the agreements signed by their

parents.

       Estoppel




       4
        Under Texas law, nonsignatories are bound to arbitration in only two situations: (1)
where the nonsignatory sues on the contract; and (2) where the nonsignatory is a third-party
beneficiary. Gaskamp, 280 F.3d at 1074. Unlike Mississippi, Qualcomm, 980 So. 2d at 269
(quoting Bridas S.A.P.I.C v. Turkemistan, 345 F.3d 347, 356 (5th Cir. 2003)), Texas courts
do not even mention additional possible bases for binding nonsignatories to arbitration.
Gaskamp, 290 F.3d at 1076. The Fifth Circuit, nevertheless, noted that none of these
additional theories bound the Gaskamp children to arbitration. Id.

                                               7
¶15.   Equitable estoppel is an extraordinary remedy that should be used with caution.

Adams, 943 So. 2d at 709 (citing B.C. Rogers Poultry, Inc. v. Wedgeworth, 911 So. 2d 483,

491 (Miss. 2005)). It is defined generally as “‘the principle by which a party is precluded

from denying any material fact, induced by his words or conduct upon which a person relied,

whereby the person changed his position in such a way that injury would be suffered if such

denial or contrary assertion was allowed.’” B.C. Rogers, 911 So. 2d at 492 (quoting Dubard

v. Biloxi H.M.A., Inc., 778 So. 2d 113, 114 (Miss. 2000)).

¶16.   In the arbitration context, equitable estoppel prevents a party from embracing the

benefits of a contract while simultaneously trying to avoid its burdens:

       [T]he doctrine [of estoppel] recognizes that a party may be estopped from
       asserting that the lack of his signature on a written contract precludes
       enforcement of the contract’s arbitration clause when he has consistently
       maintained that other provisions of the same contract should be enforced to
       benefit him. To allow [a plaintiff] to claim the benefit of the contract and
       simultaneously avoid its burdens would both disregard equity and contravene
       the purposes underlying enactment of the [Federal] Arbitration Act.

Terminix, 904 So. 2d at 1058 (quoting Bailey, 364 F.3d at 268).

¶17.   Simmons Housing, Inc., and Southern Energy Homes, Inc., contend that the Shelton

children’s claims arise from the contract. Having invoked rights under the contract by

alleging a breach thereof, the Shelton children cannot now disclaim provisions they dislike.

The Shelton children concede that the complaint “may appear” to rely in part on the terms

of the contract. But they insist that they do not—and cannot—seek recovery for breach of

contract. They rather assert that their claims are based on negligence, strict liability, and

products liability.




                                             8
¶18.   In Terminix, this Court applied equitable estoppel to bind a nonsignatory to

arbitration. Terminix, 904 So. 2d at 1058. In that case, a husband and wife sued Terminix

for negligence, misrepresentation, fraud, breach of contract, and fraudulent inducement. Id.

at 1053. Terminix sought to enforce arbitration against the husband and the wife, even

though the wife had not signed the agreement. Id. at 1053, 1057. This Court held that the

wife was bound to the arbitration agreement under the ordinary principles of equitable

estoppel. Id. at 1058. The Court, however, gave very little discussion as to why equitable

estoppel applied to the facts of that case. See id. at 1057-58. A footnote suggests that the

Court afforded great weight to the fact that the wife’s suit relied exclusively on the contract.

See id. at 1058 n.3.

¶19.   In Adams, this Court once again considered applying equitable estoppel to a

nonsignatory of an arbitration agreement. Adams, 904 So. 2d at 709. This time, the Court

held that equitable estoppel did not apply. Id. In Adams, a husband and wife entered into

a financing agreement for the purchase of a mobile home. Id. at 704. Years later, the

assignee of the contract, GreenPoint, allegedly presented an unauthorized draft on the joint

checking account of the husband and his daughter, Beth Brown. Id. at 704. Father and

daughter filed suit, and GreenPoint moved to compel arbitration. Id. at 705. GreenPoint

argued that Brown, a nonsignatory to her parents’ agreement, should be equitably estopped

from avoiding arbitration. Id. at 708-09. This Court found that equitable estoppel did not

apply because the record did not reflect that GreenPoint relied upon and detrimentally

changed its position as a result of Brown’s representations. Id. at 709.




                                               9
¶20.   We find that equitable estoppel should not be applied to this case. As in Adams, there

is nothing to show that Simmons Housing, Inc., or Southern Energy Homes, Inc.,

detrimentally relied on the Shelton children’s representations. See Adams, 943 So. 2d at 709.

And unlike Terminix, the Shelton children’s claims are not based solely on the retail

installment contract.    Their claims include strict liability, negligence, and breach of

warranties under the Uniform Commercial Code. Such claims are not dependent on the

terms of the contract. See Gaskamp, 280 F.3d at 1072 n.3, 1075; May v. Ralph L. Dickerson

Const. Corp., 560 So. 2d 729, 730-31 (Miss. 1990) (affirming that Section 11-7-20 of the

Mississippi Code abolished the privity requirement for maintaining actions for negligence,

strict liability, or breach of warranty).

¶21.   Simmons Housing, Inc., and Southern Energy Homes, Inc., emphasize that, to date,

the Shelton children have not amended or withdrawn their complaint to strike any contract-

related claims. The Shelton children explained during oral argument that they had not done

so because the matter had been stayed.

                                       CONCLUSION

¶22.   We find that the Shelton children are not bound to arbitration as third-party

beneficiaries, and that the principles of equitable estoppel do not apply. Therefore, we affirm

the lower court’s decision. The Shelton children’s claims grounded in tort are remanded for

further proceedings in the trial court, but their contract-related claims have been expressly

relinquished.

¶23.   AFFIRMED AND REMANDED.




                                              10
    CARLSON AND GRAVES, P.JJ., DICKINSON, RANDOLPH, LAMAR,
KITCHENS, CHANDLER AND PIERCE, JJ., CONCUR.




                            11
