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Who’s Coming to Arbitration? Arbitrating with Non-Signatories.

By Leslie King O’Neal

word picture of arbitration and related words

Arbitrating with a party who did not sign an arbitration agreement is counter intuitive to many lawyers. It’s commonly known that commercial arbitration is a creature of contract; parties cannot be forced to arbitrate disputes without a written arbitration agreement. But, as with many legal rules, this one has several exceptions. The cases discussed in this post show how non-signatories may compel arbitration or may be compelled to arbitrate in certain circumstances.

FAA Doesn’t Require a Signed Arbitration Agreement

The Federal Arbitration Act1 requires arbitration agreements to be in writing but it does not require a party to sign the arbitration agreement to be bound.  As stated in Fisser v. International Bank, “It does not follow. . . [that] an obligation to arbitrate attaches only to one who has personally signed the written arbitration provision.” 2 State contract law principles determine whether a contract can be enforced by or against nonparties.3 These principles are: assumption; agency; piercing the corporate veil/alter ego; incorporation by reference; third party beneficiary; waiver and estoppel. Equitable estoppel is used where the non-signatory’s claims are dependent upon and intertwined with claims related to the contract with the arbitration clause.

Courts Evaluate If Dispute Is Within Arbitration Clause’s Scope

 In determining whether a non-signatory is subject to an arbitration clause, courts also evaluate whether the dispute is within the arbitration clause’s scope. Some clauses are broadly worded, covering “any and all disputes arising out of or relating to the contract.” Florida law holds the words “relating to” broaden an arbitration provision’s scope to cover claims having a “significant relationship” to the contract—regardless of whether the claim is founded in tort or contract law.” 4 However, merely having broad language does not guarantee a court will find a particular dispute subject to arbitration. Courts also consider the type of claim and surrounding facts in this analysis.5

Arbitration Clause May Include Non-Signatories

 Arbitration clauses may include persons or entities who aren’t contract parties, as shown by the Uber and Disney cases discussed in an earlier post. https://theconstructionadrtoolbox.com/2024/12/broad-arbitration-clauses-are-becoming-more-common/ In those cases, parties to the arbitration agreement moved to compel arbitration against non-signatories, asserting the broad arbitration clause included non-signatories. Whether a non-signatory is bound by an arbitration clause depends both on the clause’s language and the nature of the claims. A recent 11th Circuit case denied a motion to compel arbitration against a non-signatory, finding plaintiff’s statutory COBRA claims were not related to his wife’s employment agreement. The 11th Circuit affirmed the trial court’s finding that plaintiff’s claims were personal to him and thus not subject to arbitration under equitable estoppel or third-party beneficiary theories, nor were his claims “derivative claims.” 6

Non-Signatories May Compel Arbitration

Sometimes the situation is reversed: non-signatories may seek to compel arbitration against parties to the arbitration agreement. In GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC .7 Outokumpu, owner of a manufacturing plant, sued GE, a subcontractor who provided motors to the plant, for damages related to the motors’ non-performance. GE moved to compel arbitration under the owner-general contractor agreement. GE did not sign that contract, but it was included in the contract’s definition of a “party.”

SCOTUS Allows Non-Signatory to Compel Arbitration in International Case

The 11th Circuit held that, as a non-signatory, GE could not compel arbitration under the New York Convention., which governs international arbitrations. The U.S. Supreme Court overruled, holding the New York Convention does not conflict with non-signatories’ enforcement of arbitration agreements under domestic-law equitable estoppel doctrines. On remand, the 11th Circuit upheld GE’s right to compel arbitration.8

Contract May Limit Non-Signatory’s Arbitration Rights

Even if there is a basis to claim equitable estoppel to compel arbitration, contract language may limit a non-signatory’s rights to arbitrate, as this 11th Circuit case involving the Kardashians shows.

Kim Kardashian and her sisters were sued in federal court in Florida in a trademark dispute regarding the Kroma cosmetic brand. There was an arbitration agreement in the contract between the plaintiff and the trademark owner. Although not parties to the arbitration agreement, the Kardashians moved to compel arbitration alleging equitable estoppel. Applicable Florida contract law principles permit non-signatories to compel arbitration using equitable estoppel if they can show: (1) that the signatory relies on the agreement to assert claims against the non-signatory and (2) the arbitration provision covers the dispute.

The court denied the motion to compel because the arbitration clause was explicitly limited to “disputes arising between” the contracting parties. Since the arbitration agreement did not cover the Kardashians’ dispute, they could not compel arbitration.9

TN Supreme Court Orders Arbitration of Non-Signatory’s “Derivative” Claims

         The Tennessee Supreme Court recently held that a non-signatory’s wrongful death claims were subject to arbitration because they were “derivative.” A son sued an assisted living facility for his father’s wrongful death. The father’s attorney-in-fact signed an optional arbitration agreement when the father moved into the facility. 10 The arbitration agreement applied broadly and included “heirs, personal representatives, successors and assignees.” Overruling the trial court and court of appeals, the Tennessee Supreme Court held the arbitration agreement covered the wrongful death claim because the son’s claim was “derivative” of the father’s claim and thus subject to arbitration.11

Arbitration Clause Covered Claims vs. Multiple Non-Signatories

A recent California case12 allowed multiple non-signatory entities to enforce an arbitration agreement under equitable estoppel where plaintiff’s claims against these entities were dependent on, founded in and inextricably entwined with his agreement containing the arbitration clause.

 Plaintiff Gonzalez sought damages for alleged California Labor Code violations against his employer and nine related entities. Gonzalez’s employment agreement had an arbitration clause, but he had no contract with the other entities.

All ten defendant entities moved to compel arbitration; the non-signatory entities alleged they could enforce the arbitration agreement under equitable estoppel because all plaintiff’s claims were intertwined and dependent on the allegations in the employment agreement. The trial court denied the motion to compel.  The California appellate court reversed, holding “all of Gonzalez’s claims against them are intimately founded in and intertwined with the employment agreement” which contains the arbitration clause.

Takeaways

Non-signatories may compel arbitration or may be compelled to arbitrate under applicable state law contract principles. The most common situations in construction disputes are:

  1. Incorporation by reference (e.g. surety bonds incorporating contracts with arbitration clauses).
  2. Equitable estoppel–non-signatory’s claims are founded in and intertwined with the agreement containing the arbitration clause.
  3. Derivative claims–non-signatory’s claims are derivative of those covered by the arbitration agreement.

As always, it’s essential to review the contract and the arbitration clause carefully to determine the scope of the clause and what parties are included or excluded from it.

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1 9 U.S.C. §1-14.https://www.govinfo.gov/content/pkg/USCODE-2019-title9/html/USCODE-2019-title9.htm

2 282 F.2d 231 (2d Cir.1960).

3 Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631, (2009). See Michael P. Daly, Come One, Come All: The New and Developing World of Nonsignatory Arbitration and Class Arbitration, 62 U. Miami L. Rev. 95 (2007) https://repository.law.miami.edu/umlr/vol62/iss1/4

4 Jackson v. Shakespeare Found., Inc., 108 So. 3d 587, 593 (Fla. 2013), (holding fraud claim within scope of arbitration clause). https://casetext.com/case/jackson-v-shakespeare-found

5 See Jackson v. Amazon, 66 F.4th 1093 (9th Cir. 2023). https://casetext.com/case/jackson-v-amazoncom-2 (Amazon drivers’ claims for alleged wiretapping and invasion of privacy not subject to arbitration, despite broad arbitration clause, because alleged misconduct not related to contract).

Lubin v. STARBUCKS CORPORATION, Court of Appeals, 11th Circuit 2024 – Google Scholar

7 140 S. Ct. 1637 (2020).https://casetext.com/case/ge-energy-power-conversion-france-sas-v-outokumpu-stainless-usa-llc

8 Outukumpu Stainless USA, LLC v. GE Energy Power Conversion France SAS (11th Cir. Case No: 17-10944) (July 8, 2022) unpublished opinion; https://media.ca11.uscourts.gov/opinions/unpub/files/201710944.rem.pdf.

9 Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc., 845 F.3d 1351 (11th Cir. 2017).https://casetext.com/case/kroma-makeup-eu-llc-v-boldface-licensing-branding-inc-5

10 Williams v. Smyrna Residential, LLC, 685 S.W.3d 718 (Tenn. 2024). The abitration agreement was not a condition of admission to the facility.https://casetext.com/case/williams-v-smyrna-residential-llc-1

11 Under TN law, “[A] wrongful death action belongs to the deceased person and not to his survivors.” Ki v. State, 78 S.W.3d 876, 880 (Tenn. 2002).

12 Edgar Gonzalez v. Nowhere Beverly Hills LLC, (Cal. Ct. App., 2d Dist., 1st Div. 2024)https://cases.justia.com/california/court-of-appeal/2024-b328959.pdf?ts=1733266887

Comments

2 responses to “Who’s Coming to Arbitration? Arbitrating with Non-Signatories.”

  1. Bob Rubin Avatar
    Bob Rubin

    Congratulations to you Andy !! The blog is very well written, interesting & informative.

    1. Leslie O'Neal Avatar

      Thanks, Bob. Did You know that I wrote this post? Leslie

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