Compelling Non-Signatories to Arbitrate What Arbitration Agreement? - Dispute Resolution Journal - Vol. 56, No. 2
The author is a partner and trial lawyer with Kirkpatrick & Lockhart LLP in their Washington office. He is a member of the National Panel of Arbitrators of the American Arbitration Association and is a Fellow of the American College of Trial Lawyers.
Originally from Dispute Resolution Journal
The obligation to arbitrate a dispute is rooted in the contract. But this obligation is not limited to the parties who signed the contract, according to author Charles Lee Eisen. He says that sometimes such obligation extends to others who are non-signatories, but are nevertheless linked to the dispute covered by the contract. In the following article, Eisen discusses the underlying legal principles and theories that explain why some non-signatory parties are bound to arbitration agreements. His caution: parties should be aware of possible situations which might lead to a backdoor obligation to arbitrate.
It frequently surprises those involved in business transactions to learn that they may be bound to arbitrate a dispute while never having signed an arbitration agreement. There are a number of circumstances under which such an unexpected arbitration obligation may arise. Some may be avoided (or caused) by artful drafting. Others may result as a matter of law from the facts of the case. Often, this is an issue that is off the radar screen of those charged with counseling their clients in response to the question: “do we arbitrate or do we litigate?”
This article will examine the historical context in which this issue arises. It will be seen that while courts strongly favor arbitration, the obligation is still rooted in contract. Consequently, a party cannot ordinarily be compelled against its will to arbitrate a dispute that it has not agreed to submit to arbitration. Nonetheless, an obligation to arbitrate does not attach only to one who has signed an arbitration agreement. On the contrary, a non-signatory may be bound to arbitrate if that result is dictated by ordinary principles of contract and agency law. Finally, it will be demonstrated that based on such common law principles, there are at least five legal theories that have been recognized by the courts under which non-signatories may be bound to arbitration agreements.