CAN A NON-SIGNATORY INVOKE AN ARBITRATION PROVISION?

imagesAs you know from prior postings, arbitration is a creature of contract.  Hence, if you want your disputes to be resolved through arbitration, as opposed to litigation, make sure to include an arbitration provision in your agreement that covers all disputes arising out of or relating to the agreement

 

Under certain circumstances, a non-signatory to an agreement wants to invoke an arbitration clause in the agreement.   The non-signatory will move to compel a signatory to the agreement (with an arbitration provision) to arbitrate a dispute with the non-signatory.  Can a non-signatory do this?   Yes, under certain circumstances. 

 

This issue was raised by the Eleventh Circuit Court of Appeal’s ruling in Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc., 845 F.3d 1351 (11th Cir. 2017).   In this case, a defendant moved to compel arbitration based on a licensing agreement it was not a party too.  The Eleventh Circuit explained that Florida’s doctrine of equitable estoppel gives a non-signatory an argument in certain circumstances that it can invoke an arbitration provision in a contract it is not a signatory too:

 

Under that doctrine [of equitable estoppel], a defendant who is a non-signatory to an agreement containing an arbitration clause can force arbitration of a signatory’s claims when “the signatory … must rely on the terms of the written agreement in asserting its claims against the nonsignatory.…” A non-signatory, however, cannot invoke the doctrine to compel arbitration of claims that are not within the scope of the arbitration clause. Equitable estoppel does not allow a nonsignatory to an agreement to alter and expand an arbitration clause that would not otherwise cover the claims asserted.

Kroma Makeup, supra, (internal citations omitted). 

 

This ultimately means the non-signatory must show 1) the signatory is relying on the underlying contract (with the arbitration provision) to assert claims and 2) the scope of the arbitration provision in the contract covers the dispute.  The non-signatory news to show both to compel arbitration.

 

In Kroma Makeup, although the defendant was being sued based on issues relating to the underlying contract, the arbitration provision in the contract stated that “the Parties agree that the disputes arising between them concerning the validity, interpretation, termination or performance” of the Agreement will be arbitrated.”  However, the defendant was not a “party” to the agreement; thus, the scope of the arbitration provision did not cover the dispute at-issue.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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