Non-Signatory Compelling Arbitration based on Equitable Estoppel
Many times, parties will prefer to arbitrate their disputes instead of litigate their disputes. Because arbitration is a creature of contract, an arbitration provision must be included in the parties’ contract. There are pros and cons to arbitration and it is important to discuss these pros and cons with your counsel when negotiating a contract that includes an arbitration provision. The pros and cons may change over time. (For example, in this COVID-19 world, there are pros with arbitration that did not exist before the COVID-19 pandemic.)
Notwithstanding, there are instances where a non-signatory to the contract with the arbitration provision moves to enforce the contract with the arbitration provision. In this scenario, court have applied an equitable estoppel doctrine to determine whether a signatory should be bound to arbitrate with a non-signatory, as discussed in the recent opinion:
[F]or this reason ‘a non-signatory to a contract containing an arbitration agreement ordinarily cannot compel a signatory to submit to arbitration.’ ” “However, courts ‘have been willing to estop a signatory from avoiding arbitration with a nonsignatory when the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed.’ ” “The doctrine of equitable estoppel on the basis of intertwined claims . . . applies when a signatory to a contract containing the arbitration clause raises allegations of substantially interdependent and concerted misconduct by both a non-signatory and one or more of the signatories to the agreement.”
Kratos Investments LLC v. ABS Healthcare Services, LLC, 46 Fla.L.Weekly D603a (Fla. 3d DCA 2021) (internal citations omitted).
In Kratos Investments, defendant non-signatories moved to compel arbitration claiming allegations against them were intertwined with an agreement that contained the arbitration provision. The trial court disagreed and denied the defendants’ motion to compel arbitration. The appellate court reversed finding that the plaintiff is estopped from avoiding arbitration with the non-signatories since the claims against the defendants “are based on the same set of operative facts and unquestionably premised upon substantially interdependent and concerted misconduct between the non-signatories and signatories [to the contract with the arbitration provision].” Kratos Investments, supra.
Please contact David Adelstein at [email protected] or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.