2009 Developments in Arbitration: Binding Non-signatories

Recent opinions from the U.S. Supreme Court, the Texas Supreme Court, and the U.S. Court of Appeals for the Fifth Circuit demonstrate that it is quite possible for an agreement to arbitrate to exist in the absence of an actual written agreement signed by both purportedly bound parties to the litigation.

I. U.S. Supreme Court

In March 2009, the U.S. Supreme Court held in Arthur Anderson that a non-party to an arbitration agreement could appeal a trial court ruling that rejected the third party’s motion to compel arbitration. Arthur Anderson LLP v. Carlisle, 129 S.Ct. 1896 (2009). (post available here)

II. Texas Supreme Court

Texas courts have employed different and unusual theories in order to find that an agreement to arbitrate exists in the absence of a traditional written agreement: direct-benefits estoppel, incorporation by reference, assumption, agency, alter ego, and third-party beneficiary. In re Kellogg Brown & Root, 166 S.W.3d 732 (Tex. 2005). These theories stem from contract law, since an agreement to arbitrate is a contract.

In Labatt, the Texas Supreme Court resolved the issue of whether non-signatories to an arbitration agreement should be compelled to arbitrate claims when the decedent’s claims would have to be arbitrated. In re Labatt Food Service, L.P., 279 S.W.3d 640 (Tex. 2009). Plaintiffs in this case are family members who brought a wrongful death action against the employer Labatt Food Service, L.P.

The Texas Supreme Court stated that “is well established that statutory wrongful death beneficiaries’ claims place them [the family members] in the exact ‘legal shoes’ of the decedent, and they are subject to the same defenses to which the decedent’s claims would have been subject.” The court reasoned that if the employee had not died from his injuries, his claims would have been arbitrated.

Similarly, in Jindal, the Texas Supreme Court held that an arbitration agreement between a decedent and his employer required the non-signatories beneficiaries to arbitrate their claims against the employer. In re Jindal Saw Ltd., 2009 WL 490082, 52 Tex. Sup. Ct. J. 407 (Tex. Feb. 27, 2009)

III. Fifth Circuit

Finally, the Fifth Circuit held in Graves that non-signatories plaintiffs were bound by the arbitration agreement between the decedent and his employer. Plaintiffs in Graves are the surviving relatives of an employee of defendant JV Industrial Companies, who died in a work-related accident at a BP facility in Texas. Graves v. BP America, Inc., 568 F.3d 221 (5th Cir. 2009). (post available here)

Technorati Tags:

law, ADR, arbitration