The high courts of two states have allowed non-signatories to compel arbitration in recent weeks. The cases show courts are addressing non-signatory issues using different standards and raise important drafting issues for joint ventures and business affiliates.
In Locklear Automotive Group, Inc. v. Hubbard, 2017 WL 4324852 (Alabama Sept. 29, 2017), the Supreme Court of Alabama found most of the claims against the non-signatory must be arbitrated. [But before we get into the merits, I have to ask: what the heck is going on in Alabama? Is some plaintiffs’ lawyer trolling for cases against dealerships? This is the third arbitration case involving claims against dealerships coming out of that state’s high court in the last two months!] Seven plaintiffs brought separate actions alleging that personal financial information they provided the dealership was not safeguarded. All seven plaintiffs were the victims of identity theft. They sued the dealership’s LLC, as well as the corporate entity which is the sole member of that LLC (the non-signatory).
Each plaintiff had at some point signed an arbitration agreement with the dealership, but not with the non-signatory. The court separated plaintiffs into three groups. The first group, made up of five plaintiffs, established that defendants had waived any argument to enforce the delegation clause at the trial court. However, the non-signatory was able to compel arbitration with this group using an estoppel theory because: a) the language of the arbitration agreement was not limited to disputes between the signing parties; and b) the claims against the non-signatory were intertwined with the claims against the dealership. The second group involved a single plaintiff, against whom the non-signatory had preserved its delegation argument. Therefore the court enforced the delegation clause, sending the issue of arbitrability to an arbitrator. Finally, in the third group, the court refused to compel arbitration of a plaintiff’s claims because the signed arbitration agreement related to a previous purchase, not the credit application that resulted in identity theft.
West Virginia reached a similar result, albeit through a different analysis, in Bluestem Brands, Inc. v. Shade, 2017 WL 4507090 (W. Va. October 6, 2017). In that case, Bluestem (aka Fingerhut) had teamed up with banks to offer credit to its customers for Fingerhut purchases. The credit agreements between the banks and consumers called for arbitration of any disputes. In response to a credit collection case, Ms. Shade (such a great name for a plaintiff alleging bad deeds) claimed that Bluestem violated West Virginia law with its credit program. Ms. Shade did not assert claims against the banks. When Bluestem moved to compel arbitration under the “alternative estoppel” theory, the court held that it could compel arbitration if “the signatory’s claims make reference to, presume the existence of, or otherwise rely on the written agreement.” (Note that W. Va. did not require the language of the arbitration agreement to encompass more than the signing parties, like Alabama above.) The court found that Ms. Shade’s claims all were “predicated upon the existence of the credit” agreement, so it was appropriate to compel arbitration of the claims.
So, we have two high courts applying different standards for estoppel. And we have the Bluestem case reaching the oppose result of a recent federal court in a very similar factual circumstance (the Sunoco case, involving jointly marketed credit cards). This leaves less than clear guidance for lawyers who are trying to craft arbitration agreements that can stick, no matter the type of case, or who the plaintiff is that is attacking the product.