In general, a court may order parties to arbitrate a controversy if the parties entered into an agreement to arbitrate. Cal. Code of Civ. Proc. § 1281.2.
Recently, in JSM Tuscany, LLC v. Superior Court, the California Court of Appeals determined that parties who did not sign an arbitration agreement can still be compelled to arbitrate the controversy. Prior cases have found that signatory plaintiffs who sue on a contract containing an arbitration clause may be equitably estopped from denying arbitration if they sue non-signatory defendants. This permits nonsignatory defendants to compel signatory plaintiffs to arbitrate when the causes of action are “intimately founded in and intertwined” with the contract obligations.
In JSM Tuscany, LLC, however, the Court of Appeals extended the doctrine and also found that nonsignatory defendants can compel nonsignatory plaintiffs to arbitrate a claim. In JSM Tuscany, LLC, 4 plaintiffs sued 27 defendants for breaches of 3 different contracts. The contracts each contained the same broad arbitration clause. Only 2 plaintiffs and 5 defendants, however, signed one or more of the contracts. The court found that even though the non-signatory parties did not sign any of the contracts, they can still be bound by the arbitration clause. This was particularly appropriate here because all of the plaintiffs, signatory and nonsignatory, were related entities, making it equitable to compel nonsignatory plaintiffs to arbitrate.
Compelling nonsignatory plaintiffs to arbitrate still requires the claims to be based on, or inextricably intertwined with, the contract containing the arbitration clause. Although the court found that the nonsignatory plaintiffs can be compelled to arbitrate, it found that the record was insufficient to determine whether all of the plaintiffs’ claims arose out of or were intertwined with the contracts. Based on this insufficiency (and not based on the fact that some parties did not sign the contract), the Court of Appeals held that the trial court did not err in denying the motion to compel arbitration.
Accordingly, this case is important because it bound parties who never signed a contract, to the contract terms. While this case was specific to the arbitration clause, this may open doors to bind nonsignatory parties to other contract provisions.
By C. Mina Kim, Esq. of Schorr Law, APC, firstname.lastname@example.org, 310-954-1877, www.schorr-law.com