By Ana E. Tovar Pigna
Since the Supreme Court of the United States endorsed a pro-arbitration line [1] and Congress enacted the Federal Arbitration Act [2], both federal and state courts have followed their lead. Some states, such as Florida, have enacted their own Arbitration Codes that recognize the validity and enforceability of arbitration agreements.[3] However, this pro-arbitration line has come with significant hurdles, such as in the context of extending arbitration clauses to non-signatories. The purpose of this article is to give a brief overview of how the topic of the extension of arbitration clauses has developed in the United States, specifically in the United States Court of Appeals for the Eleventh Circuit and Florida.
It is well-established that consent is required to be bound by an arbitration clause.[4] Consent can be proved by signing the contract that contains the clause or by signing a separate arbitration agreement. However, complex commercial transactions where cross-border businesses, multi-party agreements, and groups of companies interact have raised the question of whether a non-signatory can be bound by an arbitration clause under certain circumstances.
Courts in the United States and abroad have taken different positions on whether to extend an arbitration clause to non-signatories. Courts have taken two main approaches in determining whether to extend an arbitration clause to non-signatories: (1) the traditional approach of principles of agency and contract law, and (2) the “group of companies” doctrine.[5]
Courts in the United States that have endorsed the extension of arbitration clauses to non-signatories have followed the traditional approach of agency and contract law.[6] Under principles of agency and contract law, a non-signatory may be bound by an arbitration agreement under limited circumstances in accordance with the following theories: (1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter-ego; and (5) estoppel.[7] Yet the endorsement of the extension of the clause has been greatly disputed, resulting in courts taking different positions in seemingly similar instances. For example, while some courts within the Eleventh Circuit have denied the extension on the basis that there must be an agreement in writing and signed by the parties to compel arbitration, more recently, other courts within the jurisdiction have extended the clause on the basis of agency and contract law principles.[8]
Meanwhile, maintaining a pro-arbitration line, Florida courts have applied principles and theories of contract and agency law when approving the extension of arbitration clauses to non-signatories.[9] Furthermore, Florida courts have accepted the incorporation of an arbitration clause in a contract by making a general reference to the terms of another contract that contains within its terms an arbitration clause, in contrast to requiring incorporation by specific reference to the arbitration clause in that other contract.[10]
While it seems that the Eleventh Circuit and Florida courts are in line with extending arbitration clauses to non-signatories in limited circumstances under principles of agency and contract law, there is still valid jurisprudence that denies the extension of the clause. Given these inconsistencies, it is advisable to consider this issue when drafting an arbitration clause and to determine whether extending the clause to non-signatories is a desired result.
[1] Southland Corporation v. Keating, 465 U.S. 1, 10 (1984).
[2] Federal Arbitration Act, 9 U.S.C. (1947).
[3] Revised Florida Arbitration Code, Fla. Stat. § 682.01.
[4] See James M. Hosking, The Third Party Non-Signatory’s Ability to Compel International Commercial Arbitration: Doing Justice Without Destroying Consent, 4 Pepp. Disp. Resol. L.J. 472 (2004).
[5] Sarhank Group v. Oracle Corporation, 404 F.3d 657, 661-62 (2d Cir. 2005).
[6] Id.
[7] Thomson-CSF S.A. v. Am. Arb. Ass’n, 64 F.3d 773, 777-78 (2d Cir. 1995).
[8] See Czarina, L.L.C. v. W.F. Poe Syndicate, 358 F.3d 1286, 1290-91 (11th Cir. 2004). But see Rolls-Royce PLC v. Royal Caribbean Cruises Ltd., 960 So. 2d 768, 769-71 (S.D. Fla. July 8, 2005)); World Rentals and Sales, LLC v. Volvo Const. Equipment Rents, Inc., 517 F.3d 1240, 1244 (11th Cir. 2008).
[9] See Frank J. Rooney, Inc. v. Charles W. Ackerman of Fla. Inc., 219 So. 2d 110, 112 (Fla. 3d DCA 1969); Ocwen Financial Corp. v. Holman, 769 So. 2d 481, 483 (Fla. 4th DCA 2000).
[10] Frank J. Rooney, Inc., 219 So. 2d 110, 112.