A Motion to Compel Arbitration is becoming a more regular occurrence with the increased frequency of arbitration agreements. Even in the face of an arbitration agreement, plaintiffs may still attempt to avoid arbitration by initiating proceedings before federal or state courts while other signatories may seek to compel the plaintiff to arbitration. But what should happen when a defendant moves a court to compel arbitration, but not all defendants to the lawsuit are a party to such an agreement? Even though a co-defendant is not a party to an arbitration agreement between a plaintiff and a fellow co-defendant, the court may order all claims to arbitration.
The California Court of Appeals has held that “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims…”[1] Furthermore, “a signatory plaintiff who sues on a written contract containing an arbitration clause may be estopped from denying arbitration if he sues nonsignatories as related or affiliated persons with the signatory entity.”[2] The Court of Appeal in Rowe continued by noting that “[T]he equitable estoppel doctrine applies when a party has signed an agreement to arbitrate but attempts to avoid arbitration by suing nonsignatory defendants for claims that are ‘based on the same facts and are inherently inseparable’ from arbitrable claims against signatory defendants.”[3]
Sometimes, a plaintiff who has agreed to arbitrate his claims with a co-defendant may add a peripheral nonsignatory party to the lawsuit in an effort to try to avoid his obligation to arbitrate. However, often, claims against the signatory party are inextricably intertwined with the claims against the nonsignatory party, arise out of the same transaction or series of related transactions, and concern common issues of law or fact.[4] In that situation, a plaintiff may be equitably estopped from trying to avoid an arbitration agreement when the causes of action alleged against defendants are premised on the same facts and legal theories, and are to be resolved by an arbitration agreement.
Alternatively, if a court is inclined to order the signatory parties to arbitration only, then the court has the right to stay the litigation as to the nonsignatory co-defendant, and resume it upon the resolution of the arbitration between the signatory parties. The court has broad authority to stay a proceeding “as to all issues, as to all causes of action, and as to all parties, until arbitration is concluded.”[5]
A plaintiff may try to avoid the contractual obligations of attending arbitration by naming a nonsignatory co-defendant or adding a new defendant once a motion to compel arbitration is filed. However, this action by a plaintiff may not provide the plaintiff with the desired result of avoiding arbitration. Such a move by a plaintiff may result in having to attend arbitration against the signatory party, and then subsequently having to relitigate the matter before the federal or state court.
[1] Boucher v. Alliance Title Company, Inc. (2005) 127 Cal.App.4th 262, 271.
[2] Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1287.
[3] Id.; citing, Turtle Ridge Media Group, Inc. v. Pacific Bell Directory (2006) 140 CalApp4th 828, 833.
[4] See, Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 272 [holding that plaintiff was equitably estopped from avoiding arbitration with a nonsignatory defendant where claims against the nonsignatory were intimately related to and presumed the existence of the underlying contract containing an arbitration clause, even though claims were cast in tort rather than contract.]; Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713 [“suing nonsignatory defendants for claims that are ‘based on the same facts and are inherently inseparable’ from arbitrable claims against signatory defendants” must also submit those claims to arbitration, despite the absence of a formal, written arbitration agreement with the nonsignatory defendants.]
[5] Cal. Civ. Proc. Code §1281.4; Marcus v. Superior Court (1977) 75 Cal.App.3d 204, 209 (citation omitted).
