Compelling Nonsignatories To Arbitration - Boucher v. Alliance Title

Plaintiffs asserting breach of contract/fraud claims often want to enforce those claims against more than just the signatories to the contract. Often times, for example, plaintiffs will also want to enforce a claim against the shareholders of a corporation who entered into an agreement, or against one or more members of an LLC that entered into a contract. Where a contract calls for arbitration among the contracting parties, can a nonsignatory be compelled participate? Interestingly enough, yes.

California and Federal courts have recognized six theories by which a nonsignatory may be bound to arbitrate: (1) incorporation by reference (e.g., construction subcontractors); (2) assumption; (3) agency; (4) veil-piercing or alter ego; (5) estoppel; and (6) third-party beneficiary. (See, Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 268.)

Thus, it behooves a business or an individual to seek legal assistance at the inception of a case to determine whether a particular arbitration provision can be invoked as to all relevant parties. As arbitration in some instances may  be a quicker and cheaper alternative to pursuing a suit in state or federal court, research and analysis should be performed at the on-set to determine whether any of the six above theories can be used to compel arbitration to any nonsignatories so that the matter can be resolved in one legal forum.