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.

The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Reid & Hellyer, APC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.