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Split Decision in the Ninth Circuit: Two Non-Signatory Defendants Can Compel Arbitration Based on Equitable Estoppel, One Cannot
June 01, 2020

All three defendants were non-signatories to the underlying contract containing the arbitration agreement they sought to enforce. They each contended that they were entitled to enforce the arbitration agreement, despite their non-signatory status, through equitable estoppel. "The right to compel arbitration is generally limited to parties to the contract, but non-signatories may invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement." California law, which applied to the contract at issue, permits non-signatories to assert equitable estoppel to seek arbitration where: (1) the signatory must rely on the written agreement, or the signatory's claims are intertwined with the agreement; or (2) the signatory alleges concerted misconduct by the non-signatory and another signatory, and the misconduct is intimately connected with the obligations of the agreement.

With regard to the first defendant, the court determined that none of the plaintiffs' claims relied upon, were founded in, or were intertwined with the terms of the contract containing the arbitration agreement. In addition, the plaintiffs' claims did not allege collusion or a pattern of concealment involving that defendant and a signatory to the contract. Therefore, under California law, the first defendant could not invoke equitable estoppel to compel arbitration. However, with regard to the other two defendants, the court determined that although the plaintiffs' complaint did not explicitly mention the contract, their allegations regarding the defendants were "exactly the terms and duties of the [contract]." As such, the plaintiffs' claims were founded in and inextricably intertwined with the terms and obligations of the contract containing the arbitration agreement. Therefore, the second set of defendants could invoke equitable estoppel to compel the plaintiffs to arbitrate their claims.

In re Pacific Fertility Center Litigation, No. 19-15885 (9th Cir. May 15, 2020).
Authored By
Image: Benjamin E. Stearns
Benjamin E. Stearns
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