Can An Arbitration Provision in a Contract Be Enforced by a Non-Signatory?

A plaintiff who signed a contract which contains a mandatory arbitration clause may think that a defendant who did not sign the contract cannot enforce that clause. That plaintiff may not necessarily be right. Courts in Massachusetts have recognized a variety of theories through which a non-signatory to a contract may be able to enforce a contractual arbitration clause signed by the plaintiff, including whether: (i) the arbitration clause is incorporated by reference into another contract; (ii) the non-signatory assumed the rights of the original signatory; (iii) the non-signatory is an agent or alter ego of the original signatory; (iv) the non-signatory is a third party beneficiary of the contract; and (v) the plaintiff should be equitably estopped from claiming that the clause should not be enforced. Equitable estoppel most often arises when the allegations raised against the non-signatory are so intertwined with the issues that are subject to the arbitration clause that the plaintiff must either rely on the terms of the contract to assert its claims or when the alleged misconduct between the signatory and non-signatory are so substantially interdependent that the plaintiff “lumps” the two together without distinction. So before a plaintiff instinctively thinks that it may not have to arbitrate with a party that did not sign the contract, the plaintiff would be well advised to review the allegations carefully to determine whether it might be subject to arbitration after all.

- By Joe Calandrelli