District Court denies non-signatory's motion to compel arbitration | Practical Law

District Court denies non-signatory's motion to compel arbitration | Practical Law

Abby Cohen Smutny (Partner) and Lee A. Steven (Counsel), Lauren Mandell (Associate), Leah Witters (Associate), White & Case LLP

District Court denies non-signatory's motion to compel arbitration

Practical Law Legal Update 8-504-6739 (Approx. 3 pages)

District Court denies non-signatory's motion to compel arbitration

Published on 02 Feb 2011International, USA
Abby Cohen Smutny (Partner) and Lee A. Steven (Counsel), Lauren Mandell (Associate), Leah Witters (Associate), White & Case LLP
A US District Court has found that equitable estoppel requires a signatory of an arbitration agreement to base its claims on the terms of the agreement and involve the other signatory before a non-signatory can compel arbitration.
In QPro Inc. v. RTD Quality Servs. USA, Inc., 761 F. Supp. 2d 492 (S.D. Tex. 2011), plaintiff QPro, a Texas company, signed an agreement with Applus RTD, a Dutch company, to lease technology necessary to QPro's business. That agreement contained an arbitration clause. QPro, in turn, signed an agreement with Dow Chemical that relied on the technology leased from Applus.
QPro alleged that, after it rejected Applus' attempt to acquire it, Applus used its subsidiary, RTD USA, to encourage Dow Chemical to end its contract with QPro. QPro sued RTD, alleging tortious interference with its Dow Chemical contract. In response, RTD asked the court to compel arbitration based on the arbitration clause in the Applus-QPro agreement.
The court explained that equitable estoppel allows a non-signatory to an arbitration agreement to compel a signatory to arbitrate if the following two criteria are met:
  • The signatory relies on the terms of the agreement when it brings claims against the non-signatory.
  • The signatory alleges interdependent conduct by the other signatory and non-signatory and the non-signatory seeks to compel arbitration on all the claims.
The court found that the first requirement was not met because QPro's claims presume the existence of the agreement, but the claims do not rely on the agreement's terms. The second requirement was not met because QPro did not sue Applus and did not allege that it was liable for the tortious conduct. Thus, RTD could not force QPro to arbitration based on QPro's agreement with Applus.
This decision illustrates when it may be possible to compel arbitration based on an arbitration agreement, even if the party seeking to compel arbitration is not a party to the arbitration agreement.