Commercial Litigation and Arbitration

Case Removable Because It “Relates to” Arbitration Is Not Necessarily “Referable” to Arbitration — Binding Non-Signatories to Arbitration — Significance of Whether Signatory or Non-Signatory Moving to Compel

Reid v. Doe Run Resources Corp., 2012 U.S. App. LEXIS 23281 (8th Cir. Nov. 13, 2012) (note: The facts of this case are excerpted in our November 21, 2012 posting)

Doe Run argues that the district court erred by denying its motion for a mandatory stay pending the outcome of the arbitration. A district court's denial of a motion to stay pending arbitration under 9 U.S.C. § 3 is reviewed de novo. Express Scripts, Inc. v. Aegon Direct Mktg. Servs., Inc., 516 F.3d 695, 698 (8th Cir. 2008). There is strong policy favoring arbitration, and doubts are resolved in favor of arbitration. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 638-39 (1985); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

The Federal Arbitration Act requires a district court to issue a stay if an issue in the case is "referable" to arbitration. 9 U.S.C. § 3, made applicable to the Convention by 9 U.S.C. § 208. The children are nonsignatories to the arbitration agreement, but claims made by nonsignatories can be subject to a stay under 9 U.S.C. § 3. Donaldson Co. v. Burroughs Diesel, Inc., 581 F.3d 726, 732 (8th Cir. 2009).

In this case, Doe Run is seeking a stay, not an arbitration with the children. Doe Run therefore believes that the court should be more inclined to grant the stay due to the strong policy favoring arbitration. See Hill v. GE Power Sys., Inc., 282 F.3d 343, 347 (5th Cir. 2002). "Section 3 of the Arbitration Act . . . is broad enough to permit the stay of litigation between nonarbitrating parties as long as that lawsuit is based on issues referable to arbitration under an arbitration agreement governed by the Arbitration Act." Contracting Nw., Inc. v. City of Fredericksburg, Iowa, 713 F.2d 382, 387 (8th Cir. 1983).

A nonsignatory attempting to bind a signatory to an arbitration agreement is distinct from a signatory attempting to bind a nonsignatory. Nitro Distrib., Inc. v. Alticor, Inc., 453 F.3d 995, 999 (8th Cir. 2006). "[A] willing signatory seeking to arbitrate with a non-signatory that is unwilling must establish at least one of the five theories described in Thompson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995)." CD Partners, LLC v. Grizzle, 424 F.3d 795, 799 (8th Cir. 2005), quoting Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 131-32 (2d Cir. 2003). Those five theories are (1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; and (5) estoppel. Thompson-CSF, 64 F.3d at 776.

Doe Run primarily argues that an estoppel theory mandates a stay. State contract law determines which claims are enforceable under § 3. Arthur Anderson LLP v. Carlisle, 556 U.S. 624, 630-31 (2009). Missouri recognizes an estoppel theory where the party must directly benefit from the contract. Nitro Distrib., Inc. v. Dunn, 194 S.W.3d 339, 348 (Mo. banc 2006).

Nonsignatories can be bound to an arbitration agreement when they directly benefit from the agreement. Thompson-CSF, 64 F.3d at 776. The Fifth Circuit calls this "direct benefits estoppel" -- a party can become bound to an agreement "(1) by knowingly seeking and obtaining 'direct benefits' from that contract; or (2) by seeking to enforce the terms of that contract or asserting claims that must be determined by reference to that contract." Noble Drilling Servs. v. Certex USA, Inc., 620 F.3d 469, 473 (5th Cir. 2010). "Direct benefits estoppel applies when a nonsignatory knowingly exploits the agreement containing the arbitration clause." Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347, 361-62 (5th Cir. 2003) (citation omitted) (internal quotation marks omitted). The children are not direct beneficiaries of the terms of the agreement, but Doe Run argues that they benefitted from the agreement by invoking its terms throughout this case. The claims are so similar, Doe Run says, that they are "based upon the same operative facts" and are "inherently inseparable" from the claims in the arbitration. Hill, 282 F.3d at 347. ***

This court holds that the issues in this case "relate to" the arbitration but are not "referable to" arbitration. As the district court correctly stated, the "relate to" standard is "different and much lower than the question of whether the issues are 'referable to arbitration.'"

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