Estoppel and Agency Theories for Non-Signatories to Compel Arbitration

A twisted set of underlying facts did not detract from the core of an appellate court decision: even if one party to a contract with an arbitration clause was not part of a lawsuit, agents and closely-related persons/entities could compel arbitration. That is the outcome of a California Court of Appeal decision.

Two contractors signed agreements with Minarc, Inc. for design of prefabricated houses. Those contracts had arbitration clauses. The design called for panels made by a company known as mnmMOD [that’s not a typo] Building Solutions. Both contractors signed purchase agreements with mnmMOD, which did not have any arbitration clause. But the panels “were defective and unusable.” And it turns out that the principals of Minarc, contrary to representations, were not registered architects. Several other facts, unhelpful to the defendants, are not repeated here. The construction projects ground to a halt.

The contractors sued Minarc, mnmMOD, and the persons who had represented themselves as architects. The defendants moved to compel arbitration, and the contractors in response dropped Minarc from the lawsuit, and then argued that no remaining party had a contract requiring arbitration.

But the California appellate court has ruled that the remaining defendants can compel arbitration. “Where the signatory raises allegations of substantially interdependent and concerted misconduct by the non-signatory and the signatory to the contract and the behavior is related to the contract containing the arbitration clause, estoppel is warranted.” Further, some of the defendants were the principals of Minarc, and thus agents of the corporate entity. “Parties sued as agents or alter egos of a signatory may enforce an arbitration agreement.”

Thus, both the individuals and mnmMOD, as the supply company, could compel arbitration with the contractors per the arbitration clause in the contracts each contractor had with Minarc, under agency and estoppel theories. The case is Random Holdings v. M3House, LLC, 2017 Cal. App. Unpub. LEXIS 4092 (June 15, 2017).