The Fourth District Court of Appeal Affirmed an Order Denying Motion to Stay and Compel Arbitration

Posted on: May 31, 2013

Marcus v. Florida Bagels, LLC, 4D12-2971 (Fla. 4th DCA 2013):

This is a case where a non-party to an arbitration agreement, also known as a non-signatory, seeks to compel a party to an agreement to arbitrate. An obligation to arbitrate is based on consent, and for this reason a non-signatory to a contract containing an arbitration agreement ordinarily cannot compel a signatory to submit to arbitration. Roman v. Atl. Coast Constr. & Dev., Inc., 44 So. 3d 222, 224 (Fla. 4th DCA 2010). However, courts have been willing to estop a signatory from avoiding arbitration with a non-signatory when the issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed. Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F. 3d 773, 779 (2d Cir. 1995).

The court has written that the equitable estoppel exception to the general rule is warranted when the signatory to the contract containing the arbitration clause raises allegations of concerted conduct by both the non-signatory and one or more of the signatories to the contract. Shetty v. Palm Beach Radiation Oncology Assocs.-Sunderam K. Shetty, M.D., P.A., 915 So. 2d 1233, 1235 (Fla. 4th DCA 2005). In such circumstances, equitable estoppel will apply since there exists a relationship among the parties of a nature that justifies a conclusion that the party which agreed to arbitrate with another entity should be estopped from denying an obligation to arbitrate a similar dispute with the adversary which is not a party to the arbitration agreement. Sokol Holdings, Inc. v. BMB Munai, Inc., 542 F. 3d 354, 359 (2d Cir. 2008).

The doctrine of equitable estoppel precludes a party from asserting rights he otherwise would have had against another when his own conduct renders assertion of those rights contrary to equity. R.J. Griffin & Co. v. Beach Club II Homeowners Ass’n, 384 F. 3d 157, 160 (4th Cir. 2004). The rationale behind allowing a non-party to an arbitration agreement to use equitable estoppel to compel a party to arbitrate is that otherwise the arbitration proceedings would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted. MS Dealer Serv. Corp. v. Franklin, 177 F. 3d 942, 947 (11th Cir. 1999). Consequently, in applying this doctrine, courts have also focused upon the fairness of the party’s conduct.

Applying these principles, the equitable estoppel doctrine has been found to apply when one party attempts to hold to the terms of agreement while simultaneously trying to avoid the agreement’s arbitration clause. R.J. Griffin, 384 F. 3d at 161. In such circumstances, fairness dictates that the party cannot have it both ways by relying on the arbitration clause when it works to its advantage and repudiating it when it works to its disadvantage. Hughes Masonry Co. v. Greater Clark Cnty. Sch. Bldg. Corp., 659 F. 2d 836, 839 (7th Cir. 1981).

Similarly, Florida courts have applied equitable estoppel to allow a non-signatory to compel a signatory to arbitrate where the signatories were already involved in arbitration. Ruling otherwise would have frustrated the policy in favor of arbitration by allowing parties to take inconsistent positions regarding the arbitrability of related, intertwined claims.

This case is different because the signatories to the arbitration agreement frustrated the agreement’s performance by repudiating arbitration and electing to pursue judicial process. Moreover, the arbitration agreement gave one party the unilateral right to bypass arbitration. Under these circumstances, a non-signatory to the arbitration agreement may not avail himself of the arbitration provision to which he is not a party by seizing upon an exception that has the primary purpose of preventing the frustration of rights that has already occurred.