Arbitration Insight No. 27


The role of nonsignatories to an arbitration agreement is a frequent issue. Two recent cases, Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782 and Benaroya v. Willis (2018) B281761; 2018 Cal.App. LEXIS 450; 2018 DJDAR 4634, consider that problem, Garcia as to whether a nonsignatory can compel arbitration and Benaroya as to who can order a nonsignatory into arbitration.

In Garcia, Real Time, a staffing company, hired Garcia as an employee and then assigned him to work for Pexco. Garcia executed an employment application with Real Time which included an arbitration agreement, to which Pexco was not a signatory. Garcia later on sued Real Time, Pexco and a third company for violations of the Labor Code and unfair business practices. The operative complaint alleged that each of the acts and omissions of the three defendants was attributable to all of them and that all of the defendants were agents of one another. Additionally, each cause of action was alleged against all of the defendants. The trial court granted Real Time’s and Pexco’s motion to compel arbitration of Garcia’s claims. Garcia appealed that part of the order which allowed Pexco to compel arbitration.

The appellate court in Garcia affirmed the trial court’s order, recognizing that equitable estoppel and agency are exceptions to the general rule that “one must be a party to an arbitration agreement to be bound by it or invoke it.” (Id. at pp. 785-786, 788; see also Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1513 which recognizes six possible exceptions to the general rule: incorporation by reference, assumption, agency, veil-piercing or alter ego, estoppel and third-party beneficiary.) Under the estoppel exception, Garcia explained that “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations. (Citation.) The doctrine applies where the claims are based on the same facts and are inherently inseparable from the arbitrable claims against signatory defendants.” (Id. at p. 786; internal quotation marks and citation deleted.) The court then found that “Garcia’s claims against Pexco were rooted in his employment relationship with Real Time. “Garcia does not distinguish between Real Time and Pexco in any way. All of Garcia’s claims are based on the same facts alleged against Real Time. Garcia cannot attempt to link Pexco to Real Time to hold it liable for alleged wage and hour claims, while at the same time arguing the arbitration provision only applies to Real Time and not Pexco.” (Id. at pp. 787-788.)

Garcia also held that the agency exception applies because “a defendant may enforce the arbitration agreement, when a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement. (Citation.) Here, the operative complaint alleged Real Time and Pexco were acting as agents of one another and every cause of action alleged identical claims against ‘All Defendants’ without any distinction.” (Id. at p. 788; internal quotation marks deleted.)

Benaroya involves a claim in arbitration by Bruce Willis, the actor, against Benaroya Pictures (Benaroya), for failing to pay Willis a certain sum of money, pursuant to an arbitration clause signed by Michael Benaroya (Michael B.), on behalf of Benaroya. Michael B. opposed Willis’s motion to add Michael B. as a party, arguing that he was not a party to the arbitration clause, and that the question whether a nonsignatory can be compelled to arbitrate is a question for the trial court alone. The arbitrator granted the motion. The arbitrator found Michael B. to be Benaroya’s alter ego and awarded Willis and his company $5,024,778.61, for which both Benaroya and Michael B. were liable. The trial court denied Michael B’s petition to vacate the award as to himself and granted Willis’s petition to confirm the award.

The appellate court reversed the judgment with directions, in part, that the award be confirmed only as to Benaroya, holding that only the trial court has the authority to decide whether a nonsignatory to an arbitration agreement can be compelled to arbitrate. “Although a nonsignatory can be compelled to arbitrate, California case law is clear that an arbitrator has no power to determine the rights and obligations of one who is not a party to the arbitration agreement.”

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067

(310) 201-0010

Copyright Michael D. Marcus, March 2018

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