Tenth Circuit Affirms Denial Of Motion To Compel Arbitration As To The Claims Of Non-Signatory Plaintiffs

Carlton Fields
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A buyer of a manufactured home sued the manufacturer, seller and lender in connection with toxic mold that was found in the home’s water system. The underlying retail installment contract contained an arbitration agreement which included a provision providing, “[t]his Arbitration Agreement also covers all co-signors and guarantors who sign this Contract and any occupants of the manufactured Home (as intended beneficiaries of this Arbitration Agreement).” Notwithstanding that provision, the buyer, along with her husband and children, brought a civil action for damages against the manufacturer, seller, and lender. The manufacturer and seller (the “Defendants”) moved to compel arbitration and stay the court proceedings pursuant to the arbitration agreement in the installment contract. The trial court granted the motion as to the buyer’s claims, but denied the motion as to her husband and children, finding that they were not parties to the installment contract, and as such, were not bound by the arbitration provision.

The Defendants appealed the denial of their motion to compel the claims of the husband and children to the Tenth Circuit, which affirmed. The court rejected both of Defendants’ arguments – first, that the husband and children were third party beneficiaries and were therefore bound to arbitrate, and second, that they were bound to arbitrate under the doctrine of equitable estoppel. As to the first argument, the court found unpersuasive Defendants’ reliance on the arbitration provision which defined occupants of the home as third party beneficiaries. Specifically, the court found that Defendants did not meet their burden of establishing that the non-signatory plaintiffs were bound to arbitrate and declined to bind “unwitting third parties” to a contract without their first knowing of its terms or ever realizing some benefit. As to Defendants’ second argument, the court rejected Defendants’ equitable estoppel theories asserting “intertwined claims” and “direct benefits.” The former does not govern a case “where a signatory-defendant seeks to compel arbitration with a non-signatory-plaintiff,” and the latter is not a recognized doctrine under Oklahoma law. Jacks v. CMH Homes, Case No. 15-6197 (10th Cir. May 17, 2017).

 

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