In a recent case of first impression in Nevada, the Nevada Supreme Court found en banc that a nonsignatory to an arbitration agreement may compel another nonsignatory to arbitrate. The Court’s decision in RUAG Ammotech GmbH v. Archon Firearms, Inc., 139 Nev. Adv. Op. 48 (2023) can be read here.

The RUAG holding is grounded in the Court’s earlier opinion in Truck Insurance Exchange v. Palmer J. Swanson, Inc., where the Court held that a nonsignatory may be obligated to arbitrate, "if so dictated by the ordinary principles of contract and agency." ¹ The Court in RUAG held that the five test theories laid out in Truck Insurance Exchange, (1) incorporation by reference, (2) assumption, (3) agency, (4) veil-piercing/alter ego, and (5) estoppel, also apply where a nonsignatory to an arbitration agreement seeks to compel another nonsignatory to arbitrate.² Where any one of the five theories are satisfied, a nonsignatory to an arbitration agreement may compel another nonsignatory to arbitrate.³   

The Court noted however, consistent with the burden a party bears to compel arbitration, “where a nonsignatory to a contract containing an arbitration provision moves to compel another nonsignatory to arbitrate, the nonsignatory seeking to compel arbitration must demonstrate the right to enforce the arbitration agreement and show, in law or equity, that compelling the other nonsignatory to arbitration is warranted.”⁴

Finally, the Court addressed the effect of delegation provisions within arbitration agreements where nonsignatories are involved in motions to compel arbitration.⁵ Courts are split as to whether the enforceability of an arbitration agreement by or against a nonsignatory is a question of arbitrability delegable to an arbitrator under a delegation clause.⁶ After reviewing caselaw from federal and state jurisdictions, the Court in RUAG concluded that where a nonsignatory is involved in a motion to compel arbitration the question is not one of arbitrability reserved for an arbitrator under a delegation clause.⁷ Rather it is a question of contract formation which is properly reserved for the courts because where a nonsignatory is involved in a motion to compel, “there is a question as to the very existence of an agreement involving the nonsignatory.”⁸

Key Points:

• A nonsignatory to an arbitration agreement may compel another nonsignatory to arbitrate under Nevada law.
• The question of whether a nonsignatory is bound by, or may invoke, an arbitration provision to compel another nonsignatory to arbitrate is not a question of arbitrability for an arbitrator even where a delegation provision exists. It is a question of contract formation by and between nonsignatories resolved by the courts.
• Common law principles of contract, agency and equitable theories will govern a court’s determination of whether an agreement exists to arbitrate when nonsignatories are involved.
• Specifically, those principles are (1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; and (5) estoppel.

The Takeaway:

Where companies within the same group (parent, affiliates, subsidiaries, etc.) are involved in a common enterprise, counsel should consider whether to bind nonsignatories to an arbitration agreement or to exclude them and clearly express their decision in any arbitration agreement used. Companies should be aware that taking on obligations or performing under a contract may bind them to any arbitration agreement in that contract.

Footnotes:

1. 124 Nev. 629, 634, 189 P.3d 656, 660 (2008). [Back]

2. Ruag, 139 Nev. Adv. Op. 48, at *4 (citing Truck Insurance Exchange, 124 Nev. at 634, 189 P.3d at 660). [Back]

3. Id. [Back]

4. Id. at *6. [Back]

5. Id. at *3-4. [Back]

6. Id. at *3 (citing examples of cases). [Back]

7. Id. at *4. [Back]

8. Id. (emphasis in original). [Back]