On remand from the U.S. Supreme Court, the Ninth Circuit Court of Appeals considered in Setty v. Shrinivas Sugandhalaya LLP the question whether non-signatories to an agreement may use state law doctrines, such as equitable estoppel, to compel arbitration. Although the Ninth Circuit recognized that non-signatories may have the power to compel arbitration using equitable estoppel under certain circumstances, it ultimately found that the defendant in this particular case was unable to do so.
The underlying case arose from a failed business relationship between two brothers, Balkrishna and Nagraj Setty. While they were in business together, the brothers had personally entered into a partnership agreement that required them to arbitrate disputes related to partnership rights. Eventually, the brothers parted ways, and each brother formed his own company. After Balkrishna Setty and his company (SS Bangalore) brought suit against Nagraj Setty’s company (SS Mumbai) for trademark infringement, SS Mumbai sought to compel arbitration based on the arbitration provision in the brothers’ partnership agreement.
The lower court denied SS Mumbai’s motion to compel, finding that only the brothers (and not their companies) were signatories to the partnership agreement, and Nagraj Setty was not a named defendant in the lawsuit. The Ninth Circuit upheld the lower court’s decision, holding that SS Mumbai could not equitably estop SS Bangalore from avoiding arbitration. SS Mumbai appealed to the Supreme Court.
The Supreme Court remanded the case for further consideration following its recent decision in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, which ruled that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards does not conflict with domestic equitable estoppel doctrines permitting enforcement of arbitration agreements by non-signatories.
On remand, the Ninth Circuit reaffirmed its earlier decision denying the motion to compel. The court stated that for equitable estoppel to apply in the arbitration context, “it is essential … that the subject matter of the dispute [is] intertwined with the contract providing for arbitration.” The court found that SS Bangalore’s claims against SS Mumbai for trademark infringement were not clearly “intertwined” with the brothers’ partnership agreement providing for arbitration, and thus SS Mumbai, a non-signatory defendant, lacked the power to compel arbitration in this matter.
