MARYLAND STATE BAR ASSOCIATION
MARYLAND BAR BULLETIN
November 2018
Alternative Dispute Resolution Edition

I DIDN’T SIGN IT!
Compelling Non-Signatories to Contracts into Arbitration

Kenneth A. Vogel, Esq.

	“But I did not sign the contract!” the client exclaims.  “How can I be forced into arbitration?”	This question occurs when a claimant initiates an arbitration proceeding against someone who did not sign a contract which has an arbitration provision. 
	Arbitration is a voluntary procedure.  Parties agree to binding arbitration by contract before the dispute arises.  How can someone be involuntarily compelled to arbitrate a dispute?   One can enter arbitration either as a claimant (plaintiff) or as a respondent (defendant) including becoming a counter-claimant.  
	Voluntary joinder is available.  If two parties sign a contract which requires arbitration, and if the claimant wants to pursue his claim against a non-signatory, as a general rule he cannot.  For example, assume that the claimant wants to go after a LLC and its managing member based on a piercing the corporate veil theory or other theory of relief.  The Claimant would have to file an arbitration and also file a separate lawsuit against the managing member to seek either a judicial order to compel the managing member to join the arbitration.  Or, the claimant can file a lawsuit to obtain relief against the managing member in a separate court proceeding.   The managing member might decide to voluntarily join the arbitration as a co-respondent in order to avoid the expense of defending against two separate legal actions - one in the arbitration and one in court.  Joining the arbitration also avoids public knowledge of the dispute, privacy not afforded in civil lawsuits. 
	Non-signatories may be joined in matters where multiple independent contracts or multiple parties are involved.  This can occur when some of the parties to an agreement containing an arbitration clause and the contracting party are members of a group of companies  or where the parent or its subsidiaries are involved in the same commercial transaction, even though they are not all parties to the specific contract at issue.
	Involuntary joinder is rare.  It occurs when a party is dragged into arbitration without his explicit consent.  For example, the author acted as the arbitrator in a construction dispute.  The contractor company filed an arbitration demand against a homeowner who refused to pay its bill.  The homeowner responded by filing a counter-claim against the contractor and its corporate president personally.  In addition, the homeowner respondent filed a complaint against the company and the corporate president individually with the Maryland Home Improvement Contractor Commission (MHIC).  The contractor’s response to the MHIC was that an arbitration was pending which would resolve all disputes against all parties.  In other words, the contractor used the company’s arbitration demand to shield its president individually from MHIC’s investigation of the homeowner complaint.  The contractor also filed an answer to the counterclaim and actively defended against the counterclaim.
	The tide of the arbitration was going against the contractor.  After much litigation, and a replacement set of attorneys, the contractor moved to dismiss the arbitration against him personally based on his not being a signatory to the construction contract in his individual capacity.  As the arbitrator, I issued an Order in which I noted that the contractor misled MHIC about the nature of the arbitration and that the contractor participated in the litigation for an extended period of time without ever raising the defense that he was personally not a party to the contract.  I found that he had voluntarily submitted himself to the jurisdiction of the proceeding. The legal theories behind this decision are assumption and waiver.  My decision was upheld on the contractor’s appeal to the Montgomery County Circuit Court. 
	The American Arbitration Association (AAA) Construction Rule 9(a) and JAMS Rule 8(b) purport to give an arbitrator the authority to determine jurisdictional disputes as to who is a proper party to the arbitration.   But can he?  Just because an arbitrator decides that a non- consenting non-party to a contract can be forced into arbitration does not make it so. 
	Only a court can compel a non-signatory to a contract to arbitrate. An arbitrator does not have the authority to decide the issue of arbitrability when the parties have not “clearly and unmistakably” agreed to submit that issue to the arbitrator. The question of arbitrability is to be decided by courts, not the arbitrators themselves. The Supreme Court stated that absent an agreement to the contrary, the question of arbitrability should be decided by the court, rather than the arbitrator just as it would decide any other question that the parties did not submit to arbitration, namely, independently.
	A court might compel a non-signatory to arbitrate if the non-signing person has personally guaranteed performance under a contract with an arbitration clause.  Courts can look at other legal theories such as third-party beneficiary and veil piercing/alter ego.  Arbitrators cannot.
	When a party is involuntarily brought into an arbitration against its will, it needs to immediately decide if it wants to participate in the arbitration, or contest jurisdiction.  Unless the protest is fast, loud and clear, the reluctant respondent may find itself stuck in that forum against its will.
The author wishes to thank members of the MSBA Construction Law Section e-mail discussion list for their invaluable insights on this topic.  He also thanks his editor, his wife. 
Kenneth A. Vogel, Esq. practices business law and civil litigation in Maryland and Washington, DC.  He is also the Maryland and DC state representative of Construction Dispute Resolution Services, an international provider of mediation and arbitration services.