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Under what circumstances will a non-signatory to an arbitration agreement be bound to arbitrate?

11/8/2017 | Construction Blog

Two recent decisions deal with this sometimes perplexing problem.  In Burns v. Sky Zone, the Pennsylvania Superior Court affirmed the trial court’s order denying preliminary objections seeking to enforce an arbitration agreement against an injured party whose spouse had signed an arbitration agreement in his name.  To be bound to arbitrate, the Superior Court ruled, the non-signatory must have had an agency relationship with the signatory based upon (1) express authority, (2) implied authority, (3) apparent authority, and/or (4) authority by estoppel.  Finding no proof of agency under any of these bases, the Superior Court held that the non-signing spouse had no duty to arbitrate. In Scottsdale Ins. Co. v. Kinsale Ins. Co., the United States District Court for the Eastern District of Pennsylvania compelled an insurance company to arbitrate under an arbitration clause in another insurer’s policy.  The Court observed that a non-signatory cannot be bound to arbitrate unless it is bound under traditional principles of contract and agency law to be akin to a signatory of the underlying agreement, and that equitable estoppel in this context arises when a non-signatory to an arbitration clause knowingly exploits the agreement containing the arbitration clause despite having never signed the agreement.  These two cases underscore the complex factual and legal issues to be analyzed in deciding whether and when a non-signatory must arbitrate.