Third Party Beneficiary To Arbitration Agreement

As a general rule, only a party to an arbitration clause and a third party beneficiary can impose it. A non-party cannot do so except in certain circumstances. One of these circumstances is freedom of choice. Where a party signs the arbitration agreement as an agent for a client, the contracting authority shall have the right to enforce that agreement. They argued that the investors` claims – that they were third party beneficiaries of the contracts – bound them to the contractual obligation to settle all disputes that were “arising out of or related to those contracts” – even though they were not signatories. On the other hand, investors invoked the general principle that a party that has not signed an arbitration agreement cannot be compelled to do so. The First Circuit confirmed that there was no legal basis to compel Hogan to go to arbitration if the clear terms of the agreement showed that Hogan had not agreed to settle his claims against SPAR. The Court states that SPAR was not a third party beneficiary of the agreement. In order to determine whether a party is a third-party beneficiary, a court reviews the specific terms of the contract to determine the intention of the parties. The Tribunal explained here that the plain language of the arbitration clause limits its applicability to the signatories, covering only disputes between “the parties”, so that it is clear that it does not confer any right of arbitration on SPAR or any other third party. In addition, the court found that Hogan had not been unfairly prevented from avoiding arbitration of his claims against SPAR.

Federal courts were willing to dissuade a signatory from avoiding arbitration with a non-signatory if the issues to be resolved in the arbitration proceedings were related to the agreement signed by the arrested party. The court explained that Hogan`s claims were based on The Massachusetts Wages and Hours Act and not the agreement and were therefore not sufficiently related. The Connecticut Federal District Court ruled that the arbitration agreement in the Burrs` franchise claim required arbitration of the state court`s claims against the development agents, although the agents are not parties to the arbitration agreement. In 2004, Parker Family LP v. BDO USA LLP, 2020 Slip Op 50614 (U), the plaintiffs, investors of certain funds that suffered significant losses, sued the auditors of the funds. Investors were negligent in preparing the audit, supporting and facilitating the breach of the fiduciary duty of the fund managers and ultimately failing to comply with their contractual obligation to properly audit the funds, thereby breaching their contractual obligations. The investors claimed that they were “third party beneficiaries” of the order letters, i.e. contracts, between the funds and the statutory auditors for the annual audit services. Plaintiff James Thompson (“Thompson”) brought an action against defendant Sutherland Global Services, Inc.

(“Sutherland”) under the Telephone Consumer Protection Act, 47 U.S.C§ 227, based on unwanted phone calls Thompson allegedly received from Sutherland after Thompson signed up for AT&T`s U-verse Internet service. Sutherland was a calling services company mandated by AT&T to call AT&T customers. Sutherland forced arbitration on the basis of an arbitration agreement that was contained in the Terms of Use accepted by Thompson. Thompson argued that Sutherland could not invoke its protection as a non-signatory to the corresponding arbitration agreement. The Tribunal found that the scope of the clause included the intentional infringements allegedly alleged because all of them arose from the Burrs` candidacy for a franchise. Similarly, the court found that the absence of the Marwahas in the arbitration contract was not available. The provision of the Court of Arbitration contained a broad reference to claims that might include claims against non-contracting parties. The clause did not limit the Burrs to arbitration proceedings only against the parties to the agreement. . .

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