Legal Memorandum: Arbitration Agreement and Third-party Beneficiary

Issue: May persons who are not parties to an arbitration agreement be bound by that agreement?

Area of Law: Alternative Dispute Resolution, Business Organizations & Contracts
Keywords: Arbitration agreement; Third-party beneficiary
Jurisdiction: Alabama, Federal, Texas
Cited Cases: 514 U.S. 938; 81 F. Supp. 2d 688; 823 F.2d 145
Cited Statutes: None
Date: 08/01/2000

“[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”  AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648 (1986) (citation omitted).  A court must first decide whether a valid arbitration agreement exists, then it must decide whether the dispute is within the scope of the agreement.  Cricchio v. Dyckman, 82 F. Supp. 2d 626, 629 (E.D. Tex. 2000).  In deciding whether an arbitration agreement exists, courts apply ordinary state common law governing the formation of contracts, keeping in mind the federal policy favoring arbitration.  Jones v. Fujitsu Network Communications, Inc., 81 F. Supp. 2d 688, 690-91 (N.D. Tex. 1999) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)).  See Boyd v. Homes of Legend, Inc., 981 F. Supp. 1423, 1431 (M.D. Ala. 1997) (using Alabama law to decide whether mobile home manufacturer could enforce arbitration agreement as third-party beneficiary).

In one case, the Fifth Circuit refused to compel arbitration on a third-party defendant’s claim against the plaintiff because there was no agreement between them.  Del E. Webb Constr. v. Richardson Hosp. Auth., 823 F.2d 145 (5th Cir. 1987).  In that case, a construction contractor sued a property owner, who in turn impleaded an architect.  The property owner had separate contracts with both the contractor and the architect that included an arbitration […]

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