Arbitration: Can a Non-Signatory Compel Arbitration by Signatory Under AAA Rules (Web)

Contec Corp. v. Remote Solution Co:  Arbitrator should decide whether a valid arbitration agreement existed between signatory and non-signatory.
 
Whether Non-Signatory can Compel Arbitration by Signatory Under AAA Rules is Issue for Arbitrator
 
            On February 14th, 2005, the Second Circuit held that the issue of arbitrability between a signatory and non-signatory should be decided by the arbitrator where there is clear and unmistakable evidence of the signatory’s intent to submit the question to the arbitrator.  The decision follows reasoning used previously by the First Circuit, and rejects the Federal Circuit’s analysis of the issue.
 
            The Court recognized a split of circuits between the First Circuit’s decision in Apollo Computer v. Berg and the Federal Circuit’s recent holding in Microchip Tech. Inc. v. U.S. Philips.  The First Circuit held that the arbitrator should decide the question of arbitrability because the party seeking to avoid arbitration, here the signatory, “agreed to be bound by provisions that clearly and unmistakably allowed the arbitrator to determine her own jurisdiction.” Contec Corp. v. Remote Solution Co., Ltd., 2005 WL 334707 at *5 (2nd Cir. 2005), citing Apollo Computer v. Berg, 886 F.2d 469 (1st Cir. 1989).  Meanwhile, in Microchip, the Federal Circuit found that the determination of whether a manufacturer was a successor party to the licensee under an arbitration agreement between the licensee and the patent holder was a threshold question that the district court was required to determine before any issue could have been referred to arbitration under that agreement, even though the party opposing arbitration argued that it was bound by the agreement containing the arbitration clause.  Microchip Tech. Inc. v. U.S. Philips Corp., 367 F.3d 1350, 1356-58 (Fed.Cir. 2004).
 
            In many ways, the dispute concerns whether the court should look to the arbitration agreement itself in finding clear and unmistakable evidence.  In Contec, the Second Circuit carefully detailed the use of AAA Arbitration Rules in the arbitration clause, and relied on Rule 7 of the AAA Commercial Arbitration Rules as the clear and unmistakable evidence that the signatory agreed to submit the arbitrability issue to the arbitrator.  Rule 7(a) states that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.”
 
            In limiting the application of this standard where non-signatories are involved, Judge Oakes, writing for the panel, observed that the court “must first determine whether the parties have a sufficient relationship to each other and to the rights created under the agreement.”  Contec, at *3.  In this case, Remote Solution and Contec L.P. entered into a contract in 1999 containing the arbitration clause.  Later, Contec L.P. was converted to Contec LLC and thereafter merged with Contec Corporation.  In the present case, Contec Corporation seeks to enforce the arbitration agreement and require Remote Solution to arbitrate against Contec.  Remote Solution argued that Contec Corporation’s right under the 1999 Agreement, if any, fell outside the arbitration clause.
 
            The Court held that a sufficient relationship between the parties existed to require Remote Solution to arbitrate the arbitrability issue.  Judge Oakes reasoned that the relationship between Remote Solution and each corporate form of Contec, the status of Remote Solution as a signatory, and the fact that the dispute arose because of the parties continued conduct under the 1999 Agreement satisfied the “sufficient relationship” test.
 
            The opinion and be found at Contec Corp. v. Remote Solution Co., Ltd., 2005 WL 334707 (2nd Cir. 2005).  It is also available at: http://www.ca2.uscourts.gov:81/isysnative/RDpcT3BpbnNcT1BOXDA0LTAzODItY3Zfb3BuLnBkZg==/04-0382-cv_opn.pdf
 
Keywords: Arbitration, Clauses