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Arbitration is not just for those who have agreed…

We all know that public policy, legislation and the courts favor enforcement of agreements to resolve disputes by arbitration rather than litigation.  The Federal Arbitration Act, and the states’ laws providing for enforcement of arbitration agreements, tilt the scales heavily toward requiring the parties that sign arbitration agreements to actually do so.  But, somewhat surprisingly, even parties who have not signed arbitration agreements can benefit from arbitration agreements, or be forced to arbitrate against their will.

The Fifth Circuit, in Crawford Professional Drugs, Inc. v. CVS Caremark Corporation, 2014 U.S. App. LEXIS 6282 (decided 4/4/14) recently required plaintiffs, 23 owners and operators of Mississippi drug stores, to submit their claims against defendants, operators of the second largest chain of pharmacies and the largest pharmacy benefit-management (“PBM”) network, even though only two of plaintiffs had executed a written arbitration agreement with one of the defendants.  The other plaintiffs had executed an arbitration agreement with an affiliate of the defendants, but which was not a party.  Three of the defendants had not executed an arbitration agreement, of any kind, with the plaintiffs.

Citing Arthur Andersen, LLP v. Carlisle, 556 U.S. 624, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009), the Fifth Circuit held that traditional principles of state contract law (Arizona), i.e. equitable estoppel, allowed the enforcement of arbitration agreements by or against non-signatories to the agreement.  Thus, plaintiffs’ claims that defendants misappropriated common law trade secrets, intentionally and wrongfully interfered with business relationships, and violated the Mississippi Any Willing Provider Law, had to be resolved by a single arbitrator appointed by the AAA, rather than a federal court.

William R. O'Bryan, Jr.