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  • Writer's pictureRobert Lusk

Ninth Circuit Permits Non-Party to Enforce Arbitration Agreement

Arbitration agreements are contracts. So, generally speaking, arbitration agreements cannot be enforced by non-signatories, i.e., entities that are not a party to the contract. The Ninth Circuit recently identified an exception to this rule in Franklin v Community Regional Medical Center, Case No. 19-17570 (October 22, 2020).

The plaintiff in that case, Isabelle Franklin, was a nurse who was employed by a staffing agency, United Staffing Solutions, Inc. (USSI). Franklin’s agreement with USSI required her to arbitrate “all disputes that may arise out of or be related to [her] employment, including but not limited to the termination of [her] employment and [her] compensation.” USSI assigned Franklin to work at Community Regional Medical Center (the Hospital), in Fresno, California. Franklin’s assignment at the Hospital was facilitated by yet another company, Comforce Technical Services, Inc., which had a staff placement contract with the Hospital. Significantly, neither Comforce nor the Hospital had any contract with Franklin.

Franklin worked at the Hospital for two months and, later, filed a class action lawsuit alleging the Hospital had violated the Fair Labor Standards Act (FLSA) and related California statutes. The trial court granted the Hospital’s motion to compel arbitration and dismissed Franklin’s complaint. Franklin appealed arguing, among other things, the trial court erred because the Hospital was not a party to her arbitration agreement with USSI and, therefore, could not enforce it. Nevertheless, the Ninth Circuit affirmed the trial court’s decision.

The Ninth Circuit explained that because Franklin’s claims against the Hospital were so intimately founded in and intertwined with her contract with USSI she was equitably estopped from avoiding the arbitration agreement in her USSI contract. Put differently, due to the close relationship between Franklin’s contract with USSI and her claims against the Hospital, California’s equitable estoppel doctrine prohibited her from asserting the general rule barring a non-signatory or a non-party from compelling arbitration. See, Arthur Anderson LLP v Carlisle, 556 US 624 (2009). The Ninth Circuit characterized California’s equitable estoppel doctrine as follows:

The doctrine [of equitable estoppel] prevents a party from playing fast and loose with its commitment to arbitrate, honoring it when advantageous and circumventing it to gain undue advantage …. [W]here a party to an arbitration agreement attempts to avoid that agreement by suing a ‘related party with which it has no arbitration agreement, in the hope that the claim against the other party will be adjudicated first and have preclusive effect in the arbitration[,] [s]uch a maneuver should not be allowed to succeed.

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