No Arbitration Agreement With the Plaintiff? No Problem: Making a Dispute Arbitrable by Use of Equitable Estoppel Doctrine (the Doctrine of "intertwining")
| Publication year | 2013 |
| Pages | 0181 |
In the usual case decided by an arbitrator, both the plaintiff and the defendant are signatories to a pre-dispute arbitration agreement. There are many circumstances, however, in multi-defendant consumer litigation where a defendant-one who is a not a signatory to an arbitration agreement with the plaintiff-may still compel arbitration if the plaintiff is a signatory to an arbitration agreement with another defendant.1 By virtue of the doctrine of equitable estoppel, an arbitration signatory plaintiff may be estopped from denying that the arbitration agreement extends to the nonsignatory defendant.
In the context of arbitration agreements, when used by a nonsignatory defendant to compel a signatory plaintiff into arbitration, the doctrine of equitable estoppel has been called the doctrine of "intertwining." This catchname appears to have become associated with the equitable estoppel doctrine in Alabama case law based upon language in the opinion of the Eleventh Circuit Court of Appeals in McBro Planning and Development Co. v. Triangle Electric Construction Co., 741 F.2d 342 (11th Cir. 1984), where that term was used to describe the connection between the signatory plaintiff's claims against the nonsignatory defendant and the arbitration agreement the plaintiff had entered into with someone else.2
In McBro, the Eleventh Circuit Court of Appeals held that a district court correctly granted a motion to compel arbitration of the claims that Triangle, a contractor, had brought against McBro, a construction manager, even though there was no arbitration agreement directly between those two parties. The Court based its ruling on the fact that both plaintiff Triangle and defendant McBro had separately entered into arbitration agreements with a third-party building owner in relation to the project, and that the claims alleged by Triangle against McBro related to the duties McBro owed to the building owner. The Eleventh Circuit noted that in similar circumstances another federal court of appeals had applied the doctrine of equitable estoppel and ordered arbitration because the plaintiffs' claims were "intimately founded and intertwined with the underlying contract obligations" that were subject to arbitration.3
Early Judicial Resistance in Alabama
In 1995, the United States Supreme Court ruled that Alabama's statute prohibiting enforcement of pre-dispute arbitration agreements was against public policy because Section 8-1-41(3) of the Alabama Code was preempted by the Federal Arbitration Act, 9 U.S.C. § 1 et seq.4 Until that time, there was little Alabama state law precedent for the multitude of questions that can arise in relation to enforcement of arbitration agreements, and so it is not surprising that, in the first years thereafter, the Alabama Supreme Court struggled in determining the strength of the equitable doctrine of intertwining as a basis for nonsignatories to compel arbitration.
The Alabama Supreme Court's early opinions on the subject were not favorable to the nonsignatory defendant seeking to compel arbitration of a dispute with an arbitration signatory plaintiff.5 Ex parte Jones, 686 So. 2d 1166 (Ala. 1996), is a good example of the Alabama Supreme Court's early position that the nonsignatory defendant lacked standing to enforce an arbitration agreement that the plaintiffs had entered into with others.6 In Jones, the plaintiffs entered into a loan agreement to borrow money to purchase a used automobile. The loan agreement contained an arbitration provision. The lender and its loan officer then procured a single-premium collateral insurance policy to cover the automobile and the amount of the premium was financed in the auto loan. The automobile was later destroyed by fire and the insurer paid the plaintiffs substantially less than the auto's value, resulting in a lawsuit against the lender, loan officer and the insurer. The trial court ordered the plaintiffs' claims against all the defendants to be arbitrated, based on the arbitration clause in the plaintiffs' loan agreement. The Alabama Supreme Court, however, reversed the order compelling arbitration of the claims against the insurer reasoning that the insurer had "no standing to seek enforcement of the arbitration provision" because the insurer was not a signatory to the first agreement and only came into the transaction through a separate agreement. Thus, in effect, the court equated the doctrine of intertwining with third-party beneficiary status of the nonsignatory defendant to the plaintiff's contract that contained the arbitration provision. This reasoning conflicted with federal precedent on the intertwining doctrine and was abandoned by the court just two years later.
Acceptance and Development of the Doctrine of "Intertwining"
Ex parte Napier, 723 So. 2d 49 (Ala. 1998), is the first case which clearly signals the Alabama Supreme Court's acceptance of the doctrine of intertwining as a means by which a nonsignatory defendant, absent third-party beneficiary status, could enforce an arbitration agreement contained in the plaintiff's agreement with other defendants.7 The plaintiffs in Ex parte Napier were the purchasers of a mobile home who sued the mobile home dealer and their lender, as well as an insurer and the insurance agent, alleging fraud in relation to the sale of the mobile home and a related insurance policy.8 The sales contract, which also included the terms of the installment purchase loan, contained an arbitration provision, and was the basis for the defendants' motion to compel arbitration.9 The trial court granted the motion and the plaintiffs appealed to the Alabama Supreme Court, arguing that the trial court had erred in ordering them to arbitrate with the insurer and its agent, who were not signatories to the...
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