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Non-signers not bound to arbitrate
February 05, 2006 by Ross Runkel at LawMemo

Two recent cases, same results, different reasons, both saying that a person who did not sign an arbitration agreement is not bound to arbitrate.

Perhaps the outcomes are obvious to you. They were not obvious to me.

Peters v. Columbus Steel (Ohio Ct App 01/31/2006): An employee leasing company hired William Peters to work at Columbus Steel. William signed an arbitration agreement. After William died from on-the-job injuries, Alice Peters (his widow and administrator of his estate) sued Columbus claiming wrongful death.

The court held that Alice was not required to arbitrate her claim. The court's focus was on the nature of Alice's claim. Her claim is not one that is on behalf of William's estate. Her claim is an independent claim on behalf of William's next of kin. Therefore, the fact that William agreed to arbitrate his claims does not mean that Alice is required to arbitrate her claims.

Comer v. Micor, Inc (9th Cir 02/01/2006): Comer was a participant in two ERISA plans operated by Micor. The plan trustees retained Smith Barney to provide investment advice, and the agreement between the trustees and Smith Barney contained an arbitration clause.

Comer sued Smith Barney under ERISA claiming breach of fiduciary duty. Although such a suit is brought by an individual plan beneficiary, the suit is for the benefit of the plan and any recovery is on behalf of the plan as a whole.

It's important to understand that the 9th Circuit made it clear that Comer was not suing in a derivative capacity. Although any recovery from his suit will go to the plan, Comer has his own cause of action. (Similar to the Peters case discussed above.)

Once we make it clear that Comer had his own cause of action, it's equally clear that he is not bound by the arbitration agreement signed by the trustees. The 9th Circuit used what it considers to be ordinary contract principles to decide that Smith Barney cannot impose the arbitration clause on Comer.

A word of caution: These two cases are not based merely on the fact that the plaintiffs did not sign an arbitration agreement. Arbitration agreements can be enforceable without an actual signature, provided it can be shown that an individual agreed to arbitrate. These two cases are both based on the principle that the plaintiffs' claims were not derived from the claims owned by the party that did agree to arbitrate. The plaintiffs each had their own claims.

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