Binding Non-Signatories to Arbitral Agreements

Persons who are not parties to the arbitral agreement may be bound by it in certain circumstances, See Yarn & Jones, ADR in GA, 9:14, n. 33 - 34 (2006). Following in line with the strong federal policy favoring arbitration, Georgia courts have established that arbitration will be enforced on non-signatories to an arbitration clause in at least six distinct situations. The six theories of binding non-signatory parties to arbitrate a dispute are as follows:


1. Equitable Estoppel: a non-signatory’s claims arise out of and relate directly to the contract or when the claims are “intimately founded in and intertwined with the underlying contract obligations” then non-signatories are bound to arbitrate.
In re Tom Watson v. BDO Seidman LLP, 2006 WL 1566968, McBro Planning and Development v. Triangle Electrical, 741 F.2d 342.
This also applies in the reverse. Such as when a signatory to a contract with an arbitration clause makes a claim arising out of that contract against a non-signatory, the signatory must arbitrate the claim with the non-signatory. MS Dealer Serv. Corp. V. Franklin, 177 F.3d 942 (11th Cir 1999), Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753 (11th Cir. 1993)
2. Corporate Veil Piercing/Alter Ego: Corporate entities are bound when there is a close affiliation, the party has voluntarily participated in particular events giving rise to the controversy, played an active role in the controversy, or when the interests are directly related to and congruent with those of a signatory. Parent companies are bound to arbitrate even if non-signatories when the claims are “inextricably intertwined” and arise out of the same set of facts. The Variable Annuity Life Insurance Company, 2006 WL 1737443, Comvest, L.L.C. v. Corporate Securities Group, Inc., 234 Ga.App. 277 (1998).
3. Agency: An agent who is acting lawfully and within the scope of her authority may bind the principal to arbitrate even when signed in individual capacity and not under seal.
Cochran v. Grand Theater Co., 29 Ga.App 481 (1923)
4. Assumption: A non-signatory party may be bound by the arbitration clause if the contract shows it was intended for a third-party’s benefit and/or the non-signatory ratified the contract under the general principles of contract law (ie. making payment or accepting benefits). Lankford v. Orkin Exterminating Company, 266 Ga.App. 228 (2004).
5. Assignment/Assignee of contract: An assignee of a contract acquires its rights from the assignor and is presumed to know the terms of the contract. M. Homes, LLC v. Southern Structural, 281 Ga. App. 380
6. Incorporation by reference: Where a contract incorporates by reference another contract containing an arbitration clause, a non-signatory is bound to arbitrate. ADC Construction Company v. McDaniel Grading Inc., 177 Ga.App. 223