Nonsignatory Party Entitled to Enforce Arbitration Agreement

Usually a party has to sign a contract in order to be able to enforce it. It seems simple enough, right? That isn’t always the case, however, and that can be good news for parties that have some relationship to a dealer’s sale and financing agreements, even though their signatures don’t end up appearing on the bottom line.

A recent case out of Minnesota provides an example. Joan Lindsley and Dodge of Blaine, Inc. entered into a retail installment contract for the purchase of a 2003 Dodge Stratus. The contract, which contained an arbitration provision, was assigned to Chrysler Financial.

Lindsley fell behind on her payments, and her vehicle was repossessed by MFR, a repossession company, and its alleged agents, Thomas Kingore and Anthony Cady. Lindsley sued, alleging that Chrysler Financial, the MFR defendants, and Bramacint, a debt collector, repossessed her car without the required written notice and, in the process, trespassed on her property and assaulted and battered her. (Yikes!)

Chrysler Financial and MFR both moved to compel arbitration of Lindsley's claims. Chrysler Financial and MFR asserted that Lindsley’s claims against MFR, Kingore, Cady, and Bramacint arose out of the contract between Lindsley and Chrysler Financial and that the broadly worded arbitration clause encompassed all disputes arising out of or relating to the contract.

MFR asserted that even though it had not signed the arbitration provision, it was entitled to enforce it. Lindsley argued that MFR was not privy to the contract and that MFR never signed the contract or agreed to arbitrate potential disputes.

The U.S. District Court for the District of Minnesota concluded that MFR was entitled to elect arbitration. Referencing another case for authority, the court determined that a non-signatory to an arbitration agreement can, under certain circumstances, compel arbitration under an agreement. In particular, the court noted, a signatory may be bound with a nonsignatory "at the nonsignatory's insistence" if there is a close relationship between the involved entities and a relationship between the alleged wrongs and the nonsignatory's duties under the contract.

The court, noting that MFR and Kingore had elected arbitration, determined that the claims against them should be submitted to arbitration. Because Bramacint and Cady had not elected arbitration, the court determined that Lindsley’s claims against them should remain before the court. The court also granted Chrysler Financial’s motion to stay Lindsley's entire lawsuit pending a resolution in arbitration.

So if you are involved on the edges of a dealer’s sales financing agreement with a customer, and if that agreement contains an arbitration agreement you’d like to be able to enforce, don’t assume that you are out of luck just because you haven’t signed it. There are exceptions to every rule, and your lawyer might be able to convince a court that you’re entitled to enforce that agreement you didn’t sign!

Vol. 3, Issue 4