Kim Kardashian and Tiger Woods are international celebrities, and they have something else in common. Both have been involved in disputes regarding arbitrating with nonsignatories to an arbitration agreement.
The idea of arbitrating with someone who did not sign an arbitration agreement is counter intuitive to many lawyers (and parties). Commercial arbitration is a creature of contract; consequently, without a written arbitration agreement, a party cannot be required to arbitrate a dispute. The U.S. Supreme Court stated: “[A]rbitration is a matter of contract, and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”[1] As with many legal rules, there are exceptions.
The Federal Arbitration Act (FAA)[2] requires arbitration agreements to be in writing but does not require a party to sign the arbitration agreement to be bound. As stated in Fisser v. International Bank, “It does not follow … [that] an obligation to arbitrate attaches only to one who has personally signed the written arbitration provision.”[3] State contract law principles apply to determine whether a contract can be enforced by or against nonparties.[4]
Kim Kardashian and her sisters Khloe and Kourtney were sued in federal court in Florida in a trademark dispute regarding their Khroma Beauty cosmetics brand. Although not a party to the arbitration agreement, they moved to compel arbitration, alleging equitable estoppel. Florida law, which applied here, permits non-signatories to compel arbitration using equitable estoppel if they can show that (1) the signatory relies on the agreement to assert claims against the nonsignatory and (2) the arbitration provision covers the dispute.[5] The court denied the motion to compel because the arbitration clause was explicitly limited to “disputes arising between” the contracting parties.[6] Since the arbitration agreement did not cover the Kardashians’ dispute, they could not compel arbitration using equitable estoppel.
In the Tiger Woods case, a nonsignatory trust successfully used equitable estoppel to compel arbitration (at the trial court level). Woods’ former girlfriend Erica Herman filed a complaint[7] against the Jupiter Island Irrevocable Homestead Trust, the owner of Woods’ residence in Florida, seeking damages under the Florida residential landlord/tenant law for alleged breach of an oral tenancy agreement for the residence. The trust moved to compel arbitration based on a nondisclosure agreement (NDA) between Woods and Herman to which the trust was not a party. The NDA’s arbitration clause provided that “the exclusive manner of resolution of any and all disputes, claims or controversies arising between [Herman and Woods] of any nature whatsoever … shall be resolved by mandatory binding confidential Arbitration to the greatest extent permitted by law.”[8]
The trust asserted that, under Florida law, such broad language could include claims against nonsignatories[9] and that Herman was estopped to avoid arbitration with the trust because the issues to be arbitrated were intertwined with the NDA and its arbitration clause.[10] The court granted the motion to compel arbitration in this case and a related case; the order is on appeal[11].
Nonsignatories’ rights to compel arbitration also arise in international contracts. In GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC,[12] Outokumpu, the owner of a manufacturing plant, sued GE, a subcontractor that provided motors to the plant, for damages related to the motors’ nonperformance. GE moved to compel arbitration under the owner-general contractor agreement. GE was not a party to that contract but was included in the definition of a “party.” The 11th Circuit held that under the New York Convention,[13] GE could not compel arbitration because it was not a signatory. Overruling the 11th Circuit, the U.S. Supreme Court held the New York Convention does not conflict with nonsignatories’ enforcement of arbitration agreements under domestic-law equitable estoppel doctrines. On remand, the 11th Circuit upheld GE’s right to compel arbitration.[14]
These cases highlight the importance of carefully drafting arbitration clauses, whether for international celebrities, global corporations or others, to state clearly who and what types of disputes are subject to arbitration.
[1] AT&T Technologies, Inc. v. CWA, 475 U.S. 643, 648 (1986).
[2] 9 U.S.C. § 1-14.
[3] 282 F2d 231 (2d Cir.1960).
[4] Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631, (2009). These principles are assumption, agency, piercing the corporate veil/alter ego, incorporation by reference, third party beneficiary, and waiver and estoppel. For further discussion see: Michael P. Daly, Come One, Come All: The New and Developing World of Nonsignatory Arbitration and Class Arbitration, 62 U. Miami L. Rev. 95 (2007); https://repository.law.miami.edu/umlr/vol62/iss1/4
[5] Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc., 845 F.3d 1351 (11th Cir. 2017).
[6] Id.
[7] Case No.: 2022-928CA, In the Circuit Court of the Nineteenth Judicial Circuit in and for Martin County, Florida.
[8] Id. Defendant’s Motion to Compel Arbitration and to Stay the Claims Against the Defendant filed 12/20/22 at p. 7.
[9] Id. Citing Kratos Invs. LLC v. ABS Healthcare Servs., LLC, 319 So. 3d 97, 102 (Fla. 3d DCA 2021).
[10] Id. At p. 8. Also, there was a pending arbitration between Mr. Woods and Ms. Herman.
[11] Herman v. Woods, Case No: 2023-175, In the Circuit Court of the Nineteenth Judicial Circuit in and for Martin County, Florida. Ms. Herman voluntarily dismissed her prior lawsuit without prejudice pending the appeal.
[12] 140 S. Ct. 1637 (2020).
[13] Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U. S. T. 2517, T. I. A. S. No. 6997.
[14]Outokumpu Stainless USA, LLC v. GE Energy Power Conversion France SAS (11th Cir. Case No: 17-10944) (July 8, 2022) unpublished opinion: https://media.ca11.uscourts.gov/opinions/unpub/files/201710944.rem.pdf.