Marc J. Goldstein Arbitrator & Mediator NYC
October 31, 2014

Food for Thought on Equitable Estoppel of Nonsignatories

Among the common law theories in American law that may permit enforcement of an arbitration clause against a non-signatory, equitable estoppel is perhaps the most elusive. Its application is intensely fact-dependent, and different sets of equitable considerations apply depending on whether the party seeking to invoke arbitration is the non-signatory or the signatory. And when the matter comes before an American court, this is essentially a question of state law, and different states have different refinements of the conduct standards that may trigger estoppel as well as variations in the evidentiary burden that the party invoking estoppel must satisfy.

These factors can be seen in operation in a recent decision from the U.S. Third Circuit Court of Appeals, in which the Court rejected the contention that a U.K. insurer by joining in a mediation under Contract A which contained an arbitration clause but which it had not signed, waived an express reservation of the right to litigate under Contract B which it had signed. Flintkote Co. v. Aviva PLC, 2014 WL 50033218 (3d Cir. Oct. 9, 2014).

The foundations of this dispute were two agreements concerning dispute resolution over asbestos insurance coverage claims. The first, an agreement with multiple insurers known as the Wellington Agreement and dating from 1985, is an early example of a multi-tiered ADR clause, providing for mediation, binding arbitration, and an appeal process. But Aviva, the respondent here, did not sign the Wellington. It made a separate contract with Flintkote in 1989, expressly providing for litigation of coverage disputes and expressly disavowing any ADR obligations under the Wellington.

Aviva nevertheless opted to join a multi-insurer mediation with Flintkote, based on the Wellington, and Flintkote’s estoppel theory of Aviva’s obligation to arbitrate turned largely but not entirely on that opt-in. Adding fuel to the eventual estoppel fire, Aviva joined with other London insurers who were members of the Wellington group in negotiating terms of a potential arbitration agreement. But Aviva eventually parted ways with the group and insisted on its separate contractual right to litigate. Flinkote responded with a petition in U.S. District Court to compel arbitration.

Here the applicable state law (of Delaware) required “clear and convincing” proof of the estoppel, and while the District Court had been satisfied on this test by Aviva’s voluntary opt-in to the Wellington multi-insurer mediation, the Third Circuit saw the matter differently. Aviva had not “embraced” the Wellington’s entire ADR structure by opting into the mediation, the Court held,  as it had not been required to affirm the entire Wellington Agreement or to disavow its separate litigation rights as a condition for joining the mediation. The Court also rejected the notion that Flintkote had been misled to believe Aviva was accepting to arbitrate by opting into the group mediation —  as Flintkote knew the separate contract with its litigation clause existed, and had no reasonable basis to believe Aviva had waived the benefit of it.

It is tempting merely to classify this case as fact-dependent and offering no transcendent particular guidance.  But it is valuable to note that arbitration law as opposed to contract law really plays no part: when the question is whether to extend the obligation to arbitrate to a nonsignatory who is unrelated to any signatory, the issue is purely one of state contract law and U.S. courts quite properly analyze the matter without the playing field-tilting weight of federal pro-arbitration policy and presumptions.

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