Arbitration clause catches people who didn’t sign contract

September 10, 2008

A government contractor and its corporate officers can force arbitration of claims under a government subcontract, even though some of the corporate defendants did not sign the contract.

Fairfax Circuit Judge Randy I. Bellows said the defendants who did not sign the subcontract nevertheless can invoke its broadly worded arbitration clause to compel arbitration of the subcontractor’s suit for payment.

Bellows said that the case of Decisive Analytics Corp. v. Chikar made him the first judge to address the question of whether someone who didn’t sign a contract can nonetheless be forced to arbitrate.

The issues arose from a government subcontract between the plaintiff, Decisive Analytics Corp., and B2C Inc., which held a U.S. Defense Department contract.

Decisive Analytics contended the subcontract required B2C to pay $198,648 it received under the prime contract to the subcontractor. Instead, B2C and related defendants improperly kept $169,116 of that amount, Decisive Analytics alleged.

The plaintiff named as defendants B2C, its two sole officers as individuals and as trustees in liquidation after the State Corporation Commission terminated B2C’s corporate existence, and the husband of one of the principals who ran a company that the principals said would take B2C’s assets and liabilities.

Decisive Analytics made a total of 11 claims, including breach of contract, breach of fiduciary duty, fraud and conspiracy.

The defendants moved to compel arbitration, citing contract language that required arbitration in “the event of dispute arising between the parties which cannot be resolved by good faith negotiations.”

Decisive Analytics countered that only one of the defendants, B2C, was even a party to the subcontract. The sub also said its claims for the most part were not contract claims covered by the arbitration, and to the extent that any of the claims invoked the contract, they were incidental to the non-arbitrable claims and should not be separated from the other counts.

Although the Supreme Court of Virginia has never enforced an arbitration agreement between nonsignatories, Bellows said, it held in a 2001 case, Weitz v. Hudson, that a broadly worded arbitration clause can apply to an intentional tort.

Bellows also looked to case law from the 4th U.S. Circuit Court of Appeals, which said two years ago in American Bankers Insurance Group v. Long that an agreement can apply to both nonsignatories and to non-contract claims “when the signatory of the contract containing the arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract.”

In this case, Bellows wrote, each of “DAC’s individual claims for conversion, breach of fiduciary duty, fraud, etc., are dependent upon DAC’s allegation that B2C breached a duty created by the Subcontract, for without the alleged breach of the Subcontract, DAC would have no cause to complain.”

The defendants could invoke the arbitration clause because the claims against them “are so closely intertwined,” Bellows concluded.

Arianna S. Gleckel, the Arlington attorney who represented B2C, one of its principals and her husband, said the plaintiff had alleged the nonsignatories were liable under the contract. That strengthened her argument that the defendants should be able to take advantage of the arbitration provision of the contract if they faced the possibility of being held liable for damages under it, Gleckel said.

Written by Alan Cooper  |  Filed Under Dispute Resolution, Uncategorized 

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