Opinion ID: 2782472
Heading Depth: 1
Heading Rank: 2

Heading: Whether the Dispute is Arbitrable

Text: Bigge asserts that, even if the circuit court properly exercised its jurisdiction to address issues regarding the scope and validity of the arbitration provisions, it decided those issues erroneously. Generally, the terms of an arbitration contract do not apply to those who are not parties to the contract. Amer. Ins. Co. v. Cazort, 316 Ark. 314, 320, 871 S.W.2d 575, 579 (1994). But a litigant who is not a party to an arbitration agreement may invoke arbitration 9 Cite as 2015 Ark. 58 under the FAA if the relevant state contract law allows the litigant to enforce the agreement. See Carlisle, 556 U.S. at 632. Bigge claims that two doctrines of Arkansas law allow it to enforce the arbitration provisions as a nonsignatory: (1) third-party beneficiary and (2) equitable estoppel. In Arkansas, the presumption is that parties contract only for themselves and, thus, a contract will not be construed as having been made for the benefit of a third party unless it clearly appears that such was the intention of the parties. E.g., Elsner v. Farmers Ins. Group, Inc., 364 Ark. 393, 395, 220 S.W.3d 633, 635 (2005). If a contract is made for the benefit of a third party, then it is actionable by such third party if there is substantial evidence of a clear intention to benefit that third party. Id., 220 S.W.3d at 635. But a third party may not recover upon a contract under which the parties did not intend to benefit him, one under which he is a mere incidental beneficiary. Cook v. U.S. Fid. & Guar. Co., 216 Ark. 743, 745, 227 S.W.2d 165, 136 (1950). In support of its argument that it is a third-party beneficiary to the Alliance Agreement, Bigge cites Little Rock Wastewater Utility v. Larry Moyer Trucking, Inc., 321 Ark. 303, 902 S.W.2d 760 (1995). In that case, the Arkansas Highway and Transportation Department needed to relocate sewer lines before other contractors could perform road work. Id. at 306, 902 S.W.2d at 762. Little Rock Wastewater Utility, which had contracted with the highway department to relocate the lines, did not complete its work in a timely manner, and a subcontractor who was supposed to prepare the site brought suit as a thirdparty beneficiary of the utility’s contract. Id., 902 S.W.2d at 762–63. This court noted that 10 Cite as 2015 Ark. 58 the utility’s contract provided that the utility would perform its work within 150 days and in a manner that would result in no avoidable interference or delay in the highway department’s construction work. Id., 902 S.W.2d at 762. The subcontractor testified that when making the bid for the subcontract, he relied on the fact that the utility essentially had completed its work and would coordinate the remaining work with the highway department while construction on the roadway was in progress. Id. at 308, 902 S.W.2d at 764. Because there was clear evidence of an intent to benefit the other contractors who were waiting on the utility to perform before they could start their construction work, this court concluded that the circuit court correctly refused to grant a directed verdict in favor of the utility and correctly allowed the third-party-beneficiary issue to be submitted to the jury. Id. at 309, 902 S.W.2d at 764–65. Although Larry Moyer Trucking involved a subcontractor, it does not stand for the proposition that, in all cases, subcontractors are third-party beneficiaries of contracts between prime contractors and owners. Indeed, the general rule is that a subcontractor that agrees to supply materials or labor to a general contractor is only an incidental beneficiary of any contract between the general contractor and the ultimate client. See GS4 Tech. LLC v. United States, 114 Fed. Cl. 662, 670 (2014); see also 9 Corbin on Contracts § 45.3 (rev. ed. 2007); Restatement (Second) of Contracts § 302 cmt. e, illus. 19; accord BIS Computer Solutions, Inc. v. City of Richmond, 122 Fed. App’x 608, 610, 612 (4th Cir. 2005) (finding that, under Virginia law, the subcontractor was not an intended third-party beneficiary, despite being named in the prime contract and despite the inclusion of a contract provision prohibiting the 11 Cite as 2015 Ark. 58 subcontractor’s removal without the government’s approval). The Alliance Agreement between Entergy and Siemens is analogous to a standard construction contract in which a property owner retains a contractor to complete a project, and the contractor hires subcontractors to assist in performing the contractor’s work. See BIS, 122 Fed. App’x at 612. Unless the parties specify otherwise, the sole intended beneficiaries of any such contract are the property owner and the contractor, and any third party benefitting from the contract, such as a subcontractor, is merely an incidental beneficiary. See id. Here, Bigge was merely an incidental beneficiary of the contract. Accordingly, we hold that the circuit court correctly found that Bigge was not entitled to invoke arbitration as a third-party beneficiary. Next, Bigge contends that it may compel Entergy to arbitrate its claims through the doctrine of equitable estoppel. Courts have recognized that equitable estoppel can apply when a signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting claims against the nonsignatory. E.g., Donaldson Co. v. Burroughs Diesel, Inc., 581 F.3d 726, 733 (8th Cir. 2009). Bigge, citing Cazort, 316 Ark. 314, 871 S.W.2d 575, contends that Entergy relied on the terms of the Alliance Agreement in asserting its claims. In that case, Cazort filed suit against his broker, Berman; the financial institution holding the brokerage account, NAP; and the corporate bond holder, American Insurance Company. Id. at 316, 871 S.W.2d at 577. NAP and Berman moved to compel arbitration and were voluntarily dismissed by Cazort from the litigation. Id., 871 S.W.2d at 577. American’s motion to compel arbitration was denied. Id. at 318, 871 S.W.2d at 577. At 12 Cite as 2015 Ark. 58 issue on appeal was whether American could compel Cazort to arbitrate since Cazort did not sign an arbitration agreement with American. In reversing the circuit court’s denial of American’s motion to compel arbitration, we stated: Cazort’s allegation, in part, is that NAP and Berman breached their contract with him, and they are liable for that breach of contract. He relies on the contract for his breach of contract claim, but, at the same time, seeks to circumvent the arbitration provision of the same contract by dismissing his claims against the principals NAP and Berman. The indemnitor, American, had filed a cross-complaint against NAP and Berman. If this procedure were to be allowed, NAP and Berman would be denied the benefit of their arbitration agreement. Id. at 321–22, 871 S.W.2d at 579. Cazort is distinguishable from the instant case. There, Cazort relied on the contract to prove his breach-of-contract claim, but he sought to avoid the contract’s arbitration provision. We concluded that it would have been inequitable to allow Cazort to maintain such inconsistent positions to avoid arbitration and noted that a plaintiff “cannot have it both ways. It cannot rely on the contract when it works to its advantage and ignore it when it works to its disadvantage.” Id. at 322, 871 S.W.2d at 579–80 (citing Tepper Realty Co. v. Mosaic Tile Co., 259 F. Supp. 688, 692 (S.D.N.Y. 1966)); see also Avila Group, Inc. v. Norma J., 426 F. Supp. 537, 542 (D.C.N.Y. 1979) (“To allow [the litigant] to claim the benefit of the contract and simultaneously avoid its burdens would both disregard equity and contravene the purposes underlying enactment of the Arbitration Act.”). In the instant case, Bigge has not shown that Entergy, in resisting arbitration, has attempted to have it both ways. The circuit court found that Entergy has no contract with Bigge. Entergy is not suing and cannot sue Bigge for a breach of the Alliance Agreement. Rather, Entergy has filed claims against Bigge for 13 Cite as 2015 Ark. 58 negligence, gross negligence, and willful and wanton conduct. Entergy’s tort claims against Bigge would exist regardless whether a written contract existed between Entergy and Siemens or between Siemens and Bigge or what the terms of those contracts were. The fact that these contracts do exist does not alter Entergy’s tort claims, and Entergy has in no way relied on the terms of the Alliance Agreement in asserting its claims against Bigge. We agree. Accordingly, we hold that the circuit court did not err in concluding that Entergy was not equitably estopped from pursuing its claims against Bigge in court rather than in arbitration. Bigge also contends that the circuit court erred in finding that Bigge had waived its right to arbitration. Because we have determined that Bigge had no right to invoke arbitration, we need not consider the issue of waiver. Finally, the concurrence appears to assert that, in this case, it is wholly unnecessary for this court to address the arguments raised by the parties on appeal because article 51 of the Alliance Agreement “specifically except[s] Entergy’s tort claims against Bigge.” The concurrence’s reliance on that article is misplaced. Article 51, which limits the recovery of consequential damages, has no bearing on the issues before this court. Affirmed. BAKER and HART, JJ., concur.