Opinion ID: 703160
Heading Depth: 2
Heading Rank: 2

Heading: The District Court's Hybrid Approach

Text: 32 Despite properly determining that E & S's claims did not fall within any of the traditional theories for binding a nonsignatory, the district court stated, [n]evertheless, E & S asserts that the Court may bind Thomson based on its conduct in 'voluntarily bec[oming] ... an affiliate,' on the degree of control Thomson exercises over [Rediffusion], and on the interrelatedness of the issues. This Court agrees. (citations omitted). In so doing, the district court improperly extended the law of this Circuit and diluted the protections afforded nonsignatories by the ordinary principles of contract and agency. McAllister, 621 F.2d at 524. A nonsignatory may not be bound to arbitrate except as dictated by some accepted theory under agency or contract law. 33 The district court's opinion relies principally upon two decisions of this Court, McAllister and Deloitte. According to the district court, these cases in combination provide sufficient support to bind Thomson to the arbitration clause despite Thomson having never signed the Agreement. The district court found that many of the elements present in McAllister and Deloitte were also present in the case at hand: 1) Thomson's common ownership of Rediffusion; 2) Thomson's actual control of Rediffusion; 3) Thomson's notice of the Working Agreement prior to purchasing Rediffusion; 4) E & S's express intention to bind Thomson to the Working Agreement; 5) Thomson's incorporation of Rediffusion into its own organizational and decision-making structure; and 6) Thomson's benefit from that incorporation. Based upon the totality of these factors, the district court held that McAllister and Deloitte bound Thomson to Rediffusion's arbitration clause. 34 The district court's reliance upon McAllister and Deloitte is misplaced. Both McAllister and Deloitte fall squarely within traditional theories for binding nonsignatories to an arbitration agreement. In McAllister, this Court remanded the case to the district court for an evidentiary hearing in light of indications (on a scant record) of a close affiliation between the signatory and nonsignatory. This Court, however, specifically instructed the district court to apply ordinary principles of contract and agency, and clearly pointed to the traditional theories of agency and piercing the corporate veil when directing the district court to reconsider its determination. 621 F.2d at 524. The district court's reliance on Deloitte is equally misplaced. As in McAllister, this Court in Deloitte stated that the district court should apply [o]rdinary principles of contract and agency. Id. at 1064. This Court again pointed to traditional theories for binding nonsignatories, specifically estoppel and agency. Id. ([W]e believe that appellants have ... strong[ ] arguments, particularly those based upon estoppel.). Neither McAllister or Deloitte indicate that a nonsignatory can be bound to an arbitration agreement with a less than full showing of some articulable theory under contract or agency law. 35 The district court below improperly extended the limited theories upon which this Court is willing to enforce an arbitration agreement against a nonsignatory. The district court's hybrid approach dilutes the safeguards afforded to a nonsignatory by the ordinary principles of contract and agency and fails to adequately protect parent companies, the subsidiaries of which have entered into arbitration agreements. Anything short of requiring a full showing of some accepted theory under agency or contract law imperils a vast number of parent corporations. This Court did not intend such an outcome in Deloitte or McAllister and does not adopt such an approach here.