Can a Nonsignatory to an Arbitration Agreement Compel Arbitration by Estoppel? North Carolina Court of Appeals Says Yes — But Not in This Particular Case

Smith Jamison Constr. v. Apac-Atlantic, Inc., 2018 N.C. App. LEXIS 132 (N.C. Ct. App. Feb. 6, 2018)

General contractor APAC-Atlantic (“APAC”) hired Smith Jamison Construction (“Jamison”) as a subcontractor to perform concrete work on a highway project.  The APAC-Jamison subcontract included an agreement that the parties would arbitrate all claims arising out of or relating to their subcontract.  Jamison alleged that APAC later sought to have Jamison further subcontract the concrete work to Yates Construction Company (“Yates”).  According to Jamison, APAC terminated the subcontract when Jamison refused to subcontract with Yates.

Jamison sued APAC and Yates in state court, alleging that APAC had breached its subcontract with Jamison and that Yates had committed fraudulent misrepresentation, tortious interference, civil conspiracy, and violations of the North Carolina unfair and deceptive trade practices statute.  Both APAC and Yates sought to compel arbitration of the claims Jamison asserted against them.  The court ordered arbitration of Jamison’s claims against APAC based on the arbitration agreement in their subcontract.  The court denied Yates’s attempt to compel arbitration.  Like APAC, Yates also based its argument on the arbitration agreement in the subcontract between Jamison and APAC – a contract to which Yates was not a party.  Yates appealed.

The Court of Appeals noted that, under North Carolina law, there are certain circumstances under which a party can enforce an agreement to arbitrate in a contract to which it is not a signatory.  Equitable estoppel provides one such circumstance when a plaintiff’s complaint alleges the nonsignatory defendant breached obligations created by a contract that contains an arbitration provision.  When a defendant seeks to compel arbitration by estoppel, the court must consider whether the plaintiff alleges breach of a duty created by the contract containing the arbitration agreement or whether the complaint alleges breach of duties imposed by common law or a statute.

Reviewing the claims that Jamison asserted against Yates, the court found that none alleged that Yates breached a duty created by the Jamison-APAC subcontract.  Although the Jamison-APAC subcontract provided some of the facts underlying the claims, Jamison’s claims against Yates involved alleged breaches of duties imposed by common law tort principles and the North Carolina unfair and deceptive trade practices statute.  As a result, the doctrine of equitable estoppel did not require that Jamison arbitrate those claims against Yates.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

Stephen W. Kiefer

 

This entry was posted in Arbitration and tagged , , , . Bookmark the permalink.