The U.S. Court of Appeals for the Second Circuit reversed a district court’s grant of individual co-defendants’ motion to dismiss and to compel arbitration between plaintiff and entity co-defendant, on the grounds that the movants (1) were non-signatories to the Fulfillment Agreement between plaintiff and entity co-defendant which contained the arbitration provision they were attempting to enforce, and (2) had explicitly disclaimed any right to participate in the arbitration they were seeking to compel.
The action involved claims for breach of contract and breach of guaranty arising from a Fulfillment Agreement and guaranties between plaintiff Baker & Taylor, Inc. and Alphacraze.com, an online retailer. Plaintiffs alleged that Alphacraze became delinquent in its payments under the Fulfillment Agreement, and that, pursuant to the terms of that agreement and related guaranties, the full amount of the delinquent payments was due and owing from defendants. The individual defendants moved to dismiss plaintiffs’ complaint, arguing, among other things, that while they were not parties to the Fulfillment Agreement, the agreement nonetheless required Baker to arbitrate its claims against Alphacraze, and that the claims against the individual defendants should be dismissed or stayed in favor of that arbitration. The district court granted the individual defendants’ motion and dismissed the claims against them.
In reversing the district court’s decision and reinstating the claims against the individual defendants, the Second Circuit held that because the individual defendants—all non-signatories to the Fulfillment Agreement—had disclaimed any right to arbitration under the Fulfillment Agreement, they could not compel signatories Baker and Alphacraze to arbitrate claims pursuant to that agreement. (Baker & Taylor, Inc. v. Alphacraze.com Corp, 2010 WL 1688465 (2d Cir. Apr. 28, 2010))