Arbitration is now a favored form of dispute resolution. As we have discussed in this column, the bias towards arbitration is now so strong that courts have forced parties into arbitration when their agreement does not mention arbitration as an option. (See July 2007 Brickerconstructionlaw.com, Mediation & Arbitration—How Voluntary Are They?) Has the pendulum swung so far towards mandatory arbitration that parties who have not even signed the contract can be forced into arbitration?
In general, the answer is no. The United States Supreme Court has examined this issue several times. In 1960, in a case involving a labor dispute, Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, the Court found that “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Is this still the law?
Agreeing to arbitrate seems to be a straightforward proposition. The agreement to arbitrate is contained within the contract. If you are a party to the contract, you are subject to arbitration. If you are not a party to the contract, you are not subject to arbitration. Agreements to arbitrate are, however, not that simple.
Non-Parties Who Don’t Want To Arbitrate
Occasionally, a non-party wants to prevent the action from going to arbitration. The Ohio Supreme Court recently examined a case involving a non-party seeking to avoid arbitration. Peters v. Columbus Steel Castings Co., 2007-Ohio-4787, 873 N.E.2d 1258, involved an action for wrongful death.
William Peters was employed by Columbus Steel Castings. As part of the employment process, Peters signed an employment agreement that included a dispute resolution plan. The plan provided that “mediation and, if unsuccessful, arbitration under the Dispute Resolution Plan will be my sole and exclusive remedies for any legal claims or disputes I may have against the Company regarding my employment.” The plan went on to state that it applied to “the heirs, beneficiaries, successors, and assigns” of the employee.
Unfortunately, on Peters’ eighth day at work, while trying to reach a crane from a catwalk, he fell approximately 50 feet and sustained fatal injuries. His wife filed suit alleging two claims of an employer intentional tort: one that resulted in injuries to Peters prior to his death, and another for wrongful death.
Columbus Steel Castings asked the trial court to dismiss both claims and require the dispute to be settled by arbitration as provided in the Plan. The trial court only half agreed. It determined that the claim for injuries suffered prior to death must be arbitrated in accordance with the Plan, but the claim for wrongful death could be tried in court. Columbus Steel Castings appealed to the appellate court, which upheld the trial court decision. Ultimately, the Ohio Supreme Court agreed to accept the case for review.
The Court looked to what it called “two longstanding general principles of law.” One longstanding general principle of law, according to the Court, was that an action brought to recover for injuries prior to death is independent from an action brought for wrongful death. The claim for injuries prior to death belongs to the deceased person, and the claim for wrongful death belongs to his heirs.
The other longstanding general principle of law the Court looked to was that only signatories to an arbitration agreement are bound by its terms. By signing the employment agreement, Peters agreed to arbitrate his claims against the company. Even though the claim for his injuries prior to his death was brought by his wife, it was his claim, and thus subject to arbitration. The claim for wrongful death, however, was his wife’s claim. Since she did not sign the arbitration agreement, she could not be forced to arbitrate the wrongful death claim.
Non-Parties Forced To Arbitrate
It would appear that a non-party cannot be forced to arbitrate. That would be an incorrect assumption, however. Third-party non-signatories can sometimes be forced into arbitration. This was the situation in Gerig v. Kahn (2002), 95 Ohio St.3d 478, 2002- Ohio-2581.
Mrs. Gerig gave birth to a son while under the care of Dr. Kahn. When they discovered the baby’s severe birth defects, the parents filed suit against Dr. Kahn, alleging that the birth defects resulted from the doctor’s medical malpractice.
Dr. Kahn’s affiliation agreement with the hospital required that “any controversy or claim arising out of, or relating in any way to, this Agreement or breach thereof shall be resolved by arbitration.” The agreement also required the hospital to provide him with medical malpractice insurance.
At the time the lawsuit was filed, the hospital provided this coverage through P.I.E. Mutual Insurance Company, with liability coverage up to $4 million. The hospital also funded a self-insurance plan to pay malpractice and general liability claims. Unfortunately, during the course of the action, P.I.E. was declared insolvent and ordered into liquidation.
The Gerigs then asked the court to declare that the hospital was required, in accordance with the affiliation agreement, to provide malpractice coverage for Dr. Kahn. Since P.I.E. was insolvent, they argued that the hospital should be required to provide the coverage through its self-insurance plan. In response, the hospital asked the court to hold off any further proceedings in the malpractice action and require the parties to determine the coverage issue by arbitration, as provided in the affiliation agreement.
The trial court found that the Gerigs were not subject to the arbitration provision. When the hospital appealed, the appellate court reversed and decided that the Gerigs were subject to the arbitration provision. According to the court, the Gerigs could not assert that the arbitration provision should be disregarded while at the same time argue that other provisions of the affiliation agreement were valid and enforceable. The Ohio Supreme Court agreed to review the case.
Quoting from the earlier Ohio Supreme Court case of Council of Smaller Enterprises v. Gates McDonald & Co. (1998), 80 Ohio St.3d 661, the Gerigs argued that “arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” The hospital argued that it would not be fair “to allow the Gerigs to avoid the burden of the agreement, i.e., arbitration, while simultaneously seeking a benefit of the agreement, i.e., medical malpractice for Kahn.”
The Court agreed with the hospital. It found that a party to a contract may enforce a contractual arbitration provision against a non-party to the contract who is seeking to have the court declare the rights and obligations the parties owe to each other under the contract.
Subject to few exceptions, the courts will routinely enforce arbitration provisions against the parties who agreed to the contractual provision. In some situations, the courts will even enforce the arbitration provisions against a party who did not sign the contract. The pendulum has not swung quite so far, however, that courts are routinely willing to enforce arbitration provisions against a party who did not sign the contract. They will, instead, examine the facts of each case and decide on a case-by-case basis.