Under 9th Circuit and California law, a nonsignatory is entitled to have a court, not an arbitrator, determine whether they are required to arbitrate a dispute between signatories. However, since many arbitration rules authorize an arbitrator to determine whether an issue is subject to arbitration, many arbitrators believe they are empowered to determine whether a nonsignatory is subject to arbitration.
What do you do if your opponent tries to get the arbitrator to decide this issue and, for strategic reasons, you want the court to decide it instead?
The nonsignatory should object, making it clear they are contesting the arbitrator’s jurisdiction and authority, and may also want to request that the arbitration proceed without them. They should file an action in the state or federal court that has jurisdiction and seek a determination of whether they can be compelled to arbitrate.
For example, if the basis for mandating arbitration is an alter ego theory, the court would have to analyze numerous alter ego factors to determine whether it exists; an arbitrator, on the other hand, may simply look at one or two factors and may be quicker and/or less thorough in finding alter ego.
If the arbitrator still does not give up authority to compel the nonsignatory to arbitration, the nonsignatory should file a motion in a court with jurisdiction to stay the arbitration proceedings pending the court’s determination. The need for such precaution arises from the limited grounds a nonsignatory will have to challenge an arbitration award already issued and waiting to be confirmed. It is much better to be cautious earlier on than be forced to fight an uphill battle over a motion to vacate later.