Construction Law

Non-signatory bound by agreement to arbitrate

By Werner Sabo

In a recent federal case, Southern Illinois Beverage Inc. v. Hansen Beverage Co., 2007 WL 3046273 (S.D. Ill., Oct. 15, 2007), the court held that a non-signatory to a contract that contained an agreement to arbitrate could be bound by the arbitration requirement. Normally, only a party to an agreement to arbitrate is bound by the arbitration provision. However, there are several exceptions to this rule: (1) assumption; (2) agency; (3) estoppel; (4) veil piercing; and (5) incorporation by reference.

In this case, SIB claimed benefits under a contract between Hansen and a third party. That contract contained a broad form arbitration provision. This third party granted SIB the right to distribute a beverage in a six-county area. When Hansen terminated the subcontract, the distribution right was affected and SIB sued Hansen. Hansen demanded arbitration, but SIB argued that it was not bound by the arbitration clause. The court disagreed. A party cannot rely on the contract when it works to its advantage, and repudiate it when it works to its disadvantage.

Full post as published by Construction Attorney Blog on December 28, 2007 (boomark / email).