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Nonsignatory Could Not Be Compelled to Arbitrate Under Direct Benefit Estoppel Doctrine

The Court of Appeals, in a full-fledged opinion by Judge Rivera, reversed the appellate division and determined a party who was not a signatory to an agreement which included an arbitration clause could not be compelled to arbitrate under the direct benefit estoppel doctrine.  In explaining the doctrine, the court wrote:

Under the direct benefits theory of estoppel, a nonsignatory may be compelled to arbitrate where the nonsignatory “knowingly exploits” the benefits of an agreement containing an arbitration clause, and receives benefits flowing directly from the agreement … .

Where the benefits are merely “indirect,” a nonsignatory cannot be compelled to arbitrate a claim.  A benefit is indirect where the nonsignatory exploits the contractual relation of the parties, but not the agreement itself … .  Matter of Belzberg v Verus Investments Holdings Inc, 149, CtApp 10-17-13

 

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