ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, April 5, 2010

Insurer May Compel Non-Party to Arbitrate

5thCircuit  As we gear up for oral argument before the U.S. Supreme Court in Rent-a-Center West, Inc. v. Jackson, we are turning this into arbitration month on the blog.  Later this month, we will have a roundtable discussion of Jackson both before and after oral argument.  And so, it seems appropriate to discuss a recent arbitration decision out of the Fifth Circuit.

Anthony Todd was injured while working as a chef aboard the steamship American Queen.  Although Todd won his suit against the American Queen's owner, the company was unable to pay.  Todd thus availed himself of a Louisiana statute that permits direct suits against insurers of insolvent tortfeasors.  The insurer removed the suit to federal court and then moved to stay the proceedings and compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention).  The District Court denied the motion without a written opinion, saying that it would be a waste of trees when the insurer's argument was foreclosed under Fifth Circuit precedent, Zimmerman v. International Companies & Consulting Inc., 107 F.3d 344 (5th Cir. 1997).

In Todd v. Steamship Mutual Underwriting Association (Bermuda) Limited, the Fifth Circuit reversed.   After the District Court denied Steamship’s motion to compel, the U.S. Supreme Court decided Arthur Andersen LLP v. Carlisle, 129 S.Ct. 1896 (2009), which the Fifth Circuit found overruled Zimmerman in relevant parts.  In Carlisle, the Supreme Court held that nonsignatories to arbitration agreements may sometimes be compelled to arbitrate; for example, state law might permit a contract to be enforced by or against nonparties through assumption, veil-piercing, alter ego theory, incorporation by refernce, third party beneficiary theories, waiver and estoppel. 

The Fifth Circuit therefore remanded the case with instructions for the District Court to decide Steamship’s motion in a world in which Zimmerman is no barrier to compelled arbitration. 

[Jeremy Telman]

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