Three's Company: Can a Nonsignatory to an Arbitration Agreement Compel or Be Compelled to Arbitrate?
"Courts in New Jersey ... emphasize strong public policy favoring arbitration to resolve disputes and require liberality in construing contracts in favor of arbitration," write Archer's Alexis M. Way and Marie E. Lihotz.
August 20, 2024 at 01:00 PM
8 minute read
The proliferation of arbitration agreements in consumer and business contracts presents challenges when a dispute, governed by an arbitration agreement, also involves claims against or advanced by a third party, who is not party to that arbitration agreement. Indeed, the Federal Arbitration Act enforces an arbitration agreement notwithstanding the presence of others who are parties to the underlying dispute but not the arbitration agreement. New Jersey's public policy applies similar tenets when reviewing matters governed by its Arbitration Act, noting N.J.S.A. 2A:23B-6, provides an agreement to arbitrate is "valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract."
Consequently, courts often stay disposition of claims of nonsignatories pending the arbitration outcome, which not only increases costs—based on the need to litigate on two fronts—but also, extends ultimate finalization of disputes. Any comprehensive litigation plan must understand when and whether a third-party nonsignatory to an arbitration agreement may be compelled to join an arbitral disposition of disputes or, correspondingly, when a nonsignatory might be the driving force to require arbitration.
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