Fourth Circuit Allows Third-Party Beneficiary to Enforce Arbitration Clause
A while back, I discovered that Tamar Meshel (below) has created a Substack in which she provides one-paragraph summaries of arbitration cases in both the U.S. and Canada. I’m going to let our wholly owned Canadian subsidiary 🤣 track the Canadian cases, while I focus on the U.S. cases. I’ve got some catching up to do. I reached out to Tamar to see if she could help me choose which cases to write about. Doing her best Meryl Streep imitation, Tamar could not choose. Each arbitration case is special to her.
In October 2024, Cynthia Michelle Sessoms filed a putative class action against USHealth Advisors, LLC (USHealth), alleging that USHealth offered her insurance information via a pre-recorded telephone message without her consent, in violation of the Telephone Consumer Protection Act (TCPA). USHealth moved to compel arbitration, claiming that Sessoms had requested health insurance quotes by visiting a “lead generation” website operated by a third party (NextGen). In so doing, she filled out an online form and thereby consented to receive calls from USHealth and others. She had also agreed to NextGen’s Terms of Use (ToU) which included an arbitration clause. USHealth argued that an arbiter should decide whether Ms. Sessoms claims were arbitrable. In the alternative, it argued that, under applicable Delaware law, it can enforce the arbitration agreement as a third-party beneficiary.
The trial court rejected USHealth’s motion to compel arbitration, first finding that the court rather than an arbiter must decide the issue of arbitrability. The trial court also agreed with Ms. Sessoms that USHealth was not a third-party beneficiary of NextGen’s agreement with Ms. Sessoms because the benefit that USHealth seeks to enforce was not material to the purpose of the contract.
On appeal in Sessoms v. USHealth Advisors, LLC, the Fourth Circuit agreed with the trial court that the issue of arbitrability was for the court. However, the Fourth Circuit found that USHealth is a third-party beneficiary of the agreement between Ms. Sessoms and USHealth. The trial court clearly got the arbitrability issue right. Under controlling Supreme Court and Fourth Circuit precedent,
[W]hen an objection is properly raised that the party seeking to enforce an arbitration agreement is not itself a party to that agreement, the district court must determine — as a condition precedent to the entry of any § 3 stay or § 4 order compelling arbitration — whether that party is entitled to enforce the arbitration agreement under state contract law.Â
But the second issue involved the application of Delaware’s three-part test for third-party beneficiary status. That involves three inquiries. First, did the contracting parties intend that the third-party benefit from the contract? Second, was the benefit intended as a gift or in satisfaction of a pre-existing obligation to that person? Third was the parties’ intent to benefit the third party a material part of the parties’ purpose in entering into the contract?
The trial court erred in concluding that the third prong of this test was not met. The trial court apparently reasoned that USHealth’s benefit from the ToU was not material because NextGen had other partners, and so USHealth’s interest wasn’t especially important. The Fourth Circuit took a different approach, emphasizing that the purpose of the agreement was to allow providers, like USHealth, the opportunity to reach potential customers, like Ms. Sessoms. NextGen had nothing to offer beyond that, as it did not provide insurance quotes itself. The Court was thus satisfied that the benefit of USHealth was “material to the purpose” of NextGen’s ToU.
The Court remanded the case to the trial court for the entry of an order granting USHealth’s motion to compel arbitration. I wonder what is left of this case. If the ToU bind Ms. Sessoms to arbitrate, don’t they also establish that she did in fact consent to be contacted?