Insurer May Compel Non-Party to Arbitrate

 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 AmericanQueen.  Although Todd won his suit against the American Queen‘sowner, the company was unable to pay.  Todd thus availed himself of aLouisiana statute that permits direct suits against insurers of insolventtortfeasors.  The insurer removed the suit to federal court and then movedto stay the proceedings and compel arbitration under the Convention on theRecognition and Enforcement of Foreign Arbitral Awards (The New YorkConvention).  The District Court denied the motion without a writtenopinion, saying that it would be a waste of trees when the insurer’s argumentwas foreclosed under Fifth Circuit precedent, Zimmerman v. InternationalCompanies & Consulting Inc., 107 F.3d 344 (5^th Cir. 1997).

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

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

[Jeremy Telman]