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Affirming a trial court’s ruling denying a motion to compel arbitration, a California appellate court held that a non-party to an arbitration agreement cannot use the agreement to compel arbitration when that party is not an intended third party beneficiary.
In Jacobsen v. Winkler, No. G038300, 2007 WL 2758897 (Cal. Ct. App. Sep. 24, 2007), Winkler and Jacobsen entered into an agreement to form a company named Advent Development, LLC (Development). The agreement contained an arbitration clause mandating arbitration of disputes arising under the agreement. In late 2006, Winkler brought a claim before the Labor Commission claiming Advent Corporation owed him back wages. Neither Jacobsen nor Development were parties to the wage claim.
Jacobsen moved to compel arbitration of the wage dispute pursuant to the arbitration agreement in the Development agreement. Winkler opposed the motion arguing that Jacobsen lacked individual standing, as Jacobsen was not a party to the wage dispute between Winkler and Advent. Further, Winkler argued the Development arbitration provision did not apply to a dispute involving Advent. The trial court denied the motion to compel arbitration and Jacobsen appealed.
The Court held that Jacobsen lacked standing to move to compel arbitration, as he was not a party to the arbitration agreement. Moreover, Jacobsen failed to demonstrate that a valid arbitration agreement existed or that he was an intended third party beneficiary. The Court found that the Development arbitration agreement did not apply to a dispute to which it was not a party. “It is not enough that the language of the arbitration provision is so broadly worded as to cover the type of dispute at issue, it must also govern the rights of the particular parties to the dispute.”
Finally, the Court concluded that Jacobsen’s appeal was frivolous and awarded Winkler attorneys fees, as “no reasonable attorney would believe that a non-party to a dispute…would have standing to force the dispute into arbitration when neither of the parties has chosen to do so.”
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