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Granting a motion to compel arbitration in a beverage trade dispute, an Illinois federal court held that a non-signatory must arbitrate its claim when the non-signatory seeks to benefit from the contract containing the arbitration agreement.
In Southern Illinois Beverage, Inc. v. Hansen Beverage Co., No. 07-CV-391-DRH, 2007 WL 3046273 (S.D. Ill. Oct. 15, 2007), beverage distributor Folsom entered into an agreement whereby it agreed to distribute Hansen’s non-alcoholic beverage called “Monster” in six Illinois counties. In 2005, Southern Illinois Beverage (SIB) became a subfranchisee of Folsom. In 2006, Hansen canceled the agreement and began selling the right to distribute Monster in the contracted sales territory to third parties.
SIB sued Hansen for various claims under the Illinois Franchise Disclosure Act and breach of the duty of good faith and fair dealing. Hansen removed the case to federal court and moved to stay the proceedings pending arbitration asserting that SIB must arbitrate its claims because the claims arose from the agreement between Hansen and Folsom containing the arbitration provision.
The Court granted Hansen’s motion to compel arbitration holding that equitable estoppel principles required SIB to arbitrate its claims. Ordinarily, a court may not compel a non-signatory to arbitrate claims. However, equitable estoppel prevents a party from knowingly seeking an agreement’s benefits while simultaneously seeking to avoid the arbitration clause contained in the agreement. Here, SIB did not sign the agreement between Hansen and Folsom containing the arbitration provision. However, the Court required SIB to arbitrate its claims, as they arose directly from the agreement containing the arbitration clause. Otherwise, “To allow SIB to claim the benefit of the contract and simultaneously avoid its burdens would both disregard equity and contravene the purposes underlying enactment of the FAA.”
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