The Arkansas Court of Appeals refused to bind a non-signatory business owner to an arbitration agreement within an investment contract where the owner's representative allegedly entered the contract without the approval of the owner.

In Sterne, Agee & Leach, Inc. v. Way, No. CA 06-1410, 2007 WL 4415205 (Ark. Ct. App. Dec. 19, 2007), Way hired an attorney, Moser, to handle Way's farm and business affairs. Without Way's knowledge, Moser withdrew funds from Way's business accounts and opened an investment account in Way's name with Sterne.

After about a year, Moser sent a letter of instruction to Sterne, ostensibly as a representative of Way's business, to close the investment account and disburse the funds within to Way's business to an address provided by Moser. Sterne complied, and, shortly thereafter, Moser allegedly stole these proceeds and fled to Madagascar.

Way discovered Moser's alleged theft and filed a complaint against Moser, Sterne, and other parties for recovery of the funds. Sterne filed a motion to compel arbitration of the claims by Way against Sterne, maintaining that the claims were subject to an arbitration agreement within the investment contract between Sterne and Moser as Way's ostensible representative. The trial court entered an order denying the motion to compel.

On appeal, the Court affirmed the motion's denial, finding no basis in the factual record to bind Way to the arbitration agreement with Sterne.

Sterne alleged that Way, as a non-signatory to the agreement, was nevertheless bound to arbitrate under the doctrine of equitable estoppel, but the Court found that one of the elements of estoppel, detrimental reliance by Sterne, was absent in the record.

The Court also rejected Sterne's contention that Way's claims were arbitrable. The Court acknowledged that the claims were within the scope of the agreement if there was an agreement between the parties, but there was no evidence on the record of a binding contract between Sterne and Way. To the Court, any determination of Moser's status as Way's agent in contracting with Sterne was to be considered by the trial court.

The Court also found that Way's attempt to recover both the principal and the proceedings from the investment account did not necessarily preclude Way's repudiation of the contract. The Court determined that Way did not receive or seek any benefit from the investment contract that would forbid Way from avoiding the burdens and conditions of the contract. According to the Court, recovery of damages for conversion may include amounts above and beyond the value of the property at the time of conversion in certain circumstances like these.