A Texas appellate court determined that interdependent and concerted claims asserted in the trial court and arbitration were not sufficient grounds for a non-signatory to compel arbitration of its litigation claims.

In In re Banc One Investment Advisors Corp., No. 01-07-01021-CV, 2008 WL 340507 (Tex. Ct. App. Feb. 7, 2008), James Greer possessed valuable stock options worth several million dollars. Deutsche Bank and Banc One approached Greer and suggested that under their guidance, he establish a tax shelter. Greer agreed and performed the complex transactions according to the advice of Deutsche Bank and Banc One.

However, the IRS disallowed the tax shelter, and Greer allegedly lost millions. Greer brought suit against Banc One for fraud and breach of fiduciary duty. Pursuant to an arbitration agreement he signed with Deutsche Bank, Greer initiated arbitration proceedings against Deutsche Bank.

Following, Banc One filed a motion to stay litigation proceedings pending resolution of the arbitration with Deutsche Bank. The lower court denied Banc One's motion. Thereafter, Banc One filed a motion to compel arbitration and stay litigation proceedings. The lower court again denied Banc One's motion.

By writ of mandamus, Banc One challenged the lower court's denial of its motion to compel arbitration and stay proceedings. The Court noted that mandamus relief is available only to correct a clear abuse of discretion where there is no adequate remedy by appeal.

Banc One argued that, even though they were not signatories to the arbitration agreement, they should be permitted to join the arbitration on the theory of interdependent and concerted misconduct of equitable estoppel. The Court noted that generally, only signatories to an arbitration agreement are bound by the agreement. However, equitable estoppel is recognized as a means for non-signatories to join arbitration.

The Court discussed that equitable estoppel may be allowed when non-signatories seek a direct benefit from a contract with an arbitration agreement, or when misconduct claims asserted in a trial court and in arbitration are identical and intertwined.

Under the Federal Arbitration Act (FAA), arbitration is a matter of consent, not coercion, and further, the common transactional origin of two claims does not necessitate arbitration. The Court concluded that because Banc One is not a signatory to the arbitration agreement, the lower court's refusal to apply the concerted misconduct equitable estoppel theory to the arbitration does not amount to a clear abuse of discretion.

However, under the FAA, when an issue is pending in both arbitration and litigation, the FAA requires the arbitration to go forward first. The Court noted that if collateral litigation addresses the same issues as arbitration, thus threatening to render the arbitration moot, then the litigation must abate pending the arbitration.

In this case, many of the same issues are addressed in the litigation and the arbitration. The Court further noted that the fact that Banc One is a non-signatory to the arbitration agreement is irrelevant. The Court determined that the lower court abused its discretion in denying Banc One's motion to stay litigation.