The Supreme Court of Nevada reaffirmed that a third-party non-signatory is not required to arbitrate a dispute under an arbitration agreement and determined that such a non-signatory is not bound to arbitrate under exceptions to the general rule where they did not directly benefit from the written agreement containing the arbitration agreement and where they did not act with unclean hands in a way connected with their refusal to arbitrate.

In Truck Insurance Exchange v. Palmer J. Swanson, Inc., 124 Nev. 59 (Nev. 2008), Farmers Insurance Exchange and Palmer J. Swanson entered into a contract whereby Swanson would provide legal services in California. Later, the parties orally agreed to extend the legal services into Nevada but never reduced the agreement to writing.

After billing disputes arose with the Nevada firm, the Nevada firm brought suit against Farmers. Farmers moved to compel arbitration based on the arbitration agreement for legal services in California. The district court denied the motion.

On appeal, the Court focused its analysis on whether there existed substantial evidence to support the district court's denial of the motion. It determined that the district court did not err.

Generally, non-signatories to an arbitration agreement cannot be required to arbitrate on the basis of that agreement. Farmers argued that Swanson was estopped from litigating because it had benefited from the contract containing an arbitration agreement, and that it had unclean hands. However, the Court rejected these arguments.

Noting that estoppel was Farmers' strongest argument, the Court nonetheless found that the district court acted properly in not applying it here. The Nevada firm had not received a direct benefit from the written agreement between Farmers and the California firm, but instead directly benefited from the oral agreement between Swanson and Farmers, in which the parties determined the cost and scope of Farmers' services in Nevada.

Further, the Court found no evidence to support Farmers' assertion that the Nevada firm should be barred from litigating disputes with Farmers under the doctrine of unclean hands. Farmers failed to demonstrate how noncompliance with a Nevada statute requiring presence of a resident member in the office was connected with the Nevada firm's refusal to arbitrate disputes. See Nev. RPC § 7.5A.

Based on those reasons, the Court concluded that the district court did not err in denying Farmers' motion to compel arbitration.