Calling an alleged tortfeasor’s arguments for compelling arbitration "a mockery," the Second Circuit Court of Appeals affirmed a district court order denying a non-signatory’s motion to compel arbitration of claims that it tortiously interfered with the performance of a signatory’s contract.

In Sokol Holdings, Inc. v. BMB Munai, Inc., No. 07-2871-cv, 2008 WL 4249201 (2d Cir. Sept. 18, 2008), Sokol entered into a contract to purchase a majority share in Emir. The Emir contract contained an agreement to arbitrate all disputes in Kazakhstan. Later, BMB allegedly contracted with one of Emir’s principals for the same controlling interest in the company. Sokol sued BMB for tortious interference with its contract with Emir.

Even though it was not a party to the Sokol-Emir contract, BMB moved to compel arbitration of Sokol’s claim. The district court denied the motion, rejecting BMB’s estoppel argument by noting the absence of a close relationship between Sokol and BMB and the lack of intertwinement between the dispute and the underlying arbitration agreement.

The Court rejected BMB’s argument that arbitration must be compelled under an estoppel theory upon a showing of any relationship between the parties to the dispute, instead requiring an examination of the relationship and intertwinement of claims on a case-by-case basis. See, e.g., JLM Indus., Inc. v. Stolt-Nielson SA, 387 F.3d 163, 178 (2d Cir. 2004) (noting the paramount importance of the nature, not just existence, of the relationship between the signatory and non-signatory when considering the estoppel doctrine).

Instead, the Court framed the estoppel analysis as requiring both a close relationship and an intertwining of claims. Citing a series of Second Circuit cases, the Court observed, "[t]he estoppel did not flow merely from [the signatory’s] agreement to arbitrate with someone…in disputes relating to the agreement. It flowed rather from the conclusion that the relationships among the parties developed in a manner that made it unfair for [the signatory] to claim that its agreement to arbitrate ran only to [another signatory] and not to [a non-signatory]."

Under this standard, the Court found BMB’s argument for compelling arbitration "makes a mockery of the precedents on which it relies." The close relationship on which BMB relied to establish the right to compel arbitration was the very subject of the tortious interference allegation; Sokol alleged BMB wrongfully induced the Emir principal to breach the Sokol-Emir contract. Under such circumstances, the Court found no evidence that Sokol consented to arbitrate with BMB where, but for BMB’s alleged wrongdoing, no close relationship would exist.

Accordingly, the Court affirmed the district court’s order denying BMB’s motion to compel on all claims save one; it did compel arbitration of Sokol’s demand that BMB specifically perform the Sokol-Emir contract, because BMB had "stepped into the shoes of Emir" for the purposes of that claim. However, the Court refused to stay litigation of the other claims based solely on the presence of the one arbitrable claim.