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Applying the doctrine of equitable estoppel, the Texas Supreme Court held that two nonsignatories could claim the benefit of an arbitration clause in a sales agreement because the claims against them depended on the existence of the sales agreement.
In Meyer v. WMCO-GP, LLC, No. 04-0252, 2006 WL 3751585 (Tex. Dec. 22, 2006), WMCO agreed to buy a Ford dealership from Bullock. As the sales agreement acknowledged, Bullock’s dealership agreement gave Ford an assignable right of first refusal.
Ford exercised its right of first refusal and assigned it to Meyer, who acquired the dealership from Bullock. WMCO subsequently sued Ford, Meyer, and Bullock, claiming that Ford and Meyer were liable for tortious interference with contract.
Ford and Meyer filed a motion to compel arbitration based on a clause in the sales agreement providing for arbitration of “[a]ny controversy between the parties to [the agreement].” Though not parties to the sales agreement, Ford and Meyer argued that they could invoke the arbitration clause under the doctrine of equitable estoppel.
The trial court denied the motion, and after a divided court of appeals affirmed, the Texas Supreme Court (the Court) granted review.
Guided by the Fifth Circuit’s analysis in Grigson v. Creative Artists Agency, 210 F.3d 524 (5th Cir. 2000), the Court held that the doctrine of equitable estoppel entitled Ford and Meyer to invoke the arbitration clause because WMCO’s claims against them depended on the existence of the sales agreement.
In reaching its holding, the Court found that the court of appeals read the arbitration clause too narrowly. Specifically, as the Court observed, the phrase “between the parties” does not signal any intent to limit the application of equitable estoppel.
Early in its decision, the Court noted, without elaboration, that Ford and Meyer were relying on the Texas General Arbitration Act rather than the Federal Arbitration Act (FAA). If the FAA had applied, the federal law of arbitrability would have governed the application of equitable estoppel and, by extension, Ford and Meyer’s ability to claim the benefits of arbitration. See, e.g., Turtle Ridge Media Group, Inc. v. Pacific Bell Directory, 44 Cal. Rptr. 3d 817, 821-22 (Cal. Ct. App. 2006) (noting that under the federal law of arbitrability, equitable estoppel does not require detrimental reliance regardless of any state law requirements). Given that the federal law of arbitrability is similar to the Texas Act in this case, it is likely that the Court would have reached the same result by applying either Act.
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