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In denying a motion to dismiss for lack of jurisdiction, the Second Circuit Court of Appeals held that the writing requirement of the Federal Arbitration Act (FAA) is satisfied when principles of estoppel trigger an obligation to arbitrate under a written agreement. Accordingly, nonsignatories are entitled to an interlocutory appeal from an order denying them the right to enforce an arbitration agreement.
In Ross v. American Express Co., No. 06-4598-CV(L), 2007 WL 458071 (2d Cir. Feb. 13, 2007), Ross brought a putative class action against American Express and its affiliates (collectively, AmEx), alleging that AmEx conspired with VISA, MasterCard and their member banks (collectively, VISA) by (1) fixing fees for transactions in foreign currencies and (2) imposing arbitration agreements on their cardholders.
AmEx filed a motion to compel arbitration pursuant to the FAA. As the basis for their motion to compel, AmEx relied on Ross' arbitration agreement with VISA.
The district court found that under the doctrine of equitable estoppel, AmEx could invoke Ross' arbitration agreement with VISA because the claims against AmEx were "inextricably intertwined" with the cardholder agreement containing the arbitration clause. Despite this ruling, the district court refused to stay further proceedings because it found that a jury trial on the validity of the arbitration agreement was necessary in light of the claim that AmEx and VISA conspired to impose arbitration agreements on their cardholders.
AmEx appealed the district court's ruling pursuant to section 16 of the FAA, which allows an interlocutory appeal from a refusal to stay an action under section 3 or a refusal to compel arbitration under section 4.
Ross moved for dismissal of the appeal on the ground that the Court lacked jurisdiction under section 16 of the FAA. In arguing that the Court lacked jurisdiction, Ross maintained that sections 3 and 4 of the FAA apply only if the obligation to arbitrate arises from a "written" agreement and not if the obligation arises from principles of estoppel.
The Court rejected Ross' interpretation of the FAA and denied the motion to dismiss. Specifically, the Court reasoned that the FAA's writing requirement is satisfied where principles of estoppel trigger an obligation to arbitrate under a written agreement. As the Court explained, a contrary holding would belie substantial case law and deprive federal courts of authority to order arbitration under principles of estoppel.
Some courts have gone a step further and held that the federal law of arbitrability, rather than state law, controls whether a nonsignatory can enforce an arbitration agreement under estoppel principles. For example, in Turtle Ridge Media Group, Inc. v. Pacific Bell Directory, 44 Cal.Rptr.3d 817 (Cal. Ct. App. 2006), the party opposing arbitration relied on state law in arguing that the doctrine of equitable estoppel did not apply because there was no detrimental reliance. In rejecting this argument, the court explained that the party's reliance on state law was misplaced "because state law does not govern the interpretation of arbitration agreements to which the FAA applies." Id. at 821; see also Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 417 n.4 (4th Cir. 2000) (noting that the "federal substantive law of arbitrability" controlled whether a nonsignatory was obligated to arbitrate).
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