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A recent Delaware Court of Chancery decision must be read by anyone interested in the latest iteration of Delaware law concerning when a non-signatory may be bound by a forum selection clause in an agreement. In Florida Chemical Company, LLC v. Flotek Industries, Inc., C.A. No. 2021-0288-JTL (Del. Ch. Aug. 17, 2021), the court provides the most thorough analysis of the titular topic that this reader is aware of, with scholarly insights and copious citations that explain the theoretical underpinnings that support a decision to bind a non-signatory to a forum selection clause, and the prerequisites for doing so.

The court granted an anti-suit injunction to prevent litigation from proceeding in Texas that was contrary to the forum selection clause to which the court found both a parent corporation and its wholly-owned subsidiary to be bound, based on the extensive reasoning provided in this opinion.

Issue Presented:

The issue presented in this decision was whether a non-signatory can be bound to a forum selection clause based on equitable estoppel or promissory estoppel. The court needed to determine whether the Flotek Sub was bound by the agreement signed by the Flotek Parent company before deciding if a particular issue was covered by the forum selection clause. The court conducted a claim-by-claim analysis to determine if the claims filed in another forum were covered by the forum selection clause at issue.

Key Facts:

The Flotek Parent in this case was a party to a Purchase Agreement with a Delaware forum selection clause. But the Flotek Subsidiary involved in this case was not a party to that agreement. Rather, the Flotek Sub was only a party to a separate Supply Agreement–that was referred to in the Purchase Agreement as an exhibit. The Purchase Agreement’s Delaware forum selection provision covered disputes related to other agreements such as the Supply Agreement. The supply agreement did not contain a forum selection provision.

Key Takeaways:

• It’s always useful to be reminded of the well-worn prerequisites for a preliminary injunction which the court provides at page 12.

• A reminder of basic Delaware contract interpretation principles is provided at pages 14-15.

• The court observes a truism of Delaware contract law that when more than one agreement is part of a unitary transaction, and when one contract is referred to in another, they are all interpreted as one contract. See Slip op. at 17-18. However, the court explained that this principle alone would not apply to require the claims of the Flotek Sub to be prosecuted in Delaware. See Slip op. at 32.

• The court restated a three-part test for determining when a non-signatory would be bound by a forum selection clause. See Slip op. at 33-48. The court modified the three-part test announced in the Chancery decision in Capital Group, 2004 WL 2521295, at *5. The first two parts of the test are as follows:

(i) the agreement contains a valid forum selection provision;

(ii) the non-signatory has a sufficiently close relationship to the agreement, either as an intended third-party beneficiary under the agreement or under principles of estoppel (such as equitable estoppel or promissory estoppel).

• The third element of the test described in the Capital Group case was the subject of extensive analysis and modification in this opinion.

• The court discussed the principles of estoppel that would bind a non-signatory to a forum selection clause: (i) a non-signatory accepted a direct benefit from the agreement; or (ii) a non-signatory had a close relationship to the agreement; a signatory to the agreement controlled the non-signatory; and the circumstances established that the signatory agreed to the forum selection provision on behalf of its controlled affiliate. Slip op. at 34. See also footnote 5. The court described the direct-benefit test as resting on principles of equitable estoppel, and the foreseeability test as introducing a measure of promissory estoppel. The court discussed at great length both the direct-benefit test and the foreseeability test. See Slip op. at 35-39.

• The third element in the Capital Group test, which the court modified, included the “same-agreement rule” that limited when a non-signatory would be bound, but that the Court of Chancery in this case decided not to follow.

• Among the extensive reasons given for not following that “same-agreement rule” in the third element of the Capital Group test are the following:

“That outcome [if the same-agreement rule applied] runs contrary to the underlying principles of estoppel that lead to the forum selection provision binding the non-signatory. When a non-signatory accepts a direct benefit under an agreement, principles of equitable estoppel demand that the non-signatory accept the burdens associated with that agreement, including a forum selection provision.”

Slip op. at 44.

• As applied to the facts of this case, the principles of estoppel called for enforcing the Delaware forum provision against the Flotek Sub. The Flotek Parent promised to litigate all claims arising out of or relating to the Supply Agreement in Delaware through the Delaware forum provision in the Purchase Agreement which encompassed related agreements among those claims that were within the forum selection provision. If the same-agreement rule were applied, it would permit the Flotek Parent to escape that promise.

• This decision interpreted the third element of the Capital Group test as asking whether the claims at issue fall within the plain language of a forum selection provision.

• This decision conducted a claim-by-claim analysis of the causes of action in a suit filed in Texas to determine whether they fell within the Delaware forum provision for purposes of an anti-suit injunction against the Flotek Parent. The court’s extensive reasoning explained why the Delaware forum selection provision also binds the Flotek Sub to the same degree as the Flotek Parent.

• The court’s holding also is based on the reasoning that it would allow parties to “enter into overarching forum selection provisions in a primary agreement without requiring that every controlled affiliate become a party to that agreement.”  The court further reasoned that the approach announced in this decision also promotes freedom of contract by enabling a controller to enter into an overarching forum selection provision and avoids the need for separate provisions in each agreement or the potentially cumbersome solution of having every controlled affiliate become a party to a primary agreement.

A recent Delaware Court of Chancery decision recognized that a non-signatory to an agreement may enforce the provisions of a forum-selection clause under certain conditions. Although this holding is counterintuitive, there are other Delaware decisions which recognize that in some circumstances a non-signatory to an agreement may either enjoy the benefits of that agreement or may enforce certain terms of that agreement. See, e.g., selected cases addressing this topic on this blog over the last 13 years.

In the case of Lexington Services Ltd. v. U.S. Patent No. 8019807 Delegate, LLC, C.A. No. 2018-0137-TMR (Del. Ch. Oct. 26, 2018), two important principles of Delaware law regarding enforceability of forum-selection clauses were explained. This case involved multiple litigations in several jurisdictions, including a foreign country, regarding the disputed transfer of rights in a U.S. patent.  (The photo nearby of the Roman Forum seems appropriate to add color to an overview of a case involving a forum-selection clause.)

The first principle of well-established Delaware law recognized in this decision was the enforceability generally in Delaware of forum-selection clauses.  They are regarded as presumptively valid and should be specifically enforced absent a showing that the enforcement would be unreasonable and unjust for reasons such as fraud. See footnote 28.  Mere inconvenience or additional expense is not the test of unreasonableness. Id.

Next, this decision recognizes that Delaware law allows non-signatories to invoke forum-selection clause provisions in an agreement where they are “closely related to one of the signatories such that a non-party’s enforcement of the clause is foreseeable by virtue of the relationship between the signatory and the parties sought to be bound.” See footnote 43.  Citing well-settled case law, the court added that, for example, officers and directors of an entity subject to a forum-selection clause may invoke its benefits because they were closely involved in the creation of the entity and because they were being sued as a result of acts that directly implicated the negotiation of the agreement that lead to the entity’s creation. See footnote 44.  Likewise in this case, the defendant is an entity created to receive the patent, and the ownership of the patent and assignment to a different entity such as the defendant was foreseen in the applicable agreement.  The party being sued for his actions as a manager of the defendant entity was foreseeable and is closely related to the agreement.

Relying on prior cases, the court noted that it typically grants motions to dismiss under Court of Chancery Rule 12(b)(3) based upon a forum-selection clause where the parties use express language clearly indicating that the forum-selection clause excludes all other courts before which those parties could otherwise properly bring an action. See footnote 31.  In this case, the court imposed a stay due to the possibility that one or more issues would return to Delaware after certain aspects of the case were resolved in the original non-Delaware forum called for in the agreement.

The Delaware Court of Chancery recently addressed important contract principles, including when a non-signatory will be bound by a contract, as well as burden of proof standards and requirements to establish damages, that have wide application for corporate and commercial litigation, in Medicalgorithmics S.A. v. AMI Monitoring, Inc., C.A. No. 10948-CB (Del. Ch. Aug. 18, 2016).

443718-Royalty-Free-RF-Clip-Art-Illustration-Of-A-Cartoon-Black-And-White-Outline-Design-Of-A-Dysfunctional-Family-Fighting-150x150 Background

The first 48-pages of this 86-page opinion are mostly factual details that are important for understanding the case, but for purposes of a short overview and to provide minimum context of the more widely applicable legal principles, this case can be described pithily as involving a manufacturer of medical devices that sent a notice of termination to its exclusive U.S. distributor after learning that the distributor was violating the agreement by developing a competing product, and based on related troubles with the contractual relationship. In return, the distributor counterclaimed that the manufacturer was in breach. After a careful analysis, the court found that the distributor was in material breach and the manufacturer’s notice of termination was justified.

Legal Principles

The court provided an unusual analysis to support its finding that a non-signatory was bound to a contract because it was an affiliate of the signatory, and was controlled by the signatory, and the contract applied to affiliates. Moreover the affiliate accepted the benefits of the contract. See footnote 219.

The court describes the factors that must be considered in order to conclude that a breach is material such that it relieves the other party to the contract of its performance obligations. See page 66.

The analysis of when a party has materially breached such that the other contractual party need not perform is a high-stakes determination because if a court later finds that there was no material breach, then of course the contractual obligation to perform will be turned against the party claiming a breach.

A useful definition of the burden of proof based on a preponderance of the evidence standard, is something that all litigators should keep in mind at the outset of a lawsuit. See page 50.

The court observed that damages need not be proven with mathematical certainty but that speculative damages will not suffice. See pages 73 and 79.

Postscript: A useful practice tip for litigators is found at footnote 214 in which the court observed that a motion that is filed but not sufficiently “called to the attention of the court” later in the litigation may be deemed waived or abandoned.

The Third Circuit, applying Delaware law in Carlyle Investment Management LLC v. Moonmouth Company SA, No. 13-3526 (3rd Cir. Feb. 25, 2015), recently bound a non-signatory to a forum selection clause found in a subscription agreement.  The court applied a three part test to determine whether the non-signatory should be bound by the forum selection clause: (1) is the forum selection clause valid, (2) is the non-signatory a third-party beneficiary or closely related to the agreement, and (3) does the claim at hand arise from the non-signatory’s status related to the agreement?  This opinion provides a contrast to a recent decision of the Court of Chancery, as discussed here.

Seaport Village Ltd. v. Seaport Village Operating Company, LLC, et al., C.A. No. 8841-VCL (Del. Ch. Sept. 24, 2014). This decision by the Delaware Court of Chancery highlights a counterintuitive statutory rule. The Delaware LLC Act provides that each LLC member, and the LLC itself, are considered parties to an LLC operating agreement, even if they did not sign the agreement.

As the court explained, Section 18-101(7) of the Delaware LLC Act:

added the following language to the LLC Act: “A limited liability company is not required to execute its limited liability company agreement. A limited liability company is bound by its limited liability company agreement whether or not the limited liability company executes the limited liability company agreement.” Del. SB 363, 141st General Assembly, 2002 Delaware Laws Ch. 295 (June 20, 2002). The amendment became effective on August 1, 2002. In 2005, the General Assembly added nearly identical language to the LLC Act to clarify that members also are bound by the LLC’s operating agreement, regardless of whether they execute the agreement. Del. SB 86, 143rd General Assembly, 2005 Delaware Laws Ch. 51 (June 14, 2005) (adding the words “[a] member … is bound by the limited liability company agreement whether or not the member … executes the limited liability company agreement”). These amendments make clear that the LLC and its members are parties to and bound by the LLC agreement, regardless of whether they sign it.

Another noteworthy aspect of this short ruling is one that the parties did not argue. The dispute related to a contractual provision that awarded attorneys’ fees to the prevailing party. There was no issue raised by the parties or the court that such a contractual provision was generally enforceable in Delaware, and enforceable in this case.

 Supplement: It deserve mention whenever the venerable Professor Bainbridge quotes or links to this blog, and so we are thrilled to note that he links to this post on his blog.

Aveta, Inc. v. Bengoa, C.A. No. 5074-VCL (Del. Ch. Sept. 20, 2010), read opinion here.

The five prior decisions in this matter highlighted on this blog are available here.

Brief Overview

This is the sixth decision by the Court of Chancery in this case which involves a post-merger dispute that has a tortuous procedural history and also involves related litigation in the Delaware Superior Court, as well as the courts in the Commonwealth of Puerto Rico. The several prior decisions provide additional background facts but the central question addressed in this case is whether all the shareholders of a company are bound by a written agreement that they did not all sign, and which required binding arbitration of post-merger issues.

Despite the fact that the non-controlling shareholders did not sign the transaction agreement and did not vote in favor of the transaction (which only required approval by Class A shares), the Court determined the following: (1) The controlling shareholders were bound by agency law because they appointed a person irrevocably as their representative; and (2) The non-controlling shareholders were bound as a matter of corporate law based on a pre-1996 version of DGCL Section 251.

In addition, the Court determined that res judicata barred the controlling shareholders from taking certain positions, and stare decisis prevented the non-controlling shareholders from doing so.
Lastly, the Court reasoned that the defendants breached the exclusive Delaware forum selection clause in the agreement and would be responsible for the attorneys’ fees incurred because of that breach. The agreement includes a useful discussion of those situations when a non-signatory is bound by an agreement. (In this situation, the non-signatories were bound by the forum selection clause.)

Highlights of Legal Analysis

1) In connection with analyzing a corporate statute from Puerto Rico that was based on the DGCL, the Court analyzed and discussed the amendments in various versions of, and the legislative history of, DGCL Sections 151 and 251 in connection with reference in a merger agreement to, and reliance upon, facts ascertainable outside of the agreement. An example of this would be price terms.

2) The Court discussed the doctrines of res judicata and stare decisis. The Court explained that res judicata bars a party from litigating the same cause of action after a judgment has been entered in a prior suit involving the same party or privies. The Court discussed the five elements of the doctrine on page 33 of the slip opinion. The only contestable issue was privity, but res judicata does not require a direct contractual relationship. Privity for the purposes of res judicata includes parties whose interests are merely closely aligned. See footnote 9.

3) The Court also discussed the concept of stare decisis which is explained at page 35 of the slip opinion. This doctrine prohibited the Class B defendants from re-litigating the document that the Court previously determined was only a “non-binding agreement to agree.” See 986 A.2d at 1186-87 (prior opinion in this case).

4) The Court analyzed the concept of a non-signatory to a contract being estopped from arguing that a dispute-resolution provision does not apply when the non-signatory “consistently maintains that other provisions in the same contract should be enforced to benefit him.” See slip op. at 37-38. The Court explained that: “Equity will not allow a party to sue to enforce the provisions of a contract that it likes, while simultaneously disclaiming the provisions that it does not.” Id.

5) The Court observed that Section 2701 of Title 6 of the Delaware Code imposes joint and several liability on an “obligation or a written contract of several persons” unless otherwise expressed.

6) The Court explained that where a contract places the responsibility for payment of attorneys’ fees on a party who either breaches the contract or fails to perform in accordance with the terms of the contract, courts will enforce the bargained-for provision absent evidence of any ambiguity or contrary intent. Importantly, the Court explained that a contractual obligation to pay attorneys’ fees “cannot be forgiven in whole or in part by a Court out of compassion for a non-prevailing party.” Slip op. at 39-40.

7) The Court also discussed the law of agency and when an agency is irrevocable as applied in the context of a representative of shareholders by agreement.
 

Weygandt v. Weco, LLC, Del. Ch., No. 4056-VCS (May 14, 2009), read opinion here

Issue Presented

The question in this case is whether a non-signatory defendant can be required to appear in a forum chosen in an agreement executed by an affiliate.

In this Chancery Court decision, the court determined that a party was subject to the personal jurisdiction of the Delaware courts based on a forum selection clause in an agreement that the party was not a signatory to, but which an affiliated party was a signatory to, based on equitable estoppel.

Background

The factual background involves the negotiated sale of an aviation repair business in California. The sale of the business included a contemporaneous lease agreement for the premises on which the purchased business was located. As a condition to closing for the purchase of the business, the lease agreement was entered into for the premises which the business occupied.  

The lease agreement was entered into by the owner of the building where the business was located, which was a different entity than the owner of the business but the same person controlled both entities. The Asset Purchase Agreement for the business contained a forum selection or “consent to jurisdiction” clause providing for exclusive personal jurisdiction over any party to the agreement in any state or federal court sitting in Delaware. The lease agreement, however, did not contain a consent to jurisdiction clause. The court reasoned that the sale of the business was to be paid for in two ways: (i) the basic purchase price of the business, and (ii) the stream of lease payments from the lease for the premises on which the business was located.

Legal Analysis

The court reiterated that on a motion to dismiss under Rule 12(b)(2), the plaintiff bears the burden of showing a basis for the exercise by the court of jurisdiction over a non-resident defendant.

The court rejected the applicability to these facts of the general rule that “agreements that are part of the same transaction are construed together.” However, the court did find applicable the equitable estoppel theory which many cases have applied to hold that a non-signatory was bound by a forum selection clause based on a three part test. First, the forum selection clause must be valid. Second,  the defendants need to be either third-party beneficiaries or “closely-related” to the relevant contract. Third, the claim must arise from the status of the defendant as closely-related to the agreement that contains the forum selection clause.

The purpose of the third prong of the three-part test is that the agreement containing the forum selection clause must also be the agreement that gives rise to the substantive claims brought by or against a non-signatory in order for the forum selection clause to be enforceable against a non-signatory. (See footnotes 13 to 15 and 18.)

The rationale for the cases that have enforced forum selection clauses against non-signatory parties are based on the principle that a third-party beneficiary or closely-related party can not enjoy the benefits of an agreement without accepting its obligations. See Capital Group Cos. v. Armour, 2004 WL 2521295 (Del. Ch. Oct. 29, 2004). See also cases collected at footnote 17.

Importantly, it is not only third-party beneficiaries, but also parties who are “closely related” to the agreement at issue that are estopped from avoiding the obligations of an agreement from which they benefit. Thus, even if an agreement expressly disclaims any third-party beneficiaries, a “closely-related party” to the agreement can still be bound by its terms even if not a signatory. See Capital Group, 2004 WL 2521295, at *6.

A party will be considered “closely related” to an agreement for purposes of binding a non-signatory if: (1) she receives a direct benefit from the program; or (2) it was foreseeable that she would be bound by the agreement. (See footnotes 18 and 19.)

Direct Benefit

In the instant case, the landlord, who was a non-signatory to the purchase agreement which contained the forum selection clause, received a direct benefit from the purchase agreement because the buyer of the business would not have entered into the lease agreement with the landlord if it was not buying the busines–and the lease was not only part of the “consideration” paid for the business, but was also a condition precedent to the purchase of the business.

Foreseeability

When a control person agrees to a forum, it is foreseeable that the entities controlled by that person which are involved in the deal will also be bound to that forum. See cases collected at footnote 25. The rationale for binding such entities rests on the public policy that forum selection clauses “promote stable and dependable trade relations” and it would be inconsistent with that policy to allow entities through which one of the parties chooses to act, to escape the forum selection clause. See cases collected at footnote 26.

If the purchaser of the business in this case was excused from buying the business because of fraud or falsity of representations and warranties, it would have no business reason or legal obligation to enter into the lease agreement which it needed only to operate the business. Thus, it was foreseeable that a dispute involving the purchase agreement and the lease agreements would have to be brought in Delaware because of the forum selection clause in the purchase agreement.

Conclusion

Any contrary result would allow for duplicative and inefficient litigation in multiple forums and undermine the benefit of predictability that was provided to the purchaser by agreeing to a forum clause in the purchase agreement. Thus, the court found that the landlord was equitably estopped from asserting that the Delaware court lacked jurisdiction.

This opinion will be helpful for the many transactions which involve multiple agreements–all of which do not contain a forum selection clause. What this agreement does not directly address, however,  is those situations where there are multiple agreements in the transaction which have different forum selection clauses, although there are other decisions that have addressed such situations.

 

 In Wilcox & Fetzer, Ltd. v. Corbett & Wilcox, read opinion  here , the Chancery Court was presented with the following somewhat unusual question:

 …may Corbett & Wilcox compel Plaintiff Wilcox & Fetzer, Ltd. to arbitrate pursuant to an arbitration clause contained in an agreement to which the former is not a signatory.

Answer: Yes.

See also other recent case summarized on blog  here, that held that non-signatories can compel signatories to an arbitration agreement to arbitrate. One basis for such a finding is equitable estoppel.

 

Delaware law allows for non-signatories to be bound by a forum selection clause if a three-part test is met, and a recent Delaware Court of Chancery opinion provides an analysis of those factors while granting a motion to dismiss in Highway to Health, Inc. v. Bohn, No. 2018-0707-AGB (Del. Ch. April 15, 2020).

The most noteworthy aspects of this pithy decision are: (i) a reminder that Delaware enforces forum selection clauses; and (ii) that a non-signatory can be bound by a forum selection clause if a three-part test is satisfied. See footnotes 46-47 and accompanying text. The directors of a Delaware company sought a declaratory judgment against non-residents of Delaware regarding a dispute about stock-appreciation-rights (SAR) that, by contract, required the board to fulfill fiduciary duties towards the SAR holders.

Three-Part Test for Binding Non-signatories

The three-part test requires one to demonstrate that: (i) the forum selection clause is valid; (ii) the non-signatories are third-party beneficiaries; and (iii) the claims arise from their standing relating to the agreement. Slip op. at 15. The third element of the test was not satisfied based on the facts of this case because the agreement containing the forum selection clause was not the same agreement that gave rise to the substantive claims brought by or against the non-signatories.

Long-Arm Statute and Specific Personal Jurisdiction

This decision also features an analysis of the Delaware long-arm statute, and explains why the “specific jurisdiction” requirements under Section 3104(c)(1) of Title 10 of the Delaware Code were not satisfied because there was no relevant act that actually occurred in Delaware. The Court factually distinguished a case that found specific jurisdiction based on an amalgamation of factors that included: Delaware lawyers drafting the agreement at issue; a Delaware choice-of-law provision; and issues related to the sale of capital stock in a Delaware company. See NRG Barriers, Inc. v. Jelin, 1996 WL 377014 (Del. Ch. July 1, 1996).

Although the plaintiffs in this case did not avail themselves of the opportunity, the Court observed that limited discovery may be allowed in connection with the plaintiff satisfying its burden of proof to establish personal jurisdiction over defendants.

Kuroda v. SPJS Holdings, LLC, C.A. No. 4030-CC (Del. Ch. Nov. 30, 2010), read opinion here.  Highlights of prior Court of Chancery decisions in this case are available here and here.  

Issue Decided

The Court of Chancery determined that none of the exceptions applied in this case to the general rule that only a signatory is bound by the terms of a written agreement. Thus, the Court did not need to address the scope of the arbitration clause. [At first, this conclusion may appear unremarkable, but there are a fair number of decisions which find  non-signatories bound by the terms of an agreement they did not sign. See, e.g., NAMA Holdings LLC v. Related World Market Center LLC, 2007 WL 1500027 at n.26 (Del. Ch. April 27, 2007), available here.]

Brief Background

Two prior opinions of the Court linked above provide copious background details. This latest decision in this matter involved the motion to compel arbitration of plaintiff. The sophisticated parties involved in this case formed investment vehicles to invest in Japanese companies. The remaining claims (after the prior decisions of the Court dismissed certain counts), included damages for breach of a limited liability agreement asserted by Plaintiff. The motion to compel arbitration related to counterclaims to enjoin the use of confidential information. The arguments of the plaintiff were that the counterclaims arose out of the “Consulting Agreement,” which contained a clause that required arbitration.

The defendants argued that none of the parties to this action were signatories to the Consulting Agreement. The plaintiff rebutted that there are many exceptions to the general rule and case law supports the position that sometimes non-parties to an agreement are bound by its terms. None of the parties to this case were signatories to the Consulting Agreement and none of them were parties to the Consulting Agreement.

Brief Discussion and Analysis

The Court began its analysis with basic principles such as the following: (1) The presumption in favor of arbitration will not trump basic principles of contract interpretation because a litigant cannot be required to submit to arbitration in a dispute which it has not agreed to so submit. (2) Before the issue about the scope of an arbitration clause can be addressed, the Court must first determine whether parties voluntarily consented to submit the applicable disputes to arbitration. 

The Court observed the general rule that “only parties to a contract and intended third-party beneficiaries may enforce or be bound by that agreement’s provisions, whereas a nonparty to a contract has no legal right to enforce it.” See footnote 21.

 

However, the Court also acknowledged that under principles of contract, agency and common law, certain exceptions allow for a contract to be enforced against nonparties to that agreement. Specifically, “courts have recognized several theories under which a non-signatory to a contract may nonetheless be bound by an arbitration provision contained in the agreement, including: (1) incorporation by reference; (2) assumption; (3) agency; (4) veil piercing/alter-ego; (5) third-party beneficiary; and (6) equitable estoppel. See footnote 22. The Court discussed each of the six foregoing exceptions to the general rule and explained why they did not apply in light of the circumstances of this matter.

  

The Court also noted the rule that an issue not raised in the opening brief is waived, but in this situation, based on the circumstances in this case the Court still allowed the arguments to be considered even though they were raised for the first time in a reply brief. See footnote 23. Compare recent contrary procedural ruling of the U.S. District Court for the District of Delaware that reached the opposite conclusion based on an application of that court’s local rule. Laboratory Skin Care v. Limited Brands, Inc., C.A. No. 06-601-LPS (Dec. 6, 2010), slip op. at 13 (available here).

 

Especially noteworthy in this opinion is a discussion that has far reaching application – – namely, that “an agent is not a party to the contract unless the agent and the third-party so agree.” See footnote 26. Compare footnote 28 (citing authority for those situations where an individual may be personally liable for torts he or she committed notwithstanding the fact that that person may have acted as an agent.)

 

In concluding its reasoning why arbitration would not be compelled, the Court distinguished this case from other cases where non-signatories were bound as follows: (1) This is not a case compelling a signatory to arbitrate with a non-signatory; (2) This is an issue of whether non-signatories can be compelled to arbitrate under an equitable estoppel theory where no parties to the litigation are parties to the agreement; (3) The Court emphasized that it was “aware of no case where this Court has required arbitration in similar circumstances.” (4) The claims at issue do not rely or depend on the terms of the agreement in which the arbitration clause is included. Thus, the Court determined that none of the parties were bound by the provisions in an agreement that neither of them signed; therefore, the arbitration provision in that agreement would not be enforced.