Miguel Chamorro | Fuerst Ittle David & Joseph
Cases requiring non-signatories to an arbitration agreement to arbitrate are not uncommon. Cases compelling subrogees to arbitrate, not because of an insurance policy but because of another contract, are less common. In Various Insurers, Reinsurers and Retrocessionaires v. General Electric International, Inc., 2025 WL 837869 (11th Cir. Mar. 18, 2025), the Eleventh Circuit analyzed the issue.
As noted by the U.S. Supreme Court in Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009), arbitration agreements may be enforced “by or against” non-signatories through various common law theories. The following are some examples:
- Alter ego – See, e.g., ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1461 (10th Cir. 1995) (holding that “district court must determine whether a corporation contractually bound to arbitrate is the alter ego, under applicable principles of corporate law of a shareholder before subjecting that shareholder to binding arbitration.”).
- Assumption – See, e.g., Thomson-CSF, S.A. v. American Arbitration Ass’n, 64 F.3d 773, 777 (2d Cir. 1995) (“In the absence of a signature, a party may be bound by an arbitration clause if its subsequent conduct indicates that it is assuming the obligation to arbitrate.”); Gvozdenovic v. United Air Lines, Inc., 933 F.2d 1100, 1105 (2d Cir. 1991) (parties manifested a clear intention to arbitrate by sending a representative to act on their behalf in the arbitration process).
- Estoppel – See, e.g., Bridas S.A.P.I.C. v. Government of Turkmenistan, 345 F.3d 347, 361-62 (5th Cir. 2003) (applying direct benefits estoppel theory “when a nonsignatory knowingly exploits the agreement containing the adverse clause”) (quotation omitted); Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993) (non-signatory affiliate who used a trade name pursuant to an agreement that contained an arbitration clause was estopped from relying on its nonsignatory status to avoid arbitrating under the agreement).
- Incorporation by reference – See, e.g., Thomson-CSF, 64 F.3d at 777 (“A nonsignatory may compel arbitration against a party to an arbitration agreement when that party has entered into a separate contractual relationship with the nonsignatory which incorporates the existing arbitration clause”); Import Export Steel Corp. v. Mississippi Valley Barge Line Co., 351 F.2d 503, 505–506 (2d Cir. 1965) (separate agreement with nonsignatory expressly “assum[ing] all the obligations and privileges of [signatory party] under the … subcharter” constitutes grounds for enforcement of arbitration clause by nonsignatory).
- Veil Piercing – See, e.g., American Bell Inc. v. Federation of Tel. Workers, 736 F.2d 879, 887 (3d Cir. 1984) (remanding to district court for determination of whether corporate veil should be pierced for purposes of subjecting party to arbitration).
- Third-party beneficiary – See, e.g., InterGen N.V. v. Grina, 344 F.3d 134, 146 (1st Cir. 2003) (“a third-party beneficiary of a contract containing an arbitration clause can be subject to that clause and compelled to arbitrate on the demand of a signatory.”) (citations omitted); E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, 269 F.3d 187, 195 (3d Cir. 2001) (“whether seeking to avoid or compel arbitration, a third party beneficiary has been bound by contract terms where its claim arises out of the underlying contract to which it was an intended third party beneficiary.”).
Various Insurers held that subrogees were third-party beneficiaries, and thus they must arbitrate the subrogation claims brought in court.
What was at issue in Various Insurers.
In Algeria, a power plant suffered a catastrophic turbine failure. The power plant is jointly owned by the Algerian government and a company that is in turn owned by a sovereign wealth fund belonging to the government of Abu Dhabi and a Canadian company. The power plant is operated by the Canadian company, pursuant to an Operation and Maintenance Contract designating it as the plant’s sole “Operator” and the plant’s owner as the sole “Project Owner.” Importantly, the operator also entered into a Services Contract with General Electric International as well as three other related contracts with another General Electric affiliate—and all these contracts contained arbitration provisions. See Id. *1.
In the wake of the turbine failure, various insurers, reinsurers, and retrocessionaires (collectively the “Insurers”) initiated litigation as subrogees of the plant’s owner against General Electric International and three of its affiliates (collectively the “GE Entities”) and others in court. The GE Entities moved to compel arbitration pursuant to the arbitration provision in the Services Contract between the plant’s operator and General Electric International. They invoked the plant operator’s status as a third-party beneficiary of the Services Contract. The district court granted the motion, concluding that the plant’s owner was a third-party beneficiary of the Services Contract. See Id.
On appeal, the main question presented was whether the plant’s owner and its subrogees “are bound by an arbitration clause in a contract between the operator of the Plant and various General Electric entities.” Id. at *1. For purposes of this article, the more specific question was whether there existed an agreement to arbitrate between the non-signatory Insurer subrogees and the GE Entities. That question, in turn, centered not on “whether the Services Contract contains an arbitration provision—it does—but whether that provision binds [the plant’s owner] as a third-party beneficiary (and therefore the Insurers, who are [its] subrogees).” Id. *2.1
A primer on third-party beneficiaries.
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1 The Court quoted this helpful definition of subrogation: “‘Subrogation simply means substitution of one person for another; that is, one person is allowed to stand in the shoes of another and assert that person’s rights against’ a third party.” U.S. Airways, Inc. v. McCutchen, 569 U.S. 88, 97 n.5 (2013) (citation omitted).
Parties to a contract may create rights in favor of a third party “by manifesting an intention to do so.” Beverly v. Macy, 702 F.2d 931, 940 (11th Cir. 1983). If that manifestation is apparent, the third party, as beneficiary of the contract, can be compelled to arbitrate on the demand of a signatory to the contract if that contract contains an arbitration clause. In Various Insurers, the applicable test for ascertaining “third-party beneficiary status is whether the contract reflects the express or implied intention of the parties to benefit the third party.” Id., at 3 (quoting Hencely v. Fluor Corp., 120 F.4th 412, 431 (4th Cir. 2024) (citation and internal quotation marks omitted)).2 The Court first explained the difference between an intended beneficiary, who may compel arbitration, and an incidental beneficiary, who may not, by relying upon the Restatement (Second) of Contracts § 302 (A.L.I. 1981), which provides:
(1) Unless otherwise agreed between the promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either (a) the performance of a promise will satisfy an obligation of the promisee to pay money to the beneficiary; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. (2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.
Id., at *3.
Here, the dispute centered on § 302(1)(b)—whether “the circumstances indicate that” the parties to the Services Contract intended to give the plant’s owner (as purported third-party beneficiary) “the benefit of the promised performance.” Various Reinsurers, at 3.
In applying § 302(1)(b) of the Restatement (Second) of Contracts, the Court explained that the “the key inquiry is whether the claimant was intended to be benefited by the contract provision in question,” Beverly v. Macy, 702 F.2d 931, 940 (11th Cir. 1983), and “[o]ne way to ascertain such intent is to ask whether the beneficiary would be reasonable in relying on the promise as manifesting an intention to confer a right on him.” Montana v. U.S., 124 F.3d 1269, 1273 (Fed. Cir. 1997) (citing § 302(1)(b) cmt. d). In evaluating the intentions of the parties, “a court may look beyond the contract to the circumstances surrounding its formation.” Beverly, 702 F.2d at 940.
Why the plant’s owner was a third-party beneficiary.
The Eleventh Circuit concluded that the language of the Services Contract between the plant’s operator and General Electric International and the circumstances surrounding its formation “readily indicate the parties’ intention to grant [the plant’s owner] the benefit of the performance promised.” Id., at *3. Consider the following indicators of “explicit rights,” Id., at *4, that were conferred upon the owner as third-party beneficiary by the contract:
First, the Services Contract provides that the plant’s operator “is responsible for operating and maintaining [the] power station … pursuant to an O&M Agreement entered into with the [plant’s owner]” and the referenced “O&M Agreement” is the Operation and Maintenance Contract between the owner and the operator “concerning the operation and maintenance of the Power Station by [its operator] in favor of [its owner].” Id. (contract citations omitted).
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2 The decision applied federal common law.
Second, the Services Contract sets out the “circumstances” under which the “supply of Parts and the execution of services by the Service Provider [General Electric International]” are to be accomplished. Id., at *4 (contract citations omitted). The first circumstance concerns “changes to a Power Train Set decided upon by either the [plant’s owner] or [the plant’s operator].” Id., at *4 (emphasis added; contract citations omitted).
Third, the Services Contract further states that the plant’s owner “may have access to [the] Operation and Maintenance reports” that the Service Provider is “responsible for prepar[ing].” Id. (contract citations omitted).
Finally, the Services Contract allows the plant’s owner “to act unilaterally in certain circumstances.” For example, “[i]n the event of an emergency that the Service Provider fails to respond to, the Services Contract provides that [the owner] on its own ‘may make any decisions without informing the Service Provider beforehand … in order to avoid or limit the damages or losses that may be suffered by persons or property.’” Id. (contract citations omitted).
“Based on this collection of direct references and explicit rights,” the Court concluded that the plant’s owner “would be ‘reasonable in relying on the [Services Contract] as manifesting an intention to confer a right on [it].’” Id., at 4 (quoting Montana, 124 F.3d at 1273). Thus, the owner’s status was unlike that of, for example, purported incidental third-party beneficiaries who “fail to point to any specific language in the [ ] contract that confer[red] rights on them,” U.S. v. South Fla. Water Mgmt. Dist., 922 F.2d 704, 711 (11th Cir. 1991), or who are not named in the contract and, at most, have only a “tenuous grant of a vague benefit” thereunder. Hogan v. SPAR Grp., Inc., 914 F.3d 34, 39 (1st Cir. 2019).3
Concluding remarks.
Various Reinsurers is certainly not alone in concluding that a non-party can be compelled to arbitrate claims based on an arbitration clause that was not that it did not sign. What makes the decision interesting—besides its exotic origins—is that the determining factor was not simply the subrogees’ status per se. Indeed, what makes Various Reinsurers interesting is its detailed findings as to why the subrogees qualified as third-party beneficiaries. In doing so, the Eleventh Circuit made a welcome addition to the jurisprudence on the common law theories that can be utilized to force a nonparty into arbitration.
3 Notably, the entire decision on whether a subrogee may be a third-party beneficiary for purposes of arbitration may ultimately be reduced to dicta because the Court found that the arbitrator must decide his/her own jurisdiction on the question of arbitrability. The decision further amplified on the Eleventh Circuit’s position on the question of whether a court or arbitrator determines the question of arbitrability. Because the arbitration clauses at issue incorporated the Conciliation and Arbitration Rules of the International Chamber of Commerce, which are closely aligned with the Commercial Arbitration Rules of the American Arbitration Association, the Court, relying on Terminix Int’l Co., LP v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327 (11th Cir. 2005), held that the arbitrator had the jurisdiction to answer the question of arbitrability. Thus, the Court ultimately left the decision of arbitrability to the arbitrator. Id. at *8.
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