Non-signatory Third-Party Cannot Enforce Arbitration Clause in Contract

SBS is a staffing company that provides personnel to various retail services, such as SPAR. SBS engaged Paradise Hogan (“Hogan”) and assigned Hogan to SPAR. Hogan and SBS entered into an Independent Contractor Master Agreement with SBS (the “Agreement”). The Agreement required the parties to resolve disputes through arbitration; SPAR was not a party to the Agreement. Hogan later sued SBS and SPAR for unpaid wages and benefits and both SBS and SPAR sought to compel arbitration. The district court compelled arbitration as to Hogan’s claims against SBS but denied the motion to compel arbitration as to SPAR. SPAR appealed.

The First Circuit affirmed holding that there was no legal basis to compel Hogan to arbitration where the clear terms of the agreement showed that Hogan did not consent to arbitrate his claims against SPAR. The Court explains that SPAR was not a third-party beneficiary of the Agreement. To determine if a party is a third-party beneficiary a court looks to the specific terms of the contract to ascertain the intent of the parties. Here, the court explained that the clear language of the arbitration clause limited its applicability to the signatories by only covering disputes between “the Parties,” so it is clear that it did not confer arbitration rights to SPAR or any other third party. Moreover, the court determined that Hogan was not equitably estopped from avoiding arbitration of his claims against SPAR. Federal courts have been willing to estop a signatory from avoiding arbitration with a non-signatory when the issues to resolve in arbitration are intertwined with the agreement that the estopped party has signed. The court explained that Hogan’s claims were based upon Massachusetts wage and hour law and not the Agreement and therefore, not sufficiently intertwined.

Hogan v. Spar Group, Inc., No. 18-1286 (1st Cir. Jan. 25, 2019)