A New Jersey appellate court recently held, based upon a theory of estoppel, that a non-signatory parent company had standing to enforce an arbitration clause signed by its subsidiary when the parties’ actions are “substantially interconnected,” the claims against both parties are identical, and the claims against the parties are inextricably intertwined with the agreement mandating arbitration. EPIX Holdings Corp. v. Marsh & McLennan Co., Inc., 982 A.2d 1194, 1203 (N.J. Super. Ct. App. Div. 2009).
EPIX Holdings Corporation is a professional employer organization that contracts with small businesses to provide services and benefits, including workers’ compensation insurance coverage. Marsh & McLennan Companies, Inc. served as EPIX’s exclusive broker-agent and advisor to secure workers’ compensation coverage for its employees and customers.
For 2000 and 2001, EPIX’s primary workers’ compensation insurance provider was Hartford Underwriters Insurance Company. EPIX alleged that in June 2002, Hartford gave notice fewer than 90 days before the expiration of EPIX’s policies that Hartford was not renewing the policies. Thereafter, Marsh placed EPIX’s policies with National Union Fire Insurance Company of Pittsburgh, PA, an AIG subsidiary.
Subsequently, another AIG subsidiary, AIG Risk Management, Inc., issued a binder letter, and EPIX began paying premium on the policy effective September 1, 2002. A second binder letter was issued the following year for the 2003-2004 policy. Neither Marsh nor EPIX signed the binder letter which expressly required EPIX to execute and return the Payment Agreement and Schedule.
National Union executed the Payment Agreement “on behalf of itself and its affiliates.” The Payment Agreement provided the terms and conditions of EPIX’s payment obligations to National Union. It also provided that any disputes, other than those about payment due, “arising out of th[e] Agreement must be submitted to arbitration.” The arbitration clause further provided that the arbitration must be governed by “the United States Arbitration Act” and arbitrators would have “exclusive jurisdiction over the entire matter in dispute, including any question as to arbitrability.”
In August 2008, EPIX sued AIG, National Union, Hartford and Marsh for various claims arising under the New Jersey Anti-Trust Act and related common law contract, negligence, and fraud claims. EPIX claimed the defendants engaged in an elaborate bid rigging conspiracy that enabled AIG and National Union to charge “inflated premiums” and impose “onerous terms” with “inadequate coverage.”
AIG moved to compel arbitration pursuant to the Payment Agreement between EPIX and National Union. The trial court denied AIG’s motion holding that AIG lacked standing to enforce the arbitration clause because it was not party to the Payment Agreement. The court also found that EPIX’s dispute did not fall within the scope of the arbitration clause.
On appeal, citing Arthur Andersen LLP v. Carlisle, 129 S. Ct. 1896, 1902, 556 U.S. ______ (2009), the appellate court held that because arbitration agreements are analyzed under “traditional principles of state laws,” such principles “allow a contract to be enforced by or against nonparties to the contract through ‘assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel’.” EPIX, 982 A.2d at 1200. New Jersey state law recognizes non-signatory standing to compel arbitration on the basis of equitable estoppel. Id.
Although the estoppel analysis is fact dependent, the court held that a proper analysis for compelling arbitration focuses on the connection between the claim, the arbitration agreement, and the parties. Id. In EPIX, all the factors favoring estoppel are present: AIG’s interests are clearly aligned with its wholly-owned subsidiary National Union, there is an identity of claims against AIG and National Union, and, most importantly, EPIX’s claims are inextricably intertwined with the Payment Agreement. Id. at 1203. Accordingly, the court held that although it is not a signatory to the arbitration agreement, AIG has standing to compel arbitration of EPIX’s claims on the basis of estoppel. Id.; see also PRM Energy Sys. V. Primenergy, L.L.C., No. 08-1987, 2010 U.S. App. LEXIS 395, at *6-15 (8th Cir. 2010) (holding non-party signatory could enforce arbitration clause on a “concerted-misconduct theory of alternative estoppel”).
Moreover, the court rejected EPIX’s argument that its claims did not fall within the scope of the arbitration clause. The court held that the claims “not only ‘arise out of,’ but are undeniably intertwined with the contract between EPIX and National Union” because EPIX’s claimed injury resulted from its entry into the Payment Agreement. EPIX, 982 A.2d at 1207. The court further held that the New Jersey Antitrust Act did not preclude arbitration of claims under the statute. Id. at 1209-10.
Therefore, based on the ruling in EPIX, where state laws permit non-signatories to enforce a contract on the basis of estoppel, a non-signatory may rely upon equitable estoppel to enforce an arbitration agreement for claims that are within the scope of the arbitration clause.
Cindy Chang is an Associate in the firm’s Insurance and Reinsurance Practice. Her practice includes an array of insurance and reinsurance dispute,regulatory, and corporate matters. Ms. Chang received her bachelor’s degree from Washington University and her law degree from Washington University School of Law.