Kardashians’ Cosmetic Dispute Has No Foundation for Arbitration
In multi-party, commercial litigation, contracts often contain arbitration clauses. Many times, some litigants in the action are not parties to these contracts requiring arbitration. When arbitration is then demanded in a multi-litigant lawsuit, the result can be fragmented proceedings in which the parties are forced to resolve the dispute in different forums. To avoid this outcome, non-parties to the contract containing the arbitration clause will often move the referring court to allow the non-party to join the arbitration. Depending on the nature of the underlying dispute and the scope of the arbitration clause at issue, different outcomes result.
Recently, the Kardashian sisters moved to compel arbitration in federal court in Florida. In the underlying dispute, the plaintiff alleged infringement of a trademark concerning a Kardashian cosmetic line. Though a contract between the two other parties to the litigation contained an arbitration clause, the Kardashians were not a party to this agreement. The arbitration clause at issue only required arbitration of the “disputes arising between them” (meaning the parties to the contract) concerning the validity and interpretation of the contract. Even so, the Kardashians moved to compel arbitration.
In a colorfully written opinion, a federal judge denied the Kardashian’s motion. Because the Kardashians were not a party to the contract and because the underlying dispute did not concern the contract, the court ruled arbitration was inappropriate as to the Kardashians. The Kardashians argued that the doctrine of equitable estoppel required the entirety of the matter to be decided through arbitration; the court found this argument unpersuasive.
While equitable estoppel may be used to compel arbitration by a non-party to a contract, the doctrine is limited to those instances where a plaintiff’s claims are covered by the contract at issue. An arbitration clause that is broad in scope will likely help support a non-party’s request to join such arbitration proceedings. However, in the Kardashian dispute, the court held that to allow arbitration with the Kardashians “would effectively…require one of [the parties to the contract] to arbitrate disputes that they had not agreed to.” As arbitration is a creature of contract, the court found this would produce an inequitable result.
Ultimately, had the underlying dispute been based on rights in the contract, though not parties to the contract, the Kardashians would have likely been able to join the arbitration. As the court noted, a plaintiff “cannot both take the advantages of contract provisions to seek to impose liability…and at the same time avoid another contract term or provision for which [the party] has no use.” Because the arbitration clause at issue here only governed disputes “between the parties” and the merits of the underlying suit had nothing to do with the contract, the Kardashians had no luck joining the arbitration proceedings. As the court noted “[l]ike makeup, Florida’s doctrine of equitable estoppel can only cover so much.”