Non-parties to an Arbitration Agreement are Generally Not Bound to Arbitrate

In Waymo LLC v. Uber Technologies, Inc., [2017-2130] (September 13, 2017), the Federal Circuit affirmed the district court decision that Uber Technologies, Ottomotto LLC, and Otto Trucking LLC could not compel Way merely because they Waymo was arbitrating a related dispute with Levandowski, who did have an arbitration agreement with Waymo.

The Federal Circuit said that Contract law principles hold that non-parties to a contract
are generally not bound by the contract, and a contract to arbitrate is not an exception. A party cannot be required to submit to arbitration any dispute which it has not agreed so to submit.  The Federal Circuit noted that the California courts have, in a few situations, compelled arbitration against an entity that was not a party to an arbitration agreement. The Federal Circuit said that the issue was whether the circumstances are such that Waymo can be compelled to arbitrate on equitable grounds, in Waymo’s suit against Uber, Ottomotto, and Otto Trucking, where there is no agreement to arbitrate.  The district court concluded that it could not, noting that Waymo had disclaimed reliance on the contracts with the employee, and Waymo need not rely on the terms of its written agreements merely because it makes reference to such agreements.

The Federal Circuit said that while equitable doctrines permit departure from the principle that non-parties cannot be compelled to arbitrate, when necessary to avoid
inequity, California precedent guides that unless the issues of the complaint are intimately intertwined with the non-party agreement containing an arbitration clause,
compulsion to arbitrate is inappropriate.  The Federal Circuit concluded that the district court correctly concluded that arbitration should not be compelled.

Promise to Arbitrate Claims “Arising Under” is Narrower than Promise to Arbitrate Claims “Relating to” Agreement

In Evans v. Building Materials Corporation of American, [2016-2427](June 5, 2017), the Federal Circuit affirmed the denial of a motion to dismiss a complaint for patent infringement and trade dress infringement.

Evans U.S. Design Patent No. D575,509 on a three-dimensional roofing model designed to be used by a seller of roofing products during a sales pitch.  He entered into an agreement with GAF under which GAF agreed to promote the product to GAF’s network of certified contractors, Evans agreed to sell the product at discounted prices to the GAF contractors and to pay GAF a percentage of sales.  The Agreement contained an arbitration clause for “any dispute or disagreement [that] arises under this Agreement.”

Evans sued alleging that after termination of the agreement, GAF made and sold infringing roofing models.  GAF moved to dismiss or stay pending arbitration, invoking the arbitration clause.  The district court found that 2009 agreement has expired, and thus did not apply, and alternatively, that the present dispute did not “arise under” the terminated 2009 agreement.

The Federal Circuit found GAF’s contention “wholly groundless.” The Federal Circuit said that the arbitration clause only reaches claims arising under the 2009 agreement. GAF conceded that under controlling Fourth Circuit precedent the focus is “whether the claims at issue have a direct nexus to the contractual obligations, and more specifically, whether the claims are ‘related to the interpretation and performance of the contract itself.’” The Federal Circuit noted that the “arising under” language was narrower than “relating to” — under which a claim may be arbitrable if it has a “significant relationship” to the contract, regardless of whether it arises under the contract itself.