Potential Pitfalls of Boilerplate Agency Claims: Non-Signatory Agents Compel Arbitration
The general rule is that only a party to an arbitration agreement is bound by or may enforce the agreement. Cal. Code Civ. Proc § 1281.2; Jones v. Jacobson (2011) 195 Cal.App.4th 1, 17. In other words, barring an exception to the general rule, non-signatories cannot invoke an agreement to arbitrate. In a March 2012 decision, the Fourth District Court of Appeal held “[o]ne such exception provides that when a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement, the defendant may enforce the agreement even though the defendant is not a party thereto.” Thomas v. Westlake (2012) 2012 Cal.App. LEXIS 339, 13.
II. BACKGROUND FACTS
In Thomas, Katherine Thomas (“Investor”) signed multiple agreements with Ameriprise Financial Services, Inc. (“AFSI”) in connection with three investment accounts, e.g., Brokerage Client and Client Service Agreements. Each agreement contained an arbitration clause requiring that all disputes be settled by arbitration.
After Investor’s death, Investor’s successor in interest (“Plaintiff”) sued AFSI and multiple non-signatory defendants, alleging “defendants conspired to ‘churn’ [Investor’s] investment accounts by inducing her to make unsuitable investments that increased defendants’ commissions and profits and substantially reduced the value of the accounts.” Id. at 5. In his Complaint, Plaintiff inserted boilerplate agency language:
At all times relevant herein, Defendants, and each of them, acted as an agent of each other Defendant in connection with the acts and omissions alleged herein.
Defendants were acting as the actual or ostensible agents of the other Defendants.
Id. at 13.
The Fourth District Court of Appeal acknowledged the general rule that “only a party to an arbitration agreement is bound by or may enforce the agreement.” Id. at 11. In Thomas, only Investor and AFSI were parties to the applicable agreements containing arbitration clauses. Notwithstanding, applying the exception to the general rule, the Court ruled that “as alleged agents of parties to the agreements containing arbitration clauses, AFI, Westlake, WGG, IDS and RiverSource [the non-signatory Defendants] are also entitled to compel arbitration of [Plaintiff’s] claims against them.” Id. at 13. The Court reasoned it would be unfair to allow Plaintiff to avail himself of agency principles when they worked to his advantage, but to disavow those same principles when they worked against him. Id. at 16.
In the wake of AT&T Mobility LLC v. Concepcion (2011) 131 S. Ct. 1740, California courts are paying more deference to arbitration clauses, reading them more broadly to the detriment of the Plaintiffs’ Bar. In this context, it is imperative that counsel investigate the existence and content of any agreements to determine whether an arbitration clause applies to potential Plaintiff clients before filing the complaint. The results of such investigation will impact who is sued and whether and how agency allegations are worded.
In Thomas, Plaintiff’s case was removed from State Court to arbitration merely by Plaintiff’s insertion of boilerplate agency language. In light of Thomas, always assess the efficacy of agency claims in the complaint, particularly where Plaintiff asserts breach of contract claims, and where Plaintiff has entered into a contract with any potential Defendant containing an arbitration clause.