Borat didn’t actually come from Kazakhstan. But you knew that, right?
The Second Circuit yesterday refused to compel a company to arbitrate its claims against an outfit that busted up a contract to buy 90 percent of a Kazakhstan oil and gas company. The purchase agreement required arbitration of "all disputes and disagreements arising from" it, but the interloper, being an interloper, wasn’t a party to it. The district court refused to let the contract buster enforce the arbitration clause against the buyer.
The Second Circuit reviewed its decisions in the course of almost entirely affirming the district court’s order. It clarified loose language on the "equitable estoppel" method of forcing non-signatories of an arbitration-provision-including contract. Those opinions, the court noted, turned on the voluntary nature of the relationship between a signatory and the non-signatory. The tie between the signatory buyer and the non-signatory contract resulted, the court pointed out, from the interloper’s "wrongfully inducing" the seller to "breach his contract with" the buyer. Sokol Holdings, Inc. v. BMB Munai, Inc., No. 07-2871, slip op. at 13 (2d Cir. Sept. 18, 2008).
The court did order arbitration of a specific performance claim. The rub came from the necessity of treating the interloper as a party to the purchase agreement in order to require it to give specific performance.
Interestingly, the court quoted in passing from the dissent in the Fifth Circuit’s seminal case on equitable estoppel as a means to extend a contractual obligation to arbitrate to non-signatories. The passage says that many instances of equitable estoppel arise from "an agreement implied in fact rather than ordinary equitable or promissory estoppel". Id. at 12 (quoting Grigson v. Creative Artists Agency, L.L.C. (5th Cir. 2000) (Dennis, J.).
That sounds about right to Blawgletter.
