By Bryan Scott and Steven Hemric

Generally, only signatories to an arbitration agreement can compel one another to arbitrate their claims. However, in certain situations a nonsignatory may take advantage of an arbitration agreement between other parties. One such situation arises when a signatory to an arbitration agreement is “equitably estopped” from refusing to arbitrate its claims against a nonsignatory, under the doctrine of equitable estoppel, concepts of fairness prevent the signatory from refusing to arbitrate its claims. See, e.g. Am. Bankers Ins. Group, Inc. v. Long, 453 F.3d 623, 627 (4th Cir. 2006). In (Smith Jamison Construction v. APAC-Atlantic, Inc.,) the North Carolina Court of Appeals recently clarified what types of claims by a signatory against a nonsignatory give rise to equitable estoppel. The key issue, according to the Court of Appeals, is whether the claims rest on the terms of the contract containing the arbitration clause at issue.

By way of background, Jamison involved claims by a concrete subcontractor over its allegedly wrongful termination and replacement on a NCDOT construction project in Greensboro, North Carolina. Jamison contracted with the general contractor, APAC-Atlantic, to perform concrete work on the project. Jamison’s subcontract contained a valid arbitration clause. After Jamison began work on the project, APAC allegedly conspired with a separate construction company, Yates Construction, to wrongfully replace Jamison on the project. Eventually, APAC terminated Jamison and replaced it with Yates. Jamison sued both APAC and Yates alleging claims against Yates for (1) fraudulent misrepresentation; (2) tortious interference with a contract; (3) civil conspiracy; and (4) unfair and deceptive trade practices.

Pursuant to the arbitration clause in Jamison’s subcontract, Jamison consented to arbitrate its claims against APAC. Yates then sought to compel Jamison to arbitrate its claims against Yates as well, arguing that Jamison was equitably estopped from refusing to arbitrate its claims. The trial court denied Yates’s motion, and Yates appealed. The Court of Appeals affirmed.

The Court of Appeals focused on whether Jamison’s claims against Yates “assert[ed] a breach of a duty created by the contract containing the arbitration clause.” The court recognized that while the subcontract containing the arbitration clause “provid[ed] part of the factual foundation for Jamison’s complaint,” none of Jamison’s claims sought to enforce any duty imposed on Yates by the subcontract. Instead, Jamison’s claims were based on independent legal duties imposed by North Carolina statutory or common law rather than the subcontract.

The court’s opinion clarifies that allegations of fraud and wrongful interference with  contract will not enable a nonsignatory to compel arbitration of the claims against it, even when the contract at issue contains an arbitration provision. With the prevalence of arbitration clauses in construction contracts today, this clarification will enable parties to construction contracts and lawsuits to more easily identify when arbitration is the appropriate forum to resolve disputes, especially when a lawsuit involves claims against both signatories and nonsignatories to an arbitration agreement.