Tenth Circuit Finds Non-Signatory May Compel Arbitration Based on Equitable Estoppel

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Defendant SemGroup Corp. and intervenor-defendant Cypress Environmental Management-TIR appealed an Oklahoma district court order denying their motions to compel arbitration. The plaintiff, Robert Ferrell, was a Cypress employee. He and Cypress entered into an employment agreement containing an arbitration clause, but SemGroup was not a party to that agreement. After Ferrell filed a putative class action against SemGroup, SemGroup moved to dismiss and compel arbitration, relying on the arbitration clause in the Ferrell/Cypress employment agreement. Cypress intervened, and both Cypress and SemGroup moved to dismiss and compel arbitration, arguing: (1) there was a question of arbitrability to be decided by the arbitrator as to whether a delegation clause in the arbitration agreement applied to non-signatories, such as SemGroup; and (2) arbitration of Ferrell’s claims was required based on theories of equitable estoppel. The district court denied the motions to compel, ruling that, based on Belnap v. Iasis Healthcare, 844 F.3d 1272 (10th Cir. 2017), the court, not the arbitrator, is required to decide the arbitrability issue. The court also rejected the movants’ estoppel arguments, finding they did not justify estopping Ferrell from avoiding arbitration.

On appeal, the Tenth Circuit held initially that the district court misapplied Belnap, clarifying that in Belnap the court “expressly declined to consider” whether responsibility for determining if a non-signatory may compel arbitration must be delegated to the arbitrator. The Tenth Circuit declined to decide that issue here as well, ruling instead that the motion to compel should have been granted based on equitable estoppel. Noting that the posture and issues in this case were nearly identical to those raised in a prior Tenth Circuit decision also involving Cypress, the court found the Oklahoma Supreme Court would recognize a “concerted misconduct estoppel” theory where, as here, a signatory (Ferrell) asserted allegations of “substantially interdependent and concerted misconduct” by a non-signatory (SemGroup) and another signatory (Cypress). This case, the court ruled, is “precisely the type of lawsuit that ‘concerted misconduct estoppel’ was designed to address.” As such, the Tenth Circuit reversed and remanded the district court order, finding Ferrell should be estopped from avoiding arbitration.

Ferrell v. Cypress Environmental Management-TIR, LLC, No. 20-5092 (10th Cir. Nov. 30, 2021).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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