Nonsignatories: Successor By Merger Can Enforce Arbitration Agreement That It Did Not Sign

DLA Piper Rudnick Gray Cary US LLP Had Standing To Enforce Arbitration Agreement.

      One of our more prolific sidebar categories is “Nonsignatories.”  Quite a few disputes have been spawned when a nonsignatory to an arbitration agreement seeks to enforce it, under various theories that include incorporation by reference, assumption, agency, veil-piercing or alter ego, estoppel, and third-party beneficiary status.  In our next case, the nonsignatory enforcement issue arose because the signatory law firm, Gray Cary, merged into DLA Piper Rudnick Gray Cary US LLP (DLA Piper), a nonsignatory to an arbitration agreement with one of its employee attorneys.

     Plaintiff M. Todd Jenks, a former associate attorney at DLA Piper, sued the law firm, alleging it had wrongfully prevented him from receiving certain disability benefits.  DLA Piper successfully moved to compel arbitration as the successor by merger to an arbitration agreement between Mr. Jenks and his former employer, Gray Cary, which had signed an arbitration agreement with Mr. Jenks.  Mr. Jenks received an award of $93,545.67 that included contract damages, emotional distress damages, and costs, and that was later adjusted upwards to $120,112, plus $12,142 in postaward interest, plus costs.  Evidently, DLA Piper  was not too ruffled by the award, because it petitioned to confirm it as a judgment, which petition was granted.  Mr. Jenks, however, appealed.  Jenks v. DLA Piper Rudnick Gray Cary US LLP, A143990 (1/1 Dec. 16, 2015) (Dondero, Margulies, Banke) (published). 

    Judgment affirmed.  Marenco v. DirecTV LLC, 233 Cal.App.4th 1409 (2015) is dispositive.  Marenco involved an employment dispute between the plaintiff Marenco, and DirectTV, which acquired Marenco’s former employer 180  Connect, and retained its employees.  By doing so, DirecTV assumed 180 Connect’s rights and obligations, including those arising from employment relationships.  Furthermore, equitable estoppel kicked in:  “By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.”  Marenco at 1420.  The result is also supported by Cal. Corp. Code section 16914, sub. (a)(1), providing that after merger, a surviving partnership, succeeds “to all the rights and property . . . of the disappearing partnerships . . . and shall be subject to all the debts and liabilities of each . . . “