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When Can A Nonparty to A Texas Contract Be Compelled to Arbitrate a Personal Injury Case?

oil-refinery-at-dusk-1319022-mIn ENGlobal U.S. Inc. v. Gatlin, a Texas appellate court was asked to decide whether a party to a contract with an arbitration clause could compel arbitration of a personal injury claim by a nonparty to the contract under the doctrine of “direct benefits estoppel.” The case arose from Phillips 66’s ownership and operation of an oil refinery. The operator of the refinery had contracted with Clean Harbor, an industrial service contractor, to clean oil storage tanks at the refinery.

An employee of the industrial service contractor was working as a hydroblaster at the refinery. While working, the lanyard on his safety harness got caught in the walkway, resulting in his fall and back injury.

When the accident happened, ENGlobal was a contractor that performed engineering for Phillips 66. Their relationship was governed by a master service agreement that included an arbitration provision. The employee had not signed this agreement, and he sued Phillips 66, ENGLobal, and another company in order to recover damages. He alleged negligent undertaking and premises liability.

ENGlobal tried to compel arbitration under the Texas Arbitration Act. The trial court denied this motion, and ENGlobal appealed.

Both parties agreed that the Texas Arbitration Act governed the agreement in the case. The appellate court explained that when a party seeks to compel arbitration under the Act, it must prove that there’s a valid arbitration agreement and that the claims in the lawsuit fall within the agreement’s scope. Without an agreement, the court can’t order arbitration. When one of the parties denies that an agreement to arbitrate exists, the trial court can decide whether to compel arbitration on the grounds of pleadings, discovery, or stipulations. A trial court that finds a valid arbitration agreement must shift the burden to the party that opposes arbitration. That party will have to raise an affirmative defense.

The Texas Supreme Court has recognized six theories supported by federal courts in which someone who is not party to an arbitration agreement can be bound by it:  when there is incorporation by reference, assumption, agency, when the person who is not a party is an alter ego of someone who is, equitable estoppel, and third-party beneficiary. In this case, ENGlobal asserted that the injured person was bound to arbitrate under direct benefits estopped, a type of equitable estoppel.

This theory stops a plaintiff who seeks the benefits of a contract from simultaneously trying to avoid its burdens. It stops someone who hasn’t signed an agreement from picking and choosing between provisions of an agreement with an arbitration clause to have only those provisions that benefit him or her enforced. A person who sues on the basis of a contract is bound to its terms.

Direct benefits estoppel can also be applied to bind someone who doesn’t sign the agreement when he or she seeks direct benefits from the contract by means other than a lawsuit. This requires arbitration when a non-party to the agreement deliberately seeks and gets benefits from the contract.

The appellate court explained that a nonparty could be bound to arbitrate if he or she sues for the direct benefits of a contract that contains an arbitration provision or deliberately seeks benefits from the contract outside litigation. The issue in front of the court was whether the plaintiff sought a direct benefit from the contract.

With regard to the premises liability portion of the plaintiff’s claim, the plaintiff argued ENGlobal knew or should have known of the defect and that it breached its duty of care by failing to warn him of it. The appellate court explained that nothing established the plaintiff was relying on a contractual right of control under the agreement with the arbitration clause in order to assert premises liability. It explained that the plaintiff could be relying on a theory of actual control, rather than control through the contract. Therefore, estoppel didn’t apply to this portion of the complaint, or the portion claiming that ENGlobal had created the dangerous condition.

The plaintiff also filed a complaint on the basis of negligent undertaking. Under this theory, someone in Texas who voluntarily undertakes a course of action for the benefit of another has a duty to exercise reasonable care so that the undertaking will not injure the other person or his or her property. The plaintiff argued that the defendant breached its duty to provide a safe place to work. The court agreed with him, explaining that the claim arose from general legal obligations, not the agreement.

If you or a loved one is hurt at a site where multiple parties might be responsible, it’s important to retain attorneys with experience in these challenging cases. The experienced San Antonio premises liability attorneys at Carabin & Shaw may be able to help. Call our office for more information at 1-800-862-1260.

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