Fifth Circuit Rules on Arbitration Nonsignatories Rights’ Under the New York Convention

The United States Court of Appeals for the Fifth Circuit held that nonsignatories to arbitration agreements may be compelled to arbitrate under the New York Convention.

In Todd v. Steamship Mutual Underwriting Association (Bermuda) Limited, No. 09-30177 (5th Cir. March 18, 2010) Anthony Todd was injured in Louisiana while working as a chef aboard the steamship American Queen, owned and operated by the Delta Queen Steamboat Company (“Delta Queen”). Steamship Mutual Underwriting Association (Bermuda) Limited (“Steamship”) insured Delta Queen against liability for injuries to its employees.

Todd won a lawsuit against Delta Queen but was unable to collect because Delta Queen had filed for bankruptcy. Since a Louisiana statue allows to file a direct suit against insurers, Todd was allowed to sue Steamship. Steamship, however, removed to federal court and then moved to compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The “New York Convention”).

Steamship argued that Todd was bound by an arbitration clause requiring Delta Queen to arbitrate with Steamship. The district court refused to compel arbitration citing Zimmerman v. International Companies & Consulting Inc., 107 F.3d 344 (5th Cir. 1997). In Zimmerman, the court found that a plaintiff was not a party to the arbitration agreement and thus it had no binding effect upon him.

The Fifth Circuit first began by distinguishing the facts of Zimmerman from the present case. Next, the court noted that the U.S. Supreme Court’s decision in Arthur Andersen LLP v. Carlisle, 129 S. Ct. 1896 (2009) had overruled Zimmerman. In Carlisle, the Court held that nonsignatories to arbitration agreements may be compelled to arbitrate if the relevant state contract law allows the nonparty to enforce the agreement.

Accordingly, the Fifth Circuit reversed and remanded the case with instructions for the district court to determine whether Todd, as a nonsignatory, could be compelled to arbitrate.

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