Denial of motion to compel arbitration based on presence of third-party defendants is improper where defendants were related to facility named in agreement. Louise Laswell v. AG Seal Beach, LLC et al., (No. B221481 California Courts of Appeal, Second Appellate District, Division One, November 9, 2010).

Plaintiff sued a number of affiliated entities which operated a health care center.  The defendants moved to compel arbitration asserting that a valid arbitration agreement stated that all disputes arising out of the provisions of services by the facility would be arbitrated.  The plaintiff argued that arbitration was inappropriate because of the presence of third party defendants which were not subject to the arbitration agreement.  The trial court denied the petition to compel arbitration on the ground that there were parties who did not participate in the arbitration because they were not part of the agreement. 

It so happens that the other defendants were related entities, that is, its owners and operators of the same facility.  The appeals court reversed and remanded the matter to the trial court for further hearing.  The appeals courts stated that California has a strong public policy in favor of contractual arbitration requiring enforcement of valid arbitration agreements.  However, courts have digression to deny arbitration if there are third parties not subject to arbitration on claims arising out of the same or related transactions, and a possibility of conflicting rulings on common issues of law or fact.  The term “third party” means a party that is not bound by the arbitration agreement.  Here, although the arbitration agreement defines “facility” as a particular entity, all of the defendants were related to the facility and thus were bound by the agreement.

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