By: Richard E. Guttentag, Esq., Stearns, Roberts & Guttentag, LLC
A party who has not signed an arbitration agreement may be compelled to arbitrate if a signatory signed the arbitration agreement on behalf of the party as the party’s agent.
In Miccosukee Tribe of Indians of Florida v. Cypress, 2013 WL 2158422 (S.D.Fla 2013), Morgan Stanley Smith Barney, LLC (“Morgan Stanley”) and the Miccosukee Tribe of Indians of Florida (the “Miccosukee Tribe”) allegedly entered into Client Agreements under which Morgan Stanley agreed to provide customer banking and investment services to the Miccosukee Tribe. Billy Cypress (“Cypress”), the Chairman of the Miccosukee Tribe at the time the Client Agreements were executed, allegedly signed the Client Agreements on behalf of the Miccosukee Tribe.
Sometime after the Client Agreements were executed, the Miccosukee Tribe filed a Complaint in Federal Court asserting claims of including, but not limited to fraud, embezzlement, and theft against Morgan Stanley, Cypress and others, alleging, in part that Cypress mishandled and misappropriate funds from the Morgan Stanley account, and Morgan Stanley allegedly provided Cypress with assistance in such alleged fraud and embezzlement. Morgan Stanley filed a Motion to Compel Arbitration and Dismiss or Stay the Action on the grounds that the Miccosukee Tribe’s claims must be arbitrated pursuant to the arbitration clauses contained in the Client Agreements. The Miccosukee Tribe, in opposition to the Motion to Compel Arbitration argued that Cypress was without authority to bind the Miccosukee Tribe to arbitration, absent the knowledge and consent of the Miccosukee Tribe’s General Counsel.
Neither the Miccosukee Tribe nor Morgan Stanley disputed the enforceability of the arbitration provisions in the Client Agreements, nor that the claims at issue were arbitrable under the applicable provisions. The dispute between the parties rested upon whether Cypress, as an alleged co-conspirator, had the authority to contractually bind the Miccosukee Tribe to the terms of the Client Agreements, including the mandatory arbitration agreements. The Court held that Cypress had the authority to contractually bind the Miccosukee Tribe to arbitration, and granted the Motion to Compel Arbitration.
The Court, relying on the Federal Arbitration Act (“FAA”), explained that the FAA establishes a liberal policy favoring arbitration agreements, and provides that a written arbitration agreement is valid, irrevocable, and enforceable, except upon such grounds as exist at law or in equity for the revocation of any contract. Any doubts concerning arbitrable issues are to be resolved in favor of arbitration. However, the FAA’s strong pro-arbitration policy only applies to disputes where the parties have agreed to arbitrate, as a court cannot compel the parties to arbitrate where the parties have not agreed to arbitrate.
The Court explained that a party may also enter into an arbitration agreement via the party’s agent, as common law principles of contract and agency law allow a signatory to bind a non-signatory to an arbitration agreement, if the signatory is the non-signatory’s agent. The Court reasoned that Cypress, at the time he entered into the Client Agreements, had apparent, if not actual authority to contractually bind the Miccosukee Tribe. An agent has actual authority to bind the principal corporation where the principal has specifically granted the agent the power to do so.
In this case, the Court reasoned that the Miccosukee Tribe effectively admitted to Cypress’ actual authority when it averred that from 2005 through 2009, Cypress oversaw, controlled, supervised and had unrestricted access and control over the financial funds and records of the Miccosukee Tribe. Alternatively, if there was an absence of actual authority, the Court reasoned that Cypress had apparent authority, which arises where a principal allows or causes others to believe the agent possesses such authority. With Cypress’ access to the financial funds and records, the Court concluded that the Miccosukee Tribe permitted Morgan Stanley to believe Cypress had the authority to execute the Client Agreements. Thus, the Court held that Cypress had the requisite legal authority to enter into the arbitration agreement with Morgan Stanley on behalf of the Miccosukee Tribe, and therefore the Miccosukee Tribe must arbitrate its claims against Morgan Stanley.
In addition to this case demonstrating the liberal policy favoring the enforcement of arbitration agreements, the case also demonstrates that a party who has not signed an arbitration agreement may be compelled to arbitrate if a signatory signed the arbitration agreement on behalf of the party as the party’s agent.
About the Author: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, LLC, and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at[email protected].