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Arbitration: scope and enforcement of “any dispute arising out of, or related to,”

Arbitration is a form of alternative dispute resolution that attempts to resolve disputes between parties through a private tribunal as opposed to the public court process.  Maryland courts favor the use of arbitration as a method of dispute resolution and have consistently held when an arbitration agreement is “clear and precise,” any controversy arising out of the agreement shall be settled by the arbitration procedure.  S. Maryland Hosp. Ctr. v. Edward M. Crough, Inc., 48 Md. App. 401, 406 (1981).  In May 2012, the Court of Special Appeals filed its opinion in case of Griggs v. Evans.  This opinion recites the current state of the law regarding the enforceability of arbitration clauses Maryland. Griggs v. Evans, 205 Md. App. 64 (2012).  

An arbitration clause stating that arbitration will cover “any dispute arising out of, or related to,” the contract containing the clause, is considered to be a broadly worded arbitration clause. Broadly worded arbitration clauses have the effect of sometimes requiring parties to arbitrate disputes that do not arise directly from the contract where the arbitration clause is located.  This means an arbitration clause located in one contract can require parties to arbitrate disputes arising under a separate, but related contract.  The key factor in this scenario is that the two agreements must be related.

Broadly worded arbitration clauses trigger the “significant relationship test.”  Under this test, when a significant relationship exists between the asserted claim and the contract that contains the arbitration clause, the clause will apply and that claim must be submitted to arbitration.  A claim is considered significantly related to the contract containing the arbitration clause if, in order to prove the claim, the party must rely on terms in the contract that houses the clause. The test is not satisfied merely because the two agreements would not exist independently from one another.  The claim asserted must actually rely on the terms of contract containing the arbitration clause.

In addition to providing for a method that requires a party to arbitrate a claim when the direct contract at issue doesn’t contain an arbitration clause, the law also provides for ways in which a non-party to contract containing an arbitration clause can require a signing party to arbitrate its claims. The doctrine of equitable estoppel allows for a non-signatory to a contract to enforce the arbitration provision in a contract under two situations.  The first situation occurs when a signatory attempts to avoid the arbitration clause in the contract but at the same time, must rely on the terms in the contract in order to assert its claim. By relying on the terms of the contract to assert the claim, the signatory is seeking to realize the benefit of the contract while also attempting to avoid the contract’s arbitration clause. The second situation occurs when a signatory to the contract containing an arbitration clause alleges interdependent and concerted misconduct between a non-signatory and a signatory to the contract. Here, the claim against the signatory and the non-signatory would need to be based on the same facts or be inherently inseparable. The issue(s) that the non-signatory seeks to resolve in arbitration under this scenario would be so intertwined with the contract that the party asserting the claim would be estopped from denying the enforceability of the arbitration clause.   

Finally, under the theory of agency, an agent of a signatory to a contract containing an arbitration clause generally cannot compel arbitration. An agent will be permitted to enforce an arbitration provision in a contract executed by his principal when the claims asserted relate to the agent’s actions on behalf of the principal. 

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