First Circuit Issues Flawed FAA Decision

First Circuit Issues Flawed FAA Decision

The First Circuit recently discussed whether a non-signatory is bound by an arbitration agreement. See Ouadani v. TF Final Mile LLC, No. 17-1583 (1st Cir. Nov. 21, 2017) (click here for a copy of the decision). The First Circuit stated it was relying on “federal common law” to answer this question of whether a non-signatory is bound to arbitrate, and this “federal common law” includes “general principles of contract and agency law.”

Unfortunately, the First Circuit was incorrect in relying on a federal common law on this issue involving non-signatories. The Supreme Court has already directed courts to analyze non-signatories under state contract law, not federal law. See Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009) (“If a written arbitration provision is made enforceable against (or for the benefit of) a third party under state contract law, the [FAA’s] terms are fulfilled.”). The Fifth Circuit has correctly recognized the Supreme Court’s Anderson decision has modified or overruled older FAA cases based on a federal common law of non-signatories. See Crawford Prof’l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249 (5th Cir. 2014). The First Circuit should have looked to the governing state law, not a federal common law, when analyzing non-signatories and arbitration agreements under the FAA.

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