Non-parties who seek to enforce contract are bound by arbitration agreement, says NM Court of Appeals

Normally, arbitration is a matter of contract. If you didn’t sign an arbitration agreement, you’re not bound by it.

But there are exceptions, and the New Mexico Court of Appeals recognized one of them in Damon v. StrucSure Home Warranty, LLC. In sum, if you seek to enforce a contract that you didn’t sign, you will also be bound by an arbitration provision in that contract.

Defendant StrucSure provides warranties for homes, one of which was part of a contract between the builder and the original buyers. Plaintiffs were subsequent purchasers, and while they didn’t sign the contract, they bought the home at least in part because it was covered by the warranty.

Plaintiffs later discovered structural defects in the home, and sued StrucSure and other defendants. StrucSure moved to compel arbitration, but Plaintiffs argued that they were unaware of the arbitration provision in the warranty contract, and therefore could not be bound by it. The trial court agreed, relying on cases which state the general proposition that arbitration is a matter of contract.

The Court of Appeals reversed. In an opinion by Judge Vanzi, the Court held that while arbitration is a matter of contract, there are situations where a non-party can be bound by an arbitration agreement. One of these occurs when plaintiffs seek to benefit from provisions of a contract that contains an arbitration provision. In such a case, the plaintiffs are equitably estopped from avoiding the arbitration provision.

This decision seems absolutely correct. As a matter of simple fairness, a person should not be allowed to cherry-pick the provisions of the contract that she likes, and avoid provisions that she doesn’t like.

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