Interesting Supreme Court Language Related to "Intertwined Claims" Theory of Paychex
A Tennessee Supreme Court opinion issued last week in Harvey v. Cumberland Trust and Investment Co. contains some interesting language regarding the "intertwined claims" theory previously touched upon by the Tennessee Court of Appeals in Mid-South Maint. Inc. v. Paychex Inc., 2015 WL 4880855 (Tenn. Ct. App. Aug. 14, 2015), in cases where non-parties to arbitration agreements are forced by the courts to arbitrate. At the end of Harvey, the Tennessee Supreme Court noted:
On remand, the trial court must determine which of the Plaintiff’s claims are subject to the arbitration agreement; in other words, which claims seek to enforce the Client Agreement that contains the predispute arbitration provision. This may be easier said than done. In some circumstances, for example, claims that seek to enforce the Client Agreement may be intertwined with claims that do not. The FAA “requires courts to enforce the bargain of the parties to arbitrate,” and not substitute the court’s “‘views of economy and efficiency’ for those of Congress.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985) (quoting Dickinson v. Heinold Secs., Inc., 661 F.2d 638, 646 (7th Cir. 1981)). It “divests . . . courts of any discretion regarding arbitration in cases containing both arbitable and nonarbitrable claims, and instead requires that the courts compel arbitration of arbitrable claims, when asked to do so.” Id. However, the converse is also true. The court may not simply refer all of the claims to arbitration, “even where the result would be the possibly inefficient maintenance of separate proceedings in different forums.” Id. at 217. A decision to require the Plaintiff to arbitrate a claim that does not seek to enforce the Client Agreement, merely because it is “intertwined” with a claim that does seek to enforce the Client Agreement, “would ‘threaten to overwhelm the fundamental premise that a party cannot be compelled to arbitrate a matter without its agreement.’” Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 361 (5th Cir. 2003) (quoting J. Douglas Uloth & J. Hamilton Rial, III, Equitable Estoppel as a Basis for Compelling Nonsignatories to Arbitrate—A Bridge Too Far?, 21 Rev. Litig. 593, 633 (2002)) (a finding that plaintiff’s claims against signatory were “inextricably intertwined” with its claims against nonsignatory is insufficient to justify application of estoppel to non-signatory’s opposition to - 36 - arbitration). The sometimes difficult task of sorting this out is essential to ensuring that Plaintiff assumes the burden of the Client Agreement only insofar as Plaintiff seeks the benefit of it. Benton, 137 S.W.3d at 618. In this opinion, we have discussed legal theories regarding third-party beneficiaries and how one who did not sign a contract may still be bound to a predispute arbitration agreement therein. However, we make no holding regarding whether Plaintiff in this case is in fact bound to the predispute arbitration clause in the Client Agreement based on the claims asserted in the amended complaint. That issue is beyond the purview of the questions certified in this appeal, so we leave it in the capable hands of the trial judge.
It remains to be seen whether this language modifies the Tennessee Court of Appeals' rationale in Paychex or is applicable to the issues in our commercial paper case, Blue Water Bay at Center Hill, LLC v. Hasty, ___ WL ___________ (Tenn. Ct. App. ____), which is currently on appeal.
We will keep you posted.