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Eleventh Circuit Affirms Ruling that Manufacturer Is Not Bound by Agreement to Which It Was Not a Party
Posted in Arbitration

The Eleventh Circuit Court of Appeals recently affirmed a ruling that forklift manufacturer Taylor Group could not be compelled to arbitrate a dispute pursuant to an arbitration provision in an agreement to which it was not a party. Taylor Grp., Inc. v. Indus. Distribs. Int’l Co., 2021 WL 2327910 (11th Cir. June 8, 2021). In 1991, Taylor Group entered into a distribution agreement with Taylor Machine Works, Inc., giving Machine Works the right to distribute Taylor Group’s forklifts overseas. In 1999, Machine Works entered into a marketing agreement with Industrial Distributors, granting Industrial the right to market Machine Works’ products in the Dominican Republic. That agreement contained an arbitration clause. Machine Works terminated the marketing agreement in 2018. Then, in 2019, Taylor Group repurchased Machine Works’ international distribution rights. Taylor Group subsequently accused Industrial of trademark infringement and brought suit in federal court in Florida. Industrial, in turn, moved to compel Taylor Group to arbitrate its claims pursuant to the arbitration clause in the marketing agreement. The district court denied Industrial’s motion and Industrial appealed, arguing that Taylor Group, though a nonsignatory, could and should be bound by the arbitration clause under the theories of estoppel, third-party beneficiary, agency, and assumption. The Eleventh Circuit disagreed and affirmed the district court.

As a threshold matter, the Eleventh Circuit held that it was proper for the district court to determine the arbitrability of the parties’ dispute. The question of arbitrability is one for the court absent “clear and unmistakable evidence” to the contrary and, as a nonsignatory, Taylor Group had plainly not agreed to delegate the question of arbitrability to an arbitrator. Moving to the substance of the motion to compel, the court acknowledged that while a nonsignatory may be estopped from avoiding an agreement to arbitrate if its claims arise from, or it directly benefited from, the underlying contract obligations, Taylor Group’s claims were not related to the marketing agreement (which had been terminated over a year before the claims arose), and it did not directly benefit from the agreement simply by making money from it. The court rejected Industrial’s third-party beneficiary argument for the same reasons. It also held that Machine Works was not acting as Taylor Group’s agent when it entered into the marketing agreement because the distribution agreement between the parties made it clear that no agency relationship existed. The court noted that Taylor Group did not control Machine Works and the marketing agreement made it clear that Machine Works was acting on its own behalf. Finally, the court rejected Industrial’s argument that Taylor Group had assumed the marketing agreement when it purchased certain of Machine Works’ assets because the asset purchase did not include the marketing agreement; the marketing agreement had been terminated by the time Taylor Group purchased the assets; and, in any event, the marketing agreement made it clear that it could not be assigned.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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