The Franchise Memorandum

The Eighth Circuit last month held that a supplier could not compel arbitration of a dealer’s cross-claim against it under the arbitration clause of the dealer agreement because the supplier was not a party to that agreement. In so ruling, the Eighth Circuit reversed the district court, which had found that arbitration could be compelled. The appellate decision is Donaldson Co., Inc. v. Burroughs Diesel, Inc., No. 08-2705 (8th Cir. July 20, 2009).

The supplier argued that although it was not a party to the dealer agreement, arbitration was required because the dealer’s claim was premised on the existence of the agreement and because the dealer had previously alleged that the supplier acted in concert with the manufacturer, which was able to compel arbitration. The Eighth Circuit held that while in certain instances nonsignatories may be able to compel arbitration pursuant to an underlying agreement, such was not the case here because the supplier could not establish a sufficiently close relationship to the dealer. In addition, the supplier had failed to demonstrate that the cross-claim arose out of or related to the agreement. Finally, the court held that even though the cross-claim did have allegations in common with the claim against the manufacturer, there were no allegations that the two acted in concert or were sufficiently intertwined such that arbitration could be compelled on the claim against the supplier.