August 4, 2011

August 4, 2011:
Fifth Circuit sets aside an arbitration award against corporate officers, holding that the officers were not bound by arbitration agreements to which the relevant corporations, but not the officers individually, were parties.  DK Joint Venture 1 v. Weyand, 649 F.3d 310 (5th Cir. 2011).

Plaintiffs initiated arbitration proceedings against several corporations and two officers of the corporations individually.  Plaintiffs and the corporations had entered into contracts that contained arbitration agreements, but the officers had not agreed to those contracts in their individual capacities.  The arbitration panel rendered an award against the corporations and the officers, and the district court, over objection of the officers that they had not agreed to arbitrate anything, confirmed the award.  The Fifth Circuit set aside the award against the officers, reasoning that "[u]nder general principles of contract and agency law, the fact that the defendant corporations entered into the [contracts] did not cause their agents, . . . who acted only as officers on behalf of the corporations, to be personally bound by those agreements."  649 F.3d at 314.

The arbitration panel in DK Joint Venture acted correctly in recognizing and resolving an arbitrability issue early in the proceeding (even though the Fifth Circuit later determined that its resolution of the issue was wrong).  Arbitrators should, early in the process, check to see if all parties to the arbitration proceeding have agreed to arbitrate and if the asserted claims are within the scope of the arbitration agreement.  Although this solution was apparently not available in DK Joint Venture, in many cases parties who did not agree to arbitrate before a dispute arose will agree to arbitrate after the dispute arises, particularly when most parties to the dispute have already agreed to arbitrate.  In that situation, a written stipulation will resolve an issue that, if left unaddressed, could later threaten the enforceability of an award.

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