Court rejects 'Three Musketeers' approach to enforcing arbitration agreements

This case presents a rather uncommon situation. A former employee of an auto dealership sued the dealership and all the entities affiliated with it. The employee and the dealership have an enforceable arbitration agreement. The affiliated entities are not parties to the arbitration agreement, but they attempted to enforce it anyway. A California appellate court recently ruled that the entities cannot enforce the agreement because the employee never agreed to arbitrate with them.

A tale of two arbitration agreements

Thomas Jarboe signed two arbitration agreements with his former employer, Hanlees Davis Toyota. The first arbitration agreement, which was part of Hanlees Davis Toyota's and 12 affiliated dealerships' "common employment application," provided in relevant part:

I and the company both agree that any claim . . . that either party may have against one another . . . which would otherwise require or allow resort to any court or other governmental dispute resolution forum between myself and the Company (or its owners, directors, officers, managers, employees, agents, and parties affiliated with its employee benefit and health plans) arising from, related to, or having any relationship or connection whatsoever with my seeking employment with, employment by, or other association with the Company . . . shall be submitted to and determined exclusively by binding arbitration.