The attached case from the California Court of Appeal last month in Los Angeles holds that an arbitrator cannot decide if a party is the alter ego of another party that signed up for arbitration, where the alter ego party did not sign.
In that case, Bruce Willis, the actor, sued a production company, Benaroya Pictures, for $8,000,000 that the company said it would hold in trust for him for movie called the “Idol’s Eye”.
In the arbitration, after realizing that Benaroya may not have the funds to pay, Bruce Willis and his lawyers asked the arbitrator to include the principal of Benaroya, Michael Benaroya, who was the CEO, sole officer and founder, as the “alter ego” of the company. The arbitrator at the JAMS arbitration organization granted the motion over Mr. Benaroya’s objections.
The arbitration proceeded, and the arbitrator awarded damages of $5,024, 779 against both the company and Mr. Benaroya in favor of Bruce Willis.
Mr. Benaroya then moved to vacate the award, but lost, and the Court confirmed the Award and entered judgment in favor of Bruce Willis against both him and his company.
On appeal, the Court of Appeal held that, although California has a strong public policy favoring arbitrations, the decision as to whether a party can be bound to an arbitration agreement as an alter ego is a question for a court, not an arbitrator. The judgment against Mr. Benaroya personally as the alter ego of his company, thus was set aside and nullified by the Court of Appeal.
The decision is instructive because it discusses the six ways that in fact one CAN be subject to arbitration without actually signing an agreement: incorporation by reference, assumption, agency, alter ego or veil piercing, estoppel and third party beneficiary. Lesson from case: don’t take for granted you are not bound to an arbitration, but be sure to have the issue decided by a judge, not an arbitrator if you want to bind someone.