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A nonsignatory may not be bound to arbitrate except as dictated by some accepted theory under agency or contract law.
Defendant corporation filed a demand for arbitration against plaintiff parent company and its subsidiary arising out of an alleged breach of an agreement between the subsidiary and defendant entered into before plaintiff acquired the subsidiary. Plaintiff filed an action seeking a declaration that it was not bound by the arbitration provision of the agreement and an injunction against further proceedings against it under the agreement. Defendant filed a cross-motion to compel plaintiff to arbitrate. The district court found that the degree of control plaintiff exercised over the subsidiary and plaintiff's voluntary conduct in becoming subsidiary's affiliate through acquisition were sufficient to bind it to arbitration and granted the cross-motion. Plaintiff parent company appealed.
Under the circumstances, may the plaintiff parent company be compelled to arbitrate?
The court reversed the judgment, holding that while a non-signatory to an arbitration agreement may be bound to arbitrate under theories of contract and agency law, the district court had improperly extended the law because defendant had not demonstrated that plaintiff exercised the degree of control over the subsidiary necessary to justify piercing the corporate veil.