A New Jersey federal court recently ruled that corporate officers could be bound by an arbitration agreement that was only signed in the name of the company. The court reasoned that the individual officers were alter egos of the corporation, and successors-in-interest to their company. Significantly, because the officers had relied on the arbitration agreement to assert a counterclaim during arbitration, the court determined that they could not now escape being bound by its terms.
New World Solutions, Inc. (NWS) was formed in 2007 to provide IT services to another corporation, Asta. NWS was solely owned by Neal and Coyne, who also served as directors. Two years after formation, NWS and Asta entered into a contract for the provision of services. But after NWS paid Asta four million dollars, Asta terminated the agreement, alleging that NWS submitted inflated invoices, created a malfunctioning replacement unit, and provided essentially useless network monitoring services.
Asta commenced arbitration proceedings against NWS. The relevant provision in the services agreement specified that disputes “between the Parties” would be resolved in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Although NWS was represented by counsel at the outset, at some point, Coyne, one of the directors, assumed representation and filed the counterclaim in arbitration. A separate arbitration was initiated against Neal and Coyne individually.
In addition to finding that Coyne and Neal were bound by the arbitration agreement, the arbitrator also determined that they had used NWS to defraud Asta out of hundreds of thousands if not millions of dollars. The principals were held liable for damages in excess of three million dollars. They appealed, and a New Jersey District Court confirmed the arbitration award in full on a motion for summary judgment.
The Importance of This Ruling in Business Litigation
A threshold issue the court had to address was whether it could assert jurisdiction over Neal and Coyne because they were not named parties to the arbitration agreement. The court determined that pursuant to the Federal Arbitration Act, the court should determine whether a dispute is to be arbitrated, unless the parties agree otherwise. The court ultimately confirmed the award even though Neal and Coyne refused to participate in the proceedings.
Philadelphia Business Litigation Lawyers at Sidkoff, Pincus & Green, P.C. Provide Competent Counsel in Arbitration
This decision serves as an important reminder that corporate officers can be bound by arbitration agreements signed in the name of their principal. If you need counsel for arbitration, the Philadelphia business litigation lawyers at Sidkoff, Pincus & Green are prepared to help. With offices conveniently located in Philadelphia, we proudly serve businesses located in Pennsylvania and South Jersey. To schedule a consultation, call us at 215-574-0600 or contact us online today.