Thought Leadership

A GC's Headache: The End Run Around an Arbitration Clause

External Article

Across industries and jurisdictions, one particular challenge corporate counsel face on a consistent basis: when an employee, vendor, or party to an agreement tries to circumvent a seemingly iron clad arbitration agreement. Often, a disgruntled party (or non-party) to an agreement that contains an arbitration clause will seek to bring its claims in non-arbitration forums that it perceives to be more favorable (typically, United States courts).

It's a familiar scenario: counsel spend hours drafting a contract or agreement, attempting to anticipate all possible scenarios, and developing a deal package and suite of agreements related to a critical transaction. The dispute resolution clause appears straightforward and airtight.  Then, out of the blue, the company is slammed with claims in an unfavorable forum.

How does this happen? Some ways plaintiffs have attempted this end run around the arbitration clause include suing parent or affiliated parties and employees individually (instead of the counter party), or asserting business tort claims (instead of breach of contract claims), or interested non-parties bring the claims. Courts view such efforts skeptically, but state and federal forums apply different rules and standards which can lead to different outcomes.

When confronted with this kind of end run around a contract, a GC has two pressing queries: how do I get out of this? And how can I avoid this next time?

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A GC's Headache: The End Run Around an Arbitration Clause


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