Fifth Circuit Compels Arbitration Under Intertwined Claims Estoppel | Practical Law

Fifth Circuit Compels Arbitration Under Intertwined Claims Estoppel | Practical Law

In Hays v. HCA Holdings, Inc., the US Court of Appeals for the Fifth Circuit held that intertwined claims estoppel required that the plaintiff arbitrate his claims against a non-signatory to an arbitration agreement, even though the Texas Supreme Court had not explicitly adopted that theory.

Fifth Circuit Compels Arbitration Under Intertwined Claims Estoppel

Practical Law Legal Update w-003-7119 (Approx. 3 pages)

Fifth Circuit Compels Arbitration Under Intertwined Claims Estoppel

by Practical Law Litigation
Published on 03 Oct 2016 • USA (National/Federal)
In Hays v. HCA Holdings, Inc., the US Court of Appeals for the Fifth Circuit held that intertwined claims estoppel required that the plaintiff arbitrate his claims against a non-signatory to an arbitration agreement, even though the Texas Supreme Court had not explicitly adopted that theory.
On September 29, 2016, in Hays v. HCA Holdings, Inc., the US Court of Appeals for the Fifth Circuit held that the plaintiff must arbitrate his claims under intertwined claims estoppel even though the remaining defendants were not signatories to the employment agreement that contained an arbitration clause ( (Sept. 29, 2016)).
John T. Hays suffered from epilepsy and was fired from his cardiology practice after a series of stress-related seizures. He brought suit against HCA Holdings, Inc., Capital Area Cardiology, and Austin Heart, PLLC in Texas state court for negligence and violations of the Texas Commission on Human Rights Act. Hays also sought a declaratory judgment that his employment agreement was a valid and enforceable contract. The employment agreement required that any disputes relating to it be submitted to arbitration. However, only Austin Heart and Capital Area Cardiology were signatories, along with Hays. As a result, the state court granted their motions to dismiss and compel arbitration but Hays continued to litigate against HCA Holdings (a non-signatory to the agreement).
Hays then amended his state court petition to add HCA Physician Services (collectively, "HCA") as a defendant. After HCA removed the case to federal court, it moved to dismiss and compel arbitration on all claims based on equitable estoppel. The district court granted the motion, finding that a non-signatory to an agreement could enforce an arbitration clause under two theories of equitable estoppel: direct benefits estoppel and intertwined claims estoppel. Hays appealed.
The Fifth Circuit affirmed. In its analysis, it held that the district court did not abuse its discretion in applying direct benefits estoppel to the tortious interference claim because the viability of the claim depended on the employment agreement and could not be determined without reference to it.
Notably, the court found that the district court did not err by applying intertwined claims estoppel, which involves compelling arbitration when a nonsignatory defendant has a close relationship with one of the signatories and the claims are intimately intertwined with the underlying contract obligations. Because the Texas Supreme Court has not explicitly recognized intertwined claims estoppel, the Fifth Circuit made an Erie guess and held that the Texas Supreme Court would adopt intertwined claims estoppel because: