Rajagopalan v. NoteWorld, LLC

A non-signatory third party to a contract may not invoke the arbitration clause of the original contract under a theory of equitable estoppel or when it is not a third-party beneficiary to the contract.

When Amrish Rajagopalan entered into a debt repayment program with First Rate Debt Solutions (“First Rate”), he signed a contract containing an arbitration clause. After canceling his subscription to First Rate, Rajagopalan sought a full refund from NoteWorld, which was responsible for the payment processing portion of the repayment program. NoteWorld was a separate entity and undertook “obligations as an independent third-party,” and Rajagopalan did not sign a contract with NoteWorld. When NoteWorld would not provide a full refund, Rajagopalan filed a class action suit alleging violations under the Racketeering Influenced and Corruption Organizations Act (“RICO”) and Washington state law. NoteWorld argued both that it was a third-party beneficiary and that it could invoke the arbitration agreement under equitable estoppel. The district court held that the arbitration agreement was “substantially unconscionable” and that NoteWorld could not invoke the agreement. According to Washington state law, “both contracting parties must intend that a third-party beneficiary contract be created.” Although NoteWorld was mentioned in the contract with First Rate, the Ninth Circuit held that NoteWorld was not an intended third-party beneficiary to the arbitration clause in First Rate’s contract. In addition, to allow a non-signatory defendant to use equitable estoppel against a signatory plaintiff would go against set precedence. The panel further held that NoteWorld may not require Rajagopalan to arbitrate because Rajogopalan did not claim that NoteWorld breached the terms of the contract. Instead, his claims were separate from the contract containing the arbitration agreement. AFFIRMED.