Metalclad Corp. v. Ventana Environmental Organizational Partnership

In Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, the plaintiff (Metalclad) had a written stock purchase agreement, including an arbitration clause, with Geologic, a subsidiary of defendant Ventana. Metalclad sued Ventana, Geologic and others for breach of contract, fraud and other claims, later dropping Geologic from the suit. Ventana sought to compel arbitration under its subsidiary's (Geologic's) contract, contending Metalclad should be equitably estopped from raising Ventana's nonsignatory status. (Metalclad, supra, 109 Cal.App.4th at pp. 1708-1710.) The court agreed, observing that: -- Equitable estoppel applies "when a party has signed an agreement to arbitrate but attempts to avoid arbitration by suing nonsignatory defendants for claims that are '"based on the same facts and are inherently inseparable"' from arbitrable claims against signatory defendants." (Metalclad, supra, 109 Cal.App.4th at p. 1713.) Courts applying equitable estoppel against a signatory have " 'looked to ... in particular whether the claims that the nonsignatory sought to arbitrate were " ' "intimately founded in and intertwined with the underlying contract obligations." ' " ' " (Metalclad, supra, 109 Cal.App.4th at p. 1713.) Concluding they were, the court pointed to the "nexus ... between Metalclad's claims against Ventana and the underlying contract with Geologic, as well as the integral relationship between ... Geologic and Ventana ... ." The court pointed out that Metalclad claimed Ventana caused Geologic to breach the underlying contract, and concluded Metalclad was "in effect, seeking the benefit of that contract in the form of damages from Ventana while avoiding its arbitration provision." (Id. at p. 1717.)