Current Month (July 2025)
District Court Determines That the Court Should Determine Whether a Non-Signatory Can Compel Arbitration
By Leslie A. Berkoff, Partner and Chair of Dispute Resolution Practice Group, Moritt Hock & Hamroff LLP
In a recent decision out of the U.S. District Court for the Northern District of Illinois, Kim v. Jump Trading, LLC, No. 23-cv-2921 (N.D. Ill. May 9, 2025), the Court held that analyzing state law supported the request by non-signatories to an arbitration agreement to compel arbitration of a dispute. In this case, a putative class had sued the defendants and asserted that they had violated state and federal law by scheming with a third party, Terraform Labs Pte. Ltd. (“TFL”), to manipulate the price of a stablecoin. In response, the Defendants moved to compel arbitration, relying on an arbitration provision contained within an agreement between the plaintiffs and TFL. The defendants contended that equitable estoppel principles precluded the plaintiffs from seeking to litigate the dispute as it related to claims addressed to the actions of TFL, who had agreed to arbitrate any disputes.
In addressing the motion to compel, the District Court considered three issues: (1) who should determine if the dispute was arbitrable, the court or the arbitrator, in light of the fact that the defendants were non-signatories to the agreement containing the arbitration provision; (2) whether the court should apply estoppel principles from state law or federal common law to determine the matter; and (3) whether defendants could actually compel arbitration under the equitable estoppel principles advanced.
First, the Court held that a court, not an arbitrator, should decide whether a non-signatory can compel arbitration—notwithstanding the fact that the agreement in question contained a clear delegation clause providing that “any claim or controversy as to arbitrability” was to be determined by the arbitrator. However, the court noted that there was a difference between whether there was an enforceable contract, which a court should determine, as opposed to a question of whether a claim or controversy is arbitrable—which an arbitrator should determine.
Second, the Court held that the defendants’ right, as a non-party, to enforce an arbitration agreement is governed by state law. While the defendants had argued that the Court should apply federal common law because the agreement between the plaintiffs and TFL fell under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Court reasoned that the dispute between the plaintiffs and the defendants was actually domestic in nature and that TFL’s status as a non-U.S. citizen was irrelevant because it was not a party to this case.
Finally, in applying Illinois law, the Court determined that the defendants could not compel arbitration because under Illinois law a “nonsignatory typically has no right to invoke an arbitration provision contained in [a] contract.” The court rejected the defendants’ contention that principles of equitable estoppel should apply because the defendants had failed to meet their burden of proving so under state law and had not identified any representations that plaintiffs made to defendants to induce them to rely on the agreement’s arbitration provision. Given that the defendants had not established a right to compel arbitration, the court determined that the dispute belonged in federal court.
