Invoking a doctrine called “direct benefits estoppel,” on July 8, 2021, the Supreme Judicial Court forced the New England Patriots to arbitrate a dispute with charter aircraft company Team 125, Inc. Under direct benefits estoppel, a signatory to an arbitration agreement can compel to arbitration a non-signatory party “receiving a direct benefit from the arbitration agreement.” In this case, a Consulting Agreement between Team 125 and 2/25/94 LLC contained an agreement to arbitrate any disputes arising thereunder. Although Kraft Group LLC, Kraft Enterprises LLC and Kraft Family Inc. were listed as members of 2/25/94, LLC, neither they nor the Patriots themselves were signatories to the consulting agreement. Team 125 argued, however, that because the Patriots and Kraft entities “knowingly accepted . . . benefits” that “flow[ed] directly from the [consulting] agreement” they should be compelled to participate in arbitration as if they were signatories.
As to the Patriots, the SJC agreed with Team 125, finding that the consulting agreement’s stated primary purpose was to provide transportation for the Patriots and, therefore, the Patriots had knowingly accepted benefits that flowed directly from the agreement to arbitrate. The Court found that the Kraft entities, however, did not have this same connection to the consulting agreement, being identified only as potential users of the aircraft and without any evidence that they in fact utilized the Team 125 aircraft. The Court therefore ordered the Patriots to proceed to arbitration on Team 125’s claims but denied Team 125’s motion to compel the Kraft entities to do the same.
The Court’s decision in this case is an important reminder of the strength of contractual arbitration clauses, which can be enforced against nonparties if those nonparties directly benefited from the agreement at issue. Notably, though, this ability to enforce an arbitration clause against a nonsignatory to the agreement is the exception, not the rule, and is only possible where the benefits to the nonsignatory flow directly from the agreement—indirect benefits are not sufficient.