Forced arbitration of claim on behalf of non-party to arbitration agreement

In light of the steady march toward maximum judicial enforcement of arbitration clauses, perhaps nothing should surprise us anymore, but a recent federal district court decision caught the eyes of several of us here at CL&P Blog. This decision, from the Southern District of Ohio, ruled that a dispute was subject to arbitration even though one of the plaintiff's claims involved the right of a party that never agreed to arbitration — specifically, the United States, whose interest in the case arose under the False Claims Act — to recover for having been defrauded. (The FCA permits individuals who uncover a fruad against the federal government to sue in the government's name for the wrongdoing, with a share of the recovery going to the plaintiff and a share to the government. See 31 USC § 3730.)

Subjecting the rights of a non-party (a sovereign party at that) to an arbitration agreement to which it wasn't a party would seem problematic, but the court had no problem with it, explaining that statutory rights are often subject to arbitration and that "[w]hile the FCA action was necessarily 'brought in the name of the Government,' it still represents a claim belonging to the Plaintiffs themselves." (citation omitted)

If there is any limiting principle possible in this context, it could be that the U.S. had the opportunity to intervene in the lawsuit but did not, as the court also pointed out. But the government's right to recover is at stake whether or not it intervenes — the FCA provides that even without intervening, the U.S. still recovers the lion's share of the amount by which it was defrauded.

The full decision can be accessed here.


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