Fifth Circuit Compels Non-Signatory to Arbitrate

In Blaustein v. Huete, No.11-30057 (5th Cir. La. Oct. 26, 2011) Burt David Huete along with Richard and Gail Blaustein, formed Special Projects Limited, L.L.C. (“SPL”) in connection with their application for a provisional patent for a wireless tracking device they had invented. SPL retained Timothy and Christopher Maier of Maier & Maier, P.L.L.C. (“the Maiers”) to prepare the patent application. Maier’s representation agreement included an arbitration clause and listed SPL as the client, with Huete and Richard Blaustein serving as signatories for SPL. When Huete’s relationship with Maier & Maier soured, he retained outside counsel.

Huete sued the Blausteins and the Maiers claiming that the Blausteins conspired with the attorneys to extinguish his patent rights and that the patent application was deficient. The District Court, based on its determination that Huete was a party to the fee agreement, dismissed Huete’s claim pursuant to the agreement’s binding arbitration clause.

Huete appealed the District Court’s ruling and a panel of the Fifth Circuit concluded that the District Court had erred in holding that Huete’s signing the fee agreement in the capacity of representative of SPL was sufficient to bind him individually to the agreement. Read about the case here.

On remand, the District Court held that the doctrine of direct benefits estoppel required Huete to arbitrate his claims. Huete now appeals.

This second time, the Fifth Circuit affirmed the District Court’s ruling. The court noted that direct benefits estoppel is one theory by which non-signatories may be bound to arbitrate. The court found no abuse of discretion in the application of the direct benefits estoppel doctrine. The court reasoned that: (a) Huete had “embraced” the fee agreement by obtaining the same sort of benefits that a client would have received; (b) Huete’s argument that the services were so poorly rendered that they were not benefits was grounded in the merits of his claim, not in its arbitrability; and (c) Huete’s claims had to be determined at least in part by reference to the fee agreement, as he alleged that the attorneys failed to exercise reasonable care in performing legal services for SPL.

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