What if your client signed an agreement with a corporation requiring arbitration of any dispute and you also wanted to hold the corporation’s chief executive personally responsible for fraud, conversion and breach of fiduciary duty? Can you obtain jurisdiction over the chief executive officer in arbitration even though he did not personally sign the contract containing the arbitration clause in his individual capacity? The answer is “maybe.” In a recent case before the American Arbitration Association, the answer for our client was “yes” and the arbitrator ruled that the non-signing executive was bound to arbitrate our client’s claims.

For over 23 years, our client worked as a product management specialist for a large, fortune 500 company that purchased items (such as tools and supplies) from various manufacturers.  In 2019, a company that we will refer to here as Mack Corp. (for confidentiality) lured our client to work for Mack Corp., a company that served as a manufacturer’s sales representative to large corporate buyers, such as the Fortune 500 company where our client had worked.  In order to lure our client to join Mack Corp. the company and its Chief Executive Officer (Marc), promised to split all commissions that it received from all manufacturers and clients of Mack Corp. on a 60/40 basis, with 60% of the commissions to be paid to our client and 40% to be paid to Mack Corp.  However, Mack Corp.’s Chief Executive and sole shareholder, Marc, repeatedly concealed material information regarding the actual commissions received by Mack Corp. and falsely represented the split amounts earned by our client, allowing Mack Corp. to steal and convert over $900,000 in commissions earned by our client.

Background

The contract signed by our client with Mack Corp. contained an arbitration clause requiring all disputes arising out of the terms of the agreement to be submitted to arbitration before the American Arbitration Association in Cook County, Illinois. When disputes arose, our client asserted claims not only against Mack Corp. but also against its chief executive officer (we’ll call him CEO Marc), for fraud, breach of fiduciary duty, and conversion. CEO Marc had signed the contract solely in his capacity as President of Mack Corp., not in his individual capacity.

The Arbitration Clause

Mack Corp. and CEO Marc moved to dismiss the claims against CEO Marc from the arbitration, arguing that as a non-signatory to the arbitration agreement, CEO Marc could not be compelled to arbitrate. This raised a critical strategic question: Can a corporate executive who did not personally sign an arbitration agreement be bound to arbitrate claims against him individually?

The Legal Framework

In Illinois, a non-signatory to a contract, such as CEO Marc, typically cannot be compelled to arbitrate. However, there are recognized exceptions to that general rule, including third-party beneficiary, agency, and equitable estoppel theories. The Supreme Court has recognized that arbitration agreements may be enforced by non-signatories through “assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel.”

The Agency Theory

The arbitrator determined that CEO Marc could be compelled to arbitrate based on agency principles under Illinois law. The analysis focused on CEO Marc’s role and relationship with Respondent Corporation.

CEO Marc was the sole shareholder, officer, and director of Mack Corp. As corporations can only act through their agents and employees, the Arbitrator ruled that Mack Corp. could only act through CEO Marc and noted that under Illinois law, it is well established that employees and officers of a corporation are the corporation’s agents.

Critically, our client’s claims alleged that In CEO Marc had knowledge and control over the circumstances giving rise to the dispute and had orchestrated the conduct that formed the basis of the claims. This was not a situation involving a distant third party with no connection to the contractual relationship. Rather, CEO Marc was directly aware of and involved in the interactions between the parties on behalf of Mack Corp.

The arbitrator noted that the Seventh Circuit U.S. Court of Appeals has compelled arbitration where the plaintiff alleges that a non-signatory has some sort of agency relationship, regardless of whether those allegations are ultimately proven true or are disputed. Based on these principles, the arbitrator concluded that CEO Marc, acting as agent of Mack Corp., could properly be subjected to the jurisdiction of the arbitration.

Scope of the Arbitration Clause

Respondents also challenged whether claims beyond breach of contract—specifically fraud, breach of fiduciary duty, and conversion—could be arbitrated under the agreement’s arbitration clause. The arbitration provision stated: “Any controversies arising out of the terms of this Agreement or its interpretation shall be settled in Cook County, Illinois in accordance with the rules of the American Arbitration Association”.

The arbitrator applied the strong federal policy favoring arbitration under the Federal Arbitration Act, which governs this type of dispute. Under FAA precedent, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself must be resolved in favor of arbitration.

The clause at issue did not limit arbitration solely to contractual claims. Instead, it encompassed “any controversies” arising out of the terms of the agreement or its interpretation. The arbitrator found that all of the asserted claims arose out of the relationship established by the contract.

Moreover, the arbitrator ruled that once it is clear that the parties have a contract providing for arbitration of some issues between them, any doubts concerning the scope of the arbitration clause are resolved in favor of arbitration. Generally speaking, an order to arbitrate a particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Because there was no dispute that the contractual claims were subject to arbitration, the federal policy favoring arbitration required that the remaining claims also be arbitrated.

Addressing the Merits vs. Arbitrability

Respondents attempted to argue that several of the claims were not arbitrable by asserting, for example, that no fiduciary relationship existed between the parties, that our client had no right to the commissions at issue in the conversion claim, and that Respondents did not conceal material facts. The arbitrator correctly rejected these arguments, finding that they went to the merits of the claims rather than to the threshold question of arbitrability.

In order to determine whether a claim is arbitrable, the analysis must determine: (1) whether there is an agreement to arbitrate; (2) whether the claims fall within the scope of the agreement; and (3) whether there has been a waiver. The question of arbitrability focuses on these threshold issues, not whether the facts support a particular cause of action, whether a legal duty existed, or whether conduct violated that duty. Those are questions for the arbitrator to decide on the merits—not grounds for refusing to arbitrate in the first place.

The Decision

Ultimately, the arbitrator denied Respondents’ motion to dismiss in its entirety. The ruling held that CEO Marc, as the sole shareholder, director, and officer of Mack Corp., acted as its agent in the course of dealings with our client and was therefore appropriately subject to the jurisdiction of the arbitration. The arbitrator further held that the arbitration clause was broad enough to allow arbitration of all four claims asserted by our client.

Settlement

The arbitrator’s ruling provided solid ground for our client to obtain a six figure settlement against the Respondents, all without going to a costly final arbitration hearing (i.e., trial).

Strategic Takeaways

This decision offers several important lessons for practitioners pursuing claims against both corporate entities and individual executives:

1. Agency relationships matter. When a corporate officer is the sole decision-maker and has direct involvement in the conduct giving rise to the dispute, agency principles may support compelling that individual to arbitrate even without a personal signature on the arbitration agreement.

2. Allege the individual’s role clearly. Our demand specifically alleged that Individual Executive was the sole shareholder, officer, and director of Respondent Corporation and that he had knowledge, control, and direct involvement in the disputed conduct. These factual allegations were critical to establishing the agency relationship.

3. Broadly worded arbitration clauses favor claimants. An arbitration clause covering “any controversies arising out of” the agreement is more likely to encompass tort and equitable claims in addition to breach of contract claims.

4. Distinguish arbitrability from merits. Respondents’ arguments about the substantive merits of the claims were properly rejected as premature. The arbitrability analysis focuses on whether there is an agreement to arbitrate and whether the claims fall within its scope—not whether the claims will ultimately succeed.

5. Multiple theories exist. While the arbitrator based jurisdiction on agency principles, the ruling noted that alter-ego and equitable estoppel theories might also have supported the result. Practitioners should plead alternative theories when seeking to bind non-signatories.

6. Federal policy favors arbitration. The FAA’s strong presumption in favor of arbitration played a significant role in resolving doubts about the scope of the arbitration clause in our client’s favor.

Conclusion

The answer to whether a non-signing corporate executive can be compelled to arbitrate is indeed “maybe”—but with careful pleading and the right factual circumstances, that “maybe” can become “yes.” When the executive is the sole or dominant actor within the corporation and has direct involvement in the underlying dispute, agency and related theories provide a viable path to obtaining arbitration jurisdiction over the individual, even without a personal signature on the arbitration agreement. This strategy allows claimants to pursue both the corporate entity and responsible individuals in a single, efficient arbitration proceeding.

Attorney Antonio DeBlasio has been selected by Super Lawyers® in 2008 and in each year from 2014 through 2026.  No more than 5% of Illinois attorneys receive this distinction.  Mr. DeBlasio has over 30 years of experience as an Illinois attorney, representing businesses, individuals, employees, employers, estates and beneficiaries of estates in Illinois.  For information on scheduling a consultation, call DeBlasio Law Group at (630) 560.1123, or you may reach us through our firm’s website at www.DGLLC.net/contact