Arbitration – Court decides whether nonparty to arbitration agreement can enforce it

Where a company argued that the arbitrator – and not the court – should decide whether it was entitled to enforce an arbitration clause in an agreement between the plaintiff and another party, this argument was rejected. This court’s precedent makes clear that it is a court, not an arbitrator, that must initially decide whether a nonparty to an arbitration agreement is entitled to enforce it.

Background

In this interlocutory appeal, USHealth Advisors, LLC challenges the district court’s ruling that plaintiff Cynthia Sessoms’s putative class action lawsuit — which alleges a violation of the Telephone Consumer Protection Act, by USHealth — should not be referred to arbitration under the Federal Arbitration Act, or FAA.

Delegation

USHealth first argues that an arbitrator — and not the district court — should have decided whether USHealth could enforce the arbitration clause in the agreement between Sessoms and a so-called “lead generating service provider” — specifically, a non-party named NextGen Leads, LLC. According to USHealth, because of the delegation provision in the arbitration clause in the terms of use agreement between Sessoms and NextGen, such an issue must be resolved by an arbitrator. USHealth’s assertion is squarely foreclosed by this court’s precedent which makes clear that “it is a court, not an arbitrator, that must initially decide whether a nonparty to an arbitration agreement [i.e., USHealth] is entitled to enforce it.”

USHealth offers up a smattering of assertions as to why that decision is “dead to rights,” “the first case to decide [an] issue is the one that must be followed, unless and until it is overruled by this court sitting en banc or by the Supreme Court.” In these circumstances, the denial order contains no error of law, and it correctly concluded that the district court, rather than an arbitrator, should decide the threshold issue of whether USHealth, as a non-party to the terms of use agreement between Sessoms and NextGen, can enforce the arbitration clause contained therein against Sessoms.

Third-party beneficiary

The residual merits issue is whether the denial order correctly decided that USHealth cannot enforce the agreement in an effort to compel arbitration. That issue, the denial order correctly recognized, is the question of whether USHealth is a third-party beneficiary under applicable Delaware law.

For a party to establish itself as a third-party beneficiary, it must show “[1] the contracting parties . . . intended that the third party beneficiary benefit from the contract, [2] the benefit [was] intended as a gift or in satisfaction of a pre-existing obligation to that person, and [3] the intent to benefit the third party [was] a material part of the parties’ purpose in entering into the contract.”

The district court correctly concluded that USHealth satisfies the first two elements. On the third element, it concluded any “benefit [to USHealth] was not material to the purpose of [the] contract” between Sessoms and NextGen (i.e., the terms of use), such that USHealth is not a third-party beneficiary under applicable Delaware law, and therefore cannot enforce the arbitration clause against Sessoms. In so holding, it erred.

As USHealth maintains, “this [element] is concerned with whether benefit to the non-signatory [USHealth] was one of the purposes of the signatories entering into the agreement, rather than an incidental effect of doing so.” Framed in that manner, it is apparent that NextGen needed the third-party marketing partners (like USHealth) to provide the requested insurance quotes to interested persons (i.e., Sessoms), since NextGen itself did not provide any insurance quotes — but merely provided its marketing partners with consent-based leads. From this, and parting ways with the summary reasoning of the denial order, this court is satisfied that the benefit of USHealth was “material to the purpose of the” terms of use agreement.

Reversed and remanded.

Sessoms v. USHealth Advisors, LLC, Case No. 25-2086, May 21, 2026. 4th Cir. (King), from EDNC at Raleigh (Boyle). Jeffrey Aaron Backman for Appellant. Jacob Lawrence Phillips for Appellee. VLW 026-2-182. 18 pp.

Full-Text Opinion
VLW 026-2-182