On May 21, the U.S. Court of Appeals for the 4th Circuit reversed a district court’s denial of a motion to compel arbitration in a putative class action alleging a violation of the Telephone Consumer Protection Act (TCPA). The plaintiff filed a TCPA claim against a company after the company allegedly sent the plaintiff an unsolicited prerecorded voice message offering health insurance information without prior express consent. After answering the complaint, the company moved to compel arbitration based on an arbitration clause contained in an online “Terms of Use” agreement between the plaintiff and a third-party lead generation website operator that the plaintiff had visited to request health insurance quotes. Although the company acknowledged it had never signed a contract with the plaintiff containing an arbitration clause, the company argued it could enforce the arbitration clause as a “third-party beneficiary” under Delaware law, which governs the applicable Terms of Use.

The district court denied the motion to compel arbitration. Under Delaware’s three-part test to determine whether a party is a third-party beneficiary of a contract, a party must show that: (i) the contracting parties intended the third party to benefit from the contract; (ii) the benefit was intended as a gift or in satisfaction of a pre-existing obligation; and (iii) the intent to benefit the third party was a material part of the parties’ purpose in entering into the contract. The district court found the company satisfied the first two elements but concluded the benefit to the company was not “material to the purpose” of the contract between the plaintiff and the lead generator, based on a finding that the plaintiff and the lead generator would have entered their agreement even if the company did not benefit.

On appeal, the 4th Circuit held that: (i) a court, not an arbitrator, must decide whether a nonparty to an arbitration agreement is entitled to enforce it; and (ii) the district court erred in finding that the company was not a third-party beneficiary to the agreement. Specifically, the 4th Circuit held that the intent to benefit the company was a material part of the parties’ purpose in entering into the agreement because the lead generator was not in the business of providing insurance quotes itself and thus relied on its marketing partners (including the company) to fulfill users’ requests for insurance quotes. Accordingly, the court reversed the denial of the motion to compel arbitration and remanded for entry of an order compelling arbitration and staying the proceedings pending arbitration.