It is common for parties at the outset of a case to wrangle on issues of venue and jurisdiction, or even whether the case belongs in court at all. If the parties have a contract containing an arbitration agreement, they may be compelled to bring a dispute arising out of the contract in an arbitration forum such as the AAA or JAMS. While the parties may have conflicting views on whether the dispute falls within the scope of the arbitration agreement, courts generally resolve ambiguities in favor of arbitration. But what about when the party seeking to enforce the arbitration agreement is not a signatory to the contract, but instead a third-party claiming some interest in or benefit from the contract? In June, the United States Court of Appeals for the First Circuit, in Morales-Posada v. Cultural Care, Inc., 141 F.4th 301 (1st Cir. 2025), clarified the standard for a nonsignatory to enforce an arbitration agreement as a third-party beneficiary. While a court may resolve ambiguities in favor of arbitration where the parties are both signatories to the arbitration agreement, a nonsignatory faces a “steep climb” in enforcing an arbitration agreement as a third-party beneficiary.
In Morales-Posada, the plaintiffs were individual foreign nationals who participated in the U.S. State Department’s au pair exchange program. The defendant, Cultural Care, Inc., is a company that places individuals with host families in the United States as a “sponsor” of the au pair exchange program. The plaintiffs alleged that Cultural Care failed to pay them legal wages for their work as au pairs. Cultural Care filed a motion to compel arbitration under the Federal Arbitration Act and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, relying in part on a contract that the plaintiffs had allegedly signed with International Care Ltd. (“ICL”), an entity separate and distinct from Cultural Care that provided certain “pre-departure” services to participants in the au pair program. The ICL contract contains an agreement to arbitrate stating:
In the event of any claim, dispute, or proceeding arising out of the relationship of me and [ICL], or any claim which in contract, tort, or otherwise at law or in equity arises between the parties, whether or not related to this Agreement, the parties submit and consent to the exclusive jurisdiction and venue of the arbitrational tribunals of Switzerland.
The United States District Court for the District of Massachusetts denied Cultural Care’s motion on a number of grounds, including that Cultural Care could not enforce the arbitration agreement as a nonsignatory to the ICL contract.
Cultural Care appealed the decision to the First Circuit. The First Circuit emphasized that arbitration is a matter of consent but recognized that there are certain circumstances in which a nonsignatory may invoke an arbitration agreement. One such circumstance is when the nonsignatory is a third-party beneficiary to an arbitration agreement.
The “critical fact” in determining whether a nonsignatory is a third-party beneficiary is whether the agreement manifests an intent to confer specific legal rights upon the nonsignatory. Moreover, an aspiring third-party beneficiary must demonstrate with “special clarity” that the signatories intended to confer a benefit on the third party. Cultural Care pointed to a number of provisions in the ILC contract (none of which was the arbitration agreement) which it asserted did not benefit ICL. Cultural Care claimed it was the only possible beneficiary of those provisions. The First Circuit rejected the argument, finding that Cultural Care did not show that ICL derived no benefit from the provisions. Further, even if Cultural Care could be said to benefit from the provisions, that alone was insufficient to confer status as a third-party beneficiary because “a benefitting third party is not necessarily a third-party beneficiary.”
Moreover, even if Cultural Care were a third-party beneficiary as to some contractual provisions, it failed to show that it was specifically entitled to enforce the arbitration agreement in the ICL contract. Even assuming Cultural Care had some third-party beneficiary relationship to one or more provisions in the ICL contract, the First Circuit found that it failed to present authority showing that this gave Cultural Care third-party beneficiary status as to the contact as a whole, including the ICL contract’s arbitration agreement.
The Court emphasized that First Circuit precedent, particularly Hogan v. SPAR Grp., Inc., 914 F.3d 34, 39 (1st Cir. 2019), makes clear that in determining whether a nonsignatory can enforce an arbitration agreement under a third-party beneficiary theory, the relevant question is whether the signatories to the agreement intended to confer arbitration rights on the third party—not any other right under the contract. Thus, even if a nonsignatory shows an intent on the part of contracting parties to confer a benefit upon the nonsignatory, if that benefit is unrelated to arbitration, the court looks to the language of the arbitration agreement itself to determine the contractual parties’ intent as to arbitration. While contractual provisions other than the arbitration clause may bear on the issue of the signatories’ intent on this issue, the relevant question is whether the nonsignatory is an intended third-party beneficiary specifically of the signatories’ agreement to arbitrate.
The court clarified that two of its prior rulings cited by Cultural Care did not support a different result. First, in InterGen N.V. v. Grina, 344 F.3d 134, 143 (1st Cir. 2003), the First Circuit addressed whether a party could compel arbitration of a nonsignatory to the contracts containing arbitration agreements. There, the Court found that the threshold question was whether InterGen was a third-party beneficiary of “purchase orders” at issue and determined that it was not. The First Circuit clarified that to the extent its references in InterGen to the “purchase orders,” as opposed to the arbitration agreement contained therein, were ambiguous, that case did not establish that the relevant issue for a nonsignatory seeking to enforce an arbitration agreement was anything other than whether the signatories intended the third-party benefit from the arbitration agreement. Second, in Ouadani v. TF Final Mile LLC, 876 F.3d 31 (1st Cir. 2017), the First Circuit stated that a party seeking to enforce an arbitration clause in an agreement against a nonsignatory to the agreement failed “to identify any language in the Agreement that could be read to provide [the nonsignatory] with ‘specific legal rights.’” However, the court pointed out that simply means that a contract that showed no intent to benefit a third party cannot be enforced by that party. It did not address whether, when a contract evinces some intent to benefit a third-party in a way that is unrelated to arbitration, that party becomes a third-party beneficiary of the agreement to arbitrate contained within the contract. The First Circuit held that its precedent, including Hogan, makes clear that the language of the arbitration agreement itself is dispositive.
So, if a party intends to try and compel arbitration as a third-party beneficiary of an agreement to arbitrate in a contract to which it is not a signatory, it should (at least in the First Circuit in a case governed by the Federal Arbitration Act) be prepared to show with “special clarity,” based on the language of the contract and arbitration agreement specifically, that the signatories specifically intended that party to benefit from the arbitration agreement, as opposed to other terms of the contract.