The Court of Appeals for the Fourth Circuit has reversed a district court’s refusal to compel arbitration in a Telephone Consumer Protection Act class action, finding that a health insurance marketing company qualifies as a third-party beneficiary of an online agreement between the plaintiff and a lead generation service and can therefore enforce that agreement’s arbitration clause.
The background: The plaintiff filed a class action against a health insurance marketing company, alleging the company transmitted a prerecorded voice message to her cell phone in February 2024 offering health insurance information without her prior express consent, in violation of the TCPA.
- The defendant moved to compel arbitration, arguing the plaintiff had consented to arbitration when she visited a lead generation website to request health insurance quotes and agreed to that site’s Terms of Use. The plaintiff had never signed a contract directly with the defendant containing an arbitration clause, but the defendant argued it could enforce the arbitration clause in the lead generator’s Terms of Use as a third-party beneficiary.
- A district court judge denied the motion, finding, under applicable Delaware law, that while the defendant benefited from the agreement between the plaintiff and the lead generator, that benefit was not material to the contracting parties’ purpose because the lead generator would have entered into the agreement with the plaintiff regardless of whether the defendant was included.
- The defendant appealed.
The ruling: The Fourth Circuit reversed and remanded with instructions to compel arbitration.
- With respect to who decides whether a non-signatory can enforce an arbitration clause, the court rejected the defendant’s argument that an arbitrator should make that determination. Consistent with its own precedent, the court held that a district court must decide that question before any order compelling arbitration can be entered.
- On the merits, the court disagreed with the district court’s application of Delaware’s three-part test for third-party beneficiary status. The parties did not dispute that the defendant satisfied the first two elements. The dispute centered on the third: whether the intent to benefit the defendant was a material part of the contracting parties’ purpose in entering the agreement.
- The court found the district court’s reasoning on that element was too cursory. Because the lead generator was not in the business of providing insurance quotes itself, it needed marketing partners like the defendant to fulfill the very purpose of the website, which was to connect users seeking insurance quotes with providers who could supply them. The benefit to those marketing partners was not incidental. It was central to how the lead generator’s business model functioned.
- The court reversed the denial of arbitration and remanded for entry of an order compelling arbitration and staying the district court proceedings.
