Background
Taewoo Kim, on behalf of a proposed investor class, sued Jump Trading over its alleged role in Terraform’s efforts to support the Terra stablecoin. The complaint alleges that Jump bought millions of Terra coins during a 2021 depeg in exchange for discounted options to buy the related LUNA token, helping restore Terra’s dollar peg while Terraform falsely attributed the recovery to its algorithmic mechanism. Terra later collapsed in 2022.
Kim asserted Commodity Exchange Act and unjust-enrichment claims against Jump. Although Kim had agreed to arbitrate disputes with Terraform through the Anchor Protocol’s terms of service, Jump was not a party to that agreement. Jump moved to compel arbitration, arguing that equitable estoppel let it enforce the agreement and that the agreement’s delegation provision required an arbitrator to decide that issue. The district court denied the motion.
The Court’s Holding
The Seventh Circuit affirmed. A court, rather than an arbitrator, must decide whether a nonsignatory such as Jump may enforce an agreement to arbitrate arbitrability. The delegation provision governed the agreement between Kim and Terraform; it did not itself establish that Jump had a contractual right to invoke that provision.
Illinois law governed Jump’s equitable-estoppel theory. Under Illinois law, a nonsignatory seeking to enforce an arbitration clause through equitable estoppel must have reasonably relied on the contract containing the clause. Jump did not contend that it relied on any representation by Kim or otherwise satisfied that requirement. Chapter 2 of the Federal Arbitration Act and the New York Convention did not displace state law with a federal common-law estoppel rule.
Key Takeaways
- A delegation clause does not allow a nonsignatory to send its own claimed enforcement rights to arbitration without a judicial determination that those rights exist.
- Illinois equitable estoppel requires reasonable reliance by the party invoking the arbitration agreement.
- The FAA favors enforcing arbitration contracts, not creating arbitration rights for strangers to those contracts.
Why It Matters
The decision rejects an expansive theory under which alleged joint misconduct with an arbitration-agreement signatory would permit a nonsignatory to compel arbitration. Parties invoking an international arbitration agreement must still establish their own right to enforce it.
For litigation involving crypto platforms and other multilateral commercial arrangements, the ruling keeps the threshold question of a nonsignatory’s enforcement rights with the court unless the nonsignatory can first show a contractual basis to invoke the agreement.