Michigan Court of Appeals Limits Efforts to Force Company Agents Into Arbitration

Michigan’s pro-arbitration policy has limits. In Demerse v Helen Newberry Joy Hospital, the Michigan Court of Appeals held that a business owner who signed a contract only on behalf of his LLC could not be forced to arbitrate individual claims against him based on that contract’s arbitration clause. The decision matters for companies that rely on arbitration provisions to manage risk across related entities, owners, officers, and employees. It also gives individual agents a stronger answer when a contracting counterparty tries to turn a company’s arbitration agreement into a personal obligation. 

Key Takeaways 

• A company’s arbitration clause does not automatically bind its owners or officers personally. Signing for a disclosed LLC is not the same as signing individually. 

• Agency principles work differently depending on who resists arbitration. A nonsignatory agent may sometimes enforce arbitration against a signatory, but that does not mean the nonsignatory agent can be forced to arbitrate personal liability. 

• Veil-piercing remains possible, but it requires evidence. Allegations about asset sales or distributions will not carry the day without admissible proof satisfying Michigan’s veil-piercing standards. 

• Contract drafting matters. Companies that want arbitration to reach owners, officers, directors, affiliates, or guarantors should say so clearly and obtain signatures in the right capacity. 

• The opinion is narrow but useful. It does not reject arbitration. It enforces the basic rule that arbitration is contractual. Contract principles still apply. 

Case Summary

Helen Newberry Joy Hospital contracted with Newton Hometown Pharmacy LLC for services tied to the federal 340B drug-pricing program. The pharmacy’s sole member and manager, David Demerse, signed the Agreement only on behalf of the pharmacy—not in his individual capacity. 

The Agreement contained a broad arbitration provision covering disputes between the hospital and the pharmacy, including disputes involving related entities, officers, directors, and employees. After the pharmacy initiated arbitration against the hospital, the hospital brought individual claims against Demerse, including tortious interference and fraudulent conveyance theories related to his management of the pharmacy and disposition of the pharmacy’s assets. 

Demerse filed a declaratory action, arguing that he never agreed personally to arbitrate. The trial court disagreed, accepted the hospital’s agency-theory argument, and ordered him into arbitration. The Court of Appeals reversed. 

The Court’s Holding and Reasoning

The Court of Appeals held that agency principles could not be used to compel Demerse to arbitrate the hospital’s claims brought against him individually. Although Demerse signed the arbitration agreement as the pharmacy’s agent, he signed the agreement only for the pharmacy. That made him a nonparty to the contract in his individual capacity. 

The Court emphasized practical distinctions for arbitration disputes—it matters (1) who signed the contract and in what capacity and (2) who is resisting arbitration. Michigan cases like Altobelli v Hartmann, 499 Mich 284 (2026), and Steward v Flint Sch Dist, 346 Mich App 700 (2023), allow a nonsignatory of an arbitration agreement to invoke arbitration against a party who signed the agreement, at least in some circumstances. But it doesn’t follow that the converse is true. Cases like Altobelli and Steward do not permit a signatory to force a nonsignatory agent to arbitrate the agent’s personal liability when the agent never agreed to do so. 

The Court also rejected the hospital’s alternative veil-piercing argument at the summary-disposition stage. Michigan law allows piercing of the corporate veil in appropriate cases. But the hospital offered insufficient admissible evidence to establish that the pharmacy—an LLC—was a mere instrumentality, that it was used to commit a fraud or wrong, and that the hospital suffered an unjust loss as a result, such that veil-piercing would be proper. If the hospital had offered the requisite evidence, Demerse would have come out differently. 

Practical Impact: Why Demerse Matters 

Demerse reinforces a basic but often overlooked point. Arbitration is powerful because it is contractual, but its reach is limited for the same reason. A broad arbitration clause may cover many claims. But it does not automatically create personal arbitration obligations for individuals who sign only in their capacities as agents. 

For plaintiffs and claimants, Demerse complicates efforts to bring individual owners, officers, or managers into arbitration based only on their roles in a contracting entity. To compel arbitration against someone who didn’t sign the arbitration agreement on their own behalf, a claimant needs more than agency labels. It needs a valid contract or quasi-contract theory—such as veil-piercing—supported by facts and evidence. 

For defendants and individual agents, Demerse provides a roadmap for resisting arbitration when personal claims are asserted against agents. It also confirms that courts should not collapse the distinction between an entity and its owner simply because one person owns and manages the company. 

The decision is published, so it carries precedential weight in Michigan state courts. But it is also narrow. It does not limit arbitration against signatories. It does not foreclose arbitration involving parties who did not sign arbitration agreements on their own behalf. And it does not bar veil-piercing where the record supports that remedy. 

Action Items for Businesses and In-House Counsel

• Review arbitration clauses for capacity issues. If the goal is to bind individuals personally, the agreement should make that clear and include those individuals’ signatures in their personal capacities. 

• Use separate acknowledgments or guaranties when needed. Owners, officers, affiliates, or guarantors should sign in the capacity the business intends to enforce. 

• Define covered parties precisely. Terms like “affiliates,” “officers,” “directors,” and “employees” may help determine scope, but they might not prove personal consent by a nonsignatory. 

• Build the evidentiary record before seeking veil-piercing. Before piercing the corporate veil, courts will require proof, not just suspicion, that the entity form was misused to commit a fraud or wrong. 

• Audit arbitration agreements. Especially for arbitration agreements involving closely held companies and single-member LLCs, parties should pay particular attention to who has signed the agreement, for whom, and in what capacity. 

Conclusion

Demerse is a useful reminder that arbitration provisions should be drafted with the endgame in mind. Businesses that want arbitration to reach individuals, affiliates, and related parties should say so clearly—and secure the signatures needed to make that intent enforceable. Butzel’s litigation and business attorneys can help companies review existing agreements, tighten dispute-resolution provisions, and position future disputes for the right forum. 

Please feel free to contact the authors of this Client Alert or your Butzel attorney with any questions.

George B. Donnini
313.225.7042
donnini@butzel.com

Sarah L. Nirenberg
248.258.2919
nirenberg@butzel.com

Thomas P. Nolan
313.225.7072
nolant@butzel.com

Brian K. Weber
517.372.4449
weberb@butzel.com