Date: 01-27-2018

Case Style:

Case Number: 17-1956

Judge: Kane

Court: United Stats Court of Appeals for the Eighth Circuit on appeal from the Northern District of Illinois

Plaintiff's Attorney: Ben Richman and Alex Tievsky

Defendant's Attorney: Kristine Mcalister Brown, Derin Bronson Dickerson, Lawrence Harris Heftman, Charles H. R. Peters,

Description: Should courts apply federal or state
law to decide whether a contract’s arbitration clause binds a
non-signatory? In Scheurer v. Fromm Family Foods LLC, we held
* The Honorable Sara Darrow, United States District Court for the Central
District of Illinois, sitting by designation.
2 No. 17-1956
that courts should apply state law. 863 F.3d 748, 750 (7th Cir.
2017). We reiterate that holding here.
I. BACKGROUND
Matthew Warciak’s mother has a T-Mobile cell phone plan.
In 2006, she signed an agreement with T-Mobile to begin her
service. Then in 2012, she signed another agreement when she
purchased a new phone. These agreements each contain arbitration
clauses and govern the relationship between Warciak’s
mother and T-Mobile. Although Warciak himself uses a
phone on his mother’s plan and is an authorized user who can
make changes to the account, he never signed either agreement
nor is he otherwise a party to them.
In 2016, Warciak received a spam text message promoting
a Subway sandwich. He sued Subway under federal and state
consumer protection statutes. Subway moved to compel arbitration.
But because Subway and Warciak had never agreed
to arbitrate—in fact they had never agreed to anything—Subway
based its motion on the agreements between T-Mobile
and Warciak’s mother.
In the district court, the parties contested whether Warciak
could be compelled to arbitrate and whether federal or state
law should resolve the dispute. Subway argued that federal
estoppel law required Warciak to arbitrate under the arbitration
clauses contained in his mother’s contracts with T-Mobile.
Warciak countered that Illinois estoppel law should apply.
And under Illinois law, he argued, he is not bound by his
mother’s contracts.
The district court applied federal law and granted Subway’s
motion to compel arbitration. Warciak appealed.
No. 17-1956 3
II. ANALYSIS
The material facts underlying this appeal are undisputed,
thus we review the district court’s ruling de novo. Scheurer, 863
F.3d at 751–52.
Generally, a court cannot compel a party to arbitrate a dispute
unless that party has agreed to do so. See United Steelworkers
v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960);
Scheurer, 863 F.3d at 752. Nevertheless, some “‘traditional
principles’ of state law allow a contract to be enforced by or
against nonparties to the contract.” Arthur Andersen LLP v.
Carlisle, 556 U.S. 624, 631 (2009) (quoting 21 Williston on Contracts
§ 57:19 (4th ed. 2001)). These traditional state law principles
include: assumption, agency, veil piercing, alter ego,
waiver, estoppel, third-party beneficiary, and incorporation
by reference. Scheurer, 863 F.3d at 752.
Here, Warciak and Subway have not agreed to arbitrate
their disputes. Yet Subway argues that promissory estoppel
binds Warciak to his mother’s agreements with T-Mobile.
We recently clarified that—even in the arbitration context—
the court must apply traditional state promissory estoppel
principles to decide whether a non-party should be bound
by the terms of another’s contract. See Scheurer, 863 F.3d at 752
(“‘traditional principles of state law’ govern whether a contract,
including an arbitration agreement, is enforceable by or
against a non-party” (quoting Arthur Andersen, 556 U.S. at
631)). Warciak argues that Illinois law should apply and Subway
proposes no alternative. Thus, we apply Illinois law.
Looking to Illinois law, it is clear that Subway cannot rely
on estoppel to enforce T-Mobile’s arbitration agreement
against Warciak. In Illinois, “[a] claim of equitable estoppel
4 No. 17-1956
exists where a person, by his or her statements or conduct,
induces a second person to rely, to his or her detriment, on the
statements or conduct of the first person.” Ervin v. Nokia, Inc.,
812 N.E.2d 534, 541 (Ill. App. Ct. 2004). Here, Subway cannot
show detrimental reliance. In fact, it expressly disclaimed the
argument. (R. 21, Reply brief in support of motion to compel
arbitration, at 7 (“SUBWAY® is not pursuing arbitration
based on a theory of detrimental reliance.”).) Having disclaimed
the theory and failed to present any evidence that
would support it, Subway cannot rely on estoppel to enforce
the arbitration agreement against Warciak.

Outcome: Subway sought to enforce against Warciak an arbitration
agreement that neither party had signed. Because Illinois
promissory estoppel does not bind Warciak to the arbitration
agreements between T-Mobile and his mother, we REVERSE
the district court’s order dismissing Warciak’s suit and compelling
arbitration and REMAND for further proceedings.

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