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Warciak v. Subway Restaurants, Inc.

United States Court of Appeals, Seventh Circuit

January 25, 2018

Matthew Warciak, Plaintiff-Appellant,
v.
Subway Restaurants, Inc., Defendant-Appellee.

          Argued October 25, 2017

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 16-cv-8694 - Charles P. Kocoras, Judge.

          Before Kanne and Sykes, Circuit Judges, and Darrow, District Judge. [*]

          Kanne, Circuit Judge.

         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 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.

         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 ...


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