Scheurer v. Fromm Family Foods LLC

• Decision Date: 17 July 2017
• Docket Number: No. 16-3327,16-3327
• Citation: 863 F.3d 748
• Parties: Anne E. SCHEURER, Plaintiff-Appellee, v. FROMM FAMILY FOODS LLC, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

863 F.3d 748

Anne E. SCHEURER, Plaintiff-Appellee,

v.FROMM FAMILY FOODS LLC, Defendant-Appellant.

No. 16-3327

United States Court of Appeals, Seventh Circuit.

Argued May 31, 2017

Decided July 17, 2017

William F. Sulton, Attorney, Peterson, Johnson & Murray, S.C., Milwaukee, WI, for Plaintiff–Appellee.

Katherine Lee Goyert, Attorney, Michael Best & Friedrich LLP, Chicago, IL, Thomas William Scrivner, Attorney, Michael Best & Friedrich LLP, Milwaukee, WI, for Defendant–Appellant.

Before Kanne, Sykes, and Hamilton, Circuit Judges.

Hamilton, Circuit Judge.

Plaintiff Anne Scheurer filed this sexual harassment and retaliation suit under Title VII of the Civil Rights Act of 1964 against defendant Fromm Family Foods. During discovery, Fromm learned that Scheurer's contract with the staffing agency that employed her and directed her to Fromm included an arbitration clause. Fromm moved to compel arbitration. The district court denied the motion. Such a denial is immediately appealable under the Federal Arbitration Act, 9 U.S.C. § 16(a)(1)(B), and Fromm has appealed. We affirm.

The question is whether employer Fromm, which did not have a written arbitration agreement with Scheurer, can enforce against her the arbitration clause in her agreement with the staffing agency. This question is governed by state law, in this case, Wisconsin law. See Arthur Andersen LLP v. Carlisle , 556 U.S. 624, 630–31, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009). We agree with the district court that Fromm has not shown a legal basis for compelling Scheurer to arbitrate her Title VII claim against Fromm. We first review the factual and procedural background leading to this appeal. We then examine Fromm's only theory for compelling arbitration that it has not waived.

I. Factual and Procedural Background

In August 2013, in Beaver Dam, Wisconsin, plaintiff Anne Scheurer applied to work at Richelieu Foods, which out-sourced its staffing needs to Remedy Intelligent Staffing, a temporary staffing agency. The application form she signed with Remedy for placement with Richelieu contained an arbitration agreement.¹ She was assigned to work for a time for Richelieu, but that assignment ended after some months.

About a year after she first applied, Remedy placed Scheurer with Fromm Family Foods. Scheurer alleges that while working at Fromm, her supervisor sexually harassed her. The present appeal does not require us to consider the merits of her claims; we assume for present purposes that her allegations are true. Briefly, she alleges that her supervisor took advantage of his access to her personnel file to obtain her personal telephone number and repeatedly harassed her in unwelcome ways, including sexually explicit comments to her in front of other employees. Scheurer alleges that she complained to Fromm management and that the supervisor had a history of sexual harassment and discrimination against women in the workplace. She also alleges that Fromm took no serious action to address the sexual harassment and instead fired her.

Richard Best, the chief operating officer of Fromm, submitted an affidavit that actually tends to support Scheurer's claim. He testified that Fromm immediately investigated the harassment complaint and took unspecified action against the supervisor. So far, so good for Fromm. But Best also said that Fromm tried to arrange a work situation that would have separated Scheurer from the supervisor, but that when that proved "impossible," Fromm asked Remedy to assign Scheurer to another client. That action seems to amount to Fromm terminating Scheurer's employment with it, assuming she can show joint employment. From the sequence of complaint, unspecified discipline of the supervisor, an unsuccessful effort to separate the two people, followed by termination of the complaining subordinate, the inference of retaliatory intent would not seem unreasonable.

Scheurer filed this lawsuit against Fromm—but not Remedy—under Title VII for sexual harassment and retaliation. 42 U.S.C. §§ 2000e-2(a)(1) & 2000e-3(a). Scheurer's mandatory disclosures in the federal discovery process included her application to Remedy, which included the arbitration agreement. Fromm argued that arbitration should be compelled under the contract law principle of equitable estoppel and because Fromm was a third-party beneficiary of the agreement.

The district court denied Fromm's motion. Scheurer v. Fromm Family Foods, LLC , 202 F.Supp.3d 1040, 1046 (W.D. Wis. 2016). The court correctly relied on state law and first determined that equitable estoppel did not apply because there was no basis for finding that Fromm relied on Scheurer's arbitration agreement since Fromm did not even know about it. Id. at 1043–44. The court also found that Fromm was not a third-party beneficiary of Remedy's agreement with Scheurer. Id. at 1045–46.

II. Analysis

The question on appeal is whether Fromm can enforce the arbitration agreement between Remedy and Scheurer to compel arbitration of her claims against Fromm. That question is at bottom a question of contract law.

The standard of review for a district court's ruling on a motion to compel arbitration turns on the procedural posture of that ruling. We have said on occasion that we review de novo a district court's ruling on a motion to compel arbitration, but that we review any findings of fact for clear error. E.g., Druco Restaurants, Inc. v. Steak N Shake Enterprises, Inc. , 765 F.3d 776, 779–80 (7th Cir. 2014), citing Lumbermens Mutual Casualty Co. v. Broadspire Management Services, Inc. , 623 F.3d 476, 480 (7th Cir. 2010) ; James v. McDonald's Corp. , 417 F.3d 672, 676 (7th Cir. 2005) ; Zurich American Ins. Co. v. Watts Industries, Inc. , 417 F.3d 682, 687 (7th Cir. 2005). Arbitrability of a dispute is often a question of law that does not depend on undisputed facts, but in other cases it can present a mixed question of law and fact. See 21 Williston on Contracts § 57:68 (4th ed. 2017).

The Federal Arbitration Act actually provides for jury trials on the question of arbitrability if there is a factual dispute as to whether "an agreement for arbitration was made." 9 U.S.C. § 4. A court reviewing such a jury finding must uphold the finding if it is supported by a reasonable basis in the record. See, e.g., Gorlikowski v. Tolbert , 52 F.3d 1439, 1446 (7th Cir. 1995), citing Carmel v. Clapp & Eisenberg, P.C. , 960 F.2d 698, 703 (7th Cir. 1992). Similarly, if the judge held an evidentiary hearing, findings of fact would be reviewed for clear error. See, e.g., Fyrnetics (Hong Kong) Ltd. v. Quantum Group, Inc. , 293 F.3d 1023, 1026, 1028 (7th Cir. 2002). Where there are no factual disputes, however, as is the case here, then review should be de novo . See, e.g., Lewis v. Epic Systems Corp. , 823 F.3d 1147, 1151 (7th Cir. 2016), cert. granted , ––– U.S. ––––, 137 S.Ct. 809, 196 L.Ed.2d 595 (2017), citing Gore v. Alltel Communications, LLC , 666 F.3d 1027, 1033 (7th Cir. 2012). Accordingly, because there are no disputed factual issues material to the motion to compel arbitration, we review de novo the district court's denial of that motion.²

The Federal Arbitration Act requires federal and state courts to place written arbitration agreements on the same footing as other contracts. 9 U.S.C. § 2 ; Kindred Nursing Centers, Ltd. v. Clark , 581 U.S. ––––, ––––, 137 S.Ct. 1421, 1424, 197 L.Ed.2d 806 (2017) (citations omitted); Arthur Andersen , 556 U.S. at 629–30, 129 S.Ct. 1896 (citations omitted). Under the FAA, arbitration should be compelled if three elements are present: (1) an enforceable written agreement to arbitrate, (2) a dispute within the scope of the arbitration agreement, and (3) a refusal to arbitrate. Zurich , 417 F.3d at 687 ; 9 U.S.C. § 4. Generally, federal policy favors arbitration, and once an enforceable arbitration contract is shown to exist, questions as to the scope of arbitrable issues should be resolved in favor of arbitration. Moses H. Cone Memorial Hospital v. Mercury Construction Corp. , 460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

At bottom, however, arbitration is contractual. A party "cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of America v. Warrior & Gulf Navigation Co ., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960) ; Zurich , 417 F.3d at 687, quoting Thomson-CSF, S.A. v. American Arbitration Ass'n , 64 F.3d 773, 776 (2d Cir. 1995) ; see also Arthur Andersen , 556 U.S. at 630–31, 129 S.Ct. 1896 (state law governs whether a contract with an arbitration agreement is enforceable).

In Arthur Andersen , the Supreme Court directly addressed which law governs who may enforce an arbitration agreement. The Court explained that "traditional principles of state law" govern whether a contract, including an arbitration agreement, is enforceable by or against a non-party. Arthur Andersen , 556 U.S. at 631, 129 S.Ct. 1896 (quotations and citation omitted). The Court stated its holding in terms directly applicable here: "a litigant who was not a party to the relevant arbitration agreement may invoke § 3 if the relevant state contract law allows him to enforce the agreement." Id. at 632, 129 S.Ct. 1896.³

Arthur Andersen identified assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary, waiver, and estoppel among those state law principles that could govern who may enforce the agreement. Id. at 631, 129 S.Ct. 1896. We have also included assumption and agency in the list of state law doctrines governing when a non-signatory may be bound to arbitration. Zurich , 417 F.3d at 687.

In the district court, Fromm argued that Scheurer should be compelled to arbitrate against Fromm based on contract principles of equitable estoppel and as a third-party beneficiary of Scheurer's contract with Remedy. On appeal, Fromm continues to argue that equitable estoppel should compel arbitration. It has dropped its third-party...