Schwalm v. TCF National Bank
ORDER granting 7 Motion to Compel Arbitration Signed by U.S. District Judge Karen E. Schreier on 12/28/16. (DJP)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
ORDER GRANTING MOTION TO
TCF NATIONAL BANK,
Plaintiff, LaVae Schwalm, brought this lawsuit against defendant, TCF
National Bank (TCF). TCF moves to compel arbitration and to dismiss the
complaint. Docket 7. Schwalm objects to defendant’s motions. Docket 9. For
the reasons stated below, the court grants defendant’s motion to compel
The facts, viewed in the light most favorable to Schwalm, the non-moving
In 2013, LaVae Schwalm began using Indeed.com to search for
accounting positions in eastern South Dakota. Indeed.com is an online service
that utilizes an algorithm to match applicants to potential employment
opportunities and recommends certain employment opportunities to
applicants. Indeed.com recommended several positions to Schwalm based on
her geographical location and interests. After looking through Indeed.com’s
recommendations, Schwalm picked jobs that interested her. Then, using
information from Schwalm’s previously uploaded resume, Indeed.com would
populate the job applications and Schwalm would correct any errors and
answer the prescreening questions before approving and submitting the
In November 2013, Schwalm states that she recalls Indeed.com
recommending an account services position at TCF to her. Schwalm admits
that she indicated to Indeed.com that she was interested in the position, but
she denies that she ever submitted an application. In November of 2013,
Schwalm had an in-person interview at TCF where she presented a physical
copy of her resume. She was not hired. In January of 2014, Schwalm had
another in-person interview at TCF. Schwalm avers that during the interview
one of the interviewers indicated that TCF did not have an application for her.
But TCF determined that her resume was sufficient and offered her a job.
Schwalm began working at TCF on February 3, 2014.
TCF’s Dispute Resolution Policy (DRP) allows employees to opt out of the
agreement within 60 calendar days of their start date. Schwalm states that she
did not opt out of the policy because she did not know about or understand the
policy. She claims that TCF never gave her a copy of the DRP and never
explained the DRP to her. TCF, however, submitted a copy of its “Employee
Acknowledgement Receipt” dated February 6, 2014, that was signed by LaVae
Schwalm. Docket 8-1 at 16. The Acknowledgment Receipt indicates that
Schwalm received a copy of the “Employee Highlights” and “Dispute Resolution
During Schwalm’s employment, she made three discrimination and
harassment complaints against her supervisor to TCF supervisors and its
Human Resources representatives. The complaints were dated February 16,
2015, March 13, 2015, and March 14, 2015. On March 20, 2015, Schwalm met
with TCF supervisors about her complaints. Afterwards, TCF informed
Schwalm that her supervisor had been disciplined for his behavior. In May
2015, Schwalm again reported to TCF’s Human Resources that she remained
in a hostile work environment and required medical leave because of ongoing
discriminatory treatment. Human Resources granted the medical leave. On
June 1, 2015, TCF terminated Schwalm’s employment.
Schwalm then filed this action against TCF alleging age discrimination
and retaliation. TCF asserts that these claims must be resolved under its
arbitration agreement. Schwalm denies that she entered into the arbitration
STANDARD OF REVIEW
Whether or not parties entered into an arbitration agreement falls to
judicial determination. Neb. Mach. Co. v. Cargotec Solutions, LLC, 762 F.3d 737,
741 (8th Cir. 2014). The Federal Arbitration Act does not specify what
evidentiary standard parties seeking to avoid arbitration must meet. Id. at 742.
But courts have analyzed the issue using a summary judgment standard—
viewing the evidence in the light most favorable to the non-moving party. Id.
This case deals with a question of law as to whether the controversy
between Schwalm and TCF is covered by a valid arbitration agreement and
should therefore be dismissed and directed to proceed to arbitration. Through
the Federal Arbitration Act (FAA), Congress established a policy in favor of
arbitration. Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 226 (1987).
The FAA “provides that written agreements to arbitrate controversies arising
out of an existing contract ‘shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation of any
contract.’ ” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985)
(quoting 9 U.S.C. § 2). The FAA “mandates that district courts shall direct the
parties to proceed to arbitration on issues as to which an arbitration agreement
has been signed.” Id. (citing 9 U.S.C. §§ 3, 4). The “court’s role under the FAA is
therefore limited to determining (1) whether a valid agreement to arbitrate
exists and, if it does, (2) whether the agreement encompasses the dispute.” Pro
Tech Indus. Inc. v. URS Corp., 377 F.3d 868, 871 (8th Cir. 2004). “However, a
party who has not agreed to arbitrate a dispute cannot be forced to do so.”
Lyster v. Ryan’s Family Steak Houses, Inc., 239 F.3d 943, 945 (8th Cir. 2001)
(citing AT&T Tech, Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650 (1986)).
LaVae Schwalm and TCF entered into a valid arbitration
The first issue for this court to decide is whether there is a valid
arbitration agreement between the parties. Under the FAA, state law contract
principles govern the formation of an arbitration agreement. Patterson v. Tenet
Healthcare, Inc., 113 F.3d 832, 834 (8th Cir. 1997); First Options of Chi. Inc. v.
Kaplan, 514 U.S. 938, 944 (1995). In South Dakota, the “elements essential to
the existence of a contract are: (1) parties capable of contracting; (2) their
consent; (3) a lawful object; and (4) sufficient cause or consideration.” SDCL §
TCF’s employment application, when filled out and signed, creates a
binding arbitration agreement. When a potential applicant applies for a
position with TCF, the applicant is provided with an explanation of the DRP.
The first sentence of the DRP states that “[b]y applying for employment or
accepting employment, you agree with TCF and TCF agrees with you to resolve
all Covered Claims pursuant to TCF’s Dispute Resolution Policy (DRP).” Docket
8-1 at 12. The online application further explains that an eSignature on the
application binds a person to this agreement. Id. Thus, if a person applies to a
position at TCF, they are consenting to be bound by the DRP in consideration
for TCF accepting their application.
Here, Schwalm denies that she is bound by the DRP for several reasons.
First, she denies that she ever filled out or submitted the November 26
application. Docket 9 at 9. Instead, she argues that Indeed.com filled out and
submitted the application on her behalf and without her permission. Id.
Second, Schwalm states that she was not ultimately hired for the job described
in the November 26 application, so any agreement she made in that application
is void. Id. at 6. Third, Schwalm denies that she ever received a copy of the
DRP and did not understand what the DRP meant, and thus, did not
voluntarily consent to be bound by the DRP. Id. And finally, Schwalm argues
that, even if the court finds she agreed to the DRP, that the DRP is
unconscionable. Id. at 13.
A. Schwalm’s electronic signature on the November 26 application
is attributable to her.
The court first responds to Schwalm’s argument that the electronic
signature on the November 26 application cannot be attributed to her. “An
electronic record or electronic signature is attributable to a person if it was the
act of the person. The act of the person may be shown in any manner . . . to
determine the person to which the electronic record or electronic signature was
attributable.” SDCL § 53-12-21. “The effect of an electronic record or electronic
signature attributed to a person under § 53-12-21 is determined from the
context and surrounding circumstances at the time of its creation, execution,
or adoption, including the parties’ agreement, if any, and otherwise as provided
by law.” SDCL § 53-12-22.
First, the fact that Indeed.com populates the fields for Schwalm does not
make the application less attributable to her under South Dakota law. See
SDCL § 53-12-32 (stating that a contract can be formed when a person
initiates an electronic agent to take an action that the person knows or should
know will form a contract). The fact that Schwalm would review the application
and then approve it to be submitted is a sufficient action to bind her to the
application. Second, Schwalm avers in her affidavit that generally, Indeed.com
would suggest job openings to her and she would indicate whether or not she
was interested in the job. Once she indicated interest in a job opening,
Indeed.com would populate the fields of the application for her, and she would
check the application, answer the prescreening questions, and approve the
application. Docket 9-1 ¶ 3. Thus, Schwalm’s own description of Indeed.com’s
services indicates that Indeed.com would not apply to a position on behalf of a
job seeker without the job seeker’s approval. 1
Schwalm’s argument that the job described in the November 26
application is not the same job she eventually received 2 is irrelevant to the
question of whether she is bound by the DRP. The language in the DRP on the
November 26 application states “by applying for employment or accepting
employment, you agree with TCF, and TCF agrees with you, to resolve all
Covered Claims pursuant to TCF’s Dispute Resolution Policy.” Docket 8-1 at
12. Thus, Schwalm’s agreement to be bound by the DRP occurred once she
applied for the job regardless of whether she actually received that job.
Further, the application also clearly states that “TCF may consider you for a
It should be noted that, according to TCF’s record of the November 26
application, Schwalm actually submitted her online application through
CareerBuilder.com instead of Indeed.com. Docket 8-1 at 11. For purposes of
this analysis, it is not relevant which online website Schwalm utilized to apply
to the position because she ultimately signed the application and agreed to the
2 It should also be noted that TCF contends that the job she applied for in the
November 26 application is the job it hired her for. This contention is evidenced
by the offer letter submitted by TCF to the Court. The November 26 application
was for the “Operations Spec II-Batch-Sioux Falls” job position. Docket 8-1 at
11. The position’s recruiter was Kristin Paulson and the Hiring Manager was
Chet Carlton. Id. The offer letter dated January 15, 2014, is for the “Operations
Spec II-Batch-Sioux Falls” position. Docket 13-1 at 2. The listed Manager is
Chet Carlton and the Recruiter is Kristin Paulson. Id.
position other than the position you directly applied for, and . . . your
electronic consent below will also be binding to that position.” Docket 8-1 at
A substantial number of factors further indicates that Schwalm
submitted the November 26 application. TCF provided documents showing that
LaVae Schwalm applied for the Operations Spec II position in Sioux Falls.
Docket 8-1 at 11. It also indicates that Schwalm electronically signed the
application on November 26, 2013, from a computer with the IP address
220.127.116.11. Id. The IP address used to sign the application is an IP address
originating from a computer in Brookings, SD, where Schwalm was living in
2013. Docket 10-2 at 4. Finally, Schwalm testifies that Indeed.com would
require her to fill out the prescreening questions with each application, and the
application submitted to TCF on November 26 included answered prescreening
questions. Docket 8-1 at 11. Based on the context and circumstances
surrounding the November 26 online application, the court finds that the
electronic signature posted to the application is attributable to Schwalm.
B. Schwalm received a copy of and understood the terms of the
Next the court addresses Schwalm’s claim that she was never given a
copy of the DRP and it was never explained to her, so she did not know about
the 60-day opt out and did not voluntarily consent to the agreement. In South
Dakota, there is a presumption that a party to an agreement reads and
understands the contents of what she signs. Farlow v. Chambers, 110 N.W. 94
(1907). Thus Schwalm’s argument is defeated by her initials on the Employee
Acknowledge Form dated February 6, 2014. Docket 8-2 at 5. The form states “I
acknowledge receipt of copies of the TCF National Bank Employee Policy
Highlights. I understand that it is my responsibility to read the material and
become familiar with the policies explained.” Docket 8-2 at 5. Schwalm’s
initials are next to “Dispute Resolution Policy” indicating that she received a
copy of the policy and understood its terms. Id. Also, an explanation of the DRP
as well as directions on where an employee can access a full copy of the DRP is
easily found in the Policy Highlights handbook. Docket 13-5 at 11. Thus,
Schwalm signed a statement indicating that she received two copies and
understood the explanations of the DRP. Given this evidence the court finds
that Schwalm had notice of the DRP and the 60-day opt out.
Schwalm points to the sentence in the Acknowledgment Form that reads
“I agree that the policies and guidelines explained in this brochure do not, and
are not intended to constitute an employment contract with TCF” as evidence
that she did not agree to the DRP. Docket 9 at 2. But the purpose of the
Acknowledgment Form was not to create an employment contract with TCF.
Rather, it was a document showing that Schwalm received and understood the
DRP. As explained above, Schwalm agreed to be bound by the DRP when she
submitted the November 26 employment application, and her initials on the
Acknowledgment Form demonstrate that she received a copy of the DRP and
understood its contents. Thus the court rejects Schwalm’s argument that she
did not voluntarily consent to the DRP.
C. TCF’s DRP is neither procedurally nor substantively
Finally, the court addresses Schwalm’s argument that the DRP is an
unconscionable adhesion contract. The South Dakota Supreme Court defined
unconscionable contracts to be “ ‘[o]ne-sided agreements without a remedy for
another party’s breach.’ ” Baldwin v. Nat’l Coll., 537 N.W.2d 14, 17 (S.D. 1995)
(quoting Rozeboom v. Nw. Bell Tel. Co., 358 N.W.2d 241, 244-45 (S.D. 1984)).
When evaluating the unconscionability of a contract the court can consider
both substantive and procedural unconscionability. The procedural analysis
asks how the contract was presented. A contract presented to one party on a
“take it or leave it” basis is considered an adhesion contract. Baldwin, 537
N.W.2d at 18. An adhesion contract, while not presumptively unconscionable,
is construed against the drafting party with “special scrutiny” to determine if it
is unconscionable. Rozeboom, 358 N.W.2d at 245. The substantive analysis
asks whether the contracts contains terms that are unreasonable, one-sided,
or oppressive. Nygaard v. Sioux Valley Hosps., 731 N.W.2d 184, 195 (S.D.
2007). In scrutinizing the contract, the court looks to the bargaining power
between the parties and the terms of the contract. Id.
First, the court will determine if the DRP is procedurally unconscionable.
Schwalm argues that TCF’s DRP is an unenforceable contract of adhesion
because there was unequal bargaining power between TCF and Schwalm and
the DRP was presented to Schwalm in a “take it or leave it” fashion with no
ability to negotiate the terms. Docket 9 at 14-17. In Baker v. Science
Applications Int’l Corp., No. Civ. 06-4096, 2006 WL 2708546, at *2, (D.S.D.
Sept. 21, 2006), the court found that an arbitration agreement in an
employment contract was not a contract of adhesion and was enforceable. In
Baker, the employer offered the employee employment “on the condition that
[the employee] sign the Arbitration Agreement.” Id. The court quoted the
Supreme Court stating that “ ‘there will often be unequal bargaining power
between employers and employees’ ” but “ ‘mere inequality in bargaining power.
. . is not sufficient to hold that arbitration agreements are never enforceable in
the employment context.’ ” Id. (quoting Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20, 32-33 (1991)). Despite the uneven bargaining power, the court
stated that the employee could have declined employment with the employer
and sought employment elsewhere, so it was not an adhesion contract. Id.
Absent a showing of fraud or overwhelming economic power, the court found
that there was no reason to invalidate the arbitration agreement. Baker, 2006
WL 2708546, at *3.
Here, Schwalm would not have had to decline employment to avoid the
arbitration agreement. She had the option to opt out of the arbitration
agreement and still remain employed with TCF. This was hardly a situation
where TCF presented the contract in a “take it or leave it” manner because
Schwalm did not have to “take it or leave.” In other words, she had the ability
to negotiate the terms. Thus, this was not an adhesion contract and it was not
Second, the court must determine if the DRP is substantively
unconscionable. Schwalm argues that the terms of the DRP are substantively
unconscionable because it lacks mutuality. In South Dakota the courts focus
on the existence of “overly harsh or one-sided terms” when deciding whether a
contract is substantively unconscionable Johnson v. John Deere Co., 306
N.W.2d 231, 237 (S.D. 1981). For example, in Rozeboom, the South Dakota
Supreme Court found that a liability limitation was substantively
unconscionable because it limited the plaintiff’s available damages against
defendant to the price he paid for a Yellow Pages advertisement. Rozeboom, 358
N.W.2d at 245. The Court in Rozeboom reasoned that limiting remedies was
overly harsh in conjunction with the fact that the plaintiff did not have any
bargaining power when signing the contract and the defendant maintained a
monopoly within the telecommunications industry. Id. The court in Baker also
discussed and distinguished between a limitation on liability and an arbitration
clause. In Baker, the court stated that “there is no limitation of [p]laintiff’s
damages. . . [and] there is a national policy favoring arbitration, but there is no
such policy favoring limitation of liability clauses.” Baker, 2006 WL 2708546,
Here, the DRP does not limit Schwalm’s remedies against TCF, it simply
governs the forum in which she must first pursue her remedies. Also, unlike
the plaintiff in Rozeboom, Schwalm had bargaining power because she could
choose to opt out of the DRP and TCF does not maintain a monopoly in the
banking industry. Based on South Dakota contract law, the arbitration clause
is not substantively unconscionable.
South Dakota has not directly dealt with the question of whether an
arbitration clause that lacks mutuality is unconscionable, so Schwalm cites to
a non-binding opinion in California to support her claim that TCF’s arbitration
clause lacks mutuality and is therefore unconscionable. Armendariz v. Found.
Health Psychcare Servs., Inc., 99 Cal. Rptr. 2d 745, 770 (Cal. 2000). In
Armendariz, the California Supreme Court found that the arbitration
agreement lacked mutuality because the language of the agreement specifically
required the employee to arbitrate wrongful termination claims but did not
contain any language that required the employer to arbitrate any claims. Id. at
772. The Court also cited to other cases where a lack of mutuality had been
found because arbitration agreement explicitly excluded the employer from the
arbitration agreement. Id. But in this case, the DRP explicitly requires TCF to
arbitrate its claims against the employee. The DRP states that “[t]his means
that you and TCF will not have a right to bring a lawsuit against one another .
. . regarding Covered Claims.” Docket 8-1 at 5. This type of language is absent
in the Armendariz case as well as the other cases Armendariz relies on. Thus,
TCF’s DRP does not lack mutuality.
This court finds that TCF and Schwalm entered into a binding arbitration
agreement when Schwalm submitted her November 26 application. The court
further finds that TCF’s DRP is not unconscionable and is enforceable.
The Arbitration Agreement encompasses Schwalm’s claim.
Finally, the court must determine if the DRP encompasses Schwalm’s
claim against TCF. A court liberally interprets the scope of an arbitration
agreement, with any doubts decided in favor of arbitration. Lyster v. Ryan’s
Family Steak Houses, Inc., 239 F.3d 943, 945 (8th Cir. 2001). When deciding
on the scope of an agreement, the court asks only whether the parties agreed
to arbitrate a particular claim without reaching the merits of the claim. Kansas
City S. Transp. Co. v. Teamsters Local 41, 126 F.3d 1059, 1067 (8th Cir. 1997).
Schwalm does not dispute that the DRP explicitly encompasses age
discrimination claims and retaliation claims for protected activity. Instead, she
argues that because TCF arbitrarily applies the DRP to discrimination claims
and did not follow protocol as outlined in the DRP, her claims should not be
subject to arbitration. Docket 9 at 12-13. Any argument that TCF did not follow
its own protocol in handling Schwalm’s discrimination complaints goes to the
merits of her discrimination claim. This court is only tasked with determining if
Scwalm’s claims for age discrimination and retaliation fall within the DRP and
not whether TCF properly complied with the DRP. Kansas City S. Transp. Co.,
126 F.3d at 1067. This court agrees with the parties that Schwalm’s age
discrimination and retaliation claims are within the DRP’s scope. 3
The DRP explicitly states that it applies to age discrimination claims arising
under federal law and retaliation claims for protected activity. See Docket 8-1
Covered claims include, but are not limited to, the following:
1. Claims relating to involuntary termination,
layoffs and discharges (including
The court finds that LeVae Schwalm agreed to a valid arbitration
agreement with TCF, and that Schwalm’s age discrimination and retaliation
claims are within the scope of that agreement.
Thus, it is ORDERED that defendant’s motion to compel arbitration
(Docket 7) is granted.
Dated December 28, 2016.
BY THE COURT:
/s/Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
2. Employment discrimination and harassment
based on age . . .(including, but not
limited to, claims pursuant to the Civil Rights
Acts of 1866, 1964, and
1991, the Age
Discrimination in Employment Act and the
Americans with Disabilities Act);
3. Retaliation claims for legally protected activity
whistleblowing . . .;
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