Scheurer, Anne v. Fromm Family Foods LLC

Filing 25

OPINION & ORDER denying 14 Motion to Compel Arbitration. Signed by District Judge James D. Peterson on 8/18/2016. (kwf)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

ANNE E. SCHEURER,

v.

Plaintiff,

OPINION & ORDER
15-cv-770-jdp

FROMM FAMILY FOODS LLC,
Defendant.

This is an employment discrimination case in which plaintiff Anne Scheuer alleges
that her former supervisor sexually harassed her while she was working at defendant Fromm
Family Foods LLC. Scheurer also alleges that after she complained about the harassment,
Fromm fired her in retaliation. She has sued Fromm under Title VII of the Civil Rights Act of
1964. But there is a slight complication: Scheuer was actually an employee of a staffing
agency, and when she applied to the agency, she signed an application agreement that
contained an arbitration provision. Fromm now seeks to invoke that provision and compel
Scheuer to arbitrate her Title VII claims. Scheuer opposes the motion because Fromm was
not a party to her application agreement with the staffing agency.
Fromm has not demonstrated that it is entitled to enforce the arbitration provision in
Scheurer’s application agreement. The court will therefore deny Fromm’s motion to compel
arbitration.

BACKGROUND
The court reviews a motion to compel arbitration like a motion for summary
judgment. Tinder v. Pinkerton Sec., 305 F.3d 728, 735 (7th Cir. 2002). The court considers all

evidence in the record and draws all reasonable inferences in the light most favorable to
Scheurer because she is the non-moving party. Id.
In 2013, Scheurer applied to work at Richelieu Foods, Inc., which used Remedy
Intelligent Staffing LLC to manage its hiring, payroll, and other human resources tasks.
Richelieu and Remedy are not parties to this case. As part of Scheurer’s application, she
signed an “applicant’s agreement.” Dkt. 15-2, at 6-9. The agreement provided that Scheurer’s
employment with Remedy was at-will, and it also included an arbitration provision that
required Scheurer to arbitrate any disputes with her “Employer . . . arising out of or relating
to [her] employment or the termination of [her] employment.” Id. at 7. Remedy gave
Scheurer an employee handbook that reiterated the arbitration clause.
About a year later, Scheurer’s work at Richelieu had ended, and Remedy assigned her
to work at Fromm. Scheurer alleges that while she worked at Fromm, her supervisor made
unwanted sexually explicit comments to her. Although she complained about this harassment
to her coworkers, to other supervisors, and to human resources personnel at Fromm, her
complaints went unanswered. Fromm eventually fired Scheurer (which the court construes to
mean that Fromm had Remedy terminate her assignment). Scheurer alleges that this
termination was in retaliation for her complaints of sexual harassment.
Scheurer filed suit on December 2, 2015, alleging claims under Title VII for sexual
harassment and retaliation. Fromm now moves to compel arbitration, arguing that Scheurer’s
claims are subject to the arbitration clause in the application agreement that she signed.
The court has subject matter jurisdiction over Scheurer’s claims pursuant to 28 U.S.C.
§ 1331, because they arise under federal law.

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ANALYSIS
Fromm moves to compel arbitration pursuant to the Federal Arbitration Act (FAA).
Although the FAA does not define the standard that district courts must use to determine
whether to compel arbitration, federal courts have held that such motions are “reviewed
under a summary judgment standard.” Tickanen v. Harris & Harris, Ltd., 461 F. Supp. 2d 863,
866 (E.D. Wis. 2006) (citing Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 n.9
(3d Cir. 1980)); see also Tinder, 305 F.3d at 735. Because Fromm is moving to compel
arbitration, it must demonstrate that the application agreement between Scheurer and
Remedy requires Scheurer to arbitrate the claims that she is alleging this case. Vazquez v. Cent.
States Joint Bd., 547 F. Supp. 2d 833, 868 (N.D. Ill. 2008).
Under the FAA, the court will compel arbitration if three conditions are present: (1) a
written agreement to arbitrate; (2) a dispute within the scope of the arbitration agreement;
and (3) a refusal to arbitrate. 9 U.S.C. § 4; Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d
682, 687 (7th Cir. 2005). Federal policy strongly favors arbitration, and “once it is clear the
parties have a contract that provides for arbitration of some issues between them, any doubts
concerning the scope of the arbitration clause are resolved in favor of arbitration.” Miller v.
Flume, 139 F.3d 1130, 1136 (7th Cir. 1998). In this case, Scheurer does not dispute the
scope of the arbitration clause or that she has refused to arbitrate. But she disagrees that
Fromm can invoke the arbitration provision in her application agreement.
The fact that Fromm is not a party to the agreement would usually mean that Fromm
cannot invoke it. See Everett v. Paul Davis Restoration, Inc., 771 F.3d 380, 383 (7th Cir. 2014).
“However, the obligation to arbitrate a dispute is not always limited to those who have
personally signed an agreement containing such a provision.” Id. A nonparty may invoke an

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arbitration clause if the ordinary principles of state contract law permit it to do so. Arthur
Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009). Those principles include “assumption,
piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary
theories, waiver and estoppel.” Id. Here, Fromm contends that the principles of equitable
estoppel and third-party beneficiary entitle it to compel Scheurer to arbitrate her claims. The
court disagrees and will therefore deny Fromm’s motion to compel arbitration.
A. Equitable estoppel
The parties have not squarely addressed whether equitable estoppel is governed by
state law, federal law, or both. 1 The Supreme Court has held that state law generally applies,
Arthur Andersen, 556 U.S. at 631, but has not determined whether federal law applies as well,
see In re Apple iPhone Antitrust Litig., 874 F. Supp. 2d 889, 896 (N.D. Cal. 2012) (stating that
it is not clear whether Arthur Andersen meant to overrule federally created arbitration-byestoppel precedent). Other federal courts in Wisconsin have looked to both state and federal
law when considering whether to apply equitable estoppel in the context of a motion to
compel arbitration. See, e.g., Pagan v. Integrity Sol. Servs., Inc., 42 F. Supp. 3d 932, 934 (E.D.
Wis. 2014). Regardless of the law that applies, the result is the same: Scheurer is not
estopped from avoiding arbitration.
Beginning with Wisconsin law, the elements of equitable estoppel are: (1) action or
non-action; (2) on the part of one against whom estoppel is asserted; (3) which induces
reasonable reliance by the other, either in action or non-action; (4) which is to the relying
party’s detriment. Affordable Erecting, Inc. v. Neosho Trompler, Inc., 2006 WI 67, ¶ 33, 291 Wis.

1

Fromm cites only federal law in arguing that equitable estoppel applies, and Scheurer does
not address the issue.

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2d 259, 715 N.W.2d 620 (citations omitted). Nothing in the record suggests that Fromm
relied on (or even knew of) the fact that Scheurer had signed an agreement with an
arbitration provision when it accepted her assignment from Remedy. And even if the record
contained such evidence, Fromm has not shown how its reliance was reasonable, given that it
was not a party to the agreement. Thus, under state law, Scheurer would not be estopped
from refusing to arbitrate her claims.
Federal law compels the same result. The Seventh Circuit has applied equitable
estoppel to prevent nonparties from refusing to arbitrate when they knowingly seek the
benefits of a contract containing an arbitration clause. See Zurich, 417 F.3d at 688. But this
case involves a slightly different arrangement. Scheurer, a party to an agreement with an
arbitration provision, has refused to arbitrate her claims against a nonparty that is now trying
to invoke the arbitration provision. The Seventh Circuit holds that a plaintiff “cannot rely on
the contract when it works to its advantage, and repudiate it when it works to its
disadvantage.” Hughes Masonry Co. v. Greater Clark Cty. Sch. Bldg. Corp., 659 F.2d 836, 839
(7th Cir. 1981) (citations and internal quotation marks omitted). Thus, “[w]hen a plaintiff
relies on the terms of an agreement in its claims against the defendant, she will be equitably
estopped from repudiating the arbitration clause of the agreement upon which she relies.”
Masters v. Lowe’s Home Ctrs., Inc., No. 09-cv-255, 2009 WL 1657925, at *3 (S.D. Ill. June 11,
2009) (citing Hughes Masonry Co., 659 F.2d at 841).
In this case, Scheurer’s claims against Fromm arise under Title VII, not under the
application agreement. She is not alleging that Fromm breached the contract, nor do her
claims depend on the existence of an underlying contract. At first blush, the rule from Hughes
Masonry Co. does not apply: Scheurer is not relying on a contract when it works to her

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advantage, and then repudiating it when it works to her disadvantage. 659 F.2d at 839. But
Fromm presses the point a bit further, arguing that Scheurer’s claims will turn on her ability
to establish that Fromm is a joint-employer with Remedy. And the application agreement
could be relevant to that inquiry. Fromm therefore contends that it would be unfair for
Scheurer to argue that Fromm and Remedy are joint-employers for Title VII purposes, and
yet repudiate their ties for purposes of avoiding arbitration.
Fromm principally relies on decisions from other circuits that have applied an
“inextricably intertwined” standard to determine whether the doctrine of equitable estoppel
is available to a party who wants to compel arbitration. See, e.g., JLM Indus., Inc. v. StoltNielsen SA, 387 F.3d 163, 177 (2d Cir. 2004). 2 But courts that have adopted this standard
have cautioned that it is “often fact specific” and “differ[s] with the circumstances of each
case.” Smith/Enron Cogeneration Ltd. P’ship, Inc. v. Smith Cogeneration Int’l, Inc., 198 F.3d 88, 97
(2d Cir. 1999) (citation and internal quotation marks omitted). Indeed, those courts have
had “no occasion to specify the minimum quantum of ‘intertwined-ness’ required to support
a finding of estoppel.” JLM Indus., Inc., 387 F.3d at 177 (citations omitted). Despite different
phrasing, the “inextricably intertwined” approach that Fromm proposes differs little, if at all,
from the Seventh Circuit’s rule in Hughes Masonry Co.: the critical issue is whether a plaintiff’s
claims are connected to an underlying contract that contains an arbitration clause.
Scheurer’s application agreement is not intertwined with her Title VII claims. To
prevail in this case, Scheurer will have to establish that Fromm was her “employer,” as Title
VII defines the term. See 42 U.S.C. § 2000e(b). Scheurer’s application agreement could

2

Fromm misquotes JLM Industries in its brief and incorrectly cites the case as a Seventh
Circuit decision. See Dkt. 15, at 9.

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inform this inquiry, which “look[s] to the ‘economic realities’ of the relationship and the
degree of control the employer exercises over the alleged employee.” Knight v. United Farm
Bureau Mut. Ins. Co., 950 F.2d 377, 380 (7th Cir. 1991) (citations and internal quotation
marks omitted). 3 But the agreement would not definitively resolve the issue. And, ultimately,
Fromm’s liability in this case will turn on whether it discriminated against Scheurer on the
basis of sex, and on whether it retaliated against her, not on whether it breached a provision
of the application agreement.
Scheurer’s application agreement is not inextricably intertwined with her claims in
this case. Nor is Scheurer trying to take advantage of some parts of the agreement while
disavowing others. Under these circumstances, Scheurer is not equitably estopped from
refusing to arbitrate her claims against Fromm.
B. Third-party beneficiary
Fromm also seeks to compel arbitration under the theory of third-party beneficiary.
The court looks to state law to determine whether this theory allows Fromm to force
Scheurer to arbitrate her Title VII claims. See Cont’l Cas. Co. v. Am. Nat. Ins. Co., 417 F.3d
727, 734 (7th Cir. 2005).
Wisconsin law recognizes the doctrine of third-party beneficiary. See, e.g., Christnacht
v. Dep’t of Indus., Labor & Human Relations, 68 Wis. 2d 445, 228 N.W.2d 690, 695 (1975)
(citation omitted). For Fromm to qualify as a third-party beneficiary, the application
agreement must indicate that Remedy and Scheuer specifically intended the agreement to
3

The court would undertake a similar inquiry if Scheurer pursues a “joint-employer”
approach. See Tamayo v. Blagojevich, 526 F.3d 1074, 1088 (7th Cir. 2008) (“[A]n affiliated
corporation nevertheless may be considered an employer under Title VII, in addition to the
direct employer, if the affiliate directed the discriminatory act, practice, or policy of which
the employee is complaining.” (citations and internal quotation marks omitted)).

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benefit Fromm or a class to which Fromm belongs. See Milwaukee Area Tech. Coll. v. Frontier
Adjusters of Milwaukee, 2008 WI App 76, ¶ 20, 312 Wis. 2d 360, 752 N.W.2d 396. Intent can
be established by specific language in the application agreement or by the totality of the
circumstances. See Becker v. Crispell-Snyder, Inc., 2009 WI App 24, ¶¶ 11, 14, 316 Wis. 2d
359, 763 N.W.2d 192 (citations omitted).
In this case, the language of the arbitration clause states that Scheurer and
“Employer” agree to submit all claims arising out of or relating to Scheurer’s employment to
arbitration. Dkt. 15-2, at 7. But the agreement does not define “Employer,” which creates
uncertainty about whether the parties intended for the arbitration provision to apply to
Remedy’s clients. Although the term could refer to Remedy and its clients, other portions of
the application agreement contradict that reading. For example, Scheurer “agree[d] to have
any of the statements [in her application] checked by the Employer,” and she “authorize[d]
the Employer to contact any and all of [her] references.” Id. The point of a staffing agency is
to handle these sorts of tasks and then assign qualified candidates to positions for the
agency’s clients. Thus, it would be odd for an application agreement to authorize those
clients to conduct the same review that they pay Remedy to conduct. The contract also
specifically refers to Scheurer’s “employment at Remedy Intelligent Staffing,” id. at 6 (emphasis
added), which further suggests that “Employer” refers only to Remedy. Finally, the contract
states that if Scheurer believes that she has been sexually harassed “by a co-worker,
supervisor, agent of Remedy . . . or a customer,” then she should report it immediately. Id. at 7
(emphasis added). The addition of “customer” in this provision undermines Fromm’s
argument that the arbitration provision—which does not have the term—refers to Remedy

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and its clients. From the language of the contract, the court cannot conclude that the parties
intended for Fromm to be a third-party beneficiary of the application agreement.
Fromm also argues that the nature of Remedy’s business as a temporary staffing
agency means that virtually all of Scheurer’s disputes would involve Remedy’s clients.
According to Fromm, the totality of the circumstances therefore indicates that the parties
intended for the arbitration agreement to benefit a class that includes Fromm. But Fromm
has not identified evidence that supports this contention. As explained above, the language of
the contract does not suggest that Scheurer and Remedy meant for their agreement to apply
to Remedy’s clients. Like the application agreement, the employee handbook that Remedy
gave Scheurer uses the term “Employer” and fails to define the term. It also states that
Scheurer should contact the “President of the Employer (Mr. D. Stephen Sorensen)” as part
of the informal process for resolving grievances. Dkt. 15-3, at 2. Identifying a specific person
as “President of the Employer” undercuts the idea that “Employer” refers to Remedy and its
clients. The totality of the circumstances in this case does not support the conclusion that
Remedy and Scheurer intended for the application agreement to benefit a class that included
Fromm.
Because the record does not support a theory of equitable estoppel or third-party
beneficiary, the court will deny Fromm’s motion to compel arbitration.

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ORDER
IT IS ORDERED that defendant Fromm Family Foods LLC’s motion to compel
arbitration, Dkt. 14, is DENIED.
Entered August 18, 2016.
BY THE COURT:
/s/
________________________________________
JAMES D. PETERSON
District Judge

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