The U.S. Court of Appeals for the Seventh Circuit recently held that state law governs whether a contract’s arbitration clause is binding on non-signatories. The dispute arises from a consumer protection action filed by the plaintiff in response to a spam text message he received promoting a Subway sandwich. Subway sought to compel arbitration of the action based on the arbitration clause in two cellphone contracts between T-Mobile and plaintiff’s mother. Although plaintiff was an authorized user under his mother’s account, plaintiff never signed and was not otherwise a party to the T-Mobile agreements. Applying federal law, the district court dismissed plaintiff’s action and compelled arbitration based on principles of equitable estoppel. The Seventh Circuit reversed, however, finding that state law estoppel applied and that Subway could not prove that it detrimentally relied on plaintiff’s statements or conduct as it relates to the T-Mobile arbitration clauses.

Warciak v. Subway Restaurants, Inc., No. 17-CV-01956 (7th Cir. Jan. 25, 2018)