California Federal Court Schmears Job Applicant’s FCRA Claims into Arbitration and Stay

Trina Davis brought both individual and putative class claims against Einstein Noah Restaurant Group, Inc. (herein “Einstein”), the parent company of popular bagel chain Noah’s Bagels, and Caribou Coffee Company, Inc. She alleged the companies violated the Fair Credit Reporting Act and related California statutes, arguing the consumer report disclosure form she signed to complete her employment application contained provisions that ran afoul of Section 1681b of the FCRA. The Northern District of California granted Einstein’s motion to compel arbitration of the claims against Einstein, finding that Davis signed an arbitration clause that punted pertinent questions—like the enforceability and scope of that clause—to the arbitrator’s judgment. While the Court declined to push her claims against Caribou to arbitration, it also stayed those claims pending the outcome of her arbitration with Einstein. The Court also dismissed Davis’s putative class claims because she did not oppose their dismissal in her opposition papers.

The dispute centered around Davis’s application for employment at a Noah’s Bagels location. When filling out the application, Davis first signed a “Disclosure of Procurement of Consumer Report” form. Five days later, as she awaited a hiring decision, she signed an arbitration agreement, which contained a clause delegating “the enforceability, scope of arbitrability, and all other questions” to the arbitrator. The Court’s order addressed three issues: (1) Did Davis consent to arbitrate claims that accrued before she signed the arbitration agreement? (2) Did the delegation clause “clearly and unmistakably” delegate arbitrability to the arbitrator? (3) Could Caribou compel arbitration even though it was not a party to the arbitration agreement between Einstein and Davis?

First, the Court held that “[w]hen Ms. Davis maintains she did not consent to arbitrate claims that had accrued before the arbitration agreement was signed, she is arguing about the reach or scope of the agreement, not whether she agreed to arbitrate.” Finding that Davis indeed consented to arbitrate, the Court concluded her claim challenged the scope of arbitration, not consent. The Court next held that the delegation clause made “explicit reference to ‘the scope of arbitrability,’” and that that explicit reference captured questions of whether the agreement applied to claims accruing prior to its execution. Thus, even though Davis signed the arbitration agreement after the consumer report disclosure, the arbitration agreement worked backwards to capture claims that developed before its signing.

Caribou was less successful in its attempts at getting the claims against it into arbitration. Because it did not have an arbitration agreement with Davis, Caribou attempted to compel arbitration through “equitable estoppel.” Equitable estoppel allows a non-signatory (Caribou) to an arbitration agreement to compel arbitration against a signatory (Davis) in two situations: (1) where a signatory relies on the terms of the contract in asserting its claims against the non-signatory, or the claims are intertwined with the underlying contract; or (2) where a signatory alleges substantially interdependent and concerted misconduct by the non-signatory and another signatory and the allegations of interdependent misconduct are connected with the obligations of the underlying agreement. The purpose of equitable estoppel is to prevent a party from claiming the benefits of a contract while attempting to avoid the contract’s obligations.

The Court held that even though Davis’s claims were arguably related to her employment, which the arbitration agreement governed, her claims against Caribou were not sufficiently connected to her claims against Einstein to justify compelling arbitration of the claims against Caribou. The Court reasoned that Davis was not relying on the terms of the arbitration agreement to bring her claims either, since her claims were based on consumer protection statutes and unfair competition law. Further, even though Davis asserted identical allegations against both Einstein and Caribou, and referred to both parties collectively as “defendants,” the Court noted that “mere allegations of collusive behavior” between signatories and nonsignatories was insufficient to compel arbitration. The Court did, however, stay Davis’s claims with respect to Caribou pending the completion of arbitration with Einstein because “considerations of economy and efficiency” led the Court to prefer a stay.

The case serves as a reminder of the power of arbitration clauses. When enforceable, they can bind signatories to arbitrate claims that developed before the parties ever agreed to arbitration. However, courts hesitate to wield the broad power of arbitration over nonsignatories like Caribou.