Ace Hardware Corp. v. Advanced Caregivers, LLC
| Decision Date | 18 October 2012 |
| Docket Number | Case No. 1:12-cv-01479 |
| Parties | ACE HARDWARE CORPORATION, Petitioner, v. ADVANCED CAREGIVERS, LLC d/b/a HIALEAH ACE HARDWARE, and WILLIAM BLOOD WORTH, On Behalf of Themselves and All Others Similarly Situated, Respondents. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
Respondents, Advanced Caregivers, LLC d/b/a Hialeah Ace Hardware and William Bloodworm, recently commenced a class-action lawsuit against Petitioner, Ace Hardware Corporation ("Ace"), in the United States District Court for the Southern District of Florida. The lawsuit in Florida alleges Ace defrauded Respondents, and others similarly situated, in connection with the decision to acquire and develop Ace franchises. Ace demanded Respondents submit their disputes to arbitration in accordance with the terms of the parties' purported arbitration agreements. Respondents refused the demand to arbitrate and persisted in their lawsuit. Then, Ace filed a Petition to Compel Arbitration pursuant to Section 4 of the Federal Arbitration Act, 9 U.S.C. § 4, in this District. Ace's Motion to Compel Arbitration is fully briefed and ripe for ruling.
Reineke v. Circuit City Stores, Inc., No. 03-CV-3146, 2004 WL 442639, at *1 (N.D. Ill. March 8, 2004) (citations omitted). Ace is a retailer-owned cooperative of hardware stores. (Pet'r's Mem. at 2.) There are over 4,400 independent Ace retailers in the United States, operated by 3,000 individual members. (Id.) Each of the individual members executes both an Ace Hardware Membership Agreement ("Membership Agreement") and an Ace Brand Agreement ("Brand Agreement") in order to operate an Ace store. (Id.) The Membership Agreement grants signees membership in Ace's cooperative, which permits members to purchase goods and services from Ace. (Id.) The Brand Agreement enables members to operate a retail store and use Ace's trademarks. (Id.)
In October 2008, Respondents contacted Ace regarding franchise opportunities. (Resp'ts' Resp. at 1.) After exchanging various documents and information, Ace sent Respondents both the Brand and Membership Agreements. (Id.) On January 8, 2009, Respondents signed franchise documents, including the Brand Agreement, Membership Agreement, and a Capital Stock Subscription. (Id.) After signing, Respondents returned the Agreements to Ace, along with the required $5,000.00 fee. (Id.) None of the Agreements signed by Respondents at this time contained an arbitration provision. ( Ace sent Respondents a letter, dated January 28, 2009, "tentatively approv[ing]" the Membership Agreement contingent upon receipt of further documentation. (Resp'ts' Resp. at 1.) Ace provided Respondents with Formal Approval of their membership on February 19, 2009. (Id.) On February 25, 2009, Ace provided Respondents with the fully executed Brand and Membership Agreements. (Id. at 1-2.)
In a letter, dated May 26, 2009, Ace notified Respondents that the Brand and Membership Agreements contained an error regarding the address of Respondents' store. (Id. at 2.) The letter from Ace provided: (Id. Ex. 4.) In order to correct the error in the previous Agreements, Ace asked Respondents to sign revised Brand and Membership Agreements. (Id. at 2.) The second set of Agreements did not include information regarding Ace's approval of the Respondents' franchise. (Id.) The actual location of the store never changed; but, rather, the first set of Agreements identified the wrong street address. (Id.) Respondents signed the second set of Agreements on June 16, 2009, after the opening of the new store. (Id.)
Besides the change in the store address, apparently unbeknownst to Respondents, the second set of Brand and Membership Agreements from Ace also contained arbitration provisions, which were not included in the first set of Agreements. (Id. at 3.) Additionally, the second set of Agreements also eliminated the provision listed in Article V(l)(b) of the first Brand Agreement, which allowed Ace to bring any dispute, arising out of the relationship, in an Illinois court. (Id. Ex 1A, IB, IE.) Though the first set of Agreements, signed on January 8, 2009, did not include arbitration clauses, Ace submits that it began regularly including arbitration clauses in its agreements on March 26, 2009. (Id. at 3.) On January 6, 2012, Respondents filed the underlying action in Florida, on behalf of themselves and a putative nationwide class, alleging Ace defrauded them in connection with Respondents' decision to acquire an Ace franchise. (Pet'r's Mem. at 3.) Ace claims all of the allegations contained inRespondents' complaint fall within the arbitration provisions found in the second set of Agreements and now seeks to compel arbitration. (Id. at 4.)
Congress enacted the Federal Arbitration Act ("FAA") to "reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts." E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 288-89 (2002) (Waffle House) (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)). When a contract contains an arbitration provision, the provision "shall be valid, irrevocable, and enforceable, save upon grounds as exist at law or equity for the revocation of any contract." 9 U.S.C. § 2. "The FAA provides for stays of proceedings in federal district courts when an issue in the proceeding is referable to arbitration, and for orders compelling arbitration when one party has failed or refused to comply with an arbitration agreement." Waffle House, 534 U.S. at 289.
The Supreme Court has stated, "[f]here are two types of validity challenges under § 2 [of the FAA]: "One type challenges specifically the validity of the agreement to arbitrate," and "[t]he other challenges the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid." Buckeye Check Cashing Inc. v. Cardegna, 546 U.S. 440, 444 (2006). "Thus, a party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate." Rent-A-Cenier, West, Inc. v. Jackson, 130 S. Ct. 2772 (2010). Furthermore, "[i]f a party challenges the validity under § 2 [of the FAA] of the preciseagreement to arbitrate ... the federal court must consider the challenge before ordering compliance with the agreement under § 4." Id.
When the making of the arbitration agreement is "in issue, the court shall proceed summarily to a trial thereof." Id. The FAA does not identify an evidentiary standard a party seeking to avoid compelled arbitration must meet, however, the evidentiary standard employed by most courts is similar to the standard used in deciding motions for summary judgment under Fed. R. Civ. P. 56. Van Tasse II v. United Marketing Group, LLC, 795 F. Supp. 2d 770, 787 (N.D. Ill. 2011) (Van Tasse II). Accordingly, "[t]he party opposing arbitration must identify a triable issue of fact concerning the existence of the agreement in order to obtain a trial on the merits of the contract." Id. (quoting Tinder v. Pinkerton Security, 305 F.3d 728, 735 (7th Cir. 2002) (Tinder)). Similar to summary judgment, when a court decides whether there is a genuine issue of material fact for trial, the evidence of the party opposing the compelled arbitration "is to be believed and all justifiable inferences are to be drawn in its favor." Id. (internal quotations and citations omitted). Arbitration cannot be avoided, however, "by generally denying the facts upon the right to arbitrate rests; the party must identify specific evidence in the record demonstrating a material factual dispute for trial." Id. (citation omitted).
Ace contends Respondents must be compelled to arbitrate based on the arbitration provisions found in the second set of Agreements signed by Respondents on June 16, 2009. (Pet'r's Mem. at 1-2.) Ace points to the fact that both of these Agreements contain mandatory arbitration clauses, which cover:
[a]ny dispute, controversy or claim arising out of or relating to: a) this Agreement or any other agreement between the Company and the Member ... or b) the relationship between Company and member . . . shall be settled by arbitrationadministered by the American Arbitration Association in accordance with its then current commercial arbitration rules.
(Id. at 2-3.) Ace contends that because Respondents' allegations in the underlying suit in Florida arise out of their relationship, arbitration is required.
The crux of Respondents' position, however, is that they were unaware that they were agreeing to arbitration when they received the second set of Agreements, after executing a first set of agreements, which lacked an arbitration clause, and that, therefore, there never was an agreement between the parties to arbitrate. Respondents propose one of two scenarios transpired. First, Ace, upon discovering the address error, might have simply unintentionally sent Respondents a second set of Agreements with arbitration clauses, unwittingly sending Respondents their updated "form" agreements rather than the agreements the...
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