Bahoor v. Varonis Sys., Inc.

Decision Date28 December 2015
Docket NumberNo. 15 C 5490,15 C 5490
Citation152 F.Supp.3d 1091
Parties Sam Bahoor, Plaintiff, v. Varonis Systems, Inc., Defendant.
CourtU.S. District Court — Northern District of Illinois

Sam Bahoor, Chicago, IL, pro se.

Adam Carl Wit, Larry D. Robertson, Littler Mendelson, P.C., Chicago, IL, for Defendant.

Memorandum Opinion and Order

Honorable Edmond E. Chang, United States District Judge

Plaintiff Sam Bahoor alleges that Defendant Varonis Systems, Inc. lured him into accepting a job with false promises and later improperly fired him.1 Varonis now moves to compel arbitration, arguing that the parties' employment agreement mandates arbitration of Bahoor's claims. Varonis further requests that this Court dismiss Bahoor's complaint under Rule 12(b)(1) or in the alternative, stay the proceedings pending arbitration. In response, Bahoor argues that arbitration is not required because (1) the scope of the arbitration clause does not encompass his claims; (2) arbitration would be prohibitively expensive; and (3) Varonis waived its right to arbitrate. The Court holds that Bahoor's claims are arbitrable, so the case cannot proceed in court. As a formal matter, however, the Court will not enter an order compelling arbitration because the parties' contract mandates arbitration in New York—and only a district court in that forum can compel arbitration. Instead, the Court converts Varonis's motion into a motion to dismiss for improper venue under Rule 12(b)(3) and grants the dismissal.

I. Background

In evaluating a motion to dismiss for improper venue, the Court “takes all the allegations in the complaint as true unless contradicted by the defendant's affidavit and may examine facts outside the complaint.” Interlease Aviation Inv'rs II (Aloha) L.L.C. v. Vanguard Airlines, Inc. , 262 F.Supp.2d 898, 913 (N.D.Ill.2003) (citation omitted). It also “constru[es] all facts and draw[s] reasonable inferences in favor of the plaintiff [ ].” Faulkenberg v. CB Tax Franchise Sys., LP , 637 F.3d 801, 806 (7th Cir.2011).

This case stems from a soured employment relationship. In March 2014, Varonis Systems, an IT software company, allegedly began recruiting Sam Bahoor to work as a Channel Manager, which is like a sales representative. R. 1-1, Exh. 1, Compl. ¶¶ 13, 16.2 At the end of March, Bahoor interviewed in Chicago with Asaf Tsur, a director of Varonis's inside sales and telemarketing teams. Id. ¶ 19. During this meeting, Tsur allegedly made numerous promises about the position, including that (1) it would be a long-term role with room for growth; (2) annual compensation would include a $93,000 base salary and $62,000 commission; and (3) commission was based on a revenue target that was easily attainable (with a “98-100% certainty”). Id. ¶¶ 20-30. Although Bahoor was reluctant to leave his steady job in California, Tsur's assurances convinced him to accept the job in Chicago. Id. ¶¶ 29-30, 32.

Upon accepting the position, Bahoor signed an agreement entitled, “At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement.” Id. ¶ 33; R. 1-2, Exh. 2, Agreement. This Agreement provided that “all employment-related disputes ... arising out of, relating to, or resulting from my employment with the company or the termination of my employment with the company, including any breach of this agreement, shall be subject to binding arbitration ....” Id. ¶ 12(A). The arbitration provision included a comprehensive list of all arbitrable disputes, including “any statutory claims under local, state or federal law” and “any ... common law claims.” Id. And the Agreement also stated that “the Federal Arbitration Act shall continue to apply with full force and effect ....” Id.

Problems arose immediately after Bahoor started working. First, Bahoor discovered that his compensation was not based on revenue targets, as Tsur had originally described. Compl. ¶¶ 39-41. Instead, commissions were determined by metrics unrelated to revenue, such as the performance of an inside marketing team over which Bahoor had no influence. Id. Bahoor complained to his manager, Barbra Aboud, about this issue to no avail. Id. ¶¶ 47-49. A few months later, the company gave Bahoor a report showing a drop in performance with the inside telemarketing team; when Bahoor alerted management that the data in the report was incorrect, he was repeatedly ignored. Id. ¶¶ 51-62, 71-75. Bahoor began shifting his focus to improving the data and the telemarketing team's performance, an undertaking that prevented him from completing his actual responsibilities to manage reseller accounts. Id. ¶¶ 69-70. In early December 2014, Aboud and an HR representative let Bahoor know that his performance was declining. Id. ¶¶ 77-79. Bahoor believed that management based its conclusion on the inaccurate reports and erroneous data that he had repeatedly pointed out. Id. A few weeks later, Varonis fired Bahoor after just six months with the company. Id. ¶ 80.

Bahoor now alleges three causes of action: promissory estoppel, negligent misrepresentation, and breach of contract. Id. ¶¶ 81-114. In each of these three counts, Bahoor complains of similar underlying conduct: that Varonis induced Bahoor to accept a position by making false promises of long-term employment and commissions based on easily-attainable revenue targets. Id. ¶¶ 81-89; 92-102. Bahoor further alleges that Varonis relied on false data about his job performance. Id. ¶¶ 103-109. Finally, Bahoor alleges that Varonis fired him without good cause and breached the Agreement. Id. ¶¶ 110-114.

Bahoor filed the complaint in the Circuit Court of Cook County on May 19, 2015, but a few weeks later, Varonis removed the action to federal court. R. 1, Notice of Removal. Varonis now moves to compel arbitration based on the arbitration provision in the Agreement, and it also requests that this Court either dismiss the complaint under Rule 12(b)(1) or stay the action pending arbitration. R. 11, Def.'s Mot. to Compel. Bahoor opposes arbitration, arguing that (1) the scope of the arbitration clause does not encompass his claims; (2) the arbitration requirement is unenforceable because it would be prohibitively expensive; and (3) Varonis waived its right to arbitrate.

II. Legal Standard

Section 4 of the Federal Arbitration Act provides that if arbitration is proper, a court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed .” 9 U.S.C. § 4 (emphasis added). Interpreting this provision, the Seventh Circuit concluded that “where the arbitration agreement contains a forum selection clause, only the district court in that forum can issue a § 4 order compelling arbitration.” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lauer , 49 F.3d 323, 327 (7th Cir.1995) (emphasis added). In other words, [w]e cannot compel arbitration in a forum outside the Northern District of Illinois.” Ferenc v. Brenner , 927 F.Supp.2d 537, 542 (N.D.Ill.2013) (citing Merrill Lynch , 49 F.3d at 327 ). Normally, when arbitration is dictated, a court compels arbitration in that district and stays the court proceeding. 9 U.S.C. § 3 (“If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration … the court in which such suit is pending ... shall on application of one of the parties stay the trial of the action until such arbitration has been had ....”). But when a court is presented with a motion to compel arbitration in a different district, the proper action is to dismiss the complaint for improper venue under Rule 12(b)(3). See Ferenc , 927 F.Supp.2d at 542 (holding that claims were subject to arbitration and converting the motion to compel into a motion to dismiss for improper venue because the contract mandated arbitration in California); Faulkenberg , 637 F.3d at 808 (“under § 4 of the FAA, a district court cannot compel arbitration outside the confines of its district.”); Haber v. Biomet, Inc. , 578 F.3d 553, 558 (7th Cir.2009) (“When a complaint requesting arbitration is filed in the wrong forum, the appropriate response is for the opposing party to file a motion to dismiss, which should then be granted by the court.”).

Here, the arbitration clause in the Agreement between Bahoor and Varonis provides that “any arbitration will be administered … in New York County, New York.” Agreement ¶ 12(B). Neither party challenges the validity of this provision or addresses the limitation that this Court may not compel parties to arbitrate outside this district. Regardless, “the central question in this case is the same whether we proceed under § 4 of the FAA or Rule 12(b)(3): did the plaintiff[ ] agree to arbitrate the claims asserted in [his] complaint?” Ferenc , 927 F.Supp.2d at 542. The Court, therefore, will proceed as if it is deciding a motion to compel arbitration. If the Agreement's arbitration provision is valid and the parties' dispute falls within its scope, the Court will convert Varonis's motion to compel arbitration and dismiss under Rule 12(b)(1) into a motion to dismiss for improper venue under Rule 12(b)(3). Id.3

III. Analysis

The Federal Arbitration Act applies to the Agreement between Bahoor and Varonis, Agreement ¶ 12(A), and provides that [a] written provision ... to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Under the FAA, if the parties have a valid arbitration agreement and the asserted claims in a lawsuit are within its scope, the arbitration requirement must be enforced. 9 U.S.C. §§ 3 -4 ; Sharif v. Wellness Int'l Network, Ltd. , 376 F.3d 720, 726 (7th Cir.2004) (citing Kiefer Specialty...

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