Hanc & Brubaker Holdings v. NXT LVL Servs.

• Decision Date: 27 January 2023
• Docket Number: 22 C 1526
• Court: U.S. District Court — Northern District of Illinois
• Parties: HANC & BRUBAKER HOLDINGS, et al., Plaintiffs, v. NXT LVL SERVICES, LLC, et al., Defendants.

HANC & BRUBAKER HOLDINGS, et al., Plaintiffs, v. NXT LVL SERVICES, LLC, et al., Defendants.

No. 22 C 1526

United States District Court, N.D. Illinois, Eastern Division

January 27, 2023

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

Hanc & Brubaker Holdings, LLC and several other corporate entities owned by Brian Hanc and Rockne Brubaker have sued Michael Walding, and three corporate entities owned by Walding, for fraudulently procuring consulting fees. The plaintiffs assert claims under the Illinois Consumer Fraud and Deceptive Practices Act (ICFA) and for fraudulent misrepresentation, unjust enrichment, conversion, and breach of contract. The defendants contend that all the plaintiffs' claims must be arbitrated pursuant to their consulting agreements. The defendants have moved to dismiss for improper venue or, in the alternative, to stay proceedings and compel arbitration. They also have moved in the alternative to dismiss the claims of plaintiff Parkcam Ecom, LLC, a non-signatory to the consulting agreement, for failure to state a claim. For the reasons stated below, the Court grants the defendants' motion to dismiss except with respect to Parkcam's claims.

Background

The plaintiffs allege that the defendants "engaged in a scheme" to fraudulently "induce prospective clients to pay large consulting fees." 2d Am. Compl. ¶ 241. The defendants purport to "acquir[e] and manag[e] ecommerce retail stores on Amazon and Walmart's internet platforms on behalf of investors," but they fail to do so. Id. ¶¶ 29, 31, 33-34, 241. This results in the stores being removed from Amazon or Walmart, but the defendants retain the fees. Id. ¶ 241. Except for Parkcam, each plaintiff is a signatory to an "E-Commerce Consulting Agreement" with Walding and one or more of his corporate entities. Id. ¶¶ 65, 153. The Agreements required the defendants to procure and maintain the plaintiffs' Amazon and/or Walmart e-commerce stores in exchange for a one-time consulting fee and the greater of $300 per month or thirty-five percent of the plaintiffs' net profit.

Pertinent to the defendants' motion, each Agreement states in section 13(E):

Dispute Resolution - Except where otherwise expressly set forth in this Agreement, any dispute or claim arising out of or relating to this Agreement shall only be resolved by binding arbitration. The arbitration of any dispute or claim shall be conducted in accordance with the American Arbitration Association ("AAA") rules, as modified by this Agreement, which shall take place in Miami-Dade County, Florida.

Id., Ex. 3-6 at 8, Ex. 7-9 at 6. In section 13(H) the Agreements further state, in relevant part:

Governing Law; Jurisdiction - This Agreement, the negotiations thereunder, and performance thereof shall be interpreted, construed and enforced in all respects in accordance with the laws of the State of Florida without reference to principles of conflicts of laws. Client hereby irrevocably consents to the personal jurisdiction of and agrees that the sole venue for any dispute arising in connection to this Agreement shall be the courts of competent jurisdiction (State and federal) located within Miami-Dade County, Florida. Client agrees not to commence or prosecute any such action, claim or proceeding other than in such aforementioned courts.

Id.

Parkcam did not sign a written agreement. Rather, Parkcam alleges it entered into two oral agreements with the defendants. In one alleged oral contract, the defendants agreed with Parkcam and plaintiff Hanc Holdings, LLC to transfer an aged e-commerce store to Parkcam after the theft of Hanc Holdings's store. Hanc Holdings is the owner of Parkcam, and Hanc is the sole member of both companies. The first oral agreement provided that the defendants would receive thirty percent of the store's profits. In the second alleged oral agreement, the defendants agreed to procure an ecommerce store for Parkcam after Walmart rejected plaintiff Redstone Ecom, LLC's store. Redstone is another company owned by Hanc Holdings with Hanc as the sole member. The defendants do not contend that either alleged oral agreement included an arbitration provision.

Discussion

The defendants contend that all the plaintiffs have agreed to arbitrate their claims in Florida under the Agreements, and they have moved to dismiss the plaintiffs' complaint for improper venue under Federal Rule of Civil Procedure 12(b)(3) or, in the alternative, to stay proceedings and compel arbitration. The defendants also contend that Parkcam is bound to the Agreements even though it did not sign a written agreement. The defendants have moved in the alternative to dismiss Parkcam's claims for failure to state a claim under Rule 12(b)(6).

A. Improper venue

Under the Federal Arbitration Act, a written arbitration agreement contained in a contract is "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. As such "whether the parties agreed to arbitrate" is determined by "ordinary state-law principles" governing contracts. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995); see also Scheurer v. Fromm Fam. Foods LLC, 863 F.3d 748, 752 (7th Cir. 2017) ("[S]tate law governs whether a contract with an arbitration agreement is enforceable[.]" (citing Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009))). "A court must enforce an arbitration clause where (1) there is a valid agreement to arbitrate, (2) the claims fall within the scope of the agreement, and (3) the opposing party refused to arbitrate." Rock Hemp Corp. v. Dunn, 51 F.4th 693, 702 (7th Cir. 2022).

Although the Agreements specify that Florida law applies, both parties have cited Illinois caselaw and cases from this district without mentioning Florida law or suggesting that the choice-of-law question is outcome-determinative on any relevant issue. The Court accordingly applies Illinois law "notwithstanding the choice-of-law provision in the parties' own agreement." Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, 809 (7th Cir. 2011) (applying Illinois law "to the question whether the parties agreed to submit disputes to arbitration" where the parties did not ask "to apply any law other than that of Illinois").

1. Agreement to arbitrate

The plaintiffs contend that the arbitration clause in section 13(E) and the forum selection clause in section 13(H) of the Agreements conflict, rendering the Agreements ambiguous regarding whether the parties agreed to arbitrate. "[W]hether a contract is ambiguous is a question of law." Cent. Illinois Light Co. v. Home Ins. Co., 213 Ill.2d 141, 154, 821 N.E.2d 206, 214 (2004).

"It is fundamental in contract construction that, if possible, effect must be given to all of the language so that provisions which appear to be conflicting or inconsistent may be reconciled and harmonized." In re Halas, 104 Ill.2d 83, 92, 470 N.E.2d 960, 964 (1984).

Courts have frequently held that "there is no irreconcilable inconsistency" between arbitration and forum selection provisions because "arbitration awards are not self-enforceable" and thus "the forum selection clause reasonably can be interpreted as dictating the location of any action that might be necessary after arbitration in order to enforce the award." Geldermann, Inc. v. Stathis, 177 Ill.App.3d 414, 421, 532 N.E.2d 366, 370 (1988) (citing Patten Sec. Corp. v. Diamond Greyhound & Genetics, Inc., 819 F.2d 400, 407 (3d Cir. 1987), abrogated on other grounds by Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271 (1988)); Johnson v. Waterstone Mortg. Corp., No. 19 C 0652, 2020 WL 7695430, at *2 (E.D. Wis. Jan. 7, 2020) ("Because it is possible to reconcile the [forum selection and arbitration] clauses without discarding one or the other, there is not ambiguity sufficient to nullify the parties' agreement to arbitrate."); Applications Software Tech. LLC v. Kapadia, No. 18 C 822, 2018 WL 3122173, at *3 (N.D. Ill. June 26, 2018) ("Since the provisions can be reconciled by so qualifying the forum-selection clauses, it is the Court's view that the arbitration provision should be enforced as more principal and specific.").

Similarly, in this case, the Agreements are not ambiguous because section 13(H) can be read in harmony with section 13(E) as providing the location for any action necessary to compel arbitration or enforce an arbitration award. Despite noting that "[c]ontract law . . . supports giving meaning to every clause of a contract," Pls.' Resp.

Br. at 5, the plaintiffs do not propose an alternative interpretation to reconcile the two provisions. The plaintiffs' contention that ambiguity should "be decided against the drafter of the contract," Id., is an interpretive doctrine only to be employed as a "last resort"; it does not apply in this case because the contract is unambiguous. Eckhardt v. Idea Factory, LLC, 2021 IL App (1st) 210813, ¶ 31, 193 N.E.3d 182, 195; see also ValuePart, Inc. v. Farquhar, No. 14 C 3004, 2014 WL 4923179, at *6 n.3 (N.D. Ill. Sept. 29, 2014) (rejecting the plaintiff's argument to apply the same rule where the court held that a contract's mandatory arbitration clause applied despite the presence of a forum selection clause). The Court accordingly finds that the plaintiffs who are signatories to the Agreements have agreed to mandatory arbitration.

2. Unconscionability

The plaintiffs also contend that the Agreements are unenforceable because they are unconscionable. Although the defendants argue that the issue of unconscionability should be decided by the arbitrator because the Agreements incorporate by reference the AAA rules, this Court has previously rejected this contention. See Taylor v. Samsung Elecs. Am Inc., No....