i3 Brands, Inc. v. CDK Glob., LLC (In re Dealer Mgmt. Sys. Antitrust Litig.)
| Decision Date | 20 February 2020 |
| Docket Number | Case No. 18-cv-864 |
| Parties | IN RE DEALER MANAGEMENT SYSTEMS ANTITRUST LITIGATION, MDL 2817 This document relates to: i3 Brands, Inc. et al. v. CDK Global, LLC, et al., No. 1:19-cv-1412 |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant Reynolds and Reynolds' motion to dismiss in favor of arbitration or in the alternative to dismiss under Rule 12(b)(6) [601]. Also before the Court is Defendant CDK's motion to stay [605]. For the reasons stated below, the Court finds that Plaintiffs and Reynolds delegated to an arbitrator the question of arbitrability of Plaintiffs' claims against Reynolds. Reynolds' motion to dismiss [601] is denied without prejudice at this time, but Plaintiffs' claims against Reynolds are stayed pending the outcome of arbitration. The Court also grants CDK's motion [605] to stay. This case is set for further status on March 9, 2020, at 10:00 a.m. At least three days prior to the status, the parties are instructed to file a joint status report updating the Court on the parties' agreement (or lack thereof) regarding the location of the arbitration. The parties are also instructed to file a joint status report within 7 days after the arbitrator issues a final decision, after which the Court will set this case for a further status hearing.
The Court has recounted the background of this case in numerous orders and recites here only the facts relevant to resolving the pending motions. Defendants CDK Global, LLC ("CDK") and Reynolds and Reynolds Company ("Reynolds") provide Dealer Management System ("DMS") software and services to automobile dealerships throughout the United States, including in Illinois. [828] at ¶¶ 17-18.2 In addition to providing DMS services, CDK and Reynolds also provide data integration services ("DIS") indirectly to dealerships throughout the United States, including in Illinois. Id. Plaintiff i3 Brands is a technology-based corporation that has developed a portfolio of entities specializing in software and data-driven solutions in the automotive industry. Id. at ¶ 13. Plaintiff PartProtection is a wholly owned subsidiary of i3 Brands that created and sells a point-of-sale product that allows motorists to extend the warranty coverage for the Original Equipment Manufacturer ("OEM") parts on their cars. Id. at ¶ 14. i3 Brands is the current owner of Plaintiff PartProtection, LLC, and the former owner of TradeMotion, LLC and Parts.com (two automotive software businesses) and the trade name "PartShield," all of which i3 Brands sold to Reynolds in April 2017. Id. at ¶¶ 15-17. Plaintiffs bring this action against Defendants CDK and Reynolds for alleged violations of the Sherman Act and state antitrust and consumer protection laws, and for tortious interference with prospective economic advantage. Id. at ¶¶ 39-44. Plaintiffs allege that Defendants unlawfully colluded and conspired to restrain and/or eliminate competitionby charging supracompetitive prices in the markets for DMS software services and DIS. Plaintiffs also allege that Reynolds' actions in particular caused the value of TradeMotion, Parts.com, and the trade name "PartShield" to drop before Reynolds purchased them from i3 Brands in 2017. Id. at ¶ 8-12.
Reynolds argues that arbitration clauses in three contracts require arbitration of Plaintiffs' claims.3 The first contract is the Reynolds Interface Agreement, through which PartProtection joined Reynolds' Certified Interface ("RCI") program and was granted access to Reynolds' DMS. The arbitration provision in PartProtection's Reynolds Interface Agreement provides, in relevant part, that:
[A]ny dispute, claim, question or disagreement arising from or relating to this Agreement or the alleged breach thereof * * * shall be finally settled by binding arbitration, before a single arbitrator, administered by the American Arbitration Association * * * in accordance with the provisions of its Commercial Arbitration Rules. The location where the arbitration will be held, the individual who will serve as the arbitrator, and the rules under which the arbitration will be conducted will be determined by mutual agreement of the parties. If the parties are unable to agree on any such matters, then those matters upon which the parties are unable to agree will be determined by the AAA in its sole and absolute discretion.
[602-2] at 17-18.
Second, the Asset Purchase Agreement through which Reynolds acquired i3 Brands's TradeMotion and Parts.com business lines and "PartShield" trade name in 2017 contained an arbitration clause, which provides that:
In the event of any dispute, claim, or disagreement arising out of, connected with, or relating in any way to this Agreement (including its negotiation, performance, non-performance, interpretation, termination or breach, or the relationship betweenthe Parties established by this Agreement) (a "Dispute"), then either Party may submit the Dispute to binding arbitration administered by the American Arbitration Association ("AAA") in accordance with the provisions of its Commercial Arbitration Rules then currently in effect (the "AAA Rules") * * *.
[602-3] at 41.
Third, the Reseller Agreement by which Reynolds remarketed TradeMotion's product prior to Reynolds' acquisition of that business contains an arbitration clause, which provides that:
[U]pon notice by either party to the other, all such disputes, claims, questions or disagreements shall be finally settled by binding arbitration, before a single arbitrator, administered by the American Arbitration Association * * * in accordance with the rules and provisions of American Arbitration Association.
[827-3] at 14.
In light of these provisions, Reynolds has filed a motion to dismiss in favor of arbitration, or in the alternative, to dismiss under Rule 12(b)(6). See [601]. CDK has filed a motion to stay the proceedings against it while the claims against Reynolds are being arbitrated, or in the alternative, to dismiss certain claims against CDK. See [605].
The FAA governs questions of arbitrability in both federal and state courts. Jain v. de Mere, 51 F.3d 686, 688 (7th Cir. 1995). The FAA reflects a "liberal federal policy favoring arbitration," AT & T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1745 (2011) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)), and operates to place arbitration agreements on the same footing as other contracts and ensure that courts enforce agreements to arbitrate, Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, (1991); Dean Witter Reynolds v. Byrd, 470 U.S. 213, 219-20 (1985). Section 2 of the FAA provides that an arbitration clause in "a contract evidencing a transaction involving commerce * * * shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocationof any contract." 9 U.S.C. § 2. Courts are to uphold and enforce applicable arbitration agreements according to their terms unless they are invalidated by "generally applicable contract defenses, such as fraud, duress, or unconscionability." Concepcion, 131 S.Ct. at 1746 (quoting Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)).
When parties have signed an arbitration agreement, the only questions a court may properly decide are threshold questions of substantive arbitrability: whether the parties agreed to arbitrate a particular issue. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). These threshold questions of substantive arbitrability include: (1) whether the parties are bound by a given arbitration agreement; and (2) whether an arbitration provision in a binding contract applies to a particular type of controversy. Id. at 84. The FAA "establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone, 460 U.S. at 24-25.
The FAA permits a federal district court to compel arbitration when there is: (1) a written agreement to arbitrate; (2) a dispute covered by or within the scope of a valid arbitration agreement; and (3) a refusal to arbitrate. Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d 682, 687 (7th Cir. 2005). Parties may only be compelled to arbitrate those issues they have agreed to arbitrate. Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907, 909 (7th Cir.1999) (quoting United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960)). If the Court is satisfied that the parties agreed to arbitrate the issues presented, it must promptly compel arbitration. 9 U.S.C. § 4. The party seeking to invalidate or oppose the arbitration agreement bears the burden of demonstrating that the arbitration agreement is unenforceable and that the claims are unsuitable for arbitration. See Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91-92 (2000). Once a court is satisfied with its determination that the parties have agreed toarbitrate the issues at hand, the court must compel arbitration and "shall on application of one of the parties stay the trial of action until such arbitration has been had in accordance with the terms of the agreement." 9 U.S.C. § 3. A request for arbitration "should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." United Steelworkers of Am., 363 U.S. at 582-83.
Reynolds argues that all Plaintiffs signed arbitration agreements that delegate arbitrability issues to an arbitrator. Specifically, Plaintiff PartProtection signed the Reynolds Interface Agreement; Plaintiff i3 Brands signed the Asset Purchase Agreement; and TradeMotion—at the time a subsidiary of i3 Brands—signed the Reseller Agreement. Each of these contracts contains an...
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