22 F. Supp. 3d 880
N.D. Ill.2014Background
- Paragon Micro sues Bundy and NJB for CA/Illinois claims related to data destruction and misappropriation of confidential information.
- Bundy = Paragon Account Representative; NJB incorporated late 2008 to perform Bundy’s duties.
- Independent Contractor Agreement between Paragon and Bundy includes confidentiality, no-solicitation, and arbitration provisions.
- Arbitration clause requires final and binding arbitration in Chicago under AAA rules.
- Plaintiff alleges Bundy diverted sales to NJB, falsified records, deleted Paragon data, and misused confidential information beginning December 2013.
- Plaintiff terminated Bundy/NJB for cause January 3, 2014, and suit was filed January 13, 2014; Defendants moved to compel arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity and enforceability of the arbitration clause | Arbitration survived termination; or termination negates clause. | Arbitration clause is valid and survives or post-termination. | Arbitration provision is valid and enforceable. |
| Whether NJB may enforce the arbitration clause | NJB is non-signatory; cannot compel arbitration. | Equitable estoppel/agency/third-party beneficiary allow NJB to enforce. | Equitable estoppel applies; NJB may enforce arbitration. |
| Scope of the arbitration provision | Claims arise post-termination and fall outside arbitration. | Clause broad enough to cover all disputes with origin in the Agreement. | All claims, including statutory ones, fall within arbitration scope. |
| Waiver of the right to arbitrate | Defendants waived by engaging in litigation steps. | Filed motion to compel within nine days; repeatedly sought arbitration. | No waiver; arbitration right not waived. |
| Whether to compel arbitration and stay proceedings | Suits should proceed in court; arbitration not appropriate. | FAA requires staying case pending arbitration. | Arbitration compelled and proceedings stayed. |
Key Cases Cited
- Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d 682 (7th Cir. 2005) (threshold for compelling arbitration under FAA)
- James v. McDonald’s Corp., 417 F.3d 672 (7th Cir. 2005) (state contract law governs formation; FAA applies to non-signatories)
- Gore v. Alltel Comm’ns, LLC, 666 F.3d 1027 (7th Cir. 2012) (arbitration clause language broadness creates presumption of arbitrability)
- Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907 (7th Cir. 1999) (language like ‘arising out of’ or ‘relating to’ expands arbitrability)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (U.S. Supreme Court 1983) (strong policy favoring arbitration; doubts resolved in favor of arbitration)
- Abbott Labs. v. Qiagen Gaithersburg, Inc., 2010 WL 1539952 (N.D. Ill. 2010) (survivability of arbitration provisions post-termination)
- St. Mary’s Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., 969 F.2d 585 (7th Cir. 1992) (waiver analysis factors for arbitration rights)