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Rosenblum v. Limited

August 06, 2002


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 01 C 6441--Suzanne B. Conlon, Judge.

Before Ripple, Diane P. Wood and Evans, Circuit Judges.

The opinion of the court was delivered by: Ripple, Circuit Judge.

ARGUED MAY 29, 2002

Michael H. Rosenblum sold his travel publication business to in July 2000. Under the terms of an employment agreement executed at the time of the sale, Mr. Rosenblum continued to work at his former company. The agreement governing the sale required that a payment be made in December 2000. When that payment was not made, Mr. Rosenblum brought this action against, Ltd.,, Inc. and Bill Kerby (collectively "Travelbyus") *fn1 for breach of contract and fraud. The district court determined that this dispute was governed by an arbitration clause in the employment agreement and granted Travelbyus' Rule 12(b)(6) motion to dismiss. Mr. Rosenblum now appeals from that dismissal. He submits that the arbitration clause in the employment agreement does not govern this dispute because the disagreement arose solely under the acquisition agreement governing the purchase and sale of Mr. Rosenblum's business. For the reasons set forth in the following opinion, we reverse the judgment of the district court and remand this case for proceedings consistent with this opinion.


A. Facts

Michael H. Rosenblum was the principal owner of Muffin Communications, Ltd. Muffin was a travel-related media business that, among other things, produced a travel magazine. In the spring and summer of 2000, Mr. Rosenblum negotiated the sale of Muffin to Travelbyus, a Canadian corporation that operates a travel-related website. Mr. Rosenblum agreed to sell Muffin to Travelbyus for a total price of $7 million; this agreement was memorialized in a contract that was executed on July 20, 2000 ("Acquisition Agreement").

The Acquisition Agreement provided that Mr. Rosenblum was to receive a total of $7 million in cash and Travelbyus stock in exchange for Muffin. Mr. Rosenblum received $300,000 in cash at the closing and was due to receive the balance on December 15, 2000. According to the Agreement, Mr. Rosenblum was to receive one million shares of Travelbyus stock on December 15. At the time the agreement was executed, the stock was trading around $6.70 per share. The Agreement provided that, if the stock fell below $6.70 per share, Mr. Rosenblum would receive a combination of cash and stock equal to $6.7 million on December 15. The contract left the precise combination of cash and stock to Travelbyus' discretion.

As a condition precedent to the Acquisition Agreement, the parties also executed the Employment Agreement on July 20, 2000. Under the terms of that agreement, Mr. Rosenblum agreed to work for Travelbyus in the position of Senior Vice-President of Muffin, which continued its corporate existence after the sale to Travelbyus. In that capacity Mr. Rosenblum would develop travel-related content for Travelbyus and receive a salary of $125,000 per year. The Employment Agreement included a broad arbitration clause. The arbitration clause, in pertinent part, states: "Except for any matters for which this Agreement expressly provides otherwise, any matter in dispute under or relating to this Agreement shall . . . be finally resolved by binding arbitration." R.12, Ex.B § 15.

Both the Acquisition Agreement and the Employment Agreement contain merger clauses. Article 1.4 of the Acquisition Agreement states: "This Agreement together with the other agreements and documents to be delivered pursuant to this Agreement constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersede all prior agreements . . . whether oral or written. . . ." R.3, Ex.A art. 1.4. The Employment Agreement provides:

This Agreement constitutes and expresses the whole agreement of the parties hereto with respect to the employment of the Executive by the Company and with respect to any matters or things herein provided for or hereinbefore discussed or mentioned with reference to such employment. All promises, representations, collateral agreements and understandings relative thereto not incorporated herein are hereby superseded and cancelled by this Agreement. R.12, Ex.B § 19.

Both contracts also include non-compete agreements, which prevent Mr. Rosenblum from competing with Travelbyus for two years after his employment ceases.

In the months following the execution of the contracts, Travelbyus' stock decreased significantly in value. On December 15, 2000, when Travelbyus was required to make the final payment to Mr. Rosenblum, its stock was trading at far less than the $6.70 per share price at which it was valued in the summer of 2000. Travelbyus failed to make ...

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