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Midwest Financial Holdings, LLC v. P&C Insurance Systems

December 7, 2007

MIDWEST FINANCIAL HOLDINGS, LLC, RICK VOGL, AND MAX CARNEY, PLAINTIFFS,
v.
P&C INSURANCE SYSTEMS, INC., DEFENDANT.



The opinion of the court was delivered by: Jeanne E. Scott, U.S. District Judge

OPINION

This cause is before the Court on Defendant's Motion to Dismiss and Compel Arbitration (d/e 9) and Plaintiffs' Response to Defendant's Motion to Dismiss and Compel Arbitration (d/e 11). For the reasons stated below, the Motion is denied.

FACTS

Plaintiff Midwest Financial Holdings, LLC (Midwest) sells insurance products throughout the country.*fn1 Plaintiff Max Carney works as Midwest's Chief Executive Officer, and Plaintiff Rick Vogl is a Midwest employee. Defendant P&C Insurance Systems, Inc. (PCIS) develops and licenses computer software products.

On October 8, 2003, Midwest entered into Software License and Software Maintenance Agreements (the Agreements) with PCIS. See Defendant's Motion to Dismiss and Compel Arbitration, Exhibit A, part 1, Software License Agreement, part 3, Software Maintenance Agreement. Under the Software License Agreement, PCIS granted Midwest a license to use its "MPS/Worker's Comp" program, described as a "client/server-based system for corporate workman's compensation applications." Id. at part 2, page 10. Under the Software Maintenance Agreement, PCIS agreed to "perform all reasonably necessary maintenance services to the System (including adjustments, repairs and replacements) caused by normal wear and tear and/or defects in workmanship, to keep the System in reasonable working order." Id. at part 3, page 1. Carney signed the Agreements on behalf of Midwest, and PCIS's CEO, Michael Loizou, signed for PCIS. Id. at part 1, Software License Agreement, page 9 & part 3, Software Maintenance Agreement, page 6.

PCIS advertises its products on a company web site. At some point, PCIS posted an endorsement, attributed to Carney, of its products and services. Carney did not consent to this endorsement, and Plaintiffs allege it was false. PCIS also posted an undated press release containing another endorsement, attributed to Vogl. This endorsement stated:

According to Rick Vogl, IT coordinator at Midwest Insurance Companies, "We have really benefitted from PCIS' integration with ImageRightTM. All our workflow is automated. Incoming mail, faxes and emails are indexed and automatically assigned to claims for underwriting task lists. There is no need to touch or handle paper."

See Complaint, at 3. Plaintiffs alleges this endorsement, and an identical one included in a PCIS Spring 2005 newsletter, are false. Carney and Midwest's counsel wrote letters to PCIS requesting that it remove all references to Midwest and its employees from marketing materials, but PCIS did not comply.

On June 18, 2007, Plaintiffs filed their Complaint, which raises four counts, two of which arise under federal law and two of which are brought as supplemental claims. In Count I, Midwest alleges that PCIS violated the Lanham Act by using and continuing to use Midwest's trademark in connection with goods and services offered in interstate commerce without permission. See 15 U.S.C. § 1125(a). In Count II, Midwest alleges that PCIS's use of its name and trademark without permission violated the Illinois Uniform Deceptive Trade Practices Act. See 815 ILCS 510/1, et seq. In Count III, Vogl raises a common law misappropriation of identity claim against PCIS. In Count IV, Carney also alleges a common law misappropriation of identity claim against PCIS.

PCIS has moved to dismiss the Complaint for lack of jurisdiction under Federal Rule of Civil Procedure 12(b)(1), arguing that Plaintiffs are bound to pursue their claims in arbitration only. See Defendant's Motion to Dismiss and Compel Arbitration, at 1. The Agreements contain nearly identical arbitration clauses:

Governing Law; Forum; Arbitration. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of law or choice of law (including international law). Any controversy, dispute or claim arising out of or relating to this Agreement (including, without limitation, whether a controversy, dispute or claim is subject to arbitration), or the breach thereof, shall be resolved by arbitration under the Commercial Rules of the American Arbitration Association. The arbitration will take place in New York, New York, U.S.A. The arbitration decision and award shall be final and binding and not subject to review in any court of law, and may be entered in any court of competent jurisdiction. Service of a petition to confirm the arbitration award may be made by Federal Express or another express courier service to the other party in accordance with Section [113.6 of the Software License Agreement and 9.6 of the Software Maintenance Agreement] hereof.

Id. at Exhibit A, part 1, Software License Agreement, ¶ 13.12 & part 3, Software Maintenance Agreement, ¶ 9.12. PCIS also requests an Order under the Federal Arbitration Act (FAA) compelling Plaintiffs to arbitrate their claims. Plaintiffs argue that the arbitration clauses do not apply to their claims.

ANALYSIS

PCIS's Motion raises a complicated set of issues under the FAA. The Court first addresses PCIS's arguments for dismissal and then its request for an order compelling arbitration. For the reasons stated below, the Court stays this action pending arbitration of Counts I ...


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