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Honomichl v. Integrated International Payroll Limited

May 21, 2009

MICHELE HONOMICHL AND DONALD BROWN, PLAINTIFFS,
v.
INTEGRATED INTERNATIONAL PAYROLL LIMITED, A FOREIGN CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Plaintiffs Michele Honomichl and Donald Brown have filed a petition [1, Ex. 1] to stay an arbitration that Defendant Integrated International Payroll Limited initiated in October 2009. Plaintiffs subsequently filed two motions for summary judgment [12, 14], requesting that the Court rule in their favor with respect to their petition to stay the arbitration. For the following reasons, the Court denies both motions for summary judgment [12, 14] and determines that the parties may proceed to arbitration on both the Celergo and Summit Agreements.

I. Background

Plaintiffs Michele Honomichl and Donald Brown are residents of Illinois. Defendant Integrated International Payroll Limited ("iiPay") is a corporation organized under the laws of the United Kingdom. Celergo LLC, not a party to this action, is a Delaware limited liability company authorized to do business in Illinois and having its principal place of business in Deerfield, Illinois. Summit Partners LLC ("Summit"), also not a party to this action, is an Illinois limited liability company with its principal place of business also in Deerfield, Illinois. Plaintiffs and iiPay are members of both Celergo and Summit. Plaintiffs are the current managers of Celergo and also are the current managers of IOR/GPS, LLC, the manager of Summit. On September 1, 2004, Plaintiffs (among others not parties to this action) executed the Summit Operating Agreement ("Summit Agreement"), which is governed by Illinois law, and in March 2007, iiPay executed an agreement to be bound by the Summit Agreement. On January 2, 2009, Summit, iiPay, and Plaintiffs entered into an Amended and Restated Operating Agreement for Celergo ("Celergo Agreement"), which is governed by Delaware law. Both the Celergo and Summit Agreements contain the same dispute resolution provision, which states:

In the event there is a dispute as to the manner in which this Agreement is to operate, the dispute shall be resolved by binding arbitration, the expense of which (including reasonable attorney's fees) shall be borne by the party against whom, or against whose position in the dispute, the arbitrator decides. If the parties cannot agree on the selection of an arbitrator of any such dispute within five (5) days of the date the dispute arises, an arbitrator shall be appointed by the American Arbitration Association.

Celergo Agreement § 14.02; Summit Agreement § 11.02.

On October 15, 2009, iiPay filed a demand for arbitration with the American Arbitration Association ("AAA"). iiPay alleges that Plaintiffs breached both the Celergo and Summit agreements by refusing iiPay's numerous requests to inspect and copy Celergo' s and Summit's books and records upon reasonable notice in violation of § 10.01(a) of the Celergo Agreement and in violation of § 8.01 of the Summit Agreement. iiPay further alleges that Plaintiffs have been compensating themselves since 2006 without unanimous agreement by the members, distributing other funds to pay their personal obligations without unanimous agreement by the members, and distributing other funds to pay their personal obligations without unanimous approval of the members, in violation of § 6.02 of the Celergo Agreement. iiPay also alleges that Plaintiffs have diluted iiPay's membership in Summit in violation of the Summit Agreement, which requires that no member may transfer an interest in Summit without first offering all the members a right of first refusal to purchase such interest.

On November 12, 2009, Plaintiffs filed their Verified Petition to Stay Arbitration in the Circuit Court of the Nineteenth Judicial Circuit, Lake County, Illinois, seeking a stay of the arbitration demands made by iiPay to the AAA. Counts I and II seek to stay arbitration as to iiPay's claims relating to Celergo and Summit, respectively. On November 17, 2009, iiPay removed the petition to this Court, and on December 7, 2009, iiPay filed its answer to the petition and counterclaim against Plaintiffs.*fn1 On January 6, 2010, Plaintiffs filed their answer to iiPay's counterclaim. Then, on January 19, 2010, Plaintiffs simultaneously filed two motions for summary judgment. The first motion for summary judgment [12] contends that the arbitration provisions in the Celergo and Summit agreements do not provide for arbitration of the issues raised by the parties. The second motion [14] contends that even if the agreements do provide for arbitration of these issues, iiPay, by its conduct in litigating this suit, has waived any right that it may have to arbitrate.

II. Analysis

Plaintiffs contend that iiPay's claims do not fall within the scope of the parties' arbitration provisions, which relate to the manner in which the respective operating agreements are to operate. It is undisputed that the claims presented in iiPay's demand arise from alleged breaches of the Celergo and Summit Agreements. Thus, what the Court must determine is whether claims for breaches of the agreements lie within the scope of the arbitration provisions that require arbitration of disputes as to the manner in which the respective agreements are to "operate." And if the claims do fall within the scope of the arbitration provisions, the Court then must also determine whether iiPay has waived its right to arbitrate by engaging in this litigation.

A. Summary Judgment Standard

Summary judgment is proper where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). In determining whether there is a genuine issue of fact, the Court "must construe the facts and draw all reasonable inferences in the light most favorable to the nonmoving party." Foley v. City of Lafayette, Ind., 359 F.3d 925, 928 (7th Cir. 2004). To avoid summary judgment, the opposing party must go beyond the pleadings and "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (internal quotation marks and citation omitted). A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. at 248. The party seeking summary judgment has the burden of establishing the lack of any genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is proper against "a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322. The non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "The mere existence of a scintilla of evidence in support of the [non-movant' s] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-movant]." Anderson, 477 U.S. at 252.

B. Arbitrability

1. Threshold Question of Who Decides ...


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