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Ace Hardware Corporation v. Landen Hardware

February 24, 2011

ACE HARDWARE CORPORATION, PLAINTIFF,
v.
LANDEN HARDWARE, LLC,
MARKETPLACE HARDWARE, LLC,
WILLIAM B. LOVETT, STEVEN D. MCMAHAN, LINDA LOVETT, AND SANDRA MCMAHAN, DEFENDANTS.



The opinion of the court was delivered by: Blanche M. ManningUnited States District Judge

MEMORANDUM AND ORDER

Defendants Landen Hardware and Marketplace Hardware each were Ace Hardware franchisees, and individual defendants William and Linda Lovett and Steven and Sandra McMahan signed guaranties connected with the agreements between Landen and Marketplace and Ace Hardware. After Ace Hardware sued the defendants based on alleged breach of contract and breach of personal guaranties, defendants Landen, Marketplace, and the Lovetts filed a motion to dismiss contending that Ace Hardware's claims must be arbitrated under the parties' agreements.*fn1 Alternatively, the defendants seek to stay this action pending completion of arbitration of their counterclaims against Ace Hardware.

For the following reasons, the court finds that Ace Hardware's claims against the defendants are not subject to arbitration. Thus, the defendants' motion to dismiss is denied. In addition, because the defendants did not tender a copy of their proposed counterclaims to the court, the motion to stay is premature as the court cannot rule on the effect of something that is not before it.

I. Background

Defendants Landen Hardware LLC and Marketplace Hardware LLC are former Ace Hardware franchisees who operated in Ohio. Plaintiff Ace Hardware alleges that it provided Landen and Marketplace with merchandise, services, and loans pursuant to a series of contracts and that Landen and Marketplace owe it nearly $900,000.00. William Lovett, Linda Lovett, Sandra McMahan and Steven McMahan personally guaranteed some of Landen and Marketplace's financial obligations.

Ace Hardware correctly notes that the contracts at issue in this case fall into three categories: (1) the membership agreements, (2) guaranty of credit contracts, (3) equity match loan agreements and guaranties executed with the equity match loan agreements ("equity match guaranties").

A. Membership Agreements

Ace Hardware entered into membership agreements with Landen and Marketplace in May of 2006 and February of 2007, respectively. Ace Hardware contends that Landen and Marketplace breached these agreements. The agreements provide that "any suit brought by [Ace Hardware] against [Landen or Marketplace] to enforce any provision of this Agreement or seeking any relief in connection with or arising out of the relationship between [Ace Hardware] and [Landen or Marketplace] may be instituted in an appropriate court in the State of Illinois ...." Amended Complaint, Ex. 6 & 7 (membership agreements), at Article V (1)(b). They do not contain any provisions requiring disputes to be resolved via arbitration.

B. Guaranties of Credit

William Lovett and Steven McMahan (two of Landen and Marketplace's owners) entered into guaranties of credit to, among other things, "induce [Ace Hardware] to sell merchandise and supplies and to provide services" to Landen and Marketplace. Amended Complaint, Ex. 8 & 9 (Guaranties of Credit), at 1. In the guaranties of credit, Mr. Lovett and Mr. McMahan agreed to guaranty payment for merchandise or supplies purchased by Marketplace and Landen. The guaranties of credit do not contain any provisions requiring disputes to be resolved via arbitration.

C. The Equity Match Agreements And Equity Match Guaranties

1. The Equity Match Agreements

After becoming retailers, Ace Hardware loaned money to Landen and Marketplace pursuant to equity match agreements. Amended Complaint at Ex. 3 and 5. The equity match agreements contain an arbitration provision that provides:

ARBITRATION. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO BINDING ARBITRATION FOR ANY MATTER OR DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. THE ARBITRATION SHALL BE CONDUCTED BY A SOLE ARBITRATOR AND BE GOVERNED BY THE UNITED STATES ARBITRATION ACT. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ...


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