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Modern Space Design & Decoration Co., Ltd. v. Lynch

United States District Court, N.D. Illinois, Eastern Division

September 29, 2014




On June 11, 2013, Plaintiff Modern Space Design & Decoration (Shanghai) Co., Ltd. ("Modern Space Shanghai") filed this action seeking to enjoin its former employee, Defendant Timothy Mark Lynch ("Lynch"), from misappropriating company trade secret information and to secure the return of a laptop computer containing confidential materials, which it contends Lynch absconded with after the parties' employment relationship terminated. In response, Lynch filed a Counterclaim and Third-Party Complaint against Modern Space Shanghai and two of its affiliates, Modern Space HK, Ltd. ("Modern Space HK") and Modern Space Pacific Services ("Modern Space Pacific") (for ease of reference, the Court will refer to these three companies collectively as the "Modern Space Group"), asserting claims for breach of his employment contract, violation of the Illinois Sales Representatives Act, and unjust enrichment. The Modern Space Group has moved to compel Lynch to arbitrate his claims pursuant to the terms of the arbitration provision contained within his Employment Agreement. For the reasons stated herein, the Court finds that Lynch's claims must be submitted to arbitration.


The Modern Space Group is in the business of manufacturing and selling custom wood cabinets, metal racks, and other components used by retail store chains to display products to consumers. In 2011, Lynch entered into employment discussions with the principal of the Modern Space Group, Jonathan Dickenson ("Dickenson"). Those discussions proved fruitful and, in September, the Modern Space Group sent Lynch a letter offering him a position as Vice President of Global Business Development (the "Letter Agreement").

The Letter Agreement recited what were to be the basic terms of Lynch's employment, including his general responsibilities, base salary, bonus structure, health benefits, and annual leave. It further specified that Lynch would be hired for a contract term of three years, which was terminable on thirty days' notice and the payment of thirty days' base pay. The Letter Agreement concluded by stating that "[u]pon agreement of this basic framework, " the parties would execute a separate, written employment contract at the Modern Space Group's offices in Shanghai, China.

Thereafter, on September 26, 2011, Lynch signed a document entitled "Labor Contract, " which included an arbitration provision requiring the parties to settle by consultation "any dispute arising from the performance of th[e] Contract" and to submit any issue that could not be resolved by consultation to a local labor arbitration committee within sixty days of the date of the dispute. The contract also contained an integration clause, stating that:

Any labor contract signed by both parties before this Contract[, ] shall become valid automatically from the date of this Contract. If any other provisions of relevant agreements signed before this contact (including but not limited to the confidentiality agreement, training agreement, and non-competition agreement) are inconsistent with this contract, this contract shall prevail.

After working at the Modern Space Group for approximately a year and a half, Lynch was informed in March 2013 that his employment agreement was being terminated effective immediately. Thereafter, Dickenson proposed an alternative arrangement whereby Lynch would be retained in a diminished role and at a reduced salary. Lynch declined that offer.

In this suit, Lynch asserts that the Modern Space Group breached his employment agreement by failing to pay him salary and bonus earnings to which he alleges he was entitled under the terms of his contract. He seeks damages for those outstanding amounts as well as payment of the agreed-upon thirty day termination fee.


The Federal Arbitration Act ("FAA") provides that an arbitration clause "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Thus, the FAA obliges courts to stay proceedings and compel arbitration for any claim that falls within the ambit of a valid agreement to arbitrate. Van Tassell v. United Mktg. Grp., LLC, 795 F.Supp.2d 770, 786 (N.D. Ill. 2011). In assessing the scope and validity of an arbitration agreement, courts generally apply state-law contract principles. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). However, "due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself [must be] resolved in favor of arbitration." Volt Information Sciences, Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476 (1989).


Lynch's primary argument against arbitration is that the Labor Contract is invalid because it was procured by fraud. To that end, Lynch alleges that the Modern Space Group's human resources manager duped him into signing the Labor Contract - a document written entirely in Chinese - which he contends was presented to him without translation as being "paperwork" relating to his application for a Residence Visa in China. As such, Lynch claims that he was unaware that he was executing an employment contract, much less that he was consenting to the resolution of any claims by arbitration. (Decl. of Timothy Mark Lynch, sworn to on Jan. 13, 2014 ("Lynch Decl."), ¶¶ 31-36, ECF No. 16-1). Lynch insists that, had he known that the document was an employment contract, he would have asked for a translation and sought time to review the agreement with counsel. ( Id. ¶ 37).

In Prima Paint Corp. v. Flood & Conklin Mfg. Co., the Supreme Court held that, in determining the validity of an arbitration agreement, federal courts are not permitted to "consider claims of fraud in the inducement of the contract generally." Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967). Rather, "a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause itself, must go to the arbitrator." Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006). This is because the FAA does not condition the enforceability of a written arbitration provision upon the validity of the contract within which it is contained. Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 70 ...

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