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Etransmedia Technology, Inc. v. Allscripts Healthcare, LLC

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

January 3, 2018



          Gary Feinerman Judge.

         Etransmedia Technology, Inc., together with several entities and individuals that used to own its shares (“Former Shareholders”), brought this diversity suit against Allscripts Healthcare, LLC, alleging that Allscripts made fraudulent representations, used unfair and deceptive trade practices, and breached its contract with Etransmedia in an effort to pilfer Etransmedia's clients. Doc. 1. Allscripts moves to dismiss the suit under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Doc. 14. The motion is granted in part and denied in part.


         On a facial challenge to subject matter jurisdiction under Rule 12(b)(1), as on a Rule 12(b)(6) motion, the court must accept as true the complaint's well-pleaded factual allegations, with all reasonable inferences drawn in Etransmedia's favor, but not its legal conclusions. See Smoke Shop, LLC v. United States, 761 F.3d 779, 785 (7th Cir. 2014); Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443-44 (7th Cir. 2009). The court must also consider “documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice, ” along with additional facts set forth in Etransmedia's brief opposing dismissal, so long as those additional facts “are consistent with the pleadings.” Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1020 (7th Cir. 2013). The facts are set forth as favorably to Etransmedia as those materials allow. See Pierce v. Zoetis, Inc., 818 F.3d 274, 277 (7th Cir. 2016). In setting forth those facts at the pleading stage, the court does not vouch for their accuracy. See Jay E. Hayden Found. v. First Neighbor Bank, N.A., 610 F.3d 382, 384 (7th Cir. 2010).

         Etransmedia and Allscripts were parties to a contract. Doc. 1 at ¶ 40. In May 2015, Etransmedia brought an arbitration action before the American Arbitration Association (“AAA”) against Allscripts pursuant to the contract's arbitration provision, which provided that any disputes would resolved by arbitration in North Carolina “in accordance with the law of the state of North Carolina and the rules of the American Arbitration Association.” Allscripts Healthcare, LLC v. Etransmedia Tech., Inc., 188 F.Supp.3d 696, 698 (N.D. Ill. 2016) (quoting the contract in a related case brought by Allscripts against Etransmedia). In August 2016, the Former Shareholders entered into a Stock Purchase Agreement in which they sold their Etransmedia shares to a buyer but retained “sole control” over the “Allscripts Litigation, ” including “the right to any and all amounts collected.” Doc. 25 at pp. 58-59, § 5(1)(i)-(ii). The Former Shareholders also promised to “indemnify [Etransmedia and the buyer] … for all Losses” arising out of the litigation. Id. at § 5(1)(i).

         Allscripts argued to the arbitration panel that, given this transaction, the arbitration agreement between Etransmedia and Allscripts no longer governed the claims that Etransmedia had brought against Allscripts. The panel agreed. Doc. 15-1. The panel observed that because “[Etransmedia] effectively transferred its interest in the outcome of this arbitration to” the Former Shareholders, Etransmedia “no longer had any significant interest in the outcome of this arbitration, and [Etransmedia] ceased to be the real party in interest herein.” Id. at 4, 5. The panel further observed that while the contract provided for arbitration between Etransmedia and Allscripts, “[t]here [was] no agreement to arbitrate between the [F]ormer [S]hareholders … and [Allscripts].” Id. at 5. The panel concluded that because the Former Shareholders “are now the real parties in interest here, not [Etransmedia], ” the panel “[was] without jurisdiction to hear and decide the claims asserted in this arbitration.” Ibid. For reasons unexplained, Etransmedia did not seek to modify or vacate the panel's decision. Doc. 20 at 9-10.

         Two months later, Etransmedia and the Former Shareholders filed this suit, bringing here the claims that Etransmedia had brought against Allscripts in the arbitration. Doc. 20 at 7.


         Allscripts argues that Etransmedia lacks standing and that the complaint states no claim on behalf of the Former Shareholders.

         I. Whether Etransmedia Has Standing

         Allscripts first contends that the issue preclusion doctrine requires this court to hold that Etransmedia lacks “standing” to bring its claims in federal court. Doc. 15 at 4-6. According to Allscripts, the arbitration panel held that Etransmedia is not a real party in interest, which in turn (again, according to Allscripts) means that Etransmedia lacks standing. And that ruling, Allscripts concludes, has preclusive effect in this suit.

         Because this suit was filed in an Illinois federal court, Illinois choice of law principles govern. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Those principles honor the choice of law clause in the Allscripts-Etransmedia contract, which, as noted above, provides that North Carolina law governs. See Dancor Const., Inc. v. FXR Const., Inc., 64 N.E.3d 796, 812-13 ( Ill. App. 2016); Restatement (Second) of Conflict of Laws § 187 (1971). And because North Carolina law governs the contract and the contract gave rise to the arbitration, the preclusive effect of the arbitration panel's decision is determined by North Carolina law. See Restatement (Second) of Conflict of Laws § 95 (“What issues are determined by a valid judgment is determined … by the law of the State where the judgment was rendered.”); Osco Motors Co. v. Marine Acquisition Corp., 2014 WL 2875374, at *11-12 (D. Del. June 24, 2014) (applying § 95 to an arbitral decision).

         North Carolina law gives preclusive effect to arbitration awards. See Whitlock v. Triangle Grading Contractors Dev., Inc., 696 S.E.2d 543, 546 ( N.C. App. 2010) (“[C]ollateral estoppel may apply to [an] unconfirmed arbitration award.”). North Carolina law further provides that issue preclusion applies where “the earlier suit resulted in a final judgment on the merits, … the issue in question was identical to an issue actually litigated and necessary to the judgment, and … both [the defendant] and [the plaintiff] were either parties to the earlier suit or were in privity with parties.” Turner v. Hammocks Beach Corp., 681 S.E.2d 770, 773-74 ( N.C. 2009) (citation omitted). And although the arbitration panel styled its dismissal of Etransmedia's arbitration claims as a dismissal for lack of jurisdiction, jurisdictional dismissals “still operate[]” under North Carolina law “to bar relitigation of issues actually decided by that former judgment.” Stroock, Stroock & Lavan LLP v. Dorf, 2010 WL 532911, at ¶ 31 ( N.C. Super. Ct. Feb. 16, 2010) (quoting Goldsmith v. Mayor & City Council of Baltimore, 987 F.2d 1064, 1069 (4th Cir. 1993)); see also Okoro v. Bohman, 164 F.3d 1059, 1063 (7th Cir. 1999) (“[A] jurisdictional dismissal is res judicata on the jurisdictional issue.”).

         Allscripts's preclusion argument fails for two reasons. First, the arbitration panel held that Etransmedia was not a real party in interest, not under federal law, but under North Carolina law. Doc. 15-1 at 3 (citing Anderson v. SeaScape at Holden Plantation, 773 S.E.2d 78, 87 ( N.C. App. 2015); Beachcomber Props., L.L.C. v. Station One, Inc., 611 S.E.2d 191, 193-94 ( N.C. App. 2005)). As the North Carolina precedents cited by the arbitration panel provide, North Carolina procedural law holds that “the proper plaintiff to bring a civil action is a ‘real party in interest.'” Anderson, 773 S.E.2d at 87 (citing N.C. Gen. Stat. § 1-57 (2013)); see also N.C. Gen. Stat. § 1A-1, Rule 17 (“Every claim shall be prosecuted in the name of the real party in interest … .”). Relying on a North Carolina case stating that “[a] real party in interest is one who benefits from or is harmed by the outcome of the case, ” Beachcomber ...

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