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Huron Consulting Group Inc. v. Gruner

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

January 24, 2018

HURON CONSULTING GROUP INC. and, CONSILIO LLC, Plaintiffs,
v.
RONALD GRUNER, individually, Defendant.

          MEMORANDUM OPINION AND ORDER

          REBECCA R. PALLMEYER United States District Judge.

         This is a dispute about the scope of an arbitration agreement. Defendant Ronald Gruner filed a demand for arbitration of two claims against Plaintiffs Huron Consulting Group, Inc. and Consilio, LLC. Plaintiffs contend that they agreed to arbitrate one of these claims, but not the other, and have brought this action seeking declaratory relief and an order staying arbitration of the claim they allege to be beyond the scope of their agreement with Defendant. Gruner has moved to dismiss for improper venue or, in the alternative, for lack of subject matter jurisdiction, arguing that the parties intended for the arbitrator, rather than a court, to decide whether certain claims are arbitrable under the agreement. Because Gruner has not presented the requisite clear and unmistakable evidence of this purported intent, the motion is denied. Moreover, because the court concludes as a matter of law that the parties did not agree to arbitrate the claim in Gruner's second count, the court directs him to show cause within 21 days why the court should not stay arbitration of that claim.

         BACKGROUND

         Defendant Ronald Gruner, a resident of Naples, Florida, is the former CEO of Sky Analytics, Inc., a legal analytics and technology company. (Not. of Removal [1], at ¶ 4; Compl. [1-1], at ¶ 1.) Plaintiff Huron Consulting Group acquired Sky on December 30, 2014. (Compl. ¶ 7.) A year later, Huron sold a portion of its business-including Sky-to Plaintiff Consilio. (Id. at ¶ 11.) The court is uncertain that Huron is a proper party to this lawsuit at all, as Gruner suggests that Consilio stepped into its position with regard to the agreements relevant to this case. Nevertheless, Gruner has not contested Huron's standing. Huron is a Delaware corporation with its principal place of business in Chicago, Illinois. (Not. of Removal ¶ 4.) Plaintiff Consilio is a Virginia limited liability company with its principal office in Washington, DC, whose sole member is Consilio, Inc., a Delaware corporation with its principal place of business in Delaware. (Id. at ¶¶ 5-6; Gruner's Response Regarding Diversity [17].)

         The terms of Huron's purchase of Sky were documented in a Stock Purchase Agreement (SPA) dated December 30, 2014. (Compl. ¶ 8.) Huron agreed to pay Sky's shareholders a base purchase price of $9, 000, 000, plus two additional “earnout” payments in the event that Sky generated revenues in excess of a designated amount. (Stock Purchase Agreement [hereafter “SPA”], at §§ 1.2, 1.6, Ex. 1 to Compl.) Section 1.6 of the SPA established the method for calculating these earnout payments and procedures for resolving certain disputes between the parties. Subsection 1.6(c), titled “Disputes Regarding Net Revenue; Earnout Amounts, ” states, in relevant part, that disputes concerning the “earnout” calculation will be resolved by an Independent Auditor:

Following receipt of any Earnout Report, the Representative [of Sky's stockholders] will be afforded a period of thirty (30) days to review such Earnout Report and related calculation of the applicable Earnout Amount (the “Earnout Review Period”). The Representative shall be deemed to have accepted the Earnout Report and [Huron's] calculation of the applicable Earnout Amount unless, prior to the expiration of the Earnout Review Period, the Representative shall deliver to [Huron] written notice and a detailed written explanation of those items that are in dispute. . . . Within a further period of thirty (30) days from the end of the Earnout Review Period, the parties will attempt to resolve in good faith any disputed items. Failing such resolution, the unresolved disputed items will be referred for final binding resolution to the Independent Auditor.

(SPA § 1.6(c).) Another section of the agreement, titled “Jurisdiction: Waiver of Jury Trial, ” states that the parties

irrevocably submit to the exclusive jurisdiction of the United States District Court for the Northern District of Illinois (or, if subject matter jurisdiction in that court is not available, in the state courts of Illinois located in Cook County, Illinois) over any dispute arising out of or relating to this Agreement, any Ancillary Agreement or any agreement or instrument contemplated hereby or thereby or entered into in connection herewith or therewith or any of the transactions contemplated hereby or thereby.

(Id. at § 12.9.)

         On January 6, 2015, Huron entered into a separate “Master Subcontractor Agreement” (MSA) with Gruner. This agreement outlined terms under which Gruner would provide Huron with “Product Vision, Strategy, and Development, ” “Marketing and Sales Support, ” “Organizational Development, ” and “Performance Optimization.” (MSA Statement of Work, Ex. 2 to Compl.) Unlike the SPA, the MSA did not include an arbitration clause. (Id.) It did, however, include a choice-of-law provision stating that Illinois law would govern the rights and duties of the parties, and a forum-selection clause stating that “jurisdiction over any dispute arising in connection with this Agreement will be vested exclusively in the State or, if appropriate, federal courts located in Cook County.” (MSA ¶ 16.)

         The First Earnout Measurement Period began on April 1, 2015, and ended on March 31, 2016. (SPA § 11.1.) On December 31, 2015, Huron sold the legal portion of its business, including Sky, to Consilio, Inc., the parent corporation of Plaintiff Consilio, LLC. (Compl. ¶ 11.) On September 19, 2016, Plaintiff Consilio informed Sky's stockholders, including Gruner, that Sky had not produced sufficient revenue during the First Earnout Measurement Period to trigger an earnout payment. (Compl. ¶ 12; Letter of Oct. 14, 2016, Ex. 3 to Compl.) Gruner responded with a letter to Consilio and Huron, dated October 14, 2016, in which he identified himself as the “Representative” of Sky's stockholders. (Letter of Oct. 14, 2016, Ex. 3 to Compl.) In this letter, Gruner blamed Huron and Consilio for Sky's “inability to exceed the First Net Revenue Threshold” and suggested that the companies had failed “to fulfill their respective contractual obligations under the Purchase Agreement and to meet their implied covenant of good faith and fair dealing.” (Id.) Gruner's MSA and “Statement of Work, ” Gruner explained, had “amplified the mutual expectations and responsibilities of the parties aimed at driving to successful achievement of the Net Revenue targets.” (Id.) Huron and Consilio's “fail[ure] to meet those expectations . . . despite repeated attempts on [Gruner's] part, shut the door on the strategic and logistical initiatives required - and expressly defined in the SOW [Statement of Work] - to enable Sky to achieve the Earnout targets.” (Id.) Gruner attached to the letter an invoice for “consulting services” for which Huron allegedly owed him $120, 000. (Id.)

         According to the Complaint, the parties tried and failed to resolve the various issues identified in this letter on their own. (Compl. ¶ 14.) On January 31, 2017, James D. Dasso, identifying himself as an attorney for both “Sky Analytics, Inc. and the stockholders of Sky Analytics, Inc., ” informed Huron and Consilio that his clients would be “referring the unresolved disputed items to an Independent Auditor” pursuant to Section 1.6(c) of the SPA. (Letter of Jan. 31, 2017, Ex. 4 to Compl.) The letter proposed that Deloitte serve as Independent Auditor. (Id.) Unlike Gruner's October 14 letter, Dasso's January 31 letter made no mention of Gruner's subcontractor agreement or the invoice Gruner had attached to the October 14 letter. (Id.)

         The parties eventually agreed to bring certain disputed issues to JAMS, a private mediation and arbitration service, rather than an “Independent Auditor” as provided in the SPA. (Compl. ¶ 16.) On March 20, 2017, Dasso-this time identifying himself as the representative of “the former shareholders of Sky Analytics, Inc.”-sent e-mails memorializing this new agreement to Huron's general counsel Diane Ratekin and Consilio's general counsel Mike Flanagan. (E-mail thread of March 20, 2017, Ex. 6 to Compl.) These e-mails proposed that the parties agree “to have all disputes regarding Net Revenue and the Earnout Amounts (as those terms are used in Section 1.6 of the Purchase Agreement) proceed before JAMS, rather than before an Independent Auditor as provided in the Purchase Agreement.” (Id.) The e-mails also explained that “[u]nder JAMS Rule 5(a)(iii), a written confirmation of an agreement of all parties to participate in arbitration by JAMS is sufficient to trigger its jurisdiction, ” and stated that “[o]nce we get written confirmation from Huron and Consilio, we will submit our claims to JAMS to begin the process.” (Id.) Later on March 20, Ratekin responded that “I understand this approach is fine with Consilio, and so Huron is also fine with it.” (Id.) Flanagan responded “[c]onfirmed, ” also on March 20. (Id.)

         Gruner filed a Demand for Arbitration with JAMS on April 7, 2017, ostensibly as the “Representative” of Sky's “former shareholders.” (JAMS Form 2, Ex. 6 to Compl.) Sky itself was not named as a party in this document (nor is Sky named as a party to this suit). Gruner's Demand for Arbitration included two counts. The first alleged that Huron and Consilio breached their implied duty of good faith and fair dealing under the SPA by, inter alia, “[f]ailing to maintain key, pre-existing leadership, ” “[f]ailing to support Sky after acquisition, ” and “[f]ailing to retain Gruner as a subcontractor.” (Demand for Arbitration ¶¶ 25-29.) The second count alleged that Huron and Consilio breached the MSA by “[f]ailing to retain Gruner as a subcontractor, ” “[f]ailing to provide written notice of termination, ” and “[f]ailing to pay Gruner fees for subcontractor services he provided.” (Id. at ¶¶ 30-34.) The Demand for Arbitration identified the arbitration clause in Section 1.6(c) of the SPA, the January 31, 2017 notice of referral, and the agreement in the March 20, 2017 e-mails as the basis for JAMS' jurisdiction. (Id. at ¶¶ 7-9.)

         On June 8, 2017, JAMS Arbitrator Stephen A. Schiller issued a scheduling order in the parties' case. (Scheduling Order #1, Ex. 1 to Def.'s Reply in Supp. of Mot. to Dismiss [hereafter “Def's Reply”) [15].) This order stated, among other things, that “[p]ursuant to the agreement of the parties, this Arbitration will be conducted under JAMS Comprehensive Rules.” (Id.) The letter also explained that its purpose was “to memorialize certain agreements reached by the parties and rulings made by the Arbitrator at a ‘Preliminary conference' pursuant to JAMS Comprehensive Rules (Rule 16) and conducted by way of teleconference on June 8, 2017.” (Id.)

         Huron and Consilio filed a Complaint in the Circuit Court of Cook County on June 23, 2017, naming Gruner in his individual capacity as Defendant and seeking a declaration that the claim in the second count of the Demand for Arbitration is “outside the scope of the parties' agreement to arbitrate.” (Compl. ¶ 1.) Plaintiffs also sought an order staying the arbitration as to the second count pursuant to 710 ILCS 5/2(b). (Id.) Gruner removed the case to this court on ...


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