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Imagetec, L.P. v. Lexmark International, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

September 27, 2019

IMAGETEC, L.P., an Illinois limited partnership, Plaintiff,
v.
LEXMARK INTERNATIONAL, INC., a Delaware Corporation, and CASSANDRA HOSKINS, a Kentucky citizen, Defendants.

          MEMORANDUM OPINION AND ORDER

          CLARIA HORN BOOM UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on Defendants Lexmark International, Inc.’s (“Lexmark”) and Cassandra Hoskins’ (“Hoskins, ” collectively with Lexmark, “Defendants”) Motion to Compel Arbitration and to Dismiss Plaintiff’s Complaint. [R. 46] Plaintiff Imagetec, L.P. (“Imagetec” or “Plaintiff”) responded in opposition. [R. 47] Defendants replied. [R. 48] This matter is now ripe for decision. For the reasons set forth below, Defendants’ Motion to Compel Arbitration is GRANTED in part and DENIED in part. Plaintiff must prosecute its claims under Counts IV and V consistent with the terms of the Parties’ arbitration agreement. Defendants’ Motion to Dismiss is GRANTED as to these same claims. This matter, and prosecution of the remaining claims, will be stayed pending arbitration of the other counts.

         I. Arbitration Standard of Review

         Defendants move to compel arbitration and also move to dismiss Imagetec’s claims under Federal Rule of Civil Procedure 12. [R. 46] Because Defendants move to compel arbitration pursuant to 9 U.S.C. § 4 of the Federal Arbitration Act (the “FAA”), the Court’s standard of review is different than under a motion brought under Rule 12. When the Court is asked to compel arbitration under § 4 of the FAA, the Court first “must determine whether the parties have agreed to arbitrate the dispute at issue.” Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000). If the Court is satisfied that the agreement to arbitrate is not “in issue, ” it must compel arbitration. Great Earth Cos. v. Simons, 288 F.3d 878, 889 (6th Cir. 2002). “In order to show that the validity of the agreement is ‘in issue, ’ the party opposing arbitration must show a genuine issue of material fact as to the validity of the agreement to arbitrate, ” a showing that mirrors the summary judgment standard. Id.

         Therefore, district courts in Kentucky evaluate a motion to compel arbitration as one for summary judgment under Rule 56(c). See Freeman v. Easy Mobile Labs, Inc., No. 1:16-CV-00018-GNS, 2016 WL 4479545, at *1 (W.D. Ky. Aug. 24, 2016) (citing Arnold v. Rent-a-Center, Inc., No. 11-18-JBC, 2011 WL 1810145, at *2 (E.D. Ky. May 12, 2011) (“This court will treat the motion to compel arbitration as one for summary judgment . . . .”)); Weddle Enters., Inc. v. Treviicos-Soletanche, J.V., No. 1:14CV-00061-JHM, 2014 WL 5242904, at *2 (W.D. Ky. Oct. 15, 2014) (“A motion to dismiss based on the existence of a valid arbitration agreement is not evaluated under the usual Fed.R.Civ.P. 12(b)(6) standard. Instead, courts apply the standard applicable to motions for summary judgment.”) (internal citation omitted) (citation omitted).

         Accordingly, the Court must draw all reasonable inferences in favor of Imagetec and must refrain from making credibility determinations or weighing the evidence. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133');">530 U.S. 133, 150–51 (2000). The Court disregards all evidence favorable to the moving party that the jury would not be required to believe. Id. Stated differently, the Court must credit evidence favoring the nonmoving party as well as evidence favorable to the moving party that is uncontroverted or unimpeached. Id. Still, matters of contract construction and interpretation including questions regarding ambiguity are questions of law to be decided by the Court. Hulda Schoening Family Trust v. Powertel/Kentucky Inc., 5 F.Supp.2d 793');">275 F.Supp.2d 793, 794 (W.D. Ky. 2003) (citing Frear v. P.T.A. Industries, 103 S.W.3d 99, 105 (Ky. 2003)). With this standard in mind, the Court provides the following background.

         II. Background

         A. Parties’ Relationship and Dealer Agreement

         Imagetec is an Illinois limited partnership headquartered in McHenry, Illinois. [R. 1, Compl., at ¶ 3] Imagetec is a dealer of digital office equipment that “provides customizable print management and digital office equipment solutions to business customers in northern Illinois and Wisconsin.” Id. at ¶ 8. Imagetec partners with various manufacturers and distributors of digital office equipment for sale or lease to its customer base, including multi-function copiers, scanners, printers and the like, such as Lexmark. Id. at ¶ 10. It also offers its customers managed print services which incorporates data collection software that tracks equipment use, maintenance needs, and supply needs (such as toner), including the model of each device, page counts, toner levels, machine status and the location of each piece of office equipment connected to the customers’ network (“Managed Print Services”). Id. at ¶ 11. Its customers utilize Managed Print Services and allow Imagetec to remotely monitor their digital office equipment to ensure the equipment works properly, ensure adequate supplies are available as needed, and to keep costs related to such equipment minimal. Id. at ¶ 12. Imagetec uses fleet management software installed on its customers’ office network systems that collects information from its customers’ digital office equipment and transmits that information back to Imagetec. Id. ¶ 13. Imagetec’s Managed Print Services reduces the costs to both Imagetec and its customers by eliminating the costs associated with having field technicians travel to each customer to collect page count and machine information. Id. at ¶ 14.

         Defendant Lexmark is a Delaware corporation headquartered in Lexington, Kentucky. Id. at ¶ 4. Defendant Hoskins is Lexmark’s Manager of Channel Services for North America Channel Sales and is a resident and citizen of Kentucky. Id. at ¶ 5. Lexmark is a supplier of digital office equipment, supplies, and parts for the upkeep of its equipment, as well as associated services related to the monitoring and maintenance of such equipment at its dealers’ customer locations. Id. at ¶ 9. Lexmark sells its printers and toner cartridges mainly through non-exclusive reseller agreements with companies and across the United States and globally. [R. 46-1, Defs. Mem. in Supp., at p. 2]

         Imagetec and Lexmark’s relationship began in 2009. [R. 1, Compl., at ¶ 15] In December, 2009, Imagetec and Lexmark entered into the Lexmark Business Solutions Dealer Agreement (the “Dealer Agreement”). Id. at ¶ 16; [R. 1-1, Ex. 1, Dealer Agreement] The Dealer Agreement appointed Imagetec as a “non-exclusive provider” and granted Imagetec a “nonexclusive, non-transferable right to offer select Lexmark Products, Supplies and/or Parts directly to end user customers within its assigned territory.” Id. The agreement also permitted Imagetec to become an authorized provider of Lexmark’s products, which it could not be unless it sold the products as well. Id. at § 5.

         The Dealer Agreement permitted Imagetec or Lexmark to terminate the agreement with or without cause upon thirty (30) days’ notice. Id. at § 7. This agreement contained a choice of law provision stating the agreement was governed by Kentucky law, as well as an arbitration provision (the “Arbitration Provision”), which reads as follows:

         10. GENERAL

Both parties agree that any Disputes will be decided under Kentucky law, excluding its conflict of law provisions, and through arbitration by a sole arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association then in effect. In undertaking the arbitration, the parties agree that (a) the direct costs of the arbitration shall be shared equally by the parties (with the expenses of each party to be self- funded including filing fees); (b) they shall be limited to taking no more than three (3) depositions each and that no interrogatories shall be permitted; (c) that the arbitration shall be completed within six (6) months from the date the arbitrator is selected (unless any delays arise that are beyond the control of the parties); (d) that the arbitration shall be governed by the United States Arbitration Act; (e) the venue of the arbitration shall be in Fayette County, Kentucky and Dealer hereby consents to personal jurisdiction in Fayette County and (f) that the resulting arbitration award will be binding upon the parties and may be entered by any court of competent jurisdiction. Any monetary awards shall be limited in accordance with the provisions of this Agreement and, as such, (a) the Arbitrator is specifically prohibited from awarding any punitive damages or other damages excluded by this Agreement, and (b) each party irrevocably waives any right to recover damages outside the scope of these limitations. This arbitration provision shall not prohibit Lexmark from seeking injunctive relief as further described in this Agreement.
This Agreement will not be supplemented or modified by any course of dealing or trade usage. Variance from or addition to the terms and conditions of this Agreement in any purchase order or other written notification from Dealer will be of no effect.
The provisions of this Agreement which by their nature extend beyond the termination or expiration of this Agreement will survive and remain in effect until all obligations are satisfied.

[R. 1-1, Ex. 1, Dealer Agreement, § 10] The Dealer Agreement defined “disputes” as “any and all claims, actions, and suits arising out of or in any way relating to this Agreement regardless of whether the claim alleges or is based upon tortious conduct . . . or any other legal theory, including, but not limited to, any matter arising out of or related to the breach or termination of this Agreement.” Id. at § 6.

         B. The LFM Agreement

         Imagetec acknowledges that “[i]nitially the relationship between the [the Parties] was mutually beneficial.” [R. 1, Compl., at ¶ 19] In fact, “revenues stemming from its relationship with Lexmark constituted more than 20% of Imagetec’s overall revenue. . . .” Id. Imagetec “regularly relied on Lexmark’s expertise and judgment in Imagetec’s business, ” which Imagetec credits as “instrumental” to its sales efforts. Id. at ¶ 20. Imagetec even relied on Lexmark to interface with its customers for demonstrations of specific equipment and referring various products. Id. Further, Imagetec relied on high level executives at Lexmark “for their judgment and input into what equipment Imagetec would purchase, including . . . upcoming new products.” Id. ¶ 22.

         As a result of this strong relationship, Lexmark approached Imagetec in May 2012 and suggested that it abandon its fleet management software in favor of Lexmark’s Fleet Manager Software (the “LFM Software”) on both Imagetec’s own and Imagetec’s customers’ business network systems under Lexmark’s Fleet Manager 2.0 Program Agreement, dated November 30, 2012 (“LFM Agreement”). Id. at ¶¶ 1, 26. Lexmark made several representations concerning the LFM Software to Imagetec, including a live demonstration on May 22, 2012 at Imagetec’s offices to show the functionality and features of the LFM Software. See Id . at ¶¶ 27, 28, 29, 34. However, during this live presentation, various functions of the LFM Software did not function properly. Id. at ¶ 34. Notwithstanding the failed live demonstration, Imagetec still entered into the LFM Agreement with Lexmark in late November 2012. Id. at ¶ 39.

         The LFM Agreement is a license agreement that allows Imagetec to utilize the LFM Software in place of Imagetec’s, allowing Imagetec and Lexmark’s other dealers and service providers to monitor its respective customers’ printers and supply needs. [R. 1-3, Ex. 5, p. 2] The LFM Agreement contained no arbitration provision, but did contain an integration provision (the “Integration Provision”), which reads in full:

7.5.4 This Agreement comprises the full and final understanding between Lexmark and Solution Provider, and merges and supersedes any and all other agreements except as expressly set forth herein, and any and all other understandings or representations, written or oral, with respect to the subject matter hereof. It may not be modified except by a writing signed by authorized representations of both Lexmark and Solution Provider, and referring specifically to this Agreement. Any attempt by Solution Provider to assign this Agreement shall be void.

[R. 1-5, Ex. 5, LFM Agreement, at Page ID#: 76] The LFM Agreement also contains a choice of law provision that selects Kentucky law to govern the agreement. Id. at § 7.5.3; Page ID#: 76. However, the LFM Agreement is silent as to how the Parties are to resolve any disputes arising from that agreement. Accepting Plaintiff’s well-pleaded factual allegations as true, Imagetec entered into this agreement because of the strong relationship that had formed with Lexmark since the execution of the Dealer Agreement. [R. 1, Compl., at ¶¶ 15, 19-24, 26-29, 34] Imagetec reincorporates for reference its allegations regarding this strong relationship and its reliance upon Lexmark before each Count in its Complaint. See id. at ¶¶ 100, 110, 121, 137, 145.

         C. Disputes and Subsequent Transfer

         The LFM Software failed from the start in a variety of ways. [R. 1, Compl., at ¶¶ 44-96] Imagetec made Lexmark aware of these problems and Lexmark endeavored to remedy them, all to no avail. See Id . By May 2015, the problems with the LFM Software were continuing to have such a negative impact on its operations and its customer relationships that “it became clear to Imagetec that . . . it was necessary to replace [the LFM Software].” Id. at ¶ 95. Ultimately, Imagetec engaged another company to replace the LFM Software, “which led to additional expenses and work for Imagetec.” Id. at ¶ 96. Lexmark alleges that when Imagetec transitioned to another software provider, Imagetec terminated the LFM Agreement. [R. 46-1, Defs. Mem. in Supp., at p. 5] Imagetec does not state anywhere in its pleadings that it terminated the LFM Agreement. At this stage, because the Court will accept all factual assertions as true and construe them in favor of the non-moving party, the Court cannot make the legal finding that Defendants request. Reeves, 530 U.S. at 150–51. Imagetec alleges that its actions were followed by Lexmark’s “Wrongful Retaliatory Termination of the Dealer Agreement.” [R. 1, Compl., at Heading, ¶¶ 96-97] While the Court need not accept legal conclusions couched as factual assertions as true, it notes from Plaintiff’s own assertions that these two events were clearly related.

         On June 22, 2016, Lexmark terminated the Dealer Agreement. [R. 1, Compl., at ¶ 99; R.1-6, Ex. 6, Termination Letter] In doing so, Imagetec was no longer able to sell and support Lexmark products, including the LFM Software Id.; R. 1-1, Ex. 1, Dealer Agreement, at § 16, Page ID#: 45] Imagetec alleges that “Lexmark’s unjustified and retaliatory termination of the Dealer Agreement and Imagetec’s loss of business as an authorized dealer and servicer of Lexmark equipment caused significant damage to Imagetec . . . .” [R. 1, Compl., at ¶ 98] (emphasis added). Imagetec also alleges that Lexmark’s termination of the Dealer Agreement caused “significant damage to Imagetec’s reputation, customer relationships and business by preventing Imagetec from continuing to sell and service Lexmark products, services and parts to its existing and potential customers . . . .” Id. at ¶ 99.

         Imagetec filed suit in the Northern District of Illinois on February 3, 2017 alleging breaches of contract and other statutory violations. [R. 1, Compl.] Counts I-III of the Complaint stem from Lexmark’s conduct concerning the LFM Agreement, while Counts IV-V stem from both Defendants’ conduct concerning the Dealer Agreement. In Count I, Imagetec alleges a breach of the LFM Agreement against Lexmark. [R. 1, Compl., at ¶¶ 100-109] In Count II, Imagetec alleges fraudulent inducement of the LFM Agreement. [R. 1, Compl., at ¶¶ 110-120] In Count III, Imagetec alleges a violation of the Illinois Consumer Fraud and Deceptive Trade Practices Act, 815 ILSC 505/1 et seq. [R. 1, Compl., at ¶¶ 121-136] In Count IV, Imagetec alleges a violation of the Illinois Franchise Disclosure Act, 815 ILCS 705/1 et seq. concerning the Dealer Agreement against both Lexmark and Hoskins. [R. 1, Compl., at ¶¶ 137-144] Finally, in Count V, Imagetec alleges a violation of the Wisconsin Fair Dealership Law, Wis.Stat. 135.01, et seq. against Lexmark. [R. 1, Compl., at ¶¶ 145-151]

         Defendants first moved to dismiss this action in March, 2017 and also moved to transfer venue. See [R. 15; R. 16] The case was transferred to the Eastern District of Kentucky from the Northern District of Illinois in December pursuant to 28 U.S.C. § 1406(a), without the court first ruling on the pending motions to dismiss. [R. 25; R. 26; R. 27] Thereafter, Defendants refiled the instant Motion to Compel Arbitration pursuant to the FAA and to Dismiss Plaintiff’s Complaint pursuant to Rule 12. [R. 46] Accordingly, the Court will apply the law of the transferee Court (Kentucky) where applicable to this dispute. See K-Tex, LLC v. Cintas Corp., 693 Fed.App’x 406, 409 (6th Cir. 2017).

         III. Legal Framework

         A. FAA Overview

         The Federal Arbitration Act (“FAA”) was enacted “to ensure judicial enforcement of privately made agreements to arbitrate.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985). The statute “embodies [a] national policy favoring arbitration . . . .” Richmond Health Facilities v. Nichols, 811 F.3d 192, 195 (6th. Cir. 2016) (citing Seawright v. Am. Gen. Fin. Servs., Inc.,507 F.3d 967');">507 F.3d 967, 972 (6th Cir. 2007)). The FAA applies to written agreements to arbitrate disputes that arise out of contracts involving transactions in interstate commerce.[1] There is no dispute here that the Parties’ disputes arise out of agreements involving or “affecting” transactions in interstate commerce. Under the FAA, such agreements “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. The FAA “leaves no place ...


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