United States District Court, E.D. Kentucky, Central Division, Lexington
MEMORANDUM OPINION AND ORDER
HORN BOOM UNITED STATES DISTRICT JUDGE.
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.
Arbitration Standard of Review
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.
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
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
Parties’ Relationship and Dealer Agreement
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.
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]
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.
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
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
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
[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.
The LFM Agreement
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.
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.
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.
Disputes and Subsequent Transfer
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.
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.
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
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).
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. 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