Imperial Crane Sales, Inc. v. SANY America, Inc.

Filing 28

MEMORANDUM Opinion: Defendant Sany America, Inc.'s motion to dismiss 8 is denied without prejudice. At the request of Plaintiff Imperial Crane Sales, Inc., this action is stayed pursuant to 9 U.S.C. § 3 pending the AAA arbitration proceeding initiated by Imperial in Atlanta, Georgia. Signed by the Honorable Charles P. Kocoras on 7/15/2015. Mailed notice(vcf, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
IMPERIAL CRANE SALES, INC.,
Plaintiff,
v.
SANY AMERICA, INC.,

Defendant.

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15 C 859

MEMORANDUM OPINION
CHARLES P. KOCORAS, District Judge:
Now before the Court is the motion of Defendant Sany America, Inc. (“Sany”)
to dismiss this action for improper venue pursuant to Fed. R. Civ. P. 12(b)(3), based
on an arbitration provision in a “Distributor Agreement” between Sany and Plaintiff
Imperial Crane Sales, Inc. (“Imperial”). Sany’s Motion asserts that “Imperial and
SANY agreed to submit any disputes arising from their commercial relationship to
arbitration in Atlanta, Georgia.” See Def. Mot., Dkt. 8, at 1. Three days after the
briefing on this motion was concluded, Imperial filed an arbitration demand with the
American Arbitration Association (“AAA”) in Atlanta, in which Imperial admits that
its demand there “includes the claims” it brings here. See Def. Supp. Ex. A, Dkt. 261, at 1. Sany contends in the instant motion to dismiss this case that “it is for the
arbitrator, and not this Court, to determine whether Imperial’s claims are covered by
or within the scope of the arbitration agreement.” Def. Mem., Dkt. 9, at 7-8.

For the following reasons, the Court agrees with Sany that the arbitrability of
Imperial’s claims should be determined in the AAA proceeding now pending in
Atlanta. The Court disagrees, however, that the instant action should be dismissed
before that determination is made, and thus grants Imperial’s request, pursuant to
9 U.S.C. § 3 of the Federal Arbitration Act (the “FAA”), to stay this action pending a
determination of arbitrability in the Atlanta proceeding. See Pltf. Resp., Dkt. 18, at
12-13. Accordingly, Sany’s motion to dismiss (Dkt. 8) is denied without prejudice
pending the determination of arbitrability in the Atlanta proceeding, during which
time this action will be stayed.
BACKGROUND 1
Imperial “is a distributor, supplier and lessor of cranes, and related equipment
and machinery,” Compl., Dkt. 1-1, ¶ 1; and Sany “is in the business of selling cranes
and heavy equipment.” Id. at ¶ 2. Imperial’s claims in this case concern three
purchases of cranes from Sany. Pltf. Resp., Dkt. 18, at 1. Imperial’s first purchase—
for a Sany “crawler crane”—is evidenced by a March 17, 2011 letter from Imperial to
Sany reciting “the purchase of one new Sany model . . . crawler crane for the sum of
$2,100,000.00 USD, subject to” various conditions, including those “outlined in the
attached ‘Floor Plan Financing’ agreement.” Chen Decl. Ex. A, Dkt. 10, at 6-7.
1

For purposes of this motion, the Court accepts as true all well-pleaded factual
allegations in Imperial’s Complaint, and draws in Imperial’s favor all reasonable
inferences therefrom, and from the parties’ submissions on this motion. Faulkenberg
v. CB Tax Franchise Sys., LP, 637 F.3d 801, 806, 809-10 (7th Cir. 2011) (Rule
12(b)(3) motion requires “construing all facts and drawing reasonable inferences in
favor of the plaintiffs,” but does not “limit” court’s “consideration” to the pleadings).
2

Among other things, this financing agreement stated that a “Dealer Agreement
must be signed and in place before delivery.” Id. at 7. Notwithstanding this stated
condition, however, Imperial and Sany did not sign their Distributor Agreement until
July 5, 2011, three months after the crawler crane was delivered to Imperial on or
about March 30, 2011. See Pltf. Resp., Dkt. 18, at 3, 5; Chen Decl. Ex. B (Distributor
Agreement), Dkt. 10, at 24. But the Distributor Agreement they ultimately signed
included the following integration clause addressing such earlier agreements: “This
Agreement, together with any and all exhibits hereto and Purchase Orders,
constitutes the entire agreement of the parties hereto with respect to the subject matter
herein and therein, and supersedes all prior oral or written agreements. Any and all
exhibits hereto and Purchase Orders completed pursuant to Section 1.4(a) hereof are
hereby incorporated by reference into this Agreement.” Dkt. 10, at 22, § 5.2(a)
(emphasis added). In addition, this Distributor Agreement also included an arbitration
provision requiring that “any and all controversies or claims arising out of or relating
to this Agreement shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association.” Id. at § 5.8.
In the months following the parties’ execution of this Distributor Agreement,
Imperial made its second and third purchases from Sany—for various “rough terrain
cranes”—in November and December 2011, with delivery “commencing in early
February 2012.” Compl., Dkt. 1-1, ¶¶ 45-46, 52-55, 58-60, 63, and Exs. 2-4, Dkt. 1-1,
at 23-28. But according to Imperial’s Complaint, at least some of the cranes delivered
3

“suffered from significant manufacturing deficiencies” and “were not in the condition
as warranted.” Compl., Dkt. 1-1, ¶ 65. When “repairs and servicing” of these cranes
“proved unsuccessful,” Imperial notified Sany “of its revocation of acceptance of
these cranes,” id. at ¶ 74; Sany “acknowledged the issues” with the cranes and
“accepted Imperial Crane’s revocation of acceptance,” id. at ¶ 76; and Imperial
canceled its remaining order for additional cranes. Id. at ¶ 78. As a result, Imperial
was allegedly “forced to find and purchase” other rough terrain cranes at a higher
price, “rent substitute cranes” while awaiting delivery of these replacements, and “lost
revenue” while substitutes were unavailable. Id. at ¶¶ 79-84.
Similar issues allegedly plagued the crawler crane that was the subject of
Imperial’s first crane purchase from Sany.

According to Imperial’s Complaint,

shortly after this purchase, Sany notified purchasers of this crane (including Imperial)
of certain limitations preventing the crane’s use in specified applications. Id. at ¶ 32.
In addition, other deficiencies with the crawler crane “became apparent over time,” id.
at ¶ 34; and “repairs ultimately provided by Sany America did not resolve the
deficiencies.” Id. at ¶ 38. As a result, Imperial was allegedly again “forced to rent
other cranes to substitute,” “lost rental revenue,” and “incurred substantial labor
expense servicing and repairing deficiencies with the Crawler Crane.” Id. at ¶¶ 40-44.
Following these issues, and the foregoing issues with the rough terrain cranes, Sany
allegedly terminated the parties’ Distributor Agreement in 2013, see Pltf. Resp., Dkt.
18, at 12; Def. Reply, Dkt. 20, at 6-7. This litigation then ensued in 2014.
4

PROCEDURAL HISTORY
Imperial originally filed its Complaint against Sany in the Circuit Court of
Cook County, Illinois, Law Division, on December 22, 2014. See Removal Not., Dkt.
1, at 1. Sany removed that action to this district on January 28, 2015, asserting
diversity jurisdiction under 28 U.S.C. 1332, id., and then filed the instant motion to
dismiss pursuant to Fed. R. Civ. P. 12(b)(3) on February 4, 2015. Dkt. 8. Briefing on
this motion proceeded according to this Court’s Order of February 10, 2015, Dkt. 15,
concluding with Sany’s Reply filed March 24, 2015. Three days later, Imperial filed
its arbitration demand in Atlanta, in which Imperial admitted that its demand there
“includes the claims set forth” here. See Dkt. 26-1, at 1. Additional briefing then
followed in this action in April 2015, addressing the impact of Imperial’s AAA
proceeding on the instant motion to dismiss. See Dkts. 23-27. Having reviewed all of
the parties’ briefs on this motion, including that supplemental briefing, the Court now
denies Sany’s motion to dismiss without prejudice, but stays the instant action while
the arbitrability of Imperial’s claims is determined in the Atlanta AAA proceeding.
LEGAL STANDARDS
The Seventh Circuit has made clear that a motion to dismiss based on an
arbitration clause is properly asserted as one challenging venue under Fed. R. Civ. P.
12(b)(3), Faulkenberg, 637 F.3d at 808, since an arbitration provision “is a type of
forum selection clause.” Jackson v. Payday Fin., LLC, 764 F.3d 765, 772 (7th Cir.
2014). And as noted above, a motion under Rule 12(b)(3) requires the Court to
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assume the truth of the plaintiff’s factual allegations and draw reasonable inferences
in its favor, id. at 806, but does not limit a district court to the allegations in the
plaintiff’s complaint. In determining whether venue is proper in this district, this
Court thus may consider not only Imperial’s Complaint and exhibits, but also the
materials submitted with the parties’ briefs on this motion, including their Distributor
Agreement and its arbitration clause. See id. at 809-10 (it is appropriate to consider
evidence submitted with motion, including agreement containing arbitration clause).
Neither party disputes these standards. As for the substantive law applicable to
Sany’s motion, however, the parties disagree. Sany argues that the FAA ultimately
“applies to this case because the Distributor Agreement involves interstate
commerce,” Def. Mem., Dkt. 9, at 5 (citing 9 U.S.C. § 2), but that Georgia law
governs any questions concerning contract formation, pursuant to a choice of law
provision in the parties’ Distributor Agreement. Def. Mem., Dkt. 9, at 5-7. Imperial,
on the other hand, while acknowledging that “federal courts apply state-law principles
of contract formation,” argues that the three purchase orders at issue “do not include
selection of law clauses,” and thus asserts that “Illinois law applies.” Pltf. Resp., Dkt.
18, at 3. The Court agrees with Sany that the FAA governs the arbitrability issue
raised by Sany’s motion to dismiss.
The parties are correct that the “validity and meaning of a forum selection
clause”—which includes an arbitration provision—is generally determined in a
diversity case “by reference to the law of the jurisdiction whose law governs the rest
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of the contract in which the clause appears.” Jackson, 764 F.3d at 774-75 (quoting
Abbott Labs. v. Takeda Pharm. Co., 476 F.3d 421, 423 (7th Cir. 2007)). “Once it is
clear, however, that the parties have a contract that provides for arbitration of some
issues between them, any doubt concerning the scope of the arbitration clause is
resolved in favor of arbitration as a matter of federal law.” Gore v. Alltel Commc’ns,
LLC, 666 F.3d 1027, 1032 (7th Cir. 2012). The parties here dispute neither the
validity nor enforceability of their Distributor Agreement, or that it requires
arbitration of at least some of their disputes. Rather, the instant motion presents a
question of arbitrability, which is governed by the FAA, not state law.
“The FAA ‘creates a body of federal substantive law of arbitrability, applicable
to any arbitration agreement within the coverage of the Act.” Wal-Mart Stores, Inc. v.
Helferich Patent Licensing, LLC, 51 F. Supp. 3d 713, 718 (N.D. Ill. 2014) (brackets
omitted, quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24 (1983)). “To the extent there are conflicts between state arbitration law and the
FAA that would contravene the pro-arbitration policies embodied in the FAA, the
FAA applies and preempts such state laws.” Id. “Thus, ‘a general choice of law
provision in a contract will not extend to the arbitration clause, absent specific
evidence the parties intended it to do so.” Id. at 718-19. There is no such indication
here; to the contrary, the parties’ Distributor Agreement provides for “arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association,” Dkt. 10 (Distributor Agreement), at § 5.8, as opposed to any state’s law.
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Imperial tacitly acknowledges as much, insofar as it invokes the FAA to
support its request for a stay (as opposed to dismissal) of these proceedings. See Pltf.
Resp., Dkt. 18, at 12-13 (requesting stay “in accordance with the Federal Arbitration
Act 9 U.S.C. § 3”). “Accordingly, the Court will rely on Federal law interpreting the
FAA to decide this motion.” Helferich, 51 F. Supp. 3d at 719 (applying federal law to
arbitrability question presented in motion to dismiss based on arbitration clause).
DISCUSSION
Now turning to the merits of Sany’s motion, the Court addresses first
Imperial’s arguments that disputes relating to its purchases from Sany are not
governed by the arbitration provision in the parties’ Distributor Agreement, and
second, Sany’s request to dismiss (rather than stay) the current action.
I.

Arbitrability
Sany rightly notes that “any doubts concerning the scope of arbitrable issues

should be resolved in favor of arbitration.” Def. Mem., Dkt. 9, at 8-9 (quoting Moses
H. Cone, 460 U.S. at 24-25); see also Faulkenberg, 637 F.3d at 808 (same). Imperial
correctly counters, however, that parties are required to arbitrate only those issues
they agreed to arbitrate. Pltf. Resp., Dkt. 18, at 5; see also Faulkenberg, 637 F.3d at
808-09 (“Notwithstanding this strong federal policy in favor of arbitration, the FAA’s
provisions are ‘not to be construed so broadly as to include claims that were never
intended for arbitration.’” (quoting Am. United Logistics, Inc. v. Catellus Dev. Corp.,
319 F.3d 921, 929 (7th Cir. 2003)). Imperial contends that the purchase agreements
8

over which it sues here are thus immune from the arbitration clause in the parties’
Distributor agreement for three reasons: (1) the purchase orders at issue are “separate
and distinct purchase contracts” that “do not include arbitration clauses,” Pltf. Resp.,
Dkt. 18, at 1; (2) “one of the three purchase contracts could not have incorporated the
distributor agreement because it pre-dates that agreement by over 3 months,” id.; and
(3) “the distributor agreement terminated in May of 2013.” Id.
As to Imperial’s argument that its purchase agreements are “separate and
distinct” from the parties’ Distributor Agreement containing the arbitration clause, id.,
Sany asserts that Imperial’s attempt to cast its claims solely under its purchase orders
is a “mischaracterization of the parties’ dealings,” which involved “one Distributor
Agreement” and “corresponding purchase orders.”

Def. Mem., Dkt. 9, at 3-4.

Seventh Circuit precedent supports Sany’s argument that a party’s narrow
“characterization” will not evade an arbitration clause, particularly where (as here) the
arbitration clause asserted “broadly” covers all matters “arising out of” and “relating
to” to the parties’ agreement. Alltel, 666 F.3d at 1033-36 (“were the rule otherwise, a
party could frustrate any agreement to arbitrate simply by the manner in which it
framed its claims.” (quoting In re Oil Spill by the ‘Amoco Cadiz” Off the Coast of
France March 16, 1978, 659 F.2d 789, 794 (7th Cir. 1981)).
Sany similarly contends that such a broad arbitration provision further
buttresses application of that clause to both pre-agreement purchase orders (per the
Distributor Agreement’s integration clause) and “post-termination claims.”
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Def.

Reply, Dkt. 20, at 7 (quoting Shipp v. XA, Inc., No. 06 C 1193, 2006 WL 2583720, at
*7 (N.D. Ill. Aug. 31, 2006)). Again, Seventh Circuit precedent is in accord. See
Alltel, 666 F.3d at 1035 (rejecting argument that plaintiff’s claim arose solely out of
agreement that did not require arbitration, where claim was “interlinked” with related
agreement that required arbitration); 2 Int’l Union, United Auto. & Aerospace & Agric.
Implement Workers of Am. (UAW) v. Young Radiator Co., 904 F.2d 9, 10 (7th Cir.
1990) (“the opposite result would encourage [parties] simply seek to avoid arbitration
to wait until six months or some other arbitrary period passes before [seeking relief]
under an expired . . . agreement”). But as Sany also acknowledges, these arguments
are for the arbitrator, not the Court, to resolve. Def. Mem., Dkt. 9, at 7-8.
As noted above, the parties’ arbitration clause here requires not merely
arbitration, but “arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association.” Dkt. 10 (Distributor Agreement), at § 5.8.
Such a provision serves to “incorporate the AAA’s rules into the arbitration
agreement,” including (among others) AAA Rule 7. Helferich, 51 F. Supp. 3d at 71920 (brackets omitted). “Rule 7 of the AAA Commercial Arbitration Rules states, with
respect to jurisdiction, that ‘the arbitrator shall have the power to rule on his or her
own jurisdiction, including any objections with respect to the existence, scope or
2

Notably, in so holding, the Alltel v. Gore court distinguished Imperial’s
authority here, Rosenbloom v. Travelbyus.com Ltd., 299 F.3d 657 (7th Cir. 2002),
observing that Rosenblum involved a “self-contained” agreement and a claim
pertaining “exclusively” to that agreement, whereas Gore’s claim was “interlinked”
with both the agreement containing the asserted arbitration provision and a second
agreement that did not. See Alltel, 666 F.3d at 1035.
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validity of the arbitration agreement or to the arbitrability of any claim or
counterclaim.’” Id. (brackets omitted, quoting AAA Rule 7-(a)). “While neither the
Supreme Court nor the Seventh Circuit have resolved whether incorporation of the
AAA Rules constitutes ‘clear and unmistakable’ evidence that the parties intended the
question of arbitrability to be decided by an arbitrator, other circuits have drawn this
conclusion,” id. (citing cases from the 2d, 8th, 11th, and Federal Circuits), in addition
to numerous sister courts in the Seventh Circuit. See, e.g., id. (citing cases); Gilman v.
Walters, 61 F. Supp. 3d 794, 801 (S. D. Ind. 2014) (citing cases).
Imperial neither disputes nor even acknowledges this case law. Absent any
argument or citations to the contrary, this Court concurs with that “overwhelming
majority.” Gilman, 61 F. Supp. 3d at 801, n.4. “Accordingly, the Court finds that by
incorporating the AAA Rules, including Rule 7(a), into the arbitration provision,” the
parties “clearly and unmistakably agreed to have an arbitrator decide whether they
agreed to arbitrate Plaintiff’s disputes.” Helferich, 51 F. Supp. 3d at 720.
II.

Dismissal, versus Stay, of this Action
Having determined that the parties agreed to arbitrate at least some of their

disputes, and that the parties’ arbitration provision requires the arbitrability of their
current disputes to be determined by an AAA arbitrator, there remains only the
question of whether to dismiss (as Sany requests) or stay (as Imperial requests) this
action. The Court agrees with Imperial that a stay pursuant to § 3 of the FAA is
appropriate here, 9 U.S.C. § 3, and that dismissal would not be.
11

“For arbitrable issues, a § 3 stay is mandatory.” Volkswagen of Am., Inc. v.
Süds of Peoria, Inc., 474 F.3d 966, 971 (7th Cir. 2007); 9 U.S.C. § 3 (“the court . . .
shall on application of one of the parties stay the trial of the action until such
arbitration

has

been

had”

(emphasis

added)).

Seventh

Circuit

precedent

correspondingly holds that a stay “is the normal procedure when an arbitrable issue
arises in the course of a federal suit,” both because a stay is required under § 3 of the
FAA, and because “district courts should retain jurisdiction over a suit that must be
interrupted for reference of an issue to another forum rather than dismiss it if, should
it be dismissed, there might later be grounds for reinstating it.” Tice v. Am. Airlines,
Inc., 288 F.3d 313, 318 (7th Cir. 2002) (“rather than dismiss the present suit the
district judge should have stayed it to await the outcome of arbitration in order to
spare the parties the burden of a second litigation should the arbitrators fail to resolve
the entire controversy”); Cigna Healthcare of St. Louis, Inc. v. Kaiser, 294 F.3d 849,
851 (7th Cir. 2002) (district court “should not dismiss the proceedings before it” while
arbitrability is being determined in another forum).
Sany nevertheless urges dismissal here, because the asserted arbitration
provision requires arbitration outside of this district—specifically, in Atlanta, Georgia.
Quoting the Seventh Circuit’s decision in Faulkenberg, Sany asserts that “a Rule
12(b)(3) motion to dismiss for improper venue, rather than a motion to stay or compel
arbitration, is the proper procedure to use when the arbitration clause requires
arbitration outside the confines of the district court’s district.” Def. Mem., Dkt. 9, at 9
12

(quoting Faulkenberg, 637 F.3d at 808). But the rationale for this directive—that
“under § 4 of the FAA, a district court cannot compel arbitration outside the confines
of its district,” id.—is inapplicable here. See Faulkenberg, 637 F.3d at 808 (“In this
situation . . . a Rule 12(b)(3) motion to dismiss for improper venue, rather than a
motion to stay or to compel arbitration, is the proper procedure” when arbitration is
required in a different district (emphasis added)).
“While courts cannot grant a § 4 order to compel arbitration unless they sit in
the same district as the arbitration venue, a § 3 order to stay pending arbitration has no
such requirement.” See Kawasaki Heavy Indus., Ltd. v. Bombardier Recreational
Prods. Inc., 660 F.3d 988, 997 (7th Cir. 2011). Thus, where (as here) an arbitration
proceeding has been initiated in the foreign district required by an arbitration clause,
§ 3 of the FAA provides for a stay of related litigation pending elsewhere “on
application of one of the parties,” 9 U.S.C. § 3, just as Imperial has requested here.
See Dkt. 18 at 12-13; see also GEA Group AG v. Flex-N-Gate Corp., 740 F.3d 411,
414 (7th Cir. 2014) (acknowledging prior order that “case should be stayed pending
arbitration” in Germany); EZLinks Golf, Inc. v. Brown, No. 12 C 3630, 2013 WL
1285651, at *2 (N.D. Ill. Mar. 27, 2013) (once an action to compel arbitration is
brought in appropriate district, defendant “may then file a motion asking this Court to
stay this case pending resolution of the arbitration issues in” that other district).3
3

Sany’s authority, Johnson v. Orkin, LLC, 556 Fed. Appx. 543 (7th Cir. 2014)
(unpublished), is not to the contrary. As other courts have noted, “the plaintiff in
Johnson did not request a stay,” thus rendering “the FAA’s mandate” of a stay “on
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Imperial’s request for a stay additionally requires consideration of potential
“statute of limitations arguments previously raised by Defendant.” See Pltf. Resp. to
Supp., Dkt. 27, at 2 (“before this lawsuit was filed, said counsel raised statute of
limitations issues with Imperial Crane’s claims”); cf. Sharif v. Wellness Int’l Network,
Ltd., 376 F.3d 720, 725 (7th Cir. 2004) (district court abused discretion by dismissing,
rather than staying, action, where “plaintiffs notified the court that there may be
statute of limitations problems if the case [was] dismissed for lack of prosecution”).
For this reason, as well as “the FAA’s mandate,” Williams-Bell, 2014 WL 7499398, at
*3, the Court denies Sany’s motion to dismiss and grants Imperial’s request for a stay
pursuant to 9 U.S.C. § 3. Sany’s motion to dismiss is denied without prejudice,
however, and may be reasserted in the event the AAA proceeding in Atlanta does not
“resolve the entire controversy.” Tice, 288 F.3d at 318. In that event, the Court will
determine whether the stay should be lifted in whole or in part. See French v.
Wachovia Bank, 574 F.3d 830, 835 n.6 (7th Cir. 2009) (“when a district court
determines whether to stay arbitrable issues while allowing litigation of nonarbitrable
issues to proceed, the court should consider ‘the risk of inconsistent rulings, the extent
to which parties will be bound by the arbitrators’ decision, and the prejudice that may
result from delays’” (quoting Volkswagen, 474 F.3d at 972)).

application of one of the parties” inapplicable. Williams-Bell v. Perry Johnson
Registrars, Inc., No. 14 C 1002, 2014 WL 7499398, at *3 (N.D. Ill. Jan 8, 2014)
(quoting 9 U.S.C. § 3, and citing Cramer v. Bank of Am., N.A., No. 12 C 8681, 2013
WL 2384313, at * 4 (N.D. Ill. May 30, 2013)).
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CONCLUSION
For the foregoing reasons, the Court denies without prejudice Defendant Sany
America, Inc.’s motion to dismiss this action for improper venue pursuant to Fed. R.
Civ. P. 12(b)(3). See Dkt. 8. At the request of Plaintiff Imperial Crane Sales, Inc.,
this action is stayed pursuant to 9 U.S.C. § 3 pending the AAA arbitration proceeding
initiated by Imperial in Atlanta, Georgia.

Dated: July 15, 2015

_____________________________________
Charles P. Kocoras
United States District Judge

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