Etransmedia Technology, Inc. et al v. Allscripts Healthcare, LLC
Filing
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MEMORANDUM Opinion and Order written by the Honorable Gary Feinerman on 1/3/2018.Mailed notice.(jlj, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ETRANSMEDIA TECHNOLOGY, INC., VIKRAM
AGRAWAL, VIKASH AGRAWAL, BRENDAN
HARNETT, BHAGWATI PRASAD AGRAWAL,
SATYA BALA AGRAWAL, VIKASH AGRAWAL
FAMILY 2013 GRANTOR RETAINED ANNUITY
TRUST, VIKRAM AGRAWAL FAMILY 2013
GRANTOR RETAINED ANNUITY TRUST,
AGRAWAL FAMILY 2013 GRANTOR RETAINED
ANNUITY TRUST, VIKASH AGRAWAL
CHARITABLE REMAINDER TRUST, VIKRAM
AGRAWAL CHARITABLE REMAINDER TRUST,
and AGRAWAL FAMILY CHARITABLE
REMAINDER TRUST,
Plaintiffs,
vs.
ALLSCRIPTS HEALTHCARE, LLC,
Defendant.
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17 C 4383
Judge Gary Feinerman
MEMORANDUM OPINION AND ORDER
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.
Background
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,
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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(l)(i)-(ii). The Former Shareholders
also promised to “indemnify [Etransmedia and the buyer] … for all Losses” arising out of the
litigation. Id. at § 5(l)(i).
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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.
Discussion
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.
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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
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(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 Props., 611 S.E.2d at 193,
the panel concluded that the Stock Purchase Agreement deprived Etransmedia of its status as a
real party in interest because the Former Shareholders would collect any judgment and
indemnify Etransmedia for any loss. Doc. 15-1 at 4-5.
That ruling has no preclusive effect in federal court. A federal court in a diversity case
applies federal procedural rules. See Erie R.R. v. Tompkins, 304 U.S. 64, 78-80 (1938).
Consequently, a “state[] procedural statute or rule defining the real-party-in-interest concept is
not applicable [in federal court] … because it only governs who may sue in the state courts.” 6A
Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1544 (3d ed. 2010);
see Krueger v. Cartwright, 996 F.2d 928, 931-32 (7th Cir. 1993) (applying federal law to
identify the real party in interest, and noting that “while the nature of the interest sought to be
enforced is determined by state substantive law, the issues of joinder and whether or not the
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court should proceed in the absence of an interested party are matters of federal law”) (citation
omitted); Key Constructors, Inc. v. Harnett Cnty., 315 F.R.D. 179, 182 (E.D.N.C. 2016) (stating
that “[f]ederal law,” not North Carolina law, “governs who is the real party in interest”). In this
court, then, Federal Civil Rule 17(a), not North Carolina’s analog, determines whether
Etransmedia is a real party in interest.
That distinction matters because the federal standard for identifying a real party in
interest differs materially from the North Carolina standard, at least as the arbitration panel
understood the North Carolina standard. Under Federal Civil Rule 17(a), the real party in
interest is the person who, “by the substantive law, possesses the right sought to be enforced, and
not necessarily the person who will ultimately benefit from the recovery.” Illinois v. Life of MidAm. Ins. Co., 805 F.2d 763, 764 (7th Cir. 1986) (internal quotation marks omitted); see also
CWCapital Asset Mgmt., LLC v. Chi. Props., LLC, 610 F.3d 497, 500-01 (7th Cir. 2010) (noting
that “an assignee for collection, who must render to the assignor the money collected by the
assignee’s suit on his behalf … can sue in his own name without violating Rule 17(a)”); Wright
& Miller, supra, § 1543 (“[T]he action will not necessarily be brought in the name of the person
who ultimately will benefit from the recovery.”). As long as a party possesses the legal right
being asserted, it does not matter that the proceeds of the litigation have been promised to
someone else. Thus, the circumstance that the arbitration panel thought dispositive under North
Carolina law, that Etransmedia no longer had any direct material interest in the resolution of the
Allscripts litigation, does not deprive Etransmedia of real-party-in-interest status under federal
law. And because the arbitration panel applied North Carolina real-party-in-interest law, its
decision is not preclusive where, as here, federal law applies. See Beckwith v. Llewellyn, 391
S.E.2d 189, 191 (N.C. 1990) (“A very close examination of matters actually litigated must be
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made in order to determine if the underlying issues are in fact identical. If they are not identical,
then the doctrine of collateral estoppel does not apply.”); see also B&B Hardware, Inc. v. Hargis
Indus., Inc., 135 S. Ct. 1293, 1306 (2015) (“[I]ssues are not identical if the second action
involves application of a different legal standard … .”) (internal quotation marks omitted).
The second reason that Allscripts’s issue preclusion argument fails is this: Even if the
arbitration panel had decided that Etransmedia was not a real party in interest under Federal Civil
Rule 17(a), it would not follow that Etransmedia lacks standing to pursue this suit. Lack of
standing is frequently confused with not being a real party in interest, but the two concepts are
distinct. See Lincoln Prop. Co. v. Roche, 546 U.S. 81, 90 (2005) (“Both Rules [17(a) and 19]
address party joinder, not federal-court subject-matter jurisdiction.”); Frank v. Hadesman &
Frank, Inc., 83 F.3d 158, 159 (7th Cir. 1996) (“Frank’s problem is not standing (in the sense that
the complaint does not allege a ‘case or controversy’ justiciable under Article III) but the identity
of the real party in interest.”). As noted, in federal court, the real party in interest is “the person
who possesses the right or interest to be enforced through litigation.” RK Co. v. See, 622 F.3d
846, 850 (7th Cir. 2010). By contrast, to establish standing, a plaintiff need not identify a
particular cause of action that might entitle her to relief. See Morrison v. YTB Int’l, Inc., 649
F.3d 533, 536 (7th Cir. 2011) (“That a plaintiff’s claim under his preferred legal theory fails has
nothing to do with subject-matter jurisdiction.”). As long as the complaint alleges that the
defendant injured the plaintiff in some concrete way and requests a valid form of judicial relief to
remedy the injury, Article III is satisfied. See ibid. (“Plaintiffs allege that they are victims of a
pyramid scheme that saddled them with financial loss, which YTB caused. The judiciary can
redress that injury by ordering YTB to pay money to the victims. Nothing more is required for
standing.”).
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Consequently, a plaintiff may have standing to seek relief for the defendant’s alleged
misconduct even though it has no viable statutory or common law right to obtain that relief. For
example, if a creditor assigns a delinquent debt to a third party, then the creditor no longer
possesses the right to enforce the debt, but she still has standing because she was injured by the
debtor’s nonpayment and her injury could be redressed through money damages. See Cranpark,
Inc. v. Rogers Grp., Inc., 821 F.3d 723, 733 (6th Cir. 2016) (“Just as White forfeited his
proprietary interest in the check by assigning it to the company, RGI argues Cranpark has done
the same with its legal claims. This, however, implicates Rule 17 not Article III.”). So, too,
here. Accordingly, even if Allscripts were correct that Etransmedia is no longer a real party in
interest under Federal Civil Rule 17 because it assigned all of its causes of action to the Former
Shareholders, Etransmedia still alleges that it was injured by Allscripts and asks for money
damages to redress the injury. Article III requires no more. See Morrison, 649 F.3d at 536.
II.
Whether The Complaint States Claims By The Former Shareholders
Allscripts next contends that the complaint does not assert any claims or seek any relief
on behalf of the Former Shareholders, who therefore are not proper plaintiffs. Doc. 15 at 6.
Civil Rule 8(a)(2) requires “a short and plain statement of the claim showing that the pleader is
entitled to relief,” Fed. R. Civ. P. 8(a)(2), but the complaint does not identify any claims by the
Former Shareholders. Only Etransmedia asserts claims and seeks relief. Doc. 1 at ¶¶ 106-176.
True, the complaint lists the Former Shareholders as parties, id. at ¶¶ 23-25, but it does not
actually allege that they in fact are Etransmedia’s former shareholders or explain how they might
recover from Allscripts.
The Former Shareholders’ only response is that because the arbitration panel determined
them to be the real parties in interest, “[u]nder [Rule] 17, the Former Shareholders have been
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properly named as Plaintiffs with respect to Etransmedia’s claims.” Doc. 20 at 8. As explained
above, the arbitration panel did not rule that the Former Shareholders are real parties in interest
under Federal Civil Rule 17. Even if the panel had done that, the Former Shareholders still
would need to allege that Allscripts injured them and to identify their claims. The Former
Shareholders are therefore dismissed from the case, but the dismissal is without prejudice to
repleading. See Runnion ex rel. Runnion v. Girl Scouts of Greater Chi. & Nw. Ind., 786 F.3d
510, 519 (7th Cir. 2015) (“Ordinarily, … a plaintiff whose original complaint has
been dismissed under Rule 12(b)(6) should be given at least one opportunity to try to amend her
complaint before the entire action is dismissed.”). This disposition renders it unnecessary to
address Allscripts’s other arguments for dismissing the Former Shareholders’ claims.
Conclusion
For these reasons, Allscripts’s motion to dismiss is granted in part and denied in part.
The Former Shareholders are dismissed without prejudice. Plaintiffs have until January 24, 2018
to file an amended complaint. If Plaintiffs file an amended complaint, Allscripts shall file its
response by February 7, 2018. If Plaintiffs do not file an amended complaint, the dismissal of
the Former Shareholders will convert automatically to a dismissal with prejudice, and Allscripts
shall answer the surviving portions of the complaint by January 31, 2018.
January 3, 2018
United States District Judge
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