Real Good Technologies, LLC v. Victory Solutions LLC

Filing 13

Order signed by Judge James S. Gwin on 8/12/15 granting defendant's motion to stay case and compel arbitration. (Related Doc. 10 ) (M,G)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
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REAL GOOD TECHNOLOGIES, LLC,
:
:
Plaintiff,
:
:
v.
:
:
VICTORY SOLUTIONS, LLC,
:
:
Defendant.
:
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CASE NO. 1:15-cv-01079

OPINION
[Resolving Doc. 10]

JAMES S. GWIN, UNITED STATES DISTRICT JUDGE:
Plaintiff Real Good Technologies, LLC (“Real Good”) sues Defendant Victory Solutions,
LLC “(Victory Solutions”) for breaching an asset purchase agreement and for defaulting on a
promissory note.1/ Victory Solutions moves to stay the case and compel arbitration.2/ For the
following reasons, the Court GRANTS Defendant Victory Solutions’s motion.
I. Background
On May 2, 2014, Real Good agreed to sell Victory Solutions all of its “software, intellectual
property, customer contracts, and other related assets” for $1,000,000.00.3/ The sale agreement
specified that “[i]n the event of any dispute between the parties under this Agreement, the matter
shall be settled by binding arbitration.”4/
The same day, the parties executed a promissory note laying out a payment schedule for the
sale. In that promissory note, the parties agreed that the terms of the asset purchase agreement

1/

Doc. 1.

2/

Doc. 10. Real Good opposes. Doc. 12.
Doc. 1-1 at 7.

3/
4/

Id. at 23.

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Case No. 1:15-cv-01079
Gwin, J.
controlled the note, that the note did not modify the asset purchase agreement; and that any conflict
between the terms of the note and the asset purchase agreement would be resolved in favor of the
purchase agreement.5/
Plaintiff Real Good now alleges that Defendant Victory Solutions has defaulted on the note.
Victory Solutions responds that Plaintiff Real Good broke the agreementbecause the purchased
software that was not operable, in breach of Real Good’s express warranties. Victory Solutions says
it has spend significant sums de-bugging the software as a result.
II. Standards
The Federal Arbitration Act (“FAA”) provides that arbitration clauses in commercial
contracts “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.”6/ If a court determines that the cause of action is covered
by an arbitration clause, it must stay the proceedings until the arbitration process is complete.7/
“[A] district court must make a number of threshold determinations before compelling
arbitration.” These include “determin[ing] whether the parties agreed to arbitrate” and “determin[ing]
the scope of that agreement.”8/ Any doubts regarding arbitrability should be resolved in favor of
arbitration.9/
III. Discussion

5/

Doc. 1-1. (“The terms and provisions of this Note are subject, in all respects, to the terms, conditions and
provisions of the asset purchase agreement. Nothing contained in this Note shall be deemed to modify, amend or
supersede any of the terms, conditions, or provisions of the Asset Purchase Agreement. In the event of a conflict between
the terms and provisions of this Note and Asset Purchase Agreement, the terms of the Asset Purchase Agreement shall
govern and control.”)
6/

9 U.S.C. § 2.

7/

Id. at § 3.

8/

Fazio v. Lehman Bros., 340 F.3d 386, 392 (6th Cir. 2003).

9/

Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983).

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Case No. 1:15-cv-01079
Gwin, J.
Plaintiff Real Good opposes arbitration, and maintains that “[t]he parties in this case did not
intend or agree to arbitrate the sums due and owning under the terms of the promissory note.”4/ In
support, Real Good points to a section of the promissory note that reads “[t]he Holder may pursue
all remedies now or hereafter existing at law or in equity to collect all amounts due” under the note.
Real Good’s argument contradicts the clear language of both the asset purchase agreement
and the promissory note. The asset purchase agreement controls the note, and any conflict between
the note and the purchase agreement must be resolved in favor of the purchase agreement. The fact
that the promissory note does not contain an arbitration provision is therefore irrelevant. The note
is subsidiary to the purchase agreement, and was executed as consideration for the agreement itself.
Real Good’s position is that a breach of the agreement itself must be arbitrated, but failure
to make payments as required under the agreement should not be subject to arbitration. But these
events cannot be logically separated, and adopting this interpretation would render the purchase
agreement’s arbitration provision meaningless.
Real Good also references language in the asset purchase agreement that for default on the
note, “Seller may pursue any and all other remedies at law or equity, anything else in this Agreement
to the contrary notwithstanding.” Again, Real Good’s interpretation of this language would render
the arbitration provision meaningless. The Court resolves ambiguities in favor of arbitration, and
finds that a default on the note cannot be separated from underlying disputes about the contract itself.
The parties’ briefing itself illustrates this principle. Plaintiff Real Good says that Defendant
Victory Solutions has not made the promised payments under the note. But Victory Solutions
responds that the payments are not due because Real Good breached a warranty under the agreement.
4/

Doc. 12 at 3.

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Case No. 1:15-cv-01079
Gwin, J.
The Court cannot determine that Victory Solutions is liable on the note without determining whether
Real Good actually upheld its part of the bargain. Therefore, the best way to resolve the entire
dispute is arbitration, as the parties originally contemplated.
Finally, Real Good pleads unjust enrichment and promissory estoppel, equitable causes of
action that Real Good maintains should not be arbitrated. But the arbitration provision covers “any
dispute” between the parties, not just breach of contract or default on the note. Real Good cannot
plead around the arbitration provision by invoking equitable, rather than legal principles. The same
underlying facts exist for all of Real Good’s causes of action, meaning that arbitration is the
appropriate forum to resolve them once and for all, rather than in a piecemeal fashion.
Therefore, the Court’s GRANTS Victory Solutions’s motion to stay the case and compel
arbitration. The case is STAYED until the arbitration is complete.
IT IS SO ORDERED.

s/
James S. Gwin
JAMES S. GWIN
UNITED STATES DISTRICT JUDGE

Dated: August 12, 2015

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