Agnesian Healthcare Inc v. Cerner Corporation
ORDER signed by Judge J.P. Stadtmueller on 12/8/2017: GRANTING 5 Defendant's Motion to Dismiss and DISMISSING CASE without prejudice for improper venue. (cc: all counsel) (jm)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
AGNESIAN HEALTHCARE INC.,
Case No. 17-CV-1254-JPS
Plaintiff, Agnesian Healthcare Inc. (“Agnesian”), filed this breach of
contract action against Defendant, Cerner Corporation (“Cerner”), in Fond
du Lac County Circuit Court. The case was removed to this Court based on
the Court’s diversity jurisdiction under 28 U.S.C. § 1332. (Docket #1). Cerner
has now moved to dismiss the complaint, contending that the parties
entered into a binding arbitration agreement that requires Agnesian’s
claims to be submitted to arbitration in Missouri. (Docket #5). Agnesian
opposes the motion, claiming that if arbitration is to occur, it must be in
Wisconsin. See (Docket #15). For the reasons stated below, the Court must
grant Cerner’s motion and dismiss this action.
Federal Rule of Civil Procedure 12(b)(3) permits dismissal of a case
when it is filed in an improper venue. “[A] motion to dismiss based on a
contractual arbitration clause is appropriately ‘conceptualized as an
objection to venue, and hence properly raised under Rule 12(b)(3).’”
Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, 807 (7th Cir. 2011)
(quoting Auto. Mechs. Local 701 Welfare & Pension Funds v. Vanguard Car
Rental USA, Inc., 502 F.3d 740, 746 (7th Cir. 2007)). This is because arbitration
clauses are considered a species of forum selection clause. Auto. Mechs. Local
701, 502 F.3d at 746; Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515
U.S. 528, 533–34 (1995).
Agnesian is a Wisconsin non-profit corporation based in Fond du
Lac, Wisconsin. (Docket #1-1 ¶ 7). Cerner is a Delaware corporation, and its
principal place of business is in Kansas City, Missouri. Id. ¶ 8. Cerner’s
principal place of business is located within the jurisdiction of the United
States District Court for the Western District of Missouri.
On March 25, 2004, Cerner and Agnesian entered into the Cerner
Business Agreement (the “Agreement”). (Docket #1-1, Ex. B).1 The
Agreement provided for the sale and license of several Cerner software
products and services. The Agreement contains the following arbitration
D. Arbitration and Injunctive Relief. In the event of any
disagreement or dispute between the parties, Cerner and
[Agnesian] agree to work cooperatively to resolve the dispute
amicably as set forth in this Section 9.3, or at other
appropriate, mutually determined management levels. In the
event that a resolution at such management levels does not
occur, either party may submit the dispute to binding
arbitration at a site in the state of the principal place of
business of the non-petitioning party under the then
prevailing rules of the American Arbitration Association, Inc.,
a New York Corporation[.]
Id. ¶ 9.3(D).
The Court can consider the terms of the Agreement without transforming
Cerner’s motion from a motion to dismiss into a motion for summary judgment,
since the document is central to the case and Agnesian, which attached the
document to its complaint, does not challenge its authenticity. See Fed. R. Civ. P.
12(d); Fed. R. Civ. P. 10(c); Hecker v. Deere & Co., 556 F.3d 575, 582 (7th Cir. 2009).
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On June 10, 2014, Cerner and Agnesian entered into a Cerner Sales
Order. This document is also attached to Agnesian’s complaint. (Docket #11, Ex. A). The June 2014 Sales Order provides that it is “subject to, and
incorporates by reference, the Cerner Business Agreement, dated March 25,
2004, between the Client and Cerner.” Id. at 1.
On August 16, 2017, Agnesian filed a complaint against Cerner in the
Circuit Court of Fond du Lac County, alleging breach of warranty and
misrepresentation claims. The claims in this case arise from and center
around the Agreement and the June 2014 Sales Order.
The parties’ dispute in this case is not whether arbitration, once
invoked, is mandatory.2 Rather, Agnesian says that if it is forced to arbitrate,
it wants to do so in its home state of Wisconsin, while Cerner believes that
arbitration must occur in Missouri. Cerner asks that the Court dismiss the
case so that the parties can seek an order compelling arbitration in the
Agnesian suggests in a single footnote that there may be some doubt as to
whether the arbitration provision covers the claims it asserts here, reasoning that
the arbitration provision only pertains to claims arising from the Agreement itself.
(Docket #15 at 3 n.3). But off-hand remarks in footnotes are not the proper way to
raise arguments, Harmon v. Gordon, 712 F.3d 1044, 1053 (7th Cir. 2013), and in any
event, the breadth of the language “any disagreement or dispute between the
parties” in the arbitration clause, coupled with the incorporation of the Agreement
into the June 2014 Sales Order, convinces the Court that the present claims fall
within the arbitration provision. Welborn Clinic v. MedQuist, Inc., 301 F.3d 634, 639
(7th Cir. 2002) (“[A] court should compel arbitration ‘unless it may be said with
positive assurance that the arbitration clause is not susceptible of an interpretation
that covers the asserted dispute.’”) (quoting United Steelworkers of Am. v. Warrior &
Gulf Navigation Co., 363 U.S. 574, 582–83 (1960)). Moreover, Agnesian later
undermines its own argument on this point, stating that “the issue presented by
Cerner’s Motion on venue is the location of arbitration, not arbitrability.” (Docket
#15 at 9 n.9).
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Western District of Missouri. See Faulkenberg, 637 F.3d at 808 (a district court
may not compel arbitration in another district).3
Cerner’s argument has two parts. First, it claims that the Agreement
did not authorize Agnesian to choose between initiating a lawsuit and
submitting its dispute to arbitration. (Docket #6 at 4). Rather, the Agreement
leaves the parties only one recourse—arbitration—should their informal
meet-and-confer efforts fail. Id. Second, it follows that Cerner is the “nonpetitioning party” in this dispute and that, as a result, the Agreement
mandates the arbitration take place in the Western District of Missouri,
where Cerner maintains its principal place of business. Id. at 5.
Agnesian responds that it is not the petitioning party merely because
it filed this lawsuit. (Docket #15 at 2). It reasons that the arbitration
provision does not require Agnesian to submit the dispute to arbitration
initially. Id. Rather, the provision states that “either party may submit the
dispute to binding arbitration[.]” (Docket #1-1, Ex. B ¶ 9.3(D) (emphasis
added)). Thus, says Agnesian, it was entitled to initiate litigation rather than
seek arbitration from the start. (Docket #15 at 3–6). Cerner, nevertheless,
maintains that Agnesian was required to proceed only in arbitration.
(Docket #16 at 4). Cerner says that the proper interpretation of the
permissive language in the arbitration clause is that “the plaintiff ‘has a
choice between pursuing claims in arbitration and abandoning them
Cerner also suggests that the Court could simply transfer this case to the
Western District of Missouri, citing Haber v. Biomet, Inc., 578 F.3d 553, 558 (7th Cir.
2009). True, the Seventh Circuit in that case suggested that a transfer of venue
might be sought in a case like this one. See id. But the Seventh Circuit more clearly
stated that “[w]hen a complaint requesting arbitration is filed in the wrong forum,
the appropriate response is for the opposing party to file a motion to dismiss,
which should then be granted by the court.” Id. The Court will hew to this protocol.
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altogether.’” Id. (quoting PTA-FLA, Inc. v. ZTE USA, Inc., No. 3:11-CV-510J-32JRK, 2011 WL 5024647, at *4 (M.D. Fla. Oct. 21, 2011)).
Agnesian’s view of the arbitration clause is not indefensible, but the
Court finds that Cerner’s is the more logical reading, and the one more
consistent with long-standing interpretations of similar language. Under
Agnesian’s reading, the “either party may” language gives it the option to
seek relief in court, leaving Cerner the task of invoking arbitration if it
chooses. However, recall that the arbitration provision requires the parties
to first engage in informal meet-and-confer efforts at various specified
management levels in an attempt to resolve any disputes between them.
(Docket #1-1, Ex. B ¶ 9.3(D)). The clause then provides that, “[i]n the event
that a resolution at such management levels does not occur, either party
may submit the dispute to binding arbitration[.]” Id. When considered in
context, the use of the word “may” simply indicates that if meet-and-confer
efforts fail, either party is allowed to continue the dispute resolution
process in arbitration. “May” therefore refers to the availability of a next
step in dispute resolution—arbitration—and is not meant to provide that
arbitration is one among a range of next steps in that process. Thus, Cerner’s
interpretation fits better within the arbitration provision as a whole.
Not only is Cerner’s interpretation of the provision linguistically
stronger than Agnesian’s, it is also in line with the Seventh Circuit’s
interpretation of a similar arbitration provision in Ceres Marine Terminals,
Inc. v. International Longshoremen’s Association, 683 F.2d 242, 246 (7th Cir.
1982). There, an employer sued a union over alleged violations of the
collective bargaining agreement. Id. at 243. The union moved to compel
arbitration as provided in the agreement. Id. The agreement set forth a
detailed dispute resolution process, including an informal grievance
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procedure that had to be completed before a party could pursue arbitration.
Id. at 244. Once that grievance process was completed, the contract stated
that a dissatisfied party “may” seek arbitration. Id. at 245.
The employer believed that this permissive language allowed it to
forgo arbitration and file a lawsuit, but the Court of Appeals disagreed. Id.
The Seventh Circuit observed that even if a contract “uses the word ‘may’
or other facially ‘permissive’ language in establishing arbitration
procedures,” it “does not necessarily give a party to that agreement the
option of either submitting its claim to arbitration or by-passing arbitration
and seeking immediate recourse to the courts.” Id. at 246. Rather, the use of
the word “may” meant that the aggrieved party had two options: continue
the dispute resolution process in arbitration or relinquish its claim entirely.
Id. Put differently, the term “may” was included in the contract to show that
arbitration could be sought only once the preliminary, informal process was
exhausted; it was not meant to give leave litigation as an avenue for the
aggrieved party once that process was completed. See id. at 247.
Indeed, the Seventh Circuit so concluded even though another
provision of that contract—which has no analogue in the Agnesian-Cerner
Agreement—provided that the employer could seek “any other remedy” in
addition to the grievance-arbitration procedure. See id. at 245–47.
Consequently, evaluating the relevant provisions in context, the Seventh
Circuit concluded that arbitration was the employer’s only permissible
resort for the dispute in question. Id. at 247. This approach is consistent with
holdings from many other Circuit courts. See Austin v. Owens-Brockway
Glass Container, Inc., 78 F.3d 875, 879 (4th Cir. 1996); United Steelworkers of
Am. v. Fort Pitt Steel Casting, 598 F.2d 1273, 1279 (3d Cir. 1979); Local 771,
I.A.T.S.E. v. RKO General, Inc., 546 F.2d 1107, 1116 (2d Cir. 1977); J. C. Bonnot
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v. Congress of Indep. Unions Local #14, 331 F.2d 355, 359 (8th Cir. 1964); see
also Allis–Chalmers Corp. v. Lueck, 471 U.S. 202, 204 n.1 (1985) (“The use of
the permissive ‘may’ is not sufficient to overcome the presumption that
parties are not free to avoid the contract's arbitration procedures.”).
The Seventh Circuit’s analysis in Ceres maps directly onto the present
dispute. In fact, Agnesian’s position is weaker than that of the employer in
Ceres, since Agnesian has directed the Court to no other provision of the
Agreement corroborating its construction of the arbitration clause. Thus,
although the Seventh Circuit conceded that the Ceres agreement might be
ambiguous, Ceres, 683 F.2d at 247, here there is little, if any, ambiguity. The
Agreement sets forth a sequential dispute resolution process, and the final
step is arbitration—or nothing. Bonnot, 331 F.2d at 359 (“The obvious
purpose of the ‘may’ language is to give an aggrieved party the choice
between arbitration or the abandonment of its claim.”)
Agnesian’s cited authorities do not suggest otherwise. Take, for
instance, Benihana of Tokyo, LLC v. Benihana, Inc., 73 F. Supp. 3d 238, 249
(S.D.N.Y. 2014). Agnesian cites this case for the following proposition: “that
a party ‘may’ elect to submit a dispute to binding arbitration merely means
that neither party is obliged to initiate (‘submit a dispute to’) arbitration.”
Id. While facially supportive of Agnesian’s argument here, the statement is
plucked out of context.
In that case, one corporation sued another over termination of a
license agreement. See id. at 244–45. The defendant moved to compel
arbitration under the parties’ agreement. Id. The contract provided that a
dispute about termination “shall be settled by arbitration,” while for “any
other dispute” between the parties, “either party. . .may elect to submit the
dispute to arbitration.” Id. at 244. The agreement stated that the right to elect
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to arbitrate other disputes “shall not be exclusive of any other rights which
a party may have to pursue a course of legal action in an appropriate
The plaintiff contended that arbitration of the dispute in question,
which fell under the “other disputes” clause, was not required. Id. at 249.
Because a party “may” elect for arbitration of those disputes, the plaintiff
reasoned that arbitration was optional and that the party could institute a
lawsuit instead. Id. Moreover, the plaintiff asserted that it could not be
forced to arbitrate even upon the defendant’s request. Id. The district court
disagreed, noting that the permissive language in the agreement meant
only that the plaintiff was not required to initiate arbitration. Id. If his
opponent demanded it, however, arbitration was mandatory. Id.
Benihana is distinguishable from this case, and for reasons the district
court itself observed. There, the arbitration provision reserved to the parties
the right to “pursue a course of legal action in an appropriate forum” rather
than seek arbitration. Id. at 244. The Agreement between Agnesian and
Cerner gives no such leeway. By its plain terms, it provides that the only
additional step in dispute resolution following informal meet-and-confer
efforts can be arbitration. The district court in Benihana appreciated this
distinction when it discussed RKO General, the Second Circuit case
espousing the same view of permissive arbitration language that was
adopted in Ceres. See id. at 250. In RKO General, the contract did not “impl[y]
that the parties had the option of invoking some remedy other than
arbitration.” RKO General, 546 F.2d at 1116. Thus, the issue in RKO General
was “whether arbitration was the exclusive remedy available to the parties,
so as to bar a federal-court lawsuit.” Benihana, 73 F. Supp. 3d at 250
(emphasis in original). “RKO General did not, however, concern the issue
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here, which is whether, upon a motion to compel, arbitration is
compulsory.” Id.; see also James River Ins. Co. v. Atl. Bldg. Sys., LLC, Civil
Action No. 16–cv–01981–MSK–NYW, 2017 WL 1862303, at *4 (D. Colo. May
9, 2017) (addressing whether one party could demand arbitration, not
whether arbitration was the exclusive remedy in a dispute); Smith v. AHS
Okla. Heart, LLC, No. 11–CV–691–TCK–FHM, 2012 WL 3156878, at *1 (N.D.
Okla. June 6, 2012) (same).
This explanation makes clear that RKO General is far more analogous
to the present circumstances than Benihana. As in RKO General, the
Agreement here does not suggest that the parties may seek some other
remedy besides arbitration. Crucially, the reservation of litigation rights in
the Benihana contract has no counterpart in the Agnesian-Cerner
Agreement. Put simply, this case is not about whether Cerner has the right
to invoke arbitration; Agnesian readily concedes this. (Docket #15 at 2).
Rather, the question here is whether Agnesian had the right to open the
dispute in court if it desired. The language of the Agreement, coupled with
the teachings of the cases discussed above, obliges the Court to answer that
question in the negative.
The Court’s conclusion is also congruent with Wisconsin’s approach
to contract interpretation. In interpreting arbitration provisions, courts
generally apply state contract law, and in this case the Agreement provides
that it must be interpreted under Wisconsin law. See James v. McDonalds
Corp., 417 F.3d 672, 677 & n.2 (7th Cir. 2005); (Docket #1-1 Ex. B ¶ 9.15).
Wisconsin courts seek to “give effect to the parties’ intent, as expressed in
the contractual language.” Seitzinger v. Cmty. Health Network, 676 N.W.2d
426, 433 (Wis. 2004). To do so, the court must read the language “consistent
with what a reasonable person would understand the words to mean under
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the circumstances.” Id. Here, a common-sense and contextual reading of the
arbitration provision leads to Cerner’s interpretation. Agnesian’s reading,
while theoretically possible and not foreclosed by the text of the Agreement,
is at odds with what numerous Circuit courts have found to be a reasonable
interpretation of nearly identical language.4
Indeed, to find otherwise would place Cerner in the unenviable
position of having to initiate arbitration against itself in order to avoid court
action. Undeniably it is Agnesian, and not Cerner, who seeks to initiate a
dispute. Although Agnesian is the aggressor, it seeks to gain a favorable
venue by filing a lawsuit and placing the onus on Cerner to invoke
arbitration. This would, in turn, make Cerner the party petitioning for
arbitration and force it to arbitrate in Agnesian’s home state. (Docket #1-1,
Ex. B ¶ 9.3(D)) (providing that arbitration must occur “at a site in the state
of the principal place of business of the non-petitioning party”). Such
gamesmanship cannot be tolerated; if Agnesian has a dispute with Cerner,
the contract says that it must take its complaint to Cerner. This is true
notwithstanding the fact that Cerner may not at present have made a formal
motion to compel arbitration. See Sims v. Montell Chrysler, Inc., 317 F. Supp.
2d 838, 841 (N.D. Ill. 2004) (a defendant may seek a stay of proceedings in
favor of arbitration even though it has not yet sought to compel arbitration).
In the end, even if the Court found that Agnesian’s construction of the
arbitration clause was colorable, it must resolve ambiguities in favor of
arbitration, not against it. Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Because the plain meaning of the arbitration clause belies Agnesian’s
interpretation, the Court need not and cannot place any weight on its citation to
extrinsic sources, such as the American Arbitration Association rules or the
provisions of the Federal Arbitration Act. See Seitzinger, 676 N.W.2d at 433.
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Corp., 460 U.S. 1, 24–25 (1983). Thus, the Court finds that Agnesian’s
decision to initiate litigation was not permitted under the Agreement,
making venue in this District inappropriate.
This case must be dismissed for improper venue because Agnesian
was not allowed under the parties’ contract to initiate a lawsuit rather than
arbitration. Although it appears that the parties will agree to arbitrate if it
is sought in Missouri, the Court leaves any question of the enforceability of
the arbitration provision for the Western District of Missouri to decide, if
necessary. No formal demand for arbitration has been made, and so the
Court has no occasion to decide whether it should be enforced.
IT IS ORDERED that Defendant’s motion to dismiss (Docket #5) be
and the same is hereby GRANTED; and
IT IS FURTHER ORDERED that this case be and the same is hereby
DISMISSED without prejudice for improper venue.
The Clerk of the Court is directed to enter judgment accordingly.
Dated at Milwaukee, Wisconsin, this 8th day of December, 2017.
BY THE COURT:
J. P. Stadtmueller
U.S. District Judge
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