MAD MOBILE INC v. MEIJER GREAT LAKES LIMITED PARTNERSHIP (2023)

ORDER GRANTING MEIJER'S MOTION TO COMPEL ARBITRATION AND DISMISS MAD MOBILE'S COMPLAINT

INTRODUCTION

In April 2019, Defendant Meijer Great Lakes Limited Partnership (“Meijer”) hired Plaintiff Mad Mobile, Inc. to develop software for customer and employee checkout terminals at Meijer's superstores. (ECF No. 1 ¶¶ 2, 19–21 at PageID.6). In March 2023 Meijer terminated the project with Mad Mobile. (Id. ¶¶ 47–49 at PageID.11–12). Several months later, on September 14, 2023, Mad Mobile filed a demand for arbitration pursuant to the dispute resolution provisions in the parties’ contract (“the Agreement”). (Id. ¶ 73 at PageID.17; ECF No. 24 at PageID.568). Mad Mobile also filed this action and moved for a preliminary injunction to prevent Meijer from using or disclosing Mad Mobile's proprietary technology—such as the source code for the software Mad Mobile developed for Meijer—until the arbitration is concluded. (ECF Nos. 1, 5). Many arbitration agreements permit the parties to obtain interim equitable relief from the Courts to preserve the status quo in aid of arbitration, but here, Meijer contends that the Agreement requires Mad Mobile to seek preliminary injunctive relief in arbitration, not the Courts. (ECF No. 30). Meijer therefore asks the Court to compel arbitration of all issues—including the possibility of interim equitable relief for Mad Mobile—and dismiss Mad Mobile's Complaint. After carefully reviewing the record and the parties’ arguments, the Court GRANTS Meijer's motion.

I. BACKGROUND

Mad Mobile specializes in developing point-of-sale software systems for customer and employee checkout terminals at retail stores and restaurants. (See, e.g., ECF No. 1 ¶¶ 12–15 at PageID.4–5; ECF No. 24 at PageID.522–49 (Supp. Kennedy Decl.)).¹ On April 19, 2019, Mad Mobile and Meijer entered into the “Mad Mobile Services and Support Agreement” (“the Agreement”). (ECF No. 1 ¶ 19 at PageID.6; ECF No. 24 at PageID.558–72). The Agreement provided that Mad Mobile would deliver and support the software described in the accompanying Statements of Work (“SOW”) to Meijer in exchange for development and licensing fees. (ECF No. 1 ¶¶ 20–21 at Page ID.6; ECF No. 24 at PageID.558–72). The Agreement also stated than any disputes would be resolved by arbitration. Section 13.2bis provides:

Arbitration. Any controversy or claim arising relating to this Agreement or any SOW will be determined only by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules.

(ECF No. 24 at PageID.568).² The next section, § 13.3, adds:

No Effect on Injunctive Relief. A party must follow and participate in the processes outlined in Sections 13.1 [“Cure Period”] and 13.2 [“Dispute Notice”] above before pursuing litigation or any other remedy. Notwithstanding the preceding sentence, Licensee [Meijer] shall not be precluded from seeking injunctive relief in connection with this Agreement or any SOW.

(Id.).

The parties’ first SOW stated that Mad Mobile would develop new point-of-sale software for Meijer's grocery store self-checkout lanes. (ECF No. 1 ¶¶ 26–27 at PageID.7). By November 2021, Mad Mobile's work had expanded to developing software for employee-facing checkout terminals used in various departments, including the pharmacy and deli. (Id. ¶¶ 30–31 at PageID.8). The parties met regularly to discuss their progress, and in late March 2023—after what Mad Mobile thought was one of these standard meetings—Meijer ended the project with Mad Mobile. (Id.). Mad Mobile maintains that Meijer has nonetheless continued to use Mad Mobile's proprietary technology to develop its software that it intends to use in its own business and to market in competition against Mad Mobile. (Id. ¶¶ 45–72 at PageID.11–16).

On September 14, 2023, Mad Mobile demanded arbitration under § 13.2bis of the Agreement. (ECF No. 1 ¶ 73 at PageID.17; ECF No. 24 at PageID.568). It then filed this action and moved for preliminary injunctive relief to prevent Meijer from using or disclosing Mad Mobile's proprietary technology until the arbitration is concluded. (ECF Nos. 1, 5). Even though §§ 13.2bis and 13.3 do not contain a carveout that explicitly permits Mad Mobile to seek preliminary injunctive relief in the Courts, Mad Mobile contends that § 14.3—part of the “Confidential Information” section of the Agreement—permits it to do so. (ECF No. 24; ECF No. 42 at PageID.1031–33). Section 14.3 states:

Recipient acknowledges that a breach of this Section 14 [i.e., unauthorized use or disclosure of a party's confidential information] will give rise to irreparable injury to the Disclosing Party, inadequately compensable in damages. Recipient hereby consents to Disclosing Party obtaining injunctive relief against the breach or threatened breach of the obligations contained in this Section 14. Recipient further agrees that such an order may be issued pending final determination thereof and without the requirement to post bond.

(ECF No. 24 at PageID.569). Meijer counters that § 14.3 says nothing about seeking relief in Court and in no way alters the obligation in § 13.2bis to settle every dispute “only by arbitration.” (ECF No. 30 at PageID.767–70). Meijer also argues that even the question of whether a preliminary injunction is for arbitration or for the Court is delegated to the arbitrator. (Id. at PageID.762–67). Either way, Meijer maintains that this dispute belongs in arbitration and not in this Court.

II. ANALYSIS

A. Delegation of Arbitrability Issues.

Section 2 of the Federal Arbitration Act (“FAA”) provides that a contractual agreement “to settle by arbitration a controversy thereafter arising out of such contract ․ shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract or as otherwise provided in chapter 4.” 9 U.S.C. § 2. This language permits parties to arbitrate both the merits of a dispute and “ ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.” Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019) (quotation omitted). The Court thus must first decide whether the parties’ dispute is a question of arbitrability that the Agreement reserved for the arbitrator. For questions of arbitrability such as this one, there must be clear and unmistakable evidence in the Agreement that Meijer and Mad Mobile agreed to have an arbitrator resolve this issue, otherwise the Court must decide it. Blanton v. Domino's Pizza Franchising, LLC, 962 F.3d 842, 844 (6th Cir. 2020). Whether clear and unmistakable evidence exists is a question of federal law. Id. at 846–47.

Meijer argues that § 13.2bis of the Agreement clearly and unmistakably delegates all threshold questions of arbitrability to the arbitrator because it requires that “Any controversy or claim arising relating to this Agreement ․ will be determined only by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules.” (ECF No. 24 at PageID.568 (emphases added)). The Court agrees. The language “any” and “only” is unqualified and all-encompassing. Moreover, the parties’ incorporation of the American Arbitration Association's (“AAA”) Commercial Arbitration Rules into their Agreement corroborates the scope of their chosen language in § 13.2bis. See Blanton, 962 F.3d at 845–46, and cases cited. AAA Commercial Rule 7(a) permits an arbitrator “to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of ․ the arbitrability of any claim ․ without any need to refer such matters first to a court.” (Sept. 2022). In addition, AAA Commercial Rule 38(a) empowers the arbitrator to “take whatever interim measures he or she deems necessary, including injunctive relief.” Thus, this is not a situation in which a party must resort to the Courts to freeze the status quo during arbitration—the arbitrator here has the power to do that herself. See Performance Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373, 1382 (6th Cir. 1995).³

In addition, neither § 13.2bis nor any other section of the Agreement excludes arbitrability disputes such as this one from arbitration under the AAA Commercial Arbitration Rules. Cf. United States v. Miraca Life Scis., Inc., No. 3:13-cv-1025, 2021 WL 679275, at *4 (M.D. Tenn. Feb. 22, 2021) (reaching arbitrability question whether parties could pursue interim equitable relief in the Courts because the parties’ agreement expressly exempted interim equitable relief from arbitration in accordance with the AAA Rules). As noted above, § 13.2bis does not carve out any claims, and to the extent that § 13.3 operates as a carveout based on its language allowing the “Licensee” to seek injunctive relief, it clearly does so only for Meijer. (ECF No. 24 at PageID.568).

Section 14.3—part of the “Confidential Information” section of the Agreement—fares no better for Mad Mobile. That provision acknowledges that a party that misuses or discloses confidential information “consents” to the other party “obtaining injunctive relief against the breach or threatened breach of the [confidentiality] obligations contained in this Section 14 ․ [and] that such an order may be issued pending final determination thereof and without the requirement to post bond.” (ECF No. 24 at PageID.569). But § 14.3 is in an entirely separate part of the Agreement than the other dispute resolution provisions, and it does not expressly allow parties to resort to the Courts for interim equitable relief. In light of the rest of the Agreement, the most plausible reading of § 14.3 is that it simply reiterates that the arbitrator can award interim injunctive relief to preserve the status quo during the arbitration process.

The Court therefore concludes that the Agreement's incorporation of the AAA Commercial Arbitration Rules without a carveout provision allowing Mad Mobile to seek preliminary injunctive relief in the Courts clearly and unmistakably shows that the parties’ dispute is a question reserved for the arbitrator. See Blanton, 962 F.3d at 852.

B. Scope of Arbitrability Provision.

Even if there was not clear and unmistakable evidence that the parties intended to delegate this arbitrability issue to the arbitrator, the Court would conclude that the Agreement bars Mad Mobile from seeking judicially-imposed preliminary injunctive relief in aid of arbitration. To decide this contract interpretation question, the Court “starts with a presumption that an arbitration agreement is governed by the contract law of the state whose laws otherwise apply to it.” AtriCure, Inc. v. Meng, 12 F.4th 516, 522 (6th Cir. 2021). Because § 15.7 of the Agreement states that it “shall be governed by and construed under the laws of the State of New York without regard to the conflicts of law provisions thereof,” (ECF No. 24 at PageID.570), the Court begins its analysis with New York contract law. In New York, a contract provision is unambiguous if—after considering the contract as a whole—it is subject to only one reasonable interpretation. See, e.g., Evans v. Famous Music Corp., 807 N.E.2d 869, 872 (N.Y. 2004).

The language of the Agreement meets this standard. Section 13.2bis is a broad and unqualified agreement to resolve “[a]ny controversy or claim ․ only by arbitration.” Any arguable carveout to this provision in § 13.3 turns only in favor of Meijer, not Mad Mobile. The strongest provision for Mad Mobile is § 14.3. But as discussed above, this section is not even in the dispute resolution portion of the Agreement, and it does not specifically state that the Courts—as opposed to the arbitrator—may impose interim equitable relief. Thus, the Agreement as a whole is amenable to only one reasonable interpretation: all disputes, including whether Mad Mobile is entitled to emergent injunctive relief, are reserved for the arbitrator, not the Courts.

Even if § 14.3 created an ambiguity, it would not help Mad Mobile. Section 2 of the FAA superimposes a federal presumption in favor of arbitration when the scope of an arbitration provision is ambiguous under state law. See AtriCure, 12 F.4th at 523. In this scenario, the Court “must interpret the agreement in favor of arbitration, no matter how state law would resolve the ambiguity.” Id. Applying the federal presumption in favor of arbitration here, the Court would conclude that even in the face of an ambiguity, the Agreement bars Mad Mobile from seeking preliminary injunctive relief in aid of arbitration in the Courts. Mad Mobile may only pursue such relief in arbitration.

C. Dismissal of Mad Mobile's Action.

The final question for the Court is whether to dismiss the action, as Meijer requests, or enter a stay pending arbitration. Under § 3 of the FAA, when a district court is “satisfied that the issue involved in such suit or proceeding is referable to arbitration ․ [it] shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement.” 9 U.S.C. § 3. The Sixth Circuit has interpreted this language as mandating a stay when a party requests one. Arabian Motors Grp. W.L.L. v. Ford Motor Co., 19 F.4th 938, 941 (6th Cir. 2021). Neither has done so here.

The Court thus retains discretion over whether to stay or dismiss this action. See Arabian Motors, 19 F.4th at 942. The Agreement clearly and unmistakably assigns to the arbitrator all questions concerning arbitrability, and under the terms of the Agreement and its incorporation of the AAA Commercial Arbitration Rules, the arbitrator has the power to both award the interim injunctive relief Mad Mobile requests here and to decide the underlying dispute. As such, the Court anticipates that its only potential role moving forward will be to enforce an arbitration award, so a dismissal is appropriate. A final order also has the advantage of creating an unambiguous pathway for appeal of the Court's decision—an option that would be unavailable to Mad Mobile if the Court imposed a stay. 9 U.S.C. §§ 16(a)(3), (b)(1).

ACCORDINGLY, IT IS ORDERED THAT Defendant Meijer's Motion to Compel Arbitration and Dismiss Plaintiff Mad Mobile's Complaint, (ECF No. 30), is GRANTED.

IT IS FURTHER ORDERED THAT Plaintiff Mad Mobile's Motion for Preliminary Injunctive Relief, (ECF No. 5), and Motion for Expedited Discovery, (ECF No. 16), are DISMISSED as moot. Similarly, Defendant Meijer's Motion for Leave to File a Sur-Reply in Opposition to Mad Mobile's Motion for a Preliminary Injunction, (ECF No. 57), and its accompanying Motion to Seal, (ECF No. 58), are DISMISSED as moot.

IT IS SO ORDERED.

FOOTNOTES

1.   A motion to compel arbitration is treated as a motion to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6). See, e.g., Barnabo v. Edward D. Jones & Co., LP, No. 2:23-cv-09, 2023 WL 2730218, at *1 (W.D. Mich. Feb. 28, 2023) (collecting cases). Accordingly, for purposes of deciding Meijer's motion, the Court accepts all well-pleaded factual allegations in Mad Mobile's Complaint as true. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–56 (2007).

2.   The Agreement erroneously contains two sections numbered “13.2.” The Agreement's arbitration provision is the second of these sections, so the Court will refer to the arbitration provision as § 13.2bis.

3.   Mad Mobile argues that AAA Commercial Arbitration Rule 38(c) (“Interim Measures”) and Rule 39(h) (“Emergency Measures of Protection”), “unambiguously confirm” that Mad Mobile can seek preliminary injunctive relief in the Courts in aid of arbitration. (ECF No. 42 at PageID.1030–31). Both rules state that “[a] request for interim measures addressed by a party to a judicial authority shall not be deemed incompatible with” an agreement to arbitrate. AAA Commercial Rules 38(c), 39(h). But “incompatibility or waiver is not the issue in this case.” iGlobal Exports, LLC v. Shoemaker, No. 4:22-cv-44, 2022 WL 4257488, at *3 (D. Utah Sept. 15, 2022). Instead, the issue is the arbitrability of Mad Mobile's motion for a preliminary injunction, and neither rule cited by Mad Mobile purports to supersede AAA Commercial Rule 7(a) or the parties’ otherwise clear and unmistakable language expressing an unlimited and unqualified intent to submit “[a]ny controversy or claim”—which is broad enough to cover arbitrability issues—to arbitration. See id.

ROBERT J. JONKER UNITED STATES DISTRICT JUDGE