Opinion
CASE NO. 1:03-cv-0682-DFH.
June 26, 2003.
ENTRY ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION AND DEFENDANT'S MOTION TO DISMISS OR TRANSFER
Plaintiff Gilbert F. Viets filed this diversity action on May 12, 2003 to block an arbitration proceeding that defendant Arthur Andersen LLP has initiated in Chicago, Illinois. Viets filed with his complaint a motion for a temporary restraining order and preliminary injunction to stop the arbitration pending a final judgment. In a conference with counsel for both parties, an agreement was reached to hold a hearing on June 13, 2003. Both parties submitted written evidence and briefs, and the court heard argument.
The court denies plaintiff's motion for a preliminary injunction. At the same time, the court grants defendant's motion for a transfer of venue to the Northern District of Illinois where the arbitration is pending. Pursuant to Rules 52 and 65 of the Federal Rules of Civil Procedure, the court now states its findings of fact and conclusions of law.
Both motions depend, at their cores, on whether an agreement existed between the parties to arbitrate the claims in question. The evidence before the court shows that Viets and Arthur Andersen had an agreement to arbitrate disputes such as those in the pending demand for arbitration, and to do so in Chicago. Viets has some arguable defenses to the demand for arbitration, but those defenses go to the validity, scope, and/or enforceability of the arbitration provision. Under the terms of the arbitration provision, such questions do not justify a court injunction to stop the arbitration. To the extent any court has a role to play here, it must be a court in Chicago, where the arbitration is pending.
I. Viets' Claims
Arthur Andersen LLP was of course until recently one of the "big five" public accounting firms. The headquarters for the firm's (once) worldwide operations have always been in Chicago. The firm is an Illinois limited liability partnership, and the documents establishing the firm have provided that Illinois law shall govern their interpretation.
At the time this action was filed, Arthur Andersen had only four partners, and all were Illinois citizens for purposes of 28 U.S.C. § 1332. Plaintiff Viets is a citizen of Indiana.
Plaintiff Gilbert Viets was a partner in Arthur Andersen when he took early retirement in June 2000 after more than 35 years with the firm. Viets was the Office Managing Partner of the firm's Indianapolis office. Viets expected to receive substantial early retirement benefits beginning immediately, as well as more modest "basic retirement benefits" starting a few years later when he turned 62.
After Viets retired, Arthur Andersen became embroiled in the widely publicized demise of Enron Corporation. Enron restated its earnings in October 2001, and government investigations of Enron and Arthur Andersen ensued. One Arthur Andersen partner pled guilty to federal criminal charges. The firm itself was indicted, tried, and convicted on a federal obstruction of justice charge.
In the wake of these events, Arthur Andersen partners engaged in what Viets describes as a mass exodus, one that became nearly complete after the firm was convicted. According to Viets, Arthur Andersen partners left the firm and joined competing public accounting firms. Viets alleges that the departing partners breached fiduciary, trade secret, and non-competition obligations to Arthur Andersen (and to him). Viets also alleges that Arthur Andersen's new management improperly agreed to release departing partners from their noncompetition obligations for payments of $100,000 each, which Viets alleges was an unreasonably low sum, at least in many individual cases.
According to Viets, Arthur Andersen is now merely a shell with only four partners (each of which is an Illinois professional corporation). Those remaining partners are engaged in winding up the business of this once almost iconic public accounting firm. In November 2002, these managers decided that Arthur Andersen would stop paying early retirement benefits and basic retirement benefits. The consequences for retired Arthur Andersen partners like Viets are, the court assumes, dramatic and draconian. Viets alleges that the damages to him exceed $2.4 million.
Viets responded by filing a putative class action in an Indiana state court against several accounting firms that former Arthur Andersen partners had joined. In April 2003, he amended his state court complaint to add claims against former Arthur Andersen partners themselves. Arthur Andersen itself is not a party to the Indiana state court action. Arthur Andersen then filed with the American Arbitration Association (AAA) a demand against Viets for arbitration in Chicago, Illinois. The demand for arbitration alleges that Viets' filing of his lawsuit and his public disclosure of information in connection with that lawsuit breached Viets' own obligations under the Arthur Andersen partnership agreement. The demand for arbitration seeks injunctive relief, the return of the firm's earlier payments to Viets, additional compensatory damages, and a determination that Viets' breaches of contract forfeited any contractual right to retirement benefits.
Viets responded to the demand for arbitration by filing this action in an Indiana federal court seeking to enjoin the Chicago arbitration. The complaint in this action surely reaches the outer limits of Rule 8, which calls for a "short and plain statement of the claim showing that the pleader is entitled to relief." Its 51 pages and 270 rhetorical paragraphs certainly detail Viets' theories. In Counts One, Two, Three, and Four, Viets seeks to enjoin the arbitration that Arthur Andersen initiated. In Count Five, Six, Seven, and Eight, Viets alleges that Arthur Andersen has breached contracts requiring payment of early retirement benefits and basic retirement benefits. Count Nine alleges promissory estoppel, while Counts Ten and Eleven allege equitable estoppel. Count Twelve alleges unjust enrichment. Count Thirteen alleges a fraudulent transfer of assets, and Count Fourteen seeks to impose a constructive trust.
II. Standard for Preliminary Injunction
To obtain a preliminary injunction, Viets as the moving party must demonstrate that he has a reasonable likelihood of ultimate success on the merits, that he has no adequate remedy at law, and that he will suffer irreparable harm if preliminary relief is denied. If the moving party passes that threshold, the court will then consider any irreparable harm an injunction would cause to the other party, as well as the public interest, meaning the effects the court's decision will have on non-parties. See Eli Lilly Co. v. Natural Answers, Inc., 233 F.3d 456, 461 (7th Cir. 2000); Abbott Laboratories v. Mead Johnson Co., 971 F.2d 6, 11-12 (7th Cir. 1992)
III. Likelihood of Success on the Merits
When a court is asked to enjoin or compel arbitration, the court must keep in mind two fundamental principles of arbitration law. First, "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." ATT Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648 (1986). Second, "the question of arbitrability — whether a collective-bargaining agreement creates a duty for the parties to arbitrate the particular grievance — is undeniably an issue for judicial determination. Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator." Id. at 649.
To remain true to these principles, the court must first determine whether an agreement to arbitrate exists at all. See 9 U.S.C. § 4 (court, "upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue," shall order arbitration); Three Valleys Municipal Water Dist. v. E.F. Hutton Co., 925 F.2d 1136, 1140-42 (9th Cir. 1991) (whether parties ever entered into agreement to arbitrate was threshold issue for court to decide); National R.R. Passenger Corp. v. Boston and Maine Corp., 850 F.2d 756, 761 (D.C. Cir. 1988) ("if the parties disagree as to whether they ever entered into any arbitration agreement at all, the court must resolve that dispute").
If an agreement to arbitrate exists and if the parties disagree about its validity or scope as applied to the particular case, the court must then consider "who — court or arbitrator — has the primary authority to determine whether a party has agreed to arbitrate." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). Courts typically assume that parties to a contract intended courts to decide such threshold matters as "whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy." Green Tree Financial Corp. v. Bazzle, slip op. at 6, 539 U.S. ___, ___ (June 23, 2003). But that assumption may be rebutted. Where an agreement reflects "clear and unmistakable" evidence of an agreement to let the arbitrator decide arbitrability, the court must allow the arbitrator to make that decision. First Options of Chicago, 514 U.S. at 944.
Plaintiff Viets agrees that he was a party to the 1995 version of the Arthur Andersen partnership agreement. Article 39 of the 1995 agreement includes a broad arbitration provision:
Any and all disputes which cannot be settled amicably, including any ancillary claims of any partner, arising out of or in connection with this agreement ( including the validity, scope and enforceability of this arbitration provision) shall be finally settled by arbitration, conducted by a single arbitrator in Chicago, Illinois.
Viets Ex. 3, Art. 39 (emphasis added). Article 39 contains additional details regarding arbitration procedure, but they are not relevant here.
Viets also reaffirmed the terms of the 1995 agreement, including its arbitration provision, when he retired in June 2000. At that time, Viets received and signed a so-called "determination statement" that specified the calculations of his capital account, his income for fiscal 2000, and his expected early retirement benefits and basic retirement benefits. As part of the transaction, Viets accepted the calculations and also stated: "I reaffirm my intention to comply with continuing obligations under my Member Firm's organizational document(s), as presently in effect, binding on former partners including restrictions on future activities." Viets Ex. 6.
Viets' signature on the 1995 Arthur Andersen partnership agreement with its broad arbitration provision removes any concerns about "bootstrapping" to force Viets to arbitrate a dispute he never agreed to arbitrate. Cf. Three Valleys Municipal Water District, 925 F.2d at 1140 (distinguishing between challenges to the making of arbitration agreement, which court must decide, and challenges seeking to avoid or rescind a contract that was admittedly made, which arbitrator may decide); Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 869 (7th Cir. 1985) (noting "severe problem of bootstrapping if a party to a contract could be forced to arbitrate the question whether he had been coerced or deceived into agreeing to arbitrate").
The claims included in Arthur Andersen's demand for arbitration plainly fall within the broad scope of the arbitration provision of the 1995 partnership agreement that Viets signed. The terms "any and all disputes . . . arising out of or in connection with this agreement (including the validity, scope and enforceability of this arbitration provision)," make this arbitration agreement very broad. Most important here, by the express terms of the agreement, the parties gave issues about the validity, scope, and enforceability of the arbitration provision to the arbitrator to decide. See, e.g., Air Line Pilots Ass'n, Int'l v. Midwest Express Airlines, Inc., 279 F.3d 553, 555-56 (7th Cir. 2002) (finding "clear and unmistakable" intention to submit arbitrability to arbitrator; "when an arbitration clause is so broadly worded that it encompasses disputes over the scope or validity of the contract in which it is embedded, issues of the contract's scope or validity are for the arbitrators"); Telectronics Pacing Systems, Inc. v. Guidant Corp., 143 F.3d 428, 432-33 (8th Cir. 1998) (same).
Despite the existence of the broad arbitration provision in the 1995 partnership agreement, Viets argues that the pending arbitration should be enjoined because no agreement to arbitrate now exists between him and Arthur Andersen. To support that view, Viets offers two theories. First, he argues that the Arthur Andersen partnership itself was not a party to the 1995 partnership agreement, and that Arthur Andersen itself should not be allowed to enforce the arbitration provision. Second, he argues that the Arthur Andersen partnership agreement was replaced later in 2000 so as to extinguish his obligation to arbitrate under the 1995 agreement. As explained below, both arguments affect at most only the validity, scope, and enforceability of an agreement to arbitrate that undoubtedly exists. Accordingly, under the terms of the agreement to arbitrate that Viets signed, they present issues for an arbitrator to decide rather than reasons to enjoin the pending arbitration.
A. The Role of the Arthur Andersen Partnership:
On the first theory, Viets points out that there is no signature line in the partnership agreement for Arthur Andersen itself. He cites Frazier v. Dettman, 569 N.E.2d 1382, 1387 (Ill.App. 1991), which recognized a distinction between a partnership and its partners, but does not help his case. Frazier held that, after a partnership had dissolved, one former partner could not sue a former employee to enforce a covenant not to compete. Writing for the Illinois appellate court, now-District Judge Reinhard concluded first that the dissolved partnership could not enforce the covenant. That conclusion was based on the dissolution, which removed any legitimate business interest in limiting competition, and not on any theory that a partnership itself could not enforce the contract. Id. at 1386-87. The court then concluded that the individual partners of the former partnership could not sue to enforce a contract the employee had made with the partnership itself. Id. at 1387.
Frazier does not help Viets here because the 1995 partnership agreement expressly provides that Arthur Andersen itself may enforce, for example, its non competition terms against former and retired partners. See Viets Ex. 3, Art. 26(B). Also, the partnership agreement gives many other rights to the firm itself. See Articles 16(B) (C), 21(B), 23, 30(C), and 35 (rights to enforce payment of capital requirements and other sums owed by departing partners; to enforce partners' and former partners' obligations not to sue partnership or its clients; to force partners to purchase ex-spouses' shares of interests; and to enforce promise not to challenge partnership's tax returns). Illinois statutes have given partnerships, at least since 1989, the express right to sue and be sued in the firm name, as well as in the names of the partners. 735 ILCS 5/2-411(a). The Arthur Andersen partnership can enforce the partnership agreement against former partners.
Viets also relies on the old rule that a partner could not sue an existing partnership or another partner in the absence of a complete accounting of all partnership affairs. However, under Illinois law, which governs here, that rule is subject to many exceptions, as shown by the cases Viets himself cites. See Nussbaum v. Kennedy, 642 N.E.2d 151, 155 (Ill.App. 1994); Balcor Income Properties, Ltd. v. Arlen Realty, Inc., 420 N.E.2d 612, 613-14 (Ill.App. 1981). The rule certainly has no application to a dispute between a former or retired partner and the partnership or its members. See, e.g., Galesburg Clinic Ass'n v. West 706 N.E.2d 1035, 1036 (Ill.App. 1999) (partnership sued former partners for declaration that non-competition covenant in partnership agreement was valid); Winston Strawn v. Nosal, 664 N.E.2d 239, 240-41 (Ill.App. 1996) (partnership sued expelled partner for declaration that expulsion was proper under partnership agreement). These cases assumed without discussing that the partnerships were proper parties to enforce partnership agreements against former partners. The assumption is telling evidence that a partnership like Arthur Andersen can sue (or seek arbitration) to enforce the terms of its partnership agreement.
Also, Viets himself has asserted in other courts that Arthur Andersen itself is a party to the partnership agreement. See Def. Ex. 4, Complaint in Buchholz, et al. v. Arthur Andersen LLP, No. 02 C 2125 (N.D. Ill. March 25, 2002) (¶ 2: plaintiffs, including Viets, allege that they "entered into a partnership agreement with Andersen"; ¶¶ 47-52: former partners sue Arthur Andersen itself to enforce terms of partnership agreement); Def. Ex. 12, Amended Complaint, ¶ 12, in Viets v. Deloitte Touche, LLP, et al., No. 49D12-0211-CT-00 1926 (Marion Super. Ct. Jan. 7, 2003) (asserting claims to benefits under "the Partnership Agreement entered into between Viets and Anderson"). It is reasonable to hold Viets to those assertions, which were themselves reasonable in this respect, as evidentiary admissions. See Walaschek Associates, Inc. v. Crow, 733 F.2d 51, 54 (7th Cir. 1984) ("well-established in this circuit that the pleading in one proceeding is admissible and cognizable as an admission in another"; defendant had filed a state court action asserting validity of agreement it was disputing in the federal case).
Finally, even if the court accepted Viets' theory that Arthur Andersen itself was not a party to the 1995 partnership agreement, Viets would be estopped from denying arbitration. Viets is asserting in this case, against Arthur Andersen itself, rights arising from the 1995 partnership agreement. See Viets Reply Br. at 12. For example, his claims for breach of obligations to pay early retirement benefits and basic retirement benefits arise under that agreement. That same agreement provides for arbitration of claims arising under it. Viets cannot at the same time (a) assert that the 1995 partnership agreement entitles him to relief from Arthur Andersen, yet also (b) deny that Arthur Andersen is entitled to enforce Viets' own obligation to arbitrate under that same agreement. See Hughes Masonry Co. v. Greater Clark County School Bldg. Corp., 659 F.2d 836, 838-39 (7th Cir. 1981) (when party to contract with arbitration clause seeks to enforce contract against defendant who did not sign contract, the non-signing defendant may enforce arbitration clause of contract in suit).
For these reasons, Viets' first theory for enjoining the pending arbitration is unlikely to succeed.
B. The Effect of the 2000 Partnership Agreement
To avoid arbitration, Viets also relies on what he contends was a new partnership agreement in 2000, attached as Exhibit 4 to his affidavit. Article 37, which is entitled "Interpretations," contains the following provision:
(A) Since this agreement incorporates amendments to the previous partnership agreement dated and effective September 1, 1994, as amended [ i.e., through the 1995 agreement], the said previous agreement, from and after the effective date hereof, shall be no longer of any force or effect except that no resigned, removed, or retired partner or estate of a deceased partner shall be deprived of any benefit acquired thereunder or maintained thereby; however, the execution of this agreement is not intended to and shall not terminate or dissolve the existing Firm.
Viets Ex. 4. The 2000 partnership agreement contains an arbitration provision, Article 39, that is identical to Article 39 of the 1995 partnership agreement.
Based on Article 37 of the 2000 document, Viets argues that the only arbitration agreement that he actually signed — the 1995 partnership agreement — is "no longer of any force or effect," except that he, as a retired partner, can assert claims for benefits under the 1995 agreement. Thus, Viets concludes, no agreement to arbitrate exists, which is a question a court can and must decide.
For two reasons, Viets' argument is not persuasive. First, because the existence of the 1995 agreement with its arbitration provision is undisputed, the burden of proof is on Viets to show that something has happened to nullify his obligations under that agreement. Viets has not come forward with actual evidence showing that the document he identifies as the 2000 partnership agreement has actually taken effect to replace entirely the 1995 partnership agreement. Viets states in his affidavit that he "understands" the tendered document to be the 2000 partnership agreement. Viets Aff. ¶ 18. His "understanding" is not a matter of his personal knowledge. It is not sufficient as evidence to prove that the 2000 document is what Viets claims it is or that the required majority of Arthur Andersen partners signed it.
The court hesitates to rely solely on this lack of evidence because Arthur Andersen's brief filed June 11, 2003 did not make this argument about the 2000 agreement. Arthur Andersen first raised the point with the court in the June 13th hearing. During the hearing, Viets suggested that he could submit additional evidence on the point. Even if that belated offer were timely, however, there would be no point in doing so because his argument would still fail for the second reason.
Second, even if Viets could show that his Exhibit 4 had been signed by at least two-thirds of active Arthur Andersen partnership interests in 2000, he would have presented only an argument affecting the enforceability of the arbitration agreement that he admits he signed — the 1995 partnership agreement. Under the broad terms of the arbitration provision, the enforceability of the provision is a question for the arbitrator.
To avoid this result, Viets relies on the Seventh Circuit's decision in Matterhorn, Inc. v. NCR Corp., 763 F.2d 866 (7th Cir. 1985), which tested the boundary between questions about the existence of an arbitration agreement (which the court must decide) and questions of validity, scope, or enforceability (which can be assigned by contract to the arbitrator). In Matterhorn, the two parties entered into a contract that provided for arbitration of any disputes arising out of that contract or any contract the parties might later make. 763 F.2d at 869. Nine months later, the parties cancelled that contract. They entered into a new contract 18 months after the first one. The new contract did not include an arbitration clause. The issue before the Seventh Circuit was whether the dispute arising under the second agreement was subject to arbitration based on the first agreement. The Seventh Circuit held that the dispute was not arbitrable, and that whether the second transaction had nullified the arbitration clause of the first contract was a question for the court and jury to decide. Id. at 872.
In this case, however, Arthur Andersen's claims asserted in the arbitration (and Viets' claims, for that matter) all arise under the 1995 partnership agreement itself. That same agreement, which Viets himself signed, contains a broad arbitration clause that applies to all such claims. Matterhorn therefore does not help Viets here.
In light of the case law and the language of the 1995 arbitration agreement, Viets has tried hard to frame the issue as whether an agreement to arbitrate exists, and not as anything concerning the "validity, scope, and enforceability" of that agreement. There is no doubt that the agreement exists. Viets signed the 1995 partnership agreement with its sweeping arbitration provision. Viets is arguing that the once-valid arbitration provision is no longer enforceable or valid, as a result of an action that Viets had nothing to do with. In light of the arbitration provision giving the arbitrator the power to decide issues of validity, scope, and enforceability, his argument presents an issue only for the arbitrator.
Because Viets has sought a preliminary injunction that requires the court to consider the merits of his claim, at least on a preliminary basis, the court notes that Article 37(A) of the 2000 partnership document need not be interpreted as Viets argues. His theory is that in 2000, Arthur Andersen's active partners released Viets and all other retired partners from all their obligations under the prior agreement, including even the non-competition covenant. That would have amounted to an extraordinary gift to the retired partners, who would then have been free to compete with their former colleagues, who would still have been obliged to pay them. That reading of Article 37(A) is improbable, and the plain language does not obviously require that result.
Article 37(A) simply provides that the new agreement replaces the old, with the specific clarification that former partners will not lose financial benefits to which they are already entitled. Article 37(A) uses the term "any benefit," not a broader term such as "all rights" under the agreement. Article 38, which deals with amendments to the agreement, uses the term "benefit" to refer to financial benefits. It provides that "no amendment may, without his consent . . . reduce or postpone the payment of financial benefits to any partner," with certain exceptions. This latter distinction between "benefits" and "rights" protected retired partners from the possibility that their financial benefits could be reduced by a later amendment of the partnership agreement, which was possible under Gladstone v. McHenry Medical Group, 553 N.E.2d 1174, 1178-79 (Ill.App. 1990) (partners' right to amend agreement allowed them to remove agreement provision for payments to retired partner). Yet the distinction still allowed the partnership to make other amendments and to enforce, for example, non-competition obligations of retired partners who were receiving retirement payments from the firm, or obligations to arbitrate disputes.
For these reasons, Viets has not shown a reasonable likelihood of success on the merits of his injunction claim. Moreover, requiring him to arbitrate the pending disputes, or at least the threshold issue of their arbitrability, would not inflict irreparable harm on Viets. Graphic Communications Union v. Chicago Tribune Co., 779 F.2d 13, 15 (7th Cir. 1985) (denying stay of arbitration pending appeal because imposing costs of arbitration on a party generally does not amount to irreparable harm; contrary cases will be "extraordinarily rare"); accord, ATT Broadband, LLC v. Int'l B'hood of Electrical Workers, 317 F.3d 758, 762 (7th Cir. 2003) (treating claim of irreparable harm from arbitration as frivolous); Paine Webber Inc. v. Farnam, 843 F.2d 1050, 1051 (7th Cir. 1988) (imposing sanctions on party seeking to enjoin arbitration). As the Seventh Circuit explained in Graphic Communications Union: "Not only has the request for a stay [of arbitration] no merit but the whole class of requests that it illustrates has no merit, a point we wish to emphasize in order to discourage the making of such requests in the future." 779 F.2d at 14. Accordingly, Viets' motion for a temporary restraining order and preliminary injunction must be denied.
Viets relies on Chicago School Reform Bd. of Trustees v. Diversified Pharmaceutical Services, Inc., 40 F. Supp.2d 987, 996 (N.D. Ill. 1999), which granted an injunction against a pending arbitration and held that forcing a party to arbitrate a dispute that it did not agree to arbitrate amounted to irreparable harm. The Chicago School court did not expressly consider the contrary Seventh Circuit cases on the point, and there is no indication that they were cited to the court. This court's obligation is to follow the Seventh Circuit on the issue of irreparable harm.
IV. Venue
Arthur Andersen has moved to dismiss this action for improper venue or to have the case transferred to the Northern District of Illinois, where the arbitration is pending. The Seventh Circuit's decision in Merrill Lynch, Pierce, Fenner Smith, Inc. v. Lauer, 49 F.3d 323 (7th Cir. 1995), shows that the Northern District of Illinois is the proper venue for any court supervision of the arbitration.
In Lauer, the district court in Illinois had ordered the claimants in an arbitration pending in Florida to withdraw some of their claims that were contrary to Seventh Circuit law. The Seventh Circuit vacated that order because the Illinois court was not the proper venue for supervision of the Florida arbitration. The Seventh Circuit held that where the parties have agreed on the location of arbitration, the venue language of 9 U.S.C. § 4, which authorizes a district court to compel arbitration, limits venue for such supervision to the district where the parties agreed the arbitration shall be held. 49 F.3d at 327; see also Snyder v. Smith, 736 F.2d 409, 419-20 (7th Cir. 1984) (holding that § 4 barred Illinois district court from ordering arbitration in Illinois after parties had agreed to arbitrate in Texas), overruled on other grounds, Felzen v. Andreas 134 F.3d 873, 876-77 (7th Cir. 1998).
Section 4 of the Federal Arbitration Act provides in full:
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days' notice in writing of such application shall be served upon the party in default. Service thereof shall be made in the manner provided by the Federal Rules of Civil Procedure. The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. If no jury trial be demanded by the party alleged to be in default, or if the matter in dispute is within admiralty jurisdiction, the court shall hear and determine such issue. Where such an issue is raised, the party alleged to be in default may, except in cases of admiralty, on or before the return day of the notice of application, demand a jury trial of such issue, and upon such demand the court shall make an order referring the issue or issues to a jury in the manner provided by the Federal Rules of Civil Procedure, or may specially call a jury for that purpose. If the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding thereunder, the proceeding shall be dismissed. If the jury find that an agreement for arbitration was made in writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.9 U.S.C. § 4 (emphasis added).
Viets points out that his action does not fall strictly within the terms of § 4 because he seeks to enjoin an arbitration, not to compel one. This distinction does not matter here. Lauer itself framed its decision in terms of requiring "a geographic link between the site of the arbitration and the district which, by compelling arbitration or directing its scope, exercises preliminary control." 49 F.3d at 327 (emphasis added). Under Lauer, the only proper venue for Arthur Andersen's own motion to compel arbitration is the Northern District of Illinois. The fact that Viets beat Arthur Andersen to a different courthouse door does not matter. Giving that fact any weight would invite precisely the sort of forum-shopping gamesmanship that the Seventh Circuit rejected in Lauer, 49 F.3d at 328, and Snyder, 736 F.2d at 419-20.
In UAL Corp. v. Mesa Airlines, Inc., 88 F. Supp.2d 910, 912-13 (N.D. Ill. 2000), Judge Gettleman applied Lauer and Snyderto transfer to Colorado a case in which a party filed suit in Illinois seeking an injunction to block an arbitration pending in Colorado. This court agrees with Judge Gettleman's reading of Lauer and Snyder. Accord, e.g., Prudential Securities, Inc. v. Desmond, 1997 WL 570926, *2 (E.D. Pa. 1997) (§ 4 venue applied to independent action to enjoin arbitration in another district); Bao v. Gruntal Co., 942 F. Supp. 978, 983 (N.J. 1996) (§ 4 venue applied to independent action for injunction to control scope of arbitration in another district).
Viets also argues that the reasoning of Lauer did not survive the Supreme Court's decision in Cortez Byrd Chips, Inc. v. Bill Halbert Construction Co., 529 U.S. 193 (2000). Viets' argument is not persuasive. In Cortez Byrd Chips, the Supreme Court held that the Federal Arbitration Act's venue provisions in Sections 9, 10, and 11 (9 U.S.C. § 9-11), which govern court enforcement and review of arbitration awards, are permissive rather than mandatory. The Seventh Circuit in Lauer anticipated the Supreme Court's ruling in Cortez Byrd Chips, which was consistent with existing Seventh Circuit precedent on actions to confirm or vacate arbitration awards. See In re VMS Securities Litigation, 21 F.3d 139, 144-45 (7th Cir. 1994) (venue terms of §§ 9 and 10 permissive), cited in Cortez Byrd Chips, 529 U.S. at 196 (identifying circuit split on question). See generally Lauer, 49 F.3d at 329 (citing VMS Securities and distinguishing between mandatory venue provision of § 4 and permissive venue provisions of §§ 9 and 10).
Viets also relies on a Ninth Circuit decision, Textile Unlimited, Inc. v. ABMH Co., 240 F.3d 781 (9th Cir. 2001), which affirmed a California district court's order enjoining an arbitration pending in Georgia. The Ninth Circuit found that the venue provisions of § 4 should be treated as only permissive rather than mandatory, relying on Cortez Byrd Chips. The court also reasoned that § 4 applied only to actions to compel arbitrations, not to actions like this one to enjoin arbitrations. 240 F.3d at 785. The Ninth Circuit questioned Lauer but took care to distinguish the case, noting that the parties in Lauer "did not contest the existence of the arbitration agreement itself, and the site for arbitration had already been fixed." Id. at 785 n. 1.
In this case, Viets has tried to dispute the existence of the arbitration agreement and the provision for arbitration in Chicago. Based on the 1995 partnership agreement, though, which Viets himself signed, these matters cannot fairly be disputed. To the extent that Textile Unlimited disagreed with Lauer, of course, this court must follow the Seventh Circuit's decision in Lauer. But Textile Unlimited is also distinguishable from this case on the same grounds that the Ninth Circuit used to distinguish Lauer
Further, the Textile Unlimited approach invites races to courthouses. Its approach to the venue issue could also result in a court painting itself into a logical corner. A court that entertains a motion to enjoin an arbitration pending elsewhere may ultimately find that arbitration should instead be compelled in that other location. If the court reaches that conclusion, it will have painted itself into a corner because ordering arbitration elsewhere would conflict with the clear directive of § 4: "The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed." For an example of such a conundrum, see Dupuy-Busching General Agency, Inc. v. Ambassador Ins. Co., 524 F.2d 1275, 1278 (5th Cir. 1975) (affirming order by Mississippi court that arbitration proceed in New Jersey; Court of Appeals acknowledged conflict with § 4 but found the conflict tolerable where objecting party had filed suit in Mississippi to enjoin arbitration). The Seventh Circuit's approach in Lauer eliminates that risk and otherwise complies with the FAA, at least as long as the parties have earlier agreed to a forum for arbitration.
Viets also argues that Arthur Andersen waived any objections to venue by filing in this district its alternative motion to compel arbitration. A party may plead in the alternative, however. Arthur Andersen's papers make unmistakably clear its belief that venue is improper in this district. Also, at least the Dupuy-Busching case treated a motion to compel arbitration as a compulsory counterclaim, suggesting that the alternative motion was merely a prudent and cautious step to preserve Arthur Andersen's rights. See 524 F.2d at 1277; cf. Municipal Energy Agency of Mississippi v. Big Rivers Electric Corp., 804 F.2d 338, 344-45 (5th Cir. 1986) (treating this point in Dupuy-Busching as dicta). The court finds no waiver of the venue issue.
The Seventh Circuit's decision in Lauer requires this court either to dismiss the arbitration-related claims in this case or to transfer them under 28 U.S.C. § 1406 to the Northern District of Illinois. There are other claims in this case, for which venue in either district would be proper. The most sensible approach in this case is to transfer the arbitration-related claims rather than to dismiss them, and to transfer all remaining aspects of the case to the Northern District of Illinois pursuant to 28 U.S.C. § 1404. Viets and all other former Arthur Andersen partners joined an Illinois partnership headquartered in the Northern District of Illinois. They cannot seriously contend that arbitration or litigation in their old firm's headquarters is unfairly burdensome or inconvenient for them. Illinois' substantive law governs the parties' disputes. Also, the usual deference to a plaintiff's choice of forum is entitled to little weight when there are claims running in both directions between the parties. Under these circumstances, because issues related to arbitration must be transferred to Chicago, it is reasonable under 28 U.S.C. § 1404 to transfer all claims to that court so that the entire dispute between Viets and Arthur Andersen can be managed in one case.
Accordingly, plaintiff Viets' motion for a temporary restraining order and preliminary injunction is denied, and defendant Arthur Andersen's motion to transfer this action to the Northern District of Illinois is granted.
So ordered.