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`IN THE UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF ILLINOIS
`EASTERN DIVISION
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`LOTHAN VAN HOOK DESTEFANO
`ARCHITECTURE LLC,
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`Plaintiff,
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`v.
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`SB YEN MANAGEMENT GROUP, INC.
`and PAPPAGEORGE HAYMES, LTD.,
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`Defendants.
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`18 C 275
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`Judge John Z. Lee
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`MEMORANDUM OPINION AND ORDER
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`Plaintiff, Lothan Van Hook DeStefano Architecture, LLC (“LVDA”), has
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`brought this copyright
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`infringement
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`lawsuit against Defendants, SB Yen
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`Management Group, Inc. (“SBY”) and Pappageorge Haymes, Ltd. (“Pappageorge”).
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`SBY has filed a motion [15] asking that the Court: (1) dismiss the complaint for lack
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`of jurisdiction; (2) compel mediation and arbitration; (3) dismiss the complaint for
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`failure to state a claim; or (4) stay the proceedings. For the reasons stated herein,
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`the request to dismiss for lack of subject-matter jurisdiction is denied, but the request
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`to compel mediation and arbitration is granted. This case is stayed pending the
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`resolution of arbitration proceedings.
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`Background1
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`This case arises out of a dispute over architectural plans for the construction
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`of a hotel at 1101 S. Wabash Avenue in Chicago, Illinois. Compl. ¶¶ 2, 8–9, ECF No.
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`1
`The following facts are taken from LVDA’s complaint and are accepted as true at the
`motion-to-dismiss stage. See Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).
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`Case: 1:18-cv-00275 Document #: 55 Filed: 12/10/18 Page 2 of 11 PageID #:732
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`1. LVDA is a Chicago-based architecture firm. Id. ¶ 1. SBY is a corporation based
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`in Hinsdale, Illinois, that manages the property at 1101 S. Wabash (“the Hotel
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`Property”). Id. ¶ 2. Pappageorge, a Chicago-based corporation, is the current
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`architect for the Hotel Property. Id. ¶ 3.
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`According to LVDA, it entered into a contract with the owner of the Hotel
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`Property, through its “duly authorized agent” SBY, on May 11, 2015. Id. ¶ 8.2
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`Pursuant to that contract, LVDA created architectural and engineering plans for the
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`construction of a hotel. Id. ¶ 9. Subsequently, on July 25, 2017, the owner (through
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`SBY) terminated the contract with LVDA “for convenience” and informed LVDA that
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`construction would continue based on LVDA’s architectural plans. Id.
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`LVDA owns copyrights in the architectural plans, which “contain wholly
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`original text” and “pictorial/graphic works” that constitute “copyrightable subject
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`matter.” Id. ¶¶ 12–13. LVDA informed Defendants that they had no right to continue
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`using the architectural plans, but Pappageorge ignored this warning and has done
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`so, and SBY has overseen construction based on the plans. Id. ¶¶ 15–16, 18. To date,
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`LVDA has received no compensation for the unauthorized use of the plans. Id. ¶ 20.
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`LVDA filed a complaint seeking relief pursuant to 17 U.S.C. §§ 502 through
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`505 (“the Copyright Act”). SBY has moved to dismiss the complaint for lack of subject-
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`2
`The complaint states that the owner of the property is “11th St. Wabash LLC.” Id. By
`contrast, the contract defines “Owner” to be SBY, and not the LLC. Because LVDA has
`provided a copy of the contract and it is central to its claims, the Court may rely upon it when
`ruling on the present motion. See Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013)
`(stating that, at the motion-to-dismiss stage, a court may consider “documents that are
`attached to the complaint [and] documents that are central to the complaint and are referred
`to in it”).
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`2
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`Case: 1:18-cv-00275 Document #: 55 Filed: 12/10/18 Page 3 of 11 PageID #:733
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`matter jurisdiction, compel mediation and arbitration, dismiss for failure to state a
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`claim, or stay pending resolution of state-court proceedings.
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`Legal Standard
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`Federal Rule of Civil Procedure 12(b)(1)
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`A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) tests
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`I.
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`the jurisdictional sufficiency of the complaint. “When ruling on a motion to dismiss
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`for lack of subject matter jurisdiction under [Rule] 12(b)(1), the district court must
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`accept as true all well-pleaded factual allegations, and draw reasonable inferences in
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`favor of the plaintiff.” Ezekiel v. Michel, 66 F.3d 894, 897 (7th Cir. 1995). But “[t]he
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`district court may properly look beyond the jurisdictional allegations of the complaint
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`and view whatever evidence has been submitted on the issue to determine whether
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`in fact subject matter jurisdiction exists.” Capitol Leasing Co. v. F.D.I.C., 999 F.2d
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`188, 191 (7th Cir. 1993) (quoting Grafon Corp. v. Hausermann, 602 F.2d 781, 783 (7th
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`Cir. 1979)).
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`“[I]f the complaint is formally sufficient but the contention is that there is in
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`fact no subject matter jurisdiction, the movant may use affidavits and other material
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`to support the motion.” United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942,
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`946 (7th Cir. 2003) (emphasis in original), overruled on other grounds by Minn-Chem,
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`Inc. v. Agrium, Inc., 683 F.3d 845, 848 (7th Cir. 2012). “The burden of proof on a
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`12(b)(1) issue is on the party asserting jurisdiction.” Id.
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`3
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`Case: 1:18-cv-00275 Document #: 55 Filed: 12/10/18 Page 4 of 11 PageID #:734
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`II.
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`Federal Arbitration Act
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`The Federal Arbitration Act (“FAA”) mandates that courts enforce valid,
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`written arbitration agreements. Tinder v. Pinkerton Sec., 305 F.3d 728, 733 (7th Cir.
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`2002) (citing 9 U.S.C. § 2). This mandate reflects a federal policy that favors
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`arbitration and “places arbitration agreements on equal footing with all other
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`contracts.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006).
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`Courts are responsible for deciding whether an agreement to arbitrate exists before
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`ordering arbitration. Janiga v. Questar Capital Corp., 615 F.3d 735, 741–42 (7th Cir.
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`2010). Once a court is satisfied that an agreement to arbitrate exists, the FAA
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`instructs the court to stay proceedings on issues subject to arbitration and provides a
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`mechanism for parties to request that the court compel arbitration pursuant to the
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`agreement. 9 U.S.C. §§ 3–4; see also Tinder, 305 F.3d at 733.
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`A party opposing a motion to compel arbitration bears the burden of identifying
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`a triable issue of fact as to the existence of the purported arbitration agreement.
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`Tinder, 305 F.3d at 735. The opponent’s evidentiary burden is akin to that of a party
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`opposing summary judgment under Rule 56. Id. “[A] party cannot avoid compelled
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`arbitration by generally denying the facts upon which the right to arbitration rests;
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`the party must identify specific evidence in the record demonstrating a material
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`factual dispute for trial.” Id. The Court must believe the evidence of the party
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`opposing arbitration and draw all justifiable inferences in its favor. Id. If the party
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`opposing arbitration identifies a genuine issue of fact as to whether an arbitration
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`4
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`Case: 1:18-cv-00275 Document #: 55 Filed: 12/10/18 Page 5 of 11 PageID #:735
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`agreement was formed, “the court shall proceed summarily to the trial thereof.”
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`9 U.S.C. § 4; see Tinder, 305 F.3d at 735.
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`Analysis
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`SBY requests multiple types of relief, urging the Court to dismiss for lack of
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`jurisdiction or for failure to state a claim, compel mediation and arbitration, or stay
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`the proceedings. As always in cases like this, the Court begins with the threshold
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`issues of jurisdiction and arbitrability.
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`I.
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`Rule 12(b)(1) Dismissal
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`SBY first contends that this action should be dismissed for lack of subject-
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`matter jurisdiction pursuant to Rule 12(b)(1). SBY argues that LVDA’s purported
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`copyright infringement claim is actually a state-law contract claim in disguise. The
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`real dispute, in SBY’s view, is whether LVDA’s contract gave Defendants a license to
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`use LVDA’s architectural plans. That, SBY contends, is a question of state law,
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`rather than one governed by the Copyright Act.
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`LVDA counters that the claim arises under federal copyright law, rather than
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`state contract law, because it seeks remedies only available under the Copyright Act.
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`It contends that, because Defendants never had the right to use LVDA’s copyrighted
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`works in the first place, the copyright infringement claim cannot be resolved solely
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`as a matter of contract. In LVDA’s view, SBY was never a party to the contract, so it
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`cannot enforce it. And, what is more, the contract granted the Owner a license to use
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`the architectural plans only if the Owner paid LVDA all sums due under the contract,
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`which LVDA contends the Owner failed to do.
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`5
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`Case: 1:18-cv-00275 Document #: 55 Filed: 12/10/18 Page 6 of 11 PageID #:736
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`The question of when a federal court has subject-matter jurisdiction over a
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`copyright claim involving a contract dispute is not as straightforward as one might
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`think. Although federal courts have jurisdiction over all matters “arising under any
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`Act of Congress relating to . . . copyrights,” 28 U.S.C. § 1338(a), federal jurisdiction
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`does not automatically arise simply because a case involves a copyright. See generally
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`13D Charles Alan Wright, Arthur R. Miller, Edward H. Cooper & Richard D. Freer,
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`Federal Practice and Procedure § 3582 (3d ed.). Similarly, federal jurisdiction is not
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`destroyed by the presence of a contract-law question. See Int’l Armor & Limousine
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`Co. v. Moloney Coachbuilders, Inc., 272 F.3d 912, 916 (7th Cir. 2001) (“A claim might
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`arise under federal law even though all dispositive issues depend on state law if the
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`remedies differ.”). In the end, an action “arises under the Copyright Act if the
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`complaint requests a remedy expressly granted by the Act, such as a private suit for
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`infringement.” Schrock v. Learning Curve Int’l, Inc., 744 F. Supp. 2d 768, 773 (N.D.
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`Ill. 2010) (emphasis added) (citing T.B. Harms Co. v. Eliscu, 339 F.2d 823, 828 (2d.
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`Cir. 1964)); see also Joseph J. Legat Architects, P.C. v. United States Dev. Corp., 601
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`F. Supp. 673, 676 (N.D. Ill. 1985).
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`The Seventh Circuit squarely addressed the situation presented by this case
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`in Nova Design Build, Inc. v. Grace Hotels, LLC, a case that also involved an architect
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`and a hotel developer. 652 F.3d 814, 816 (7th Cir. 2011) (“Put simply, [the] question
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`[of subject-matter jurisdiction] boils down to whether this is really a case about
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`validity and infringement of the copyright, or if it is about ownership or other rights
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`conferred in the agreement between the parties.”). There, the Court of Appeals
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`6
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`Case: 1:18-cv-00275 Document #: 55 Filed: 12/10/18 Page 7 of 11 PageID #:737
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`concluded that subject-matter jurisdiction existed over the plaintiff’s copyright
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`infringement claims even when they involved state-law contract issues:
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`[P]laintiff Nova in the case before us has squarely asserted that [Defendant]
`Grace infringed its copyrights and thus that it has a remedy under 17 U.S.C.
`§ 504. To be sure, one of Grace’s defenses is that its use was licensed, and state
`contract law will play a part in that defense. But Grace’s defenses––whether
`based on
`federal
`law or state
`law––do not affect
`[subject-matter]
`jurisdiction . . . . Nova’s complaint directly states that Nova ‘owns a valid and
`registered copyright’ on the designs and drawings, that Grace unlawfully
`copied its copyrighted materials, that Nova had been injured, and that it was
`seeking damages under section 504 of the Copyright Act. That is enough to
`show that this case arises under the Act.
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`Id. See also Legat Architects, 601 F. Supp. at 676 (concluding that subject-matter
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`jurisdiction existed over architect’s copyright infringement claim against developer
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`because the suit “principally [was] for a remedy expressly granted by the [Copyright]
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`Act, that is, a suit for infringement”) (internal quotation marks omitted).
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`In much the same way, this case arises under federal copyright law because
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`LVDA seeks remedies expressly granted by the Copyright Act; namely, an injunction
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`against further infringement, an accounting of profits, actual damages, and
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`attorney’s fees. Compl. at 4–5. LVDA also has alleged expressly that it has a
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`copyright, that Defendants have infringed that copyright, and that the infringement
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`has injured LVDA. In this circuit, “[t]hat is enough” to confer subject-matter
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`jurisdiction. Nova Design Build, 652 F.3d at 816.
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`II. Compel Mediation and Arbitration
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`The parties dispute the existence of an enforceable arbitration agreement. At
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`the center of this dispute is the contract for architectural services, which was
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`executed on May 11, 2015. Contract at 1, ECF No. 1-1. The parties are identified on
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`7
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`Case: 1:18-cv-00275 Document #: 55 Filed: 12/10/18 Page 8 of 11 PageID #:738
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`the first page of the contract as “SB Yen’s Management Group, Inc.,”3 which is
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`referred to throughout as “the Owner,” and LVDA, which is referred to as “the
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`Architect.” Id.
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`The contract provides, in relevant part: “[A]ny claim, dispute or other matter
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`in question arising out of or related to this Agreement shall be subject to mediation
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`as a condition precedent to binding dispute resolution.” Id. at § 8.2.1. Further, “The
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`Owner and Architect shall endeavor to resolve claims, disputes and other matters in
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`question between them by mediation which, unless the parties mutually agree
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`otherwise, shall be administered by the American Arbitration Association.” Id.
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`§ 8.2.2. If the dispute is not resolved through mediation, the contract requires
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`binding dispute resolution through arbitration. Id. §§ 8.2.4, 8.3.
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`SBY argues that it can enforce the arbitration clause for three reasons—it falls
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`within the contract’s definition of “Owner;” it is a third-party beneficiary of the
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`contract; or it was operating as the agent of the property owner. LVDA, by contrast,
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`contends that SBY was not a party to the contract and that the clause applies only to
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`LVDA and the property owner, 11th Street Wabash LLC.
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`In ruling on a motion to compel arbitration, a court must first determine
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`whether an agreement to arbitrate exists between the parties. Janiga, 615 F.3d at
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`741–42. Under Illinois law, the analysis of contract formation begins “with the
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`language of the contract itself. If the language unambiguously answers the question
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`3
`Although LVDA’s complaint names SBY as “SB Yen Management Group, Inc.,” SBY
`states that it should have been correctly sued as “SB Yen’s Management Group.”
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`8
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`Case: 1:18-cv-00275 Document #: 55 Filed: 12/10/18 Page 9 of 11 PageID #:739
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`at issue, the inquiry is over.” Emergency Med. Care, Inc. v. Marion Mem’l Hosp., 94
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`F.3d 1059, 1060–61 (7th Cir. 1996).
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`It is hornbook law that the parties to a contract have the power to define the
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`meaning of its terms. See, e.g., Alexian Bros. Health Providers Ass’n, Inc. v. Humana
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`Health Plan, Inc., 330 F. Supp. 2d 970, 975 (N.D. Ill. 2004) (“[P]arties to a contract
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`may serve as their own lexicographers and may assign a particular meaning to any
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`word they choose.”). In this case, the May 11, 2015 contract (the enforceability of
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`which neither party disputes) defines the term “Owner” to mean SBY, and the term
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`“Architect” to mean LVDA. Contract at 1. As such, SBY was unambiguously a party
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`to the contract. Indeed, aside from SBY and LVDA, no other party is identified
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`anywhere in the contract, and SBY and LVDA are the only signatories on the
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`contract. Id. at 18. Thus, when interpreting the mediation and arbitration clauses,
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`the only logical construction is to read them to mean that “SBY and LVDA shall
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`endeavor to resolve claims . . . by mediation” and then by arbitration if mediation is
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`unsuccessful. Id. at 13.4
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`A second issue is whether LVDA’s copyright infringement claim falls within
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`the scope of the arbitration clause, which covers “all claims and causes of action,
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`whether in contract, tort, or otherwise, . . . arising out of or related to th[e]
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`Agreement.” Id. § 8.1.1. SBY contends that, because the claim relates to Defendants’
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`use of the architectural plans after LVDA’s termination––which is covered by specific
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`4
`It is worth noting that, at the time that LVDA entered into the agreement, it
`apparently was aware that SBY was not the actual owner of the property, and LVDA does
`not contend otherwise.
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`9
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`Case: 1:18-cv-00275 Document #: 55 Filed: 12/10/18 Page 10 of 11 PageID #:740
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`provisions of the contract––it is within the scope of the arbitration clause. LVDA
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`counters that the claim is not subject to arbitration because, rather than seeking to
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`enforce the contract, LVDA contends that Defendants have engaged in activity
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`outside the scope of the contract––copyright infringement.
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`But the arbitration clause is not only limited to claims for enforce the
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`agreement, rather it extends to all claims “arising out of or related to” the agreement.
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`And, as the Seventh Circuit held in Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress
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`Int’l, Ltd., arbitration clauses that include the phrase “arising out of” encompass “all
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`disputes having their origin or genesis in the contract, whether or not they implicate
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`interpretation or performance of the contract per se.” 1 F.3d 639, 642 (7th Cir. 1993).
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`See Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, 810–11 (7th Cir. 2011)
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`(“Arbitration clauses containing language such as ‘arising out of’ are extremely broad
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`and necessarily create a presumption of arbitrability.”) (internal quotation marks
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`omitted).
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`Here, the copyright infringement claim plainly “has [its] origin or genesis in
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`the contract” at issue in this case. Sweet Dreams Unlimited, 1 F.3d at 642. The claim
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`concerns the alleged unauthorized use of architectural plans developed by LVDA
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`pursuant to the contract and, therefore, it is subject to the arbitration clause
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`contained therein.
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`Furthermore, “[w]here claims against a signatory to an arbitration agreement
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`are ‘obviously intertwined’ with those against nonsignatory parties, courts should
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`stay the entire case under FAA § 3.” ChampionsWorld, LLC v. United States Soccer
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`10
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`Case: 1:18-cv-00275 Document #: 55 Filed: 12/10/18 Page 11 of 11 PageID #:741
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`Fed’n, 487 F. Supp. 2d 980, 991–92 (N.D. Ill. 2007). Given the interrelationship
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`between the claims against SBY and those against Pappageorge, the case also is
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`stayed as to Pappageorge.
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`Conclusion
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`For the foregoing reasons, SBY’s motion [15] is denied to the extent that it
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`seeks dismissal pursuant to Rule 12(b)(1), but granted to the extent that it seeks to
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`compel arbitration. This case is stayed pending the resolution of arbitration
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`proceedings.5 The parties are ordered to provide the Court with a status report within
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`fourteen days of the arbitration’s conclusion.
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`IT IS SO ORDERED.
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`ENTERED 12/10/18
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`__________________________________
`John Z. Lee
`United States District Judge
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`5
`Because the Court grants the motion to compel arbitration, it does not reach the
`parties’ arguments concerning Rule 12(b)(6) dismissal or staying the proceedings.
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`11
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