Citations
- 362 F. Supp. 3d 510
Full opinion text
Robert M. Dow, Jr., United States District Judge
Before the Court are Defendant CDK Global, LLC's motion to compel arbitration and stay claims, or, in the alternative, to dismiss the dealership consolidated class action complaint [262], and Plaintiffs' unopposed motions for leave to submit supplemental authority [366; 420]. Plaintiffs' unopposed motions for leave to submit supplemental authority [366; 420] are granted. The Court considers those submissions as well as Defendant's responses (in its reply and in its own supplemental brief) in ruling on the pending motion to dismiss. For the reasons set forth below, Defendant's motion to dismiss in favor of arbitration is denied, and its alternative motion to dismiss is granted in part and denied in part.
I. Background
Defendants CDK Global, LLC ("CDK") and Reynolds and Reynolds Company ("Reynolds") provide Dealer Management System ("DMS") software and services to automobile dealerships throughout the United States, including in Illinois. [198 (Compl.), at ¶¶ 51-52.] In addition to providing DMS services, CDK and Reynolds also provide data integration services ("DIS") indirectly to dealerships throughout the United States, including in Illinois. [Id. ] Plaintiffs are automobile dealerships across the country who are purchasing and/or who have purchased DMS services from CDK or Reynolds. [Id. at ¶¶ 26-50.] Plaintiffs purport to bring this class action against Defendants CDK and Reynolds for alleged violations of the Sherman Act and state antitrust and consumer protection laws. [Id. at 5.] Plaintiffs allege that Defendants unlawfully colluded and conspired to restrain and/or eliminate competition by charging supracompetitive prices in the markets for: (1) DMS software services; and (2) DIS. [Id. at ¶ 1.]
A. The DMS Market
The DMS, sometimes described as the "central nervous system" for dealerships, is an enterprise software system designed specifically for automobile dealerships. [Id. at ¶ 3.] The DMS functions as the dealerships' central database and repository of all its operational information, including information regarding sales, financing, inventory management (both vehicles and parts), repair and service, accounting, payroll, human resources, marketing, and car manufacturer certifications. [Id. at ¶¶ 3, 61.] The physical storage of the data is either onsite at the dealerships, at private data centers operated by the DMS provider, or with cloud-based data storage companies. [Id. at ¶ 61.] The DMS includes a database and data storage component that allows dealerships to enter and store data in real time. [Id. at ¶ 3.]
Switching DMS providers is difficult, expensive, and disruptive to a dealership's business. [Id. at ¶ 4.] Changing DMS providers requires entirely new hardware and software. [Id. ] It can cost as much as $ 50,000 up front to change DMS providers. [Id. ] It typically takes dealerships a year or more to prepare for changing DMS providers. [Id. ] In November 2016, CDK's CEO acknowledged that "switching DMS providers can be very difficult. It [is] quite a process [to] change and takes time, which is part of the reason that many dealers are hesitant to switch." [Id. at ¶ 66.] Switching DMS providers is not only a costly and lengthy procedure, it is also extremely risky. [Id. at ¶ 67.] Dealers store vital data on their DMSs, and access to their data is crucial to the daily operation of their business. [Id. ] DMS providers control access to dealers' DMSs and can restrict or deny access to the DMSs, severely crippling the dealers' businesses as retribution for changing DMS providers. [Id. ]
CDK and Reynolds are in the business of providing DMS software and services to dealerships like Plaintiffs. [Id. at ¶ 2.] Together they control approximately 75 percent of the United States DMS market measured by the number of franchised automobile dealerships using their systems, with CDK controlling approximately 45 percent of the DMS market and Reynolds controlling approximately 30 percent of the DMS market. [Id. ] The remaining 25 percent is divided among other smaller DMS providers that typically service smaller dealerships in niche submarkets. [Id. at ¶ 2 n.1.] CDK and Reynolds have even higher market shares when measured by revenue, with CDK having approximately $ 2.2 billion in total annual revenue and Reynolds having approximately $ 1.7 billion in total annual revenue. [Id. ]
Both CDK and Reynolds have previously indicated that dealers own the data on their DMSs. For example, Steve Annen (CDK's former CEO) stated, "I don't know how you can ever make the opinion that the data is yours to govern and to preclude others from having access to it, when in fact it's really the data belonging to the dealer. As long as they grant permission, how would you ever go against that wish?" [Id. at ¶ 74.] Howard Gardner (CDK's Vice President of Data Strategy) has stated that CDK "has always understood that dealerships own their data and enjoy having choices on how best to share and utilize that data with others." [Id. ] Matt Parsons (CDK's Vice President of Sales and Marketing) has stated, "We're not going to limit the ability of a dealer to give an ID to someone else to, in essence, dial into their system. That is the dealer's right. We have no right to tell them they can't do that." [Id. ] Similarly, Reynolds spokesman Tom Schwartz stated that "[t]he data belongs to the dealers. We all agree on that." [Id. ]
B. The DIS Market
CDK and Reynolds also provide DIS separate from their DMS offerings. [Id. at ¶ 5.] CDK's data integration service is known as Third Party Access ("3PA"), and Reynolds's data integration service is known as Reynolds Certified Interface ("RCI"). [Id. at. ¶ 71.] Although 3PA and RCI only provide DIS for Defendants' respective DMSs, CDK also owns two independent data integrators-Digital Motorworks ("DMI") and IntegraLink-that provide DIS with respect to data stored on others' DMSs (e.g. , Reynolds) as well. [Id. at ¶ 76.] DIS are critical to the proper functioning of dealerships. [Id. at. ¶ 5.] DIS enable dealers and third-party software application providers (also known as vendors) to extract, organize, and integrate the dealers' data on their DMSs into a usable format. [Id. ]
To effectively run their dealerships, dealers engage vendors to provide necessary services such as inventory management, customer relationship management, warranty services, repair orders, and electronic vehicle registration and titling. [Id. ] For example, a dealer might engage a vendor to electronically register new automobiles upon sale. [Id. at ¶ 73.] In providing services to dealers, vendors need to access and utilize DMS data. [Id. ] A single dealership typically uses multiple vendors, with each vendor requiring access to the dealership's data stored on its DMS. [Id. ] Vendors generally engage DIS providers that charge vendors for their services. [Id. at ¶ 5.] Although vendors have the dealers' authorization to access and utilize the data on their DMSs, vendors generally cannot obtain access to the data in a usable format directly from dealers. [Id. at ¶ 75.] To access and utilize dealer data, vendors engage data integrators to extract, format, and organize the data. [Id. ] The data integrators access the data stored on the DMS and convert it into a form suitable for the specific service provided by the vendor. [Id. ]
Historically, the DIS market was active, with numerous DIS providers competing to provide affordable, secure, and reliable access to DMS data for dealerships and vendors. [Id. at ¶ 6.] In 2006, Reynolds began selectively and sporadically blocking data integrators from accessing dealer data on the Reynolds DMS by disabling data integrators' dealer-created login credentials. [Id. at ¶ 77.] CDK differentiated itself and the CDK DMS from Reynolds by publicly touting the openness of its DMS. [Id. ] CDK repeatedly vowed (including in public statements by its CEO and top marketing officers) that it would not block independent data integrators from accessing dealer data on its DMS. [Id. ] CDK marketed its "open" system directly to dealers and issued press releases stressing that it "believes in the fair competitive environment and does not use its leverage through supply of the dealer management system to reduce competition through the restriction of data access." [Id. at ¶ 78.] CDK was successful in marketing its "open" DMS to dealers as a competitive advantage over the Reynolds DMS, and dealers purchased DMS services from CDK based in large part on CDK's public representations about the openness of its DMS. [Id. ] As a result, CDK gained market share from Reynolds. [Id. ] In 2013, Reynolds began vigorously blocking data integrators. [Id. at ¶ 79.] CDK, however, continued to allow open access to its DMSs and to compete with Reynolds. [Id. ]
C. Alleged Agreement
Despite CDK's success in wresting market share away from Reynolds, its biggest competitor in the DMS market, competition between Reynolds and CDK suddenly ceased in 2015. [Id. at ¶ 80.] Plaintiff alleges that this was the result of horizontal agreements between CDK and Reynolds to restrain competition in the DMS and DIS markets. Specifically, CDK and Reynolds agreed to cooperate in closing their respective DMSs. [Id. at ¶ 81.] In February 2015, CDK and Reynolds entered into three written agreements: (1) the Data Exchange Agreement or "Wind Down" Agreement; (2) the 3PA Agreement; and (3) the RCI Agreement. [Id. at ¶ 82.]
The Data Exchange Agreement provides that CDK is to wind down its data integration business on Reynolds's DMS. [Id. at ¶ 83.] In other words, CDK would stop providing services to dealers relating to the third-party integration of data stored on Reynolds's DMS. [Id. ] At the same time, Reynolds agreed not to block CDK's access to Reynolds's DMS during the wind-down period, which lasts until 2020. [Id. ] During that wind-down period, Defendants agreed that CDK could continue to extract dealer data from Reynolds's DMS. [Id. at ¶ 84.] At the same time, under § 4.2 of the Data Exchange Agreement, CDK was to notify its vendor clients of its intent to wind down its data integration related to Reynolds's DMS. [Id. ] Under § 4.4 of the Data Exchange Agreement, CDK was to assist and cooperate with Reynolds's efforts to communicate with CDK's vendor clients and transition them to RCI. [Id. ] In connection with that effort, CDK agreed to provide Reynolds with full information about the vendors CDK served, including their names, DMS numbers, store numbers, branch numbers, user logins, specific data access provided by CDK, data interfaces, the frequency of the data provided, the deadlines for data delivery, and the format of the data. [Id. at ¶ 85.] The Data Exchange Agreement also includes a "Prohibition on Knowledge Transfer and DMS Access" provision, whereby CDK and Reynolds each agreed not to provide DIS
with respect to data on the other's DMS. [Id. at ¶ 86.]
The two other written agreements made by Defendants in February 2015 were (1) the 3PA Agreement; and (2) the RCI Agreement. [Id. at ¶ 87.] These two agreements, collectively referred to as the "Data Integration Agreements," provided CDK and Reynolds reciprocal access to each other's DIS programs-the 3PA and RCI programs, respectively. [Id. ] In the agreements, Reynolds received five free years of 3PA access. [Id. at ¶ 88.] Reynolds also agreed to access CDK's DMS exclusively through 3PA, and further agreed that it would not "otherwise access, retrieve, license, or otherwise transfer any data from or to a CDK system (including, without limitation, pursuant to any 'hostile interface') for itself or any other entity" or contract with any third parties to access the system. [Id. ] The Data Integration Agreements also provided that CDK and Reynolds would deny data integrators access to each other's DMSs. [Id. at ¶ 89.]
Plaintiffs also allege that Defendants agreed to force vendors to use Defendants (or their affiliates) to access their respective DMSs. [Id. at ¶ 171.] As evidence of this agreement, the complaint references an April 2016 conversation between Dan McCray (CDK's Vice President of Product Management) and Stephen Cottrell (CEO of Authenticom, a competing data integrator), in which Mr. McCray stated:
[W]e've entered into an agreement with Reynolds and Reynolds, okay? That agreement specifically says that we're going to support each other's third party interfaces, and we're working collaboratively to remove all hostile integrators from our DMS system.
[Id. at ¶ 101.] Similarly, in March 2015, Robert Schaefer (Reynolds's Vice President of OEM Relations, Data Services, and Security) told Mr. Cottrell: "We've made agreements with the other major DMS providers to support each other's third-party access agreements and to block independent integrators such as Authenticom." [Id. at ¶ 100.]
Defendants have claimed that their agreements with each other serve an important business justification: the need to protect their systems and the data on those systems from cybersecurity threats. However, Plaintiffs allege that Defendants' security justification is pretextual. [Id. at ¶¶ 153-64.] Plaintiffs allege that "Automotive News reported that '[a] vendor executive who asked not to be named called the data-access cost a surcharge under the guise of data security.' " [Id. at ¶ 155.] Along the same lines, a CDK employee has made statements indicating that the security justification really was a "message" used by Defendants to justify increased fees, stating "[i]f we are going with security as our message, I feel we MUST incorporate language into our contract * * * I feel a discussion around what these additional security items will be is warranted-once we have agreement on these security items it will help us update the managed data services agreement and further refine our message to the market." [Id. at ¶ 156.] Plaintiffs have identified similar statements indicating that the claimed security justification was pretextual. [Id. at ¶¶ 157-64.]
Plaintiffs allege that CDK and Reynolds have been able to impose massive price increases on vendors as a result of their agreements. [Id. at ¶ 134.] These increased fees are passed on to dealers. [Id. ] Vendors have acknowledged that they pass increased data integration fees on to dealers. [Id. at ¶ 135.] For example, a vendor informed a dealer that it was raising the fees it charged the dealer by $ 500 a month as a result of CDK's higher integration fees. [Id. at ¶ 141.] Plaintiffs also allege that the agreements between CDK and Reynolds have decreased the functionality of their DMSs. The dealers' ability to freely access their own data on their DMSs through third-parties was an important feature of their DMSs and their functionality. [Id. at ¶ 148.] Through their unlawful conduct, however, Defendants eliminated this feature, thereby restraining competition and increasing prices paid by the dealers for their DMSs. [Id. at ¶ 149.]
D. Alleged Exclusive Dealing
Plaintiffs also allege that CDK began canceling and renegotiating its 3PA vendor contracts to impose exclusive dealing provisions on vendors shortly after entering the Data Exchange Agreement. [Id. at ¶ 111.] These new 3PA contracts (also referred to as the "Managed Interface Agreements") required vendors to use 3PA if they wished to integrate CDK DMS data. [Id. ] To ensure that vendors signed on to the new contracts, CDK sent an initial letter to dealers warning that access to its DMS by third-party integrators would cease. [Id. at ¶ 112.] Subsequently, in September 2015, CDK sent dealers a letter indicating that it "intend[ed] to remove the majority of unauthorized third party [sic] access methods by Dec 31, 2016." [Id. at ¶ 112.] CDK employees were instructed that if any vendor failed to migrate to 3PA by December 31, 2016, the vendor's access to CDK's DMS would be disabled. [Id. ] Plaintiffs allege that vendors agreed to the Managed Interface Agreements under threat of losing access to necessary data. [Id. at ¶ 113.]
The Managed Interface Agreements contained provisions explicitly prohibiting vendors from obtaining dealer data from anyone other than CDK. [Id. at ¶ 114.] The contracts were entered on a vendor-by-vendor basis, not an application-by-application basis, so if a vendor wanted to use CDK's integration services for one application, the vendor also had to use CDK's product for all of its other applications. [Id. ] The contracts states: "Vendor agrees that it will, beginning on the date CDK certifies the use of the first Application with the CDK Interface System, access data on, and provide data to, CDK Systems exclusively through the Managed Interface System [a.k.a. 3PA] * * * [and] will not (i) * * * transfer any data from or to a CDK System * * * or (ii) contract with * * * any third party * * * to * * * transfer any data from or to a CDK System." [Id. ]
The Managed Interface Agreement also includes what Plaintiffs characterize as a price-fixing agreement, which provides that a vendor "shall never indicate in any way to any CDK Vendor Client that any increase in any price charged by [v]endor to any CDK Vendor Client is in reaction to, or in any other way associated with, any modification in the price charged by CDK hereunder with respect to [v]endor's use of the CDK Interface System." [Id. at ¶ 119.] The contract also states that the vendor "shall not include any 'interface' fee, DMS access fee or any other similar fee related to the use of the CDK Interface System in any of its invoices to its customers [dealers] or otherwise include any direct or indirect indication to its customers (in its invoices or otherwise) of the fees charged by CDK hereunder." [Id. ] In a March 3, 2016 internal email, one CDK employee stated, "CDK's position is that the vendor should include the integration in the price of their product as a cost of doing business and not something they line item with the dealer. Line iteming of integration fees along with claims of high DMS fees by vendors (most of them exaggerated) only leads to questions from our dealers about what CDK actually charges for integration." [Id. ]
E. Reynolds Arbitration Agreement
Six named Plaintiffs (collectively the "Reynolds Dealers") signed agreements that oblige them to resolve certain claims against Reynolds in Dayton, Ohio. Relevant to this order is a binding arbitration provision included in every Reynolds Dealers' contract. The provision states in relevant part:
Any disputes between us related directly or indirectly to an Order will be settled by binding arbitration * * * under the American Arbitration Association Rules * * * It does not matter whether the controversy is based on contract, tort, strict liability, or other legal theory. * * * The arbitration will be held in Dayton, Ohio.
[255-9, at 12.] Both CDK and Reynolds moved to dismiss Plaintiffs' claims in favor of arbitration pursuant to this arbitration agreement or, in the alternative, dismiss Plaintiffs' claims for failure to state a claim. Defendant Reynolds subsequently withdrew its motion. Before the Court is the motion to dismiss filed by Defendant CDK.
II. Legal Standard
To survive a Federal Rule of Civil Procedure ("Rule") 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted, the complaint first must comply with Rule 8(a) by providing "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), such that the defendant is given "fair notice of what the * * * claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson , 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) ) (alteration in original). Second, the factual allegations in the complaint must be sufficient to raise the possibility of relief above the "speculative level." E.E.O.C. v. Concentra Health Servs., Inc. , 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). "A pleading that offers 'labels and conclusions' or a 'formulaic recitation of the elements of a cause of action will not do.' " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). Dismissal for failure to state a claim under Rule 12(b)(6) is proper "when the allegations in a complaint, however true, could not raise a claim of entitlement to relief." Twombly , 550 U.S. at 558, 127 S.Ct. 1955. In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court accepts as true all of Plaintiffs' well-pleaded factual allegations and draws all reasonable inferences in Plaintiffs' favor. Killingsworth v. HSBC Bank Nev., N.A. , 507 F.3d 614, 618 (7th Cir. 2007).
III. Analysis
A. Arbitration
Although there is no agreement between Plaintiffs and Defendant to arbitrate Plaintiffs' claims, Defendant argues that the Reynolds Dealers' agreement to arbitrate with Reynolds covers the claims at issue in this case and extends to the claims brought against CDK under the doctrine of equitable estoppel. Plaintiffs argue that (1) its claims are outside the scope the arbitration agreement, (2) CDK has not shown that it is entitled to invoke the doctrine of equitable estoppel, and (3) CDK has waived any right to seek arbitration of Plaintiffs' claims.
Before turning to the merits of these arguments, some discussion of the federal policy favoring arbitration is warranted. Pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. ("FAA"), "a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction * * * shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. "The effect of the section is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [FAA]." Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp. , 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ; see also Int'l Ins. Agency Servs., LLC v. Revios Reinsurance U.S., Inc. , 2007 WL 951943, at *2 (N.D. Ill. Mar. 27, 2007) ("Arbitrability is governed by federal law." (citation omitted) ). Section 2 of the FAA is "a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary." Moses H. Cone , 460 U.S. at 24, 103 S.Ct. 927. Thus, "[w]hen the parties have agreed to arbitrate some matters pursuant to an arbitration clause, 'the law's permissive policies in respect to arbitration counsel that any doubts concerning the scope of arbitral issues should be resolved in favor of arbitration.' " Local 73, Serv. Employees Int'l Union, AFL-CIO v. UChicago Argonne, LLC , 2011 WL 635862, at *3 (N.D. Ill. Feb. 11, 2011) (quoting Granite Rock Co. v. Int'l Bhd. Of Teamsters , 561 U.S. 287, 298, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010) ). "[A]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Int'l Bhd. of Elec. Workers, Local 21 v. Illinois Bell Tel. Co. , 491 F.3d 685, 687-88 (7th Cir. 2007) (internal quotation marks and citation omitted). With these principles in mind, the Court turns to the merits of the parties' arguments regarding the Reynolds Dealers' arbitration agreement with Reynolds.
i. Arbitrability
CDK moves for dismissal of the Reynolds Dealers' claims against it in favor of arbitration. As a threshold issue, the Court must address whether the issue of arbitrability properly is before this Court. Reynolds argued that the issue of arbitrability itself was subject to arbitration pursuant its agreements with the Reynolds Dealers. [255, at 21-23.] In their omnibus response to Defendants' motions to dismiss, Plaintiffs argue that agreements to arbitrate the issue of arbitrability only are binding on signatories. [358, at 34.] CDK therefore would not be entitled to invoke Reynolds's agreement to arbitrate arbitrability of Plaintiffs' substantive claims. Kramer v. Toyota Motor Corp. , 705 F.3d 1122, 1127 (9th Cir. 2013) ("Given the absence of clear and unmistakable evidence that Plaintiffs agreed to arbitrate arbitrability with nonsignatories, the district court had the authority to decide whether the instant dispute is arbitrable." (citation omitted) ); Nat'l Oilwell Varco, L.P. v. Sadagopan , 2018 WL 276364, at *2 (S.D. Tex. Jan. 3, 2018) ("The cases that do address using equitable estoppel to allow a nonsignatory to an arbitration agreement to enforce that agreement against a signatory treat this gateway issue as for the court to determine, except in circumstances not present here."); see also AT & T Techs., Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) ("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." (collecting cases) ). CDK does not respond to this argument or otherwise argue that it is entitled to the benefit of Reynolds's agreement to arbitrate arbitrability.
Accordingly, the Court proceeds on the assumption that the Court has authority to address the threshold issue of the arbitrability of Plaintiffs' claims against CDK.
ii. Equitable Estoppel
CDK argues that because the Reynolds Dealers' claims relate to their contracts with Reynolds, in which the Reynolds Dealers agreed to arbitrate certain claims against Reynolds, the Reynolds Dealers also must arbitrate their related claims against CDK. "[A] party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of Am. v. Warrior & Gulf Nav. Co. , 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960). Arbitration "is a matter of consent, not coercion." Volt Info. Scis. v. Bd. of Trs. of Leland Stanford Junior Univ. , 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). However, the "mere fact" that parties are not "signatories to [an] agreement does not defeat their right to compel arbitration." Hoffman v. Deloitte & Touche, LLP , 143 F.Supp.2d 995, 1004 (N.D. Ill. 2001). Still, "[a]rbitration agreements apply to nonsignatories only in rare circumstances." I Sports v. IMG Worldwide, Inc. , 157 Ohio App.3d 593, 813 N.E.2d 4, 8 (2004). Here, CDK contends that the Reynolds Dealers are bound to arbitrate their claims against CDK under the doctrine of equitable estoppel.
State law governs who is bound by agreements to arbitrate. Arthur Andersen LLP v. Carlisle , 556 U.S. 624, 630, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009). The parties dispute whether Ohio law or Illinois law applies to CDK's estoppel argument. CDK contends that Ohio law applies because Reynolds's contract with the Reynolds Dealers is governed by Ohio law. Plaintiffs contend that Illinois law applies because equitable estoppel is a tort doctrine and Illinois law applies under the most significant relationship test to tort claims brought in Illinois courts. The Court need not decide which state's law applies, however, as the outcome is the same under both Illinois and Ohio law. Coexist Found., Inc. v. Fehrenbacher , 2016 WL 4091623, at *4 (N.D. Ill. Aug. 2, 2016) ("The Court need not decide which state's law applies as the outcome is the same under both."), aff'd, 865 F.3d 901 (7th Cir. 2017).
Under Illinois law, a party cannot enforce an arbitration agreement under an equitable estoppel theory without detrimental reliance. Warciak v. Subway Restaurants, Inc. , 880 F.3d 870, 872 (7th Cir.), cert. denied, --- U.S. ----, 138 S.Ct. 2692, 201 L.Ed.2d 1076 (2018) (applying Illinois law) ; see also Ervin v. Nokia, Inc. , 349 Ill. App. 3d 508, 517, 285 Ill.Dec. 714, 812 N.E.2d 534 (2004). Here, CDK does not even argue that it can establish detrimental reliance. Accordingly, CDK cannot invoke equitable estoppel under Illinois law.
Similarly, under Ohio law, detrimental reliance is necessary to invoke the doctrine of equitable estoppel. Ohio State Bd. of Pharmacy v. Frantz , 51 Ohio St.3d 143, 555 N.E.2d 630, 633 (1990) ("The party claiming the estoppel must have relied on conduct of an adversary in such a manner as to change his position for the worse and that reliance must have been reasonable."); Glidden Co. v. Lumbermens Mut. Cas. Co. , 112 Ohio St.3d 470, 861 N.E.2d 109, 119 (2006) ("Equitable estoppel does not apply when there is no actual or constructive fraud and no detrimental reliance[.]").
The same contractual and estoppel principles apply to determining what parties are bound by an agreement to arbitrate. Warciak v. Subway Restaurants, Inc. , 880 F.3d 870, 872 (7th Cir.), cert. denied, --- U.S. ----, 138 S.Ct. 2692, 201 L.Ed.2d 1076 (2018) ; Judge v. Unigroup, Inc. , 2017 WL 3971457, at *5 (M.D. Fla. Sept. 8, 2017) (holding that Ohio law requires detrimental reliance to compel arbitration with a nonsignatory of an arbitration agreement).
CDK has not cited to any authority indicating that the Ohio courts would apply a different equitable estoppel standard in the context of enforcing arbitration agreements against nonsignatories. The only Ohio case cited by CDK is I Sports v. IMG Worldwide, Inc. , which recognizes that other courts have enforced arbitration agreements against nonsignatories when (1) a signatory must rely on the terms of the written agreement to assert claims against a non-signatory, or (2) the signatory alleges substantially interdependent and concerted misconduct by the non-signatory and one or more signatories. 157 Ohio App.3d 593, 813 N.E.2d 4, 9 (2004). However, the court in I Sports concluded that the nonsignatory did not satisfy either standard. The Court therefore did not affirmatively conclude that either showing was sufficient to invoke equitable estoppel under Ohio law. Even if a nonsignatory has to show that the signatory relied on the written terms of the contract or that the signatory alleges substantially interdependent misconduct in order to enforce an arbitration agreement, that does not mean that detrimental reliance also is not required. As the Seventh Circuit has explained, even in the arbitration context, "the court must apply traditional state promissory estoppel principles to decide whether a non-party should be bound by the terms of another's contract." Warciak , 880 F.3d at 872. Because detrimental reliance is required to invoke equitable estoppel under Ohio law, and because CDK does not even argue that it can show detrimental reliance, CDK cannot invoke equitable estoppel under Ohio law to force the Reynolds Dealers to arbitrate their claims against CDK.
iii. Waiver
The Reynolds Dealers also argue that CDK waived any right to seek arbitration of their claims by failing diligently to assert its claimed right to arbitrate. "Despite the federal policy favoring arbitration, a contractual right to arbitration can be waived." Kawasaki Heavy Indus., Ltd. v. Bombardier Recreational Prod., Inc. , 660 F.3d 988, 994 (7th Cir. 2011) (citing St. Mary's Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., Inc. , 969 F.2d 585, 587 (7th Cir. 1992) ). A waiver of a contractual right to invoke arbitration can be implied or express. Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc. , 50 F.3d 388, 390 (7th Cir. 1995). "For waiver of the right to arbitrate to be inferred, [the Court] must determine that, considering the totality of the circumstances, a party acted inconsistently with the right to arbitrate." Kawasaki Heavy Indus., Ltd. , 660 F.3d at 994.
"Although a variety of factors may be considered, diligence or a lack thereof should weigh heavily in the court's determination of whether a party implicitly waived its right to arbitrate." Halim v. Great Gatsby's Auction Gallery, Inc. , 516 F.3d 557, 562 (7th Cir. 2008) (citation omitted). The Seventh Circuit therefore has directed courts to consider whether "the party seeking arbitration * * * [did] all it could reasonably have been expected to do to make the earliest feasible determination of whether to proceed judicially or by arbitration[.]" Smith v. GC Servs. Ltd. P'ship , 907 F.3d 495, 499 (7th Cir. 2018) (quoting Cabinetree of Wisconsin, Inc. , 50 F.3d at 391 (internal quotation marks omitted) ). Other considerations "include whether the allegedly defaulting party participated in litigation, substantially delayed its request for arbitration, or participated in discovery." Halim , 516 F.3d at 562. Still, "waiver is not lightly inferred; the strong federal policy favoring enforcement of arbitration agreements impresses upon a party asserting waiver a heavy burden." Williams v. Katten, Muchin & Zavis , 837 F.Supp. 1430, 1442 (N.D. Ill. 1993) (quoting St. Mary's Med. Ctr. of Evansville, Inc. , 969 F.2d at 590 ); see also Dickinson v. Heinold Secs., Inc. , 661 F.2d 638, 641 (7th Cir. 1981) ("a 'waiver of arbitration is not lightly to be inferred' ") (quoting Midwest Window Sys., Inc. v. Amcor Indus., Inc. , 630 F.2d 535, 536 (7th Cir. 1980) ).
In this case, all relevant factors weigh in favor of finding that CDK waived any right to arbitrate the Reynolds Dealers' claims against it. To begin, CDK did not assert its intent to arbitrate at the "earliest feasible" time. CDK argues that it moved to compel arbitration at the earliest possible opportunity-when it filed its opening motion to dismiss. However, CDK earlier could have asserted its intent to arbitrate, just as Reynolds has done throughout this lawsuit. The first dealership class action, Teterboro Automall, Inc. v. CDK Global, LLC , Case No. 2:17-cv-08714 (D.N.J.), was filed on October 19, 2017. Although Reynolds asserted its intent to arbitrate when it and CDK moved for transfer and consolidation of the cases against them, CDK did not make any similar reservation. "[W]hen a party chooses to proceed in a judicial forum, there is a rebuttable presumption that the party has waived its right to arbitrate." Kawasaki , 660 F.3d at 996. Along the same lines, CDK participated in discovery without making clear that its participation in discovery was not a waiver of its now-claimed right to arbitrate. Cf.
Kawasaki Heavy Indus., Ltd. , 660 F.3d at 998 (finding no waiver where the defendant "mentioned its desire to arbitrate at every turn"). While it may not be necessary for a defendant expressly to reserve its right to arbitrate whenever it participates in discovery, in light of CDK's failure to assert its intent to arbitrate until July 2018, CDK acted inconsistent with the intent to arbitrate.
Furthermore, although a showing of prejudice is not required in order to find waiver, it is relevant. Kawasaki , 660 F.3d at 995. Here, CDK argues that the Reynolds dealers would not be prejudiced as a result of CDK's delay in asserting its intent to arbitrate, but it is difficult to see how litigating a complex class action and participating in extensive discovery in court only to have litigation come to a halt would not be prejudicial to Plaintiffs. CDK argues that the Reynolds Dealers were not prejudiced because discovery from the dealers is relevant to many claims and issues raised in other MDL cases. [378, at 11 (citing Dickinson v. Heinold Sec. , 661 F.2d 638, 642 (7th Cir. 1981) ).] However, CDK-not the Plaintiffs-are parties to the other MDL cases. Thus, although it may have been necessary for CDK to participate in discovery regardless of whether it arbitrated its claims against the Reynolds Dealers, the Reynolds Dealers would not have had to participate in discovery (at least as a party). Given CDK's substantial delay in invoking its intent to arbitrate, forcing the Reynolds Dealers to arbitrate now would be highly prejudicial. Accordingly, even if CDK could invoke the doctrine of equitable estoppel to force the Reynolds dealers to arbitrate their claims, CDK waived its right to do so.
B. Antitrust Standing
i. Damages
Defendant argues that Plaintiffs' federal antitrust claims for damages (Counts I, III, and V) should be dismissed under Illinois Brick Co. v. Illinois , 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), which holds that a federal antitrust plaintiff may not seek damages based on alleged supracompetitive prices passed through by a purchaser earlier in the distribution chain. As the Seventh Circuit recently summarized, Illinois Brick "forbids a customer of the purchaser who paid a cartel price to sue the cartelist, even if his seller-the direct purchaser from the cartelist-passed on to him some or even all of the cartel's elevated price." Motorola Mobility LLC v. AU Optronics Corp. , 775 F.3d 816, 821 (7th Cir. 2015). This is because when defendants "sell to a third party who * * * could recover for any injury" it suffers as a direct purchaser, there is no need for separate and duplicative suits for "implicit overcharges" claimed further downstream. Loeb Indus., Inc. v. Sumitomo Corp. , 306 F.3d 469, 482 (7th Cir. 2002). "[W]here a plaintiff's injury is derivative of a more direct injury to some other person, and that person would have a strong motivation to pursue its own antitrust claim against the defendant, standing is not likely to exist." In re Dairy Farmers of Am., Inc. Cheese Antitrust Litig. , 2013 WL 4506000, at *9 (N.D. Ill. Aug. 23, 2013) (" DFA I ") (citing Illinois Brick Co. v. Illinois , 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977) ).
According to Defendant, because Plaintiffs are indirect purchasers of data integration services, Plaintiffs are not proper federal antitrust Plaintiffs under Illinois Brick. Plaintiffs implicitly recognize that their Sherman Act claims would be barred by Illinois Brick to the extent that their purported antitrust injuries are derivative of more direct injuries to participants or direct consumers in the DIS market. Plaintiffs argue, however, that Defendant erroneously conflates their status as indirect purchasers in the DIS market with their status as direct purchasers in the DMS market.
The Court agrees that Plaintiffs' horizontal conspiracy claim (Count I) is-at least to some extent-based on alleged anticompetitive conduct in the DMS market, as Plaintiffs allege that its DMS lost functionality and is worth less as a result of CDK's agreements with Reynolds. Defendant argues that this alleged diminution in value and functionality is just the flip side of the purported inability to access data integration in the DIS market. However, Plaintiffs allege misconduct in the DMS market resulting in harm in the DMS market. Specifically, Plaintiffs allege that CDK and Reynolds, competitors in the DMS market, agreed not to compete with each other in certain respects (i.e. , permitting third-party DMS access) resulting in DMSs with less value and inferior functionality. Plaintiffs therefore allege anticompetitive conduct in the DMS market.
To the extent that Plaintiffs seek to recover alleged supracompetitive prices passed through vendors, however, the Court agrees that Plaintiffs' claims are barred by Illinois Brick. Although Plaintiffs argue that their exclusive dealing claim based on vendor contracts relates to alleged anticompetitive conduct in the DMS market, Plaintiffs exclusive dealing claim is based on their status as indirect purchasers in the DIS market. Indeed, in arguing that it sufficiently has alleged substantial foreclosure, as necessary to state a claim for exclusive dealing under federal law, Plaintiffs argue that they sufficiently have alleged substantial foreclosure in the DIS market. Similarly, Plaintiffs' Section 2 claims are based on alleged monopolistic conduct by Defendant in the DIS market-not the DMS market. As noted by the Seventh Circuit, in relation to the DMS market, "neither Reynolds nor CDK is a monopolist." Authenticom, Inc. v. CDK Glob., LLC , 874 F.3d 1019, 1025 (7th Cir. 2017). Thus, Plaintiffs' exclusive dealing claim based on vendor contracts and Plaintiffs' Section 2 monopoly claim are barred by Illinois Brick. The Court grants Defendant's motion to dismiss Count II and Count V. Furthermore, to the extent that Plaintiffs seek to bring a horizontal conspiracy claim based on agreements to restrain competition in the DIS market, Plaintiffs' horizontal conspiracy claim fails under Illinois Brick and Plaintiffs may not proceed under that theory.
ii. Injunctive Relief
Defendant also argues that Plaintiffs lack antitrust standing to bring claims for injunctive relief under the Sherman Act and therefore moves to dismiss Counts II and IV. Antitrust standing "examines the connection between the asserted wrongdoing and the claimed injury to limit the class of potential plaintiffs to those who are in the best position to vindicate the antitrust infraction." Greater Rockford Energy & Tech. Corp. v. Shell Oil Co. , 998 F.2d 391, 395 (7th Cir. 1993)
(citations omitted). In Associated General Contractors of California, Inc. v. California State Council of Carpenters , 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) (" AGC "), the Supreme Court held that regardless of whether an antitrust plaintiff has "constitutional standing," at the pleadings stage a district court "must make a further determination whether the plaintiff is a proper party to bring a private antitrust action." Id. at 535 & n.31, 103 S.Ct. 897. The Court announced six factors to consider in assessing whether an antitrust plaintiff is the proper party to proceed under the antitrust laws: "(1) the causal connection between the violation and the harm; (2) the presence of improper motive; (3) the type of injury and whether it was one Congress sought to redress; (4) the directness of the injury; (5) the speculative nature of the damages; and (6) the risk of duplicate recovery or complex damage apportionment." Loeb Indus., Inc. v. Sumitomo Corp. , 306 F.3d 469, 484 (7th Cir. 2002) (citing AGC , 459 U.S. at 537-45, 103 S.Ct. 897 ). For injunctive relief, the "speculative nature of the damages" and "risk of duplicate recoveries" factors drop out of the analysis, DFA I , 2013 WL 4506000, at *9, but the need to establish antitrust standing remains. See Cargill, Inc. v. Monfort of Colo., Inc. , 479 U.S. 104, 110-11, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986) (requiring party seeking injunctive relief to show antitrust standing). "The 'broad proposition' emanating from AGC is that 'a party cannot recover when others more directly injured are better able to state a claim.' " In re Dairy Farmers of Am., Inc. Cheese Antitrust Litig. , 2015 WL 3988488, at *6 (N.D. Ill. June 29, 2015) (" DFA II ") (quoting Loeb Indus., Inc. v. Sumitomo Corp. , 306 F.3d 469, 489 (7th Cir. 2002) ). Defendant argues that Plaintiffs' federal antitrust claims seeking injunctive relief fail under AGC because there are more directly-affected purchasers that can-and in this case are-seeking the same injunctive relief.
Plaintiffs argue that Defendant's AGC argument fails with respect to Defendants' conspiracy directed towards the DMS market because Plaintiffs-as direct purchasers of Defendant's DMS-are the most "directly-affected purchasers." Defendant does not dispute that-to the extent that Plaintiffs' claims are based on anticompetitive conduct in the DMS market-Plaintiffs' claims are not be barred by AGC. As discussed above, however, Defendant contends that Plaintiffs' federal antitrust claims actually are based on alleged anticompetitive conduct in the DIS market, not the DMS market. Because Plaintiffs' federal horizontal conspiracy claims are based-at least to some extent-on alleged anticompetitive conduct in the DMS market, as discussed above, the Court denies Defendant's motion to dismiss such claims pursuant to AGC.
However, Plaintiffs' exclusive dealing claim for injunctive relief (Count IV) is based on alleged anticompetitive conduct in the DIS market. Plaintiffs nonetheless argue that when plaintiffs "do not seek damages for their Sherman Act claim, it is inconsequential that there are more 'immediate victims' of the scheme." [358, at 56 (quoting In re Broiler Chicken Antitrust Litig. , 290 F.Supp.3d 772, 814 (N.D. Ill. 2017) (internal quotation marks omitted) ).] Still, under AGC , the Court must consider the directness of the injury. Defendant contends that AGC bars federal antitrust claims-even claims seeking injunctive relief-when more directly-affected purchasers seek the same injunctive relief that the more-remote plaintiff demands. In making that argument, Defendant relies on DFA I , which held that downstream participants in the retail market failed to satisfy the directedness prong of AGC. 2013 WL 4506000. In that case, the plaintiffs alleged that defendants conspired to buy all of the available long positions in three months' worth of Class III milk futures contracts on the Chicago Mercantile Exchange in an effort to gain control of those markets and sell their positions at an unreasonably high price. Id. at *1. Plaintiffs alleged that they were injured by defendants' actions when they purchased finished products at artificially inflated prices. Id. But plaintiffs were "downstream participants in a retail market * * * separate from the allegedly restrained market" and "the allegedly price-fixed products * * * [were] not even components of the products that [the plaintiffs] purchased." Id. at *12-13. This Court therefore concluded that plaintiffs failed to satisfy the directness factor of the antitrust standing analysis. Id. The Court noted that the plaintiffs' injury was "not alleged to be a necessary step in furthering the ends of the conspiracy involving the two relevant markets." Id. at *11. In fact, the causal link between the alleged anticompetitive conduct and the antitrust injury was attenuated; "there [were] numerous links in the chain of distribution before a finished dairy product reache[d] a retailer, including transactions between the retailer and its distributors or wholesalers, between distributors or wholesalers and manufacturers of cheese products, and between manufacturers and milk producers." Id. at *14.
The Court did not hold, however, that AGC categorically bars federal antitrust claims-even claims seeking injunctive relief-whenever more directly-affected purchasers seek the same injunctive relief that the more-remote plaintiff demands. The Court recognized that "the fact that the alleged conspiracy operated in the separate but related futures market [did] not necessarily doom the indirect purchaser plaintiffs' claims." Id. Furthermore, other courts in this district have concluded that "[w]hen damages are not at issue, as long as the plaintiffs' alleged injury is not 'remote' * * * but is directly attributable to the conspiracy, the injury satisfies AGC. " In re Broiler Chicken Antitrust Litig. , 290 F.Supp.3d 772, 814 (N.D. Ill. 2017).
Here, Plaintiffs claimed injury is not so remote as to bar their claims for injunctive relief. The first four AGC factors (the factors relevant to Plaintiffs' injunctive relief claims)-including the directness factor-weigh in favor of finding that Plaintiffs have antitrust standing to pursue their federal antitrust claims for injunctive relief. Plaintiffs purchase the services of vendors who are consumers in the DIS
market and who rely on DIS to provide their applications to dealers. Furthermore, the DIS market is closely related to and dependent on the DMS market in which Plaintiffs are consumers. Plaintiffs' injury therefore was a necessary step in furthering the ends of the conspiracy in the relevant markets. Furthermore, Plaintiffs allege that vendors have passed on overcharges directly to dealers. Thus, unlike DFA I , the causal link between the alleged anticompetitive conduct and the antitrust injury is not attenuated. Defendant does not argue that the presence of an improper motive is lacking. Nor does Defendant argue that Plaintiffs' claimed injuries are not the type of injuries Congress sought to redress in the Sherman Act. Although Defendant does dispute that Plaintiffs satisfy the directness factor-relying extensively on DFA I -the Court finds DFA I distinguishable for the reasons discussed above. Accordingly, the Court denies Defendant's motion to dismiss Plaintiffs' federal antitrust claims for injunctive relief (Counts II and IV) under AGC.
C. Failure to State a Claim Under Federal Law
i. Horizontal Conspiracy Claims (Counts I-II)
Plaintiffs bring Section 1 horizontal conspiracy claims against Defendant based on agreements made between CDK and Reynolds that-according to Plaintiffs-amount to agreements to restrain competition in the DMS and DIS markets. With respect to the DMS market, Plaintiffs allege that Defendant and Reynolds are "horizontal competitors" that both possess "dominant positions" in the DMS market. [198, at ¶¶ 170, 177.] Plaintiffs further allege that Defendant and Reynolds agreed to restrain competition in that market by agreeing to "reduce the functionality of CDK's DMS (including dealerships' ability to freely access their DMS data through authorized persons)." [Id. at ¶ 171; see also ¶¶ 148-49 (Dealerships' ability to access their data on DMS through third parties "was an important feature of the DMS and its functionality," and Defendants unlawfully "eliminated this feature of the DMS and its functionality.").] With respect to the DIS market, Plaintiffs allege that Defendants agreed that CDK would stop hostilely accessing Reynolds's DMS. Defendants also agreed that they would not assist in the hostile access of one another's DMSs. Still, Defendant argues that Plaintiffs' allegations of a horizontal conspiracy are insufficient to state a claim for a number of reasons.
First, Defendant argues that Plaintiffs are wrong about what the challenged agreements provide. Focusing on the language of the written agreements between Defendant and Reynolds, Defendant argues that the "agreements merely wind-down CDK's hostile access to Reynolds's DMS." [266, at 33.] According to Defendant, "[t]hey do not divide any market, restrain any competition, or say anything about CDK's or Reynolds's third-party access policies (which either company could change tomorrow)." Id. ; see also Authenticom , 874 F.3d at 1025 ("nothing in the 2015 agreements forbade CDK itself from allowing access to its own data integration system").
To be sure, the 2015 written agreements between Defendant and Reynolds do not expressly require that Defendant and Reynolds block third-party access on their own DMSs. Yet, as noted by Judge St. Eve in the Authenticom case, the agreements do "effectively require that CDK stop hostile access of Reynolds DMSs (for a period, at least) and, more importantly, expressly prohibit [Defendant and Reynolds] from assisting in the hostile access of one another's DMSs." In re Dealer Mgmt. Sys. Antitrust Litig. , 313 F.Supp.3d at 951. As Judge St. Eve also noted, "[s]uch a partial ceasefire and mutual forbearance between two rivals would make sense if * * * Defendants sought to 'support' one another's integration services to the exclusion of third-party integrators from the competition." In re Dealer Mgmt. Sys. Antitrust Litig. , 313 F.Supp.3d 931, 951 (N.D. Ill. 2018). The anticompetitive effects of this "partial ceasefire" and "mutual forbearance between two rivals" were not limited to the DIS market. The alleged horizontal agreement is between two competitors in the DMS market. CDK and Reynolds-"horizontal competitors" and possessors of "dominant positions" in the DMS market-agreed to restrain competition in that market by agreeing to "reduce the functionality of CDK's DMS (including dealerships' ability to freely access their DMS data through authorized persons)." [198 (Compl.), ¶¶ 170-71.] Evidence of "retardation of innovation and subsequent decrease in the quality of [products] potentially available to consumers, if believed, could qualify as a harm to competition and consumers." Aventis Envtl. Sci. USA LP v. Scotts Co. , 383 F.Supp.2d 488, 504 (S.D.N.Y. 2005). Plaintiffs allege such a decrease in the quality of the products they purchased from Defendant here.
Furthermore, the alleged agreements between Defendant and Reynolds are not necessarily limited to the 2015 written agreements. Plaintiffs claim that Defendant's executives admitted to an agreement between Defendant and Reynolds to block third-party access of their respective DMSs. For example, in April 2016, CDK's Vice President of Product Management, Dan McCray, told Authenticom's CEO Stephen Cottrell:
[W]e've entered into an agreement with Reynolds and Reynolds, okay? That agreement specifically says that we're going to support each other's third party interfaces, and we're working collaboratively to remove all hostile integrators from our DMS system.
[198 (Compl.), at ¶ 101.] CDK's argument that Plaintiffs only have alleged an agreement to wind-down CDK's hostile access to Reynolds's DMS therefore fails, as it ignores Plaintiffs' well-pleaded allegations of a horizontal agreement beyond the written agreements between Defendant and Reynolds.
In the Authenticom matter, Defendant argued that the court should disregard these allegations because the best evidence of CDK's and Reynolds's agreement is their written contracts. Judge St. Eve found that argument unpersuasive, concluding that the argument "backfire[d]" because it "suggests that [CDK and Reynolds] (or at least their executives) thought that the 2015 Agreements aimed to 'block' third-party integrators." [176, at 29.] CDK argues that conclusion was erroneous because using allegations of oral statements to inform the meaning of a written contract would upend the established contractual cannon that oral evidence may not supplement a fully integrated, written agreement. [266, at 37 n.13 (citing 11 Williston on Contracts § 33:1 (4th ed. 2018) ).]
However, to the extent the statements made by Defendant's and Reynolds's executives refer to the 2015 written agreements, the Court agrees that they indicate that the aim of those agreements was to block third-party integrators. The Court would not expect that CDK and Reynolds would identify that intent in the text of the contract, but that does not mean the parties' statements regarding their intent is being used to interpret the parties' obligations under the contract. Indeed, although the Seventh Circuit recognized that the 2015 written agreements "do not explicitly state that defendants will work together to eliminate third-party data integrators, the agreements have that effect * * * After the agreements, there is little room in the market for third-party integrators." Authenticom, Inc. v. CDK Glob., LLC , 2017 WL 3017048 at *6 (W.D. Wis. 2017). Regardless, as Judge St. Eve also noted, in order to accept Defendant's argument, the Court would have to infer that Defendant's and Reynolds's executives were referring to the written agreements-as opposed to an extracontractual agreement-requiring that the Court make an inference in Defendant's favor, which the Court cannot do at the motion to dismiss stage. Furthermore, to the extent that the statements made by CDK's and Reynolds's executives are not reflected in the agreement, it reasonable can be inferred that there was an extracontractual agreement between CDK and Reynolds. Again, the Court would not expect CDK and Reynolds to memorialize all aspects of the alleged anticompetitive agreement in their written agreements. The Court must make this reasonable inference at the motion to dismiss stage.
Second, Defendant argues that Plaintiffs' Section 1 horizontal conspiracy claim fails because Plaintiffs merely have alleged parallel conduct. "Tacit collusion, also known as conscious parallelism, does not violate section 1 of the Sherman Act. Collusion is illegal only when based on agreement." In re Text Messaging Antitrust Litig. , 782 F.3d 867, 879 (7th Cir. 2015). Defendant therefore argues that Plaintiffs' Section 1 claims fail because Plaintiffs fail to identify "evidence that 'tends to exclude the possibility' of independent conduct." [260, at 14 (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 588, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ).] Although the Supreme Court has held "that a plaintiff must present evidence showing that defendants had a 'rational economic motive to conspire' and evidence 'that tends to exclude the possibility' of independent conduct to survive summary judgment[,]" In re Dealer Mgmt. Sys. Antitrust Litig. , 313 F.Supp.3d at 953 (quoting Matsushita Elec. Indus. Co. , 475 U.S. at 588, 106 S.Ct. 1348 ), courts have held that such a showing is not necessary at the pleading stage. Id. (collecting cases).
Regardless, Plaintiffs plausibly have alleged a motive to conspire. Plaintiffs allege that dealers preferred CDK's "open" DMS and that Reynolds therefore lost market share in the DMS market when it closed its DMS. [198 (Compl.), at ¶¶ 7, 77-78.] It therefore is reasonable to infer that Defendant and Reynolds were motivated to conspire with each other so that they could close their systems to data integrators without fear that their customers would turn to another provider. In re Dealer Mgmt. Sys. Antitrust Litig. , 313 F.Supp.3d at 953. Furthermore, accepting Defendant's argument that Plaintiffs only have alleged parallel conduct would require that the Court ignore well-pleaded allegations that Defendant's executives admitted to the conspiracy. Such admissions are direct evidence of an illegal conspiracy. In re Text Messaging Antitrust Litig. , 630 F.3d 622, 628 (7th Cir. 2010) (recognizing "an admission by an employee of one of the conspirators" as direct evidence supporting a price-fixing case). Accordingly, the Court denies Defendant's motion to dismiss Plaintiffs' horizontal conspiracy claims (Counts I-II).
ii. Exclusive Dealing (Counts III-IV)
Defendant also argues that Plaintiffs have not sufficiently alleged that Defendant engaged in exclusive dealing. "An exclusive dealing contract obliges a firm to obtain its inputs from a single source." Paddock Publ'ns, Inc. v. Chicago Tribune Co. , 103 F.3d 42, 46 (7th Cir. 1996). "The objection to exclusive-dealing agreements is that they deny outlets to a competitor during the term of the agreement." Roland Mach. Co. v. Dresser Indus., Inc. , 749 F.2d 380, 393 (7th Cir. 1984). Because of the procompetitive benefits of exclusive dealing (e.g. , increasing allocative efficiency, preventing free-riding), courts analyze exclusive dealing claims under the rule of reason. In re Dealer Mgmt. Sys. Antitrust Litig. , 313 F.Supp.3d at 956-57.
Plaintiffs argue that Defendant has engaged in exclusive dealing by preventing vendors from working with independent data integrators (such as Authenticom). Plaintiffs allege that "Defendants have utilized their control of the DMS market to impose exclusive dealing provisions on Vendors. These exclusive dealing provisions necessitate that any Vendor doing business with CDK or Reynolds cannot contract with any other independent DIS provider, and these exclusive dealing provisions are purportedly infinite in duration." [198 (Compl.), at ¶ 13.]
Defendant argues that Plaintiffs' exclusive dealing claim fails because 3PA is a " 'managed interface' that is part of CDK's DMS," not a separate product. [266, at 38.] However, Defendant fails fully to develop this argument. For example, Defendant does not even discuss the relevant consideration for determining a product market, such as separate demand, the products peculiar characteristics and uses, "distinct customers, distinct prices, sensitivity to price changes, and specialized vendors." Brown Shoe Co. v. United States , 370 U.S. 294, 325, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962)