Court Opinion

ID: 6347328
Source: CourtListenerOpinion
Date Created: 2022-06-06 20:00:25.472897+00
Date Added: 2024-06-11T13:34:57.131615
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________

No. 19-1997
CCC INTELLIGENT SOLUTIONS INC.,
                                                  Plaintiff-Appellee,

                                v.

TRACTABLE INC.,
                                              Defendant-Appellant.
                    ____________________

        Appeal from the United States District Court for the
          Northern District of Illinois, Eastern Division.
          No. 18 C 7246 — Robert W. Gettleman, Judge.
                    ____________________

       ARGUED MAY 16, 2022 — DECIDED JUNE 6, 2022
                    ____________________

   Before EASTERBROOK, BRENNAN, and ST. EVE, Circuit Judges.
    EASTERBROOK, Circuit Judge. CCC Intelligent Solutions and
Tractable provide customers, including insurance companies,
with estimates of the cost to repair damaged cars and trucks.
Both do this by applying algorithms, coded in computer soft-
ware, to data generated by body shops and other repair cen-
ters. Each wants to keep its algorithm secret.
2                                                   No. 19-1997

    CCC is a leader in this business. Tractable tried to catch up
by fraud. It dispatched one of its employees to obtain a license
to use CCC’s software. Using a false name, false physical ad-
dress, and false email address, the employee purported to
represent “JA Appraisal,” which he falsely described as a
small, independent appraiser. (Here, and elsewhere, we re-
port the complaint’s allegations without vouching for their
accuracy.) CCC issued the requested license. The contract for-
bids assignment of the license without CCC’s consent and
represents that JA Appraisal is not a front for anyone else.
(“CUSTOMER [JA Appraisal] represents that it is acting on its
own behalf and is not acting as an agent for or on behalf of
any third party, and further agrees that it may not assign its
rights or obligations under this Agreement without the prior
wriZen consent of CCC.”) The contract also forbids disassem-
bly of the software or its incorporation into any other product.
    Tractable’s agent gave it the software package, violating
his promise to CCC. Tractable disassembled the software and
incorporated some of its algorithms and features into its own
product, violating the license as well as CCC’s rights under
copyright and trade-secret law. After some of CCC’s custom-
ers reported that Tractable appeared to be using a clone of
CCC’s software, CCC ﬁled this suit under the diversity juris-
diction. Tractable replied with a motion to refer the dispute to
arbitration, pointing to a clause in the agreement between
CCC and JA Appraisal.
   The word “Tractable” does not appear in the agreement,
and CCC has not approved an assignment by JA Appraisal,
so CCC insisted that Tractable cannot invoke the arbitration
clause. Tractable replied that “JA Appraisal” is just a name
that Tractable uses for itself—and it insists that, if using a
No. 19-1997                                                   3

pseudonym and describing the business as “independent” is
fraud, the arbitrator can consider CCC’s defense under Buck-
eye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006)
(“[A] challenge to the validity of the contract as a whole, and
not speciﬁcally to the arbitration clause, must go to the arbi-
trator.”); K.F.C. v. Snap, Inc., 29 F.4th 835 (7th Cir. 2022).
    But the district court denied the motion to compel arbitra-
tion. 2019 U.S. Dist. LEXIS 76767 (N.D. Ill. May 7, 2019). Ap-
plying the rule that a judge must decide whether the parties
have agreed to arbitrate, see AT&T Technologies, Inc. v. Com-
munications Workers, 475 U.S. 643 (1986), the court concluded
that Tractable is not a party to an agreement with CCC. Arbi-
tration is contractual, Morgan v. Sundance, Inc., No. 21–328
(U.S. May 23, 2022), and the court found that this contract pro-
vides rights to the named parties exclusively.
   Tractable does not claim to be a third-party beneﬁciary of
the contract between CCC and JA Appraisal; the contract’s
language would defeat such an assertion. Instead Tractable
asserts that it is JA Appraisal. Many a corporation does busi-
ness under multiple names. So if CCC were to contract with
“Oreo Cookies,” Nabisco might legitimately claim to be a
party. That Oreo is one of Nabisco’s brand names is widely
known. As far as we can see, however, “JA Appraisal” is not
known to the public, or the trade, as a name under which
Tractable does business.
    Asked at oral argument whether CCC could have discov-
ered that Tractable uses the name “JA Appraisal,” counsel for
Tractable acknowledged that this was not possible. As Tracta-
ble’s own liZle secret, it does not aﬀect anyone else. Contrac-
tual meaning reﬂects words and signs exchanged between the
negotiators, not unilateral and conﬁdential beliefs. See, e.g.,
4                                                          No. 19-1997

Skycom Corp. v. Telstar Corp., 813 F.2d 810, 814–15 (7th Cir.
1987) (Wisconsin law); Ortony v. Northwestern University, 736
F.3d 1102, 1104 (7th Cir. 2013) (Illinois law). In other words,
meaning is produced by an objective process. Signing a con-
tract with your ﬁngers crossed behind your back does not add
to your rights or subtract from anyone else’s.
    Many a legal dispute, simple on the surface, has become
complex by the common law’s long accumulation of excep-
tions and provisos. Tractable has tried to complicate this dis-
pute—enough to move it from the question “is Tractable a
party?” to the question “did Tractable use fraud to induce
CCC to sign?”—by relying on Restatement (Second) of Contracts
§163 (1981), which states both a rule and exceptions related to
fraud in the inducement. Here is the blackleZer rule:
    If a misrepresentation as to the character or essential terms of a
    proposed contract induces conduct that appears to be a manifes-
    tation of assent by one who neither knows nor has reasonable op-
    portunity to know of the character or essential terms of the pro-
    posed contract, his conduct is not eﬀective as a manifestation of
    assent.

This favors CCC. Tractable points to Comment a, which says
(among other things): “The mere fact that a party is deceived
as to the identity of the other party, as when a buyer of goods
obtains credit by impersonating a person of means, does not
bring the case within the present Section, unless it aﬀects the
very nature of the contract.” According to Tractable, this
means that one side can deceive another about its identity and
still have an enforceable contract; CCC, for its part, relies on
the “unless” clause in Comment a, given JA Appraisal’s as-
surance that it is not acting for anyone else. The contract
demonstrates that the identity of CCC’s trading partner was
a vital element of the deal.
No. 19-1997                                                               5

    We are inclined to treat Comment a as addressing the
question whether an identiﬁed person can form a contract de-
spite lying about his wealth or other aZributes. Think: Joe
Blow obtains credit by presenting Elon Musk’s ﬁnancial state-
ment. The ruse does not relieve Mr. Blow of his commitments.
Nor does Musk get to claim any beneﬁts of the contract. Sub-
stitute “Tractable” for “Musk,” and you have the district
court’s ruling.
    Everything we wrote in Sphere Drake Insurance Ltd. v. All
American Insurance Co., 256 F.3d 587 (7th Cir. 2001), is con-
sistent with this understanding. Tractable points to this pas-
sage:
   A claim of fraud in the inducement—which boils down to “we
   wouldn’t have signed this contract had we known the full truth
   about our trading partner”—supposes that the unhappy party did
   agree, but now wishes it hadn’t. If a claim of “we wish we hadn’t
   agreed” could be litigated, even when the arbitration clause is so
   broad, this would move a good portion of contract disputes back
   to court and defeat this part of the agreement at the outset, for it
   is easy to cry fraud.

256 F.3d at 590. This language in Sphere Drake anticipates Buck-
eye Check Cashing but does not help Tractable. The problem for
Tractable is not that CCC failed to know “the full truth about
its trading partner”—the issue that Restatement §163 Com-
ment a covers—but that CCC did not know that Tractable
would claim to be its trading partner. Tractable told its em-
ployee to pretend to represent a small, independent ap-
praiser; CCC was entitled to agree on that basis.
    As we said, some legal disputes are simple. This is one. It
is so simple that the courts of Illinois (whose law applies) have
not found it necessary to address during the last 80 years the
question whether C can claim rights under a contract that has
6                                                    No. 19-1997

only A and B as parties. The court’s answer was “no.” Gallopin
v. Continental Casualty Co., 290 Ill. App. 8 (1937). The potential
exception for third-party beneﬁciaries does not apply, which
leaves the dominant rule. Tractable is not a party to this con-
tract, so it cannot demand arbitration.
                                                      AFFIRMED