No Arbitration in CCC’s Trade Secrets Lawsuit Against Competitor

Tractable admits it used fake names to obtain a license to use CCC Intelligent Solution’s auto damage appraisal technology.

Whether the London-based insurtech also defrauded CCC and stole trade secrets hasn’t been proven, but a federal appellate panel ruled that Tractable can’t take advantage of its ruse by invoking the arbitration clause in a user agreement. One of Tractable’s top United States executives had created an account with CCC while posing as “Jason Chen” with “JA Appraisal.”

The 7th Circuit Court of Civil Appeals on Monday affirmed a decision by the US District Court in Chicago that Tractable cannot enforce an arbitration clause in CCC’s master service agreement because it was not an actual party to the contract. The appellate panel said it was a simple legal dispute to resolve.

“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 only A and B as parties.”

Tractable said in an emailed statement Tuesday that the decision means only that a lawsuit filed against it by CCC will proceed in the Northern District of Illinois instead of to binding arbitration.

“This does not reflect a decision surrounding the merits of CCC’s complaint,” the company said. “The case remains ongoing, fact discovery has not yet begun, and will proceed to district court where Tractable looks forward to obtaining a favorable resolution to CCC’s unfounded complaint.”

The panel’s opinion, written by Circuit Judge Frank Hoover Easterbrook, includes a concise summary of the allegations made in the lawsuit that CCC filed against Tractable in 2018:

“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 address, and false email address, the employee purported to represent ‘JA Appraisal,’ which he falsely described as a small, independent appraiser.”

The dispatched employee referred to in the decision is Xing Xin, Tractable’s former US head of business and product development. Attorneys for Tractable admitted in court filings that Xin obtained a license agreement with CCC in 2017 under the name Jason Chen with JA Appraisal.

“A contract does not lose its legal force because it is signed using an assumed name,” its lawyers argued in a brief.

The 7th Circuit panel, however, said the terms of the contract — which included provisions that barred CCC’s licensed users from copying its software or source codes — “demonstrates that the identity of CCC’s trading partner was a vital element of the deal.”

CCC, based in Chicago, said it first because suspicious when a customer told one of its leaders during an April 2018 industry conference that Tractable had represented it could generate vehicle damage estimates and input them into the CCC One estimating program, which transmits appraisals to insurance carriers. After hearing two similar reports, it queried its database and discovered six licensed users had links to Tractable.

An email address ending with @tractable.ai had been used to register JA Appraisal. CCC discovered that no company named JA Appraisal was registered in California or Delaware. The mailing address used for the business was associated with a California guitar repair shop.

“The individual purporting to be ‘Jason Chen’ never mentioned Tractable because Tractable did not want CCC to know that ‘JA Appraisal’ did not actually exist, but was merely a clandestine front for Tractable, which was attempting to gain access to and discern CCC’s proprietary data, algorithms and other information,” CCC’s civil complaint says.

The suit says Tractable violated the Illinois Trade Secrets Act of 2016, the Illinois Uniform Deceptive Trade Practices Act and the federal Lanham Act, which governs unfair competition.

Tractable denies the allegations.”This is a meritless complaint intended to stifle competition and industry innovation,” the company’s statement says.

Photo at top courtesy of CCC.