215 F.3d 677 (7th Cir. 2000)
Industrial Electronics Corp. of Wisconsin,    Plaintiff-Appellee,v. iPower Distribution Group, Inc.,     Defendant-Appellant.
No. 99-1764
In the  United States Court of Appeals  For the Seventh Circuit
Argued February 23, 2000
Decided May 31, 2000

Appeal from the United States District Court  for the Eastern District of Wisconsin.  No. 98 C 998--J.P. Stadtmueller, Chief Judge.
Before Flaum, Kanne and Diane P. Wood,  Circuit Judges.
Kanne, Circuit Judge.


1
A failed attempt  by several small Wisconsin companies to  develop an integrated marketing and  distribution consortium with the help of  an Ohio software supplier ended with  claims of fraud against the Ohio company.  Embedded in a fairly complex business  arrangement lies an arbitration clause  that the Ohio company, iPower  Distribution Group, Inc. ("iPower"),  believed entitled it to arbitration  rather than litigation. The district  court disagreed and refused to stay the  action pending arbitration. Before the  case could continue, iPower appealed. We  affirm the district court's decision,  although on different grounds than the  district court.

I.  History

2
The complaint in this case concerns the  relationships among four corporate  entities bound together in various ways  by two related agreements. The deal began  with defendant iPower, a company that  makes a special kind of software for  industrial supply dealers. iPower's  software allows groups of dealers to  combine together into an integrated, one-  stop-shopping network so that other  business customers may buy products from  many dealers with a single order. To  market its software, iPower approaches  groups of dealers in a particular region  and suggests that they form an  association, usually a limited  partnership or some similar legal entity.  That association then enters into a  franchise agreement with iPower that  allows the association to purchase,  install and use the iPower software.  Customers place their orders with and  make payments to the franchisee  association when they want to buy a  particular product from an individual  dealer.


3
In May 1995, iPower approached several  unaffiliated equipment dealers in  Southern Wisconsin (the "dealers"), and  pitched the idea to them of becoming a  franchisee and buying the software. One  of the dealers was plaintiff Industrial  Electronics Corp. of Wisconsin  ("Industrial Electronics"). The dealers  liked the proposal and agreed among  themselves to form an association to  become a franchisee (the "association  agreement"), with each company owning  equal shares. That summer, the dealers  formed iPower Distribution Group,  Southern Wisconsin, LLC, (the  "association"), a limited liability  corporation organized under the laws of  Wisconsin. The association was formed on  August 10, 1995, and consisted of eight  dealer-members as "Full Members."


4
A year later, in September 1996, iPower  and the association entered into a  franchise agreement (the "franchise  agreement"). The franchise agreement  detailed the entire relationship between  the association and iPower and included  an arbitration clause that stated in  part:


5
The parties wish to provide for an  arbitration procedure in order to avoid  the excessive costs of litigation. Any  monetary claim arising out of or relating  to this Agreement, or any breach thereof,  excluding any claim relating to the  confidential information or the Marks,  shall be submitted to arbitration in  Cuyahoga County, Ohio, in accordance with  the rules of the American Arbitration  Association and judgment upon the award  may be entered in any court having  jurisdiction thereof and shall be final,  binding and unappealable. . . .


6
Two years later, Industrial Electronics  filed suit in Wisconsin state court,  alleging that iPower had made material  misrepresentations regarding its product  to induce Industrial Electronics to join  the association. Industrial Electronics  claimed that despite iPower's assertions  to the contrary, the software was not  functional or appropriate for the size of  enterprise at issue. According to the  complaint, iPower's alleged  misrepresentations regarding its product  began in May 1995 when Industrial  Electronics obtained an offering  circular, possibly from a third party,  and continued through August 1995 when  the association was formed. Industrial  Electronics claimed that because iPower's  software did not work, the association  never made any sales and that because of  iPower's misrepresentations, Industrial  Electronics forewent participation in  other dealer consortiums. iPower removed  the case to federal district court, which  had jurisdiction based on diversity of  citizenship, and moved for a stay pending  arbitration of the agreement pursuant to  sec. 3 of the Federal Arbitration Act, 9  U.S.C. sec. 1 et seq. The district court  denied the motion to stay pending  arbitration, and iPower appealed pursuant  to 9 U.S.C. sec. 16(a)(1)(A).

II.  Analysis

7
The district court held that it would  defeat the purpose of Wisconsin's limited  liability company statute, Wis. Stat.  sec. 183.0102 et seq., to allow LLCs to  bind their members or subject them to  liability by their agreements with third  parties. Therefore the court held that  members of LLCs cannot be bound by  contracts entered into between the LLC  and third parties, and the arbitration  clause between the association and iPower  had no effect against Industrial  Electronics.1


8
iPower does not dispute that the  association could not impose an  obligation on one of its members, but  instead maintains that the district court  misapprehended the nature of Industrial  Electronics' claim. In iPower's view,  Industrial Electronics stated its claim  as a third-party beneficiary of the  franchise agreement, in which case, the  limited liability statute would not  apply. Because Industrial Electronics  asserted a right under the franchise  agreement as a third-party beneficiary,  the terms of the agreement, including the  arbitration provision, would control.  Furthermore, Industrial Electronics'  claim amounts to an allegation of fraud  in the inducement of the franchise  agreement, and such claims have been held  to be covered by arbitration provisions  within the fraudulently induced  agreement. See Prima Paint Corp. v. Flood  & Conklin Mfg. Co., 388 U.S. 395, 403-04  (1967).


9
If Industrial Electronics asserted  rights created by the franchise  agreement, we would agree with iPower  that the arbitration provision would  govern. The association agreement created  a new legal entity, much as a corporate  charter does, whose investors were the  eight dealers. Those eight dealers stood  as shareholders in a corporation and  could not sue a third party individually  or on behalf of the corporation, except  as allowed by the Wisconsin statute. See  Wis. Stat. sec. 183.0305; see also Rose  v. Schantz, 201 N.W.2d 593, 597 (Wis.  1972) (holding that action accruing to  corporation cannot be brought by the  members as individuals); Flynn v.  Merrick, 881 F.2d 446, 449 (7th Cir.  1989) (same); Carney v. General Motors  Corp., 23 F.3d 1154, 1157 (7th Cir. 1994)  (holding that sole shareholder may not  bring action in his own name to enforce a  right that belonged to the corporation);  Twohy v. First Nat'l Bank of Chicago, 758  F.2d 1185, 1194 (7th Cir. 1985) (holding  that under United States law, a  stockholder of a corporation has no  individual right against third parties  for injuries to the corporation). Under  these well established principles,  Industrial Electronics cannot bring a  suit to assert rights under the franchise  agreement for injuries to the association  or indirectly to the members as  shareholders.


10
Yet that new legal entity entered into  a contract (the franchise agreement) with  iPower, the purpose of which was to  benefit certain specified parties. The  applicable state law2 would determine  whether Industrial Electronics could  assert the rights of a third party. See  Grant Thornton v. Windsor House, Inc.,  566 N.E.2d 1220, 1223 (Ohio 1991); Pappas  v. Jack O.A. Nelson Agency, Inc., 260  N.W.2d 721, 725 (Wis. 1978). As a third-  party beneficiary, Industrial Electronics  also would be bound by the arbitration  provision. See Barrett v. Picker Int'l,  Inc., 589 N.E.2d 1372, 1375-76 (Ohio Ct.  App. 1990) (holding that forum selection  clause in contract bound third-party  beneficiaries); City of Mequon v. Lake  Estates Co., 190 N.W.2d 912, 916 (Wis.  1971) (holding that third-party  beneficiaries take rights under contract  subject to all terms and conditions of  the contract); Winnebago Homes, Inc. v.  Sheldon, 139 N.W.2d 606, 609 (Wis. 1966).


11
However, the injuries alleged by  Industrial Electronics do not arise under  or relate to the franchise agreement, and  Industrial Electronics' status as a  potential third-party beneficiary does  not dispose of this case. Rather,  Industrial Electronics claims as its  injuries the payments it made to invest  in the association, and it asserts these  injuries separately from any injury to  the association itself. In Paragraph 11,  Industrial Electronics mentions that the  association has made no sales under the  franchise, but that is the sole mention  of the association's injury in the  complaint. Instead, Industrial  Electronics focuses factually on the  misrepresentations made directly to  Industrial Electronics by iPower, claims  as part of its injury the $31,000 it paid  to the association and characterizes the  legal wrong as a reckless or intentional  misrepresentation designed to induce  Industrial Electronics to join the  association. Therefore, the pleading  makes clear that Industrial Electronics'  claim relates not to the franchise  agreement but to the earlier association  agreement, which does not contain an  arbitration requirement.


12
Industrial Electronics contends that  iPower fraudulently caused it to enter  into the association agreement. Where  fraud is alleged in the inducement of a  contract, the parties are bound to  arbitrate in accordance with the  contract. See Prima Paint, 388 U.S. at  404; Barron v. Tastee Freez Int'l, Inc.,  482 F.Supp. 1213, 1216 (E.D. Wis. 1980).  Yet here the fraud was not in the  creation of the franchise agreement, but  in the creation of an entirely separate  contract. A dispute that arises under one  agreement may be litigated  notwithstanding a mandatory arbitration  clause in a second agreement, even where  the two agreements are closely  intertwined. See Midwest Window Sys.,  Inc. v. Amcor Indus., Inc., 630 F.2d 535,  537 (7th Cir. 1980).


13
Midwest Window concerned a  distributorship agreement between two  companies that contained an arbitration  provision for all disputes arising out of  the contract. Id. at 535. A dispute later  arose that the parties settled by  reaching a second agreement that dictated  new terms of delivery in exchange for the  issuance of two promissory notes to  secure payment by Midwest Window. Id. at  536. Another dispute then arose which  landed the parties in court. This second  dispute centered on fraud allegations  concerning the notes, and the district  court ordered the parties to arbitration.  Id. at 537. We held that it was error to  order arbitration for a dispute arising  out of the notes agreement. Id. "Those  fraud allegations are not arbitrable.  They are not encompassed within the  contract provision providing for  arbitration of a dispute 'concerning the  interpretation or application of any of  the provisions' of the original agreement  between the parties. The notes are  outside that arbitration agreement." Id.


14
Industrial Electronics' claims do not  require the interpretation of any term of  the franchise agreement, nor are they  properly considered to be claims of fraud  in the inducement to enter that contract.  Industrial Electronics was not a party to  the franchise agreement and does not have  standing directly to enforce its  terms.3 Its complaint relates entirely  to fraud in the inducement of Industrial  Electronics to join the association by  the August 1995 association agreement, to  which the franchise agreement arbitration  provision does not apply.

III.  Conclusion

15
We conclude that the arbitration  provision does not affect disputes  arising out of the association agreement  and Affirm the district court's decision  to deny the stay.



Notes:


1
 We agree with the district court that  Wisconsin law prevents an LLC from bind-  ing its members or subjecting them to  liability through contracts between the  LLC and third parties. See Wis. Stat.  sec. 183.0304. However, because we hold  that Industrial Electronics may only  assert claims under the association ag-  reement or as a third-party beneficiary  of the franchise agreement, the immunity  conferred by the Wisconsin LLC does not  resolve this case.


2
 We leave for the trial court to determine  whether Ohio or Wisconsin law applies.


3
 Because we hold that Industrial Electron-  ics pleaded a claim based entirely on the  association agreement, we need not ad-  dress whether they qualified as third-  party beneficiaries of the franchise  agreement and thereby could enforce or be  bound by its terms.


