The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
CELLULAR SALES OF KNOXVILLE, )
INC., a corporation; CELLULAR )
SALES OF NORTH CAROLINA, LLC, )
a limited liability company; )
CELLULAR SALES OF )
PENNSYLVANIA, LLC, a limited )
liability company, )
) 1:19CV768
Petitioners, )
)
v. )
)
DAVID CHAPMAN, )
)
Respondent. )
MEMORANDUM OPINION AND ORDER
THOMAS D. SCHROEDER, Chief District Judge.
Petitioners Cellular Sales of Knoxville, Inc., Cellular Sales
of North Carolina, LLC, and Cellular Sales of Pennsylvania, LLC
(collectively, “Cellular Sales”) seek an order compelling
arbitration of claims raised by Respondent David Chapman, a former
employee, pursuant to Section 4 of the Federal Arbitration Act, 9
U.S.C. § 4 (“FAA”). (Doc. 1.) Before the court is Chapman’s
motion to stay this case pending a decision in a previously-filed
related action between the parties in the Eastern District of
Pennsylvania. (Doc. 23.) For the reasons set forth below,
Chapman’s motion to stay will be granted.
I. BACKGROUND
The facts of this case are detailed in this court’s January 2,
2020 memorandum opinion and order. (Doc. 20.) Relevant to the
present motion, the facts are as follows:
On June 18, 2019, Chapman allegedly disregarded his
arbitration agreement with his employer, Cellular Sales of North
Carolina, LLC, and filed a collective action as a named plaintiff
against Cellular Sales in the United States District Court for the
Eastern District of Pennsylvania. (Doc. 1 ¶ 14.) See Jessica
Deardorff and David Chapman v. Cellular Sales of Knoxville, Inc.,
No. 2:19-cv-02642-KSM (E.D. Pa. filed June 18, 2019) (the
“Pennsylvania action”). That lawsuit alleges that Cellular Sales
violated the Fair Labor Standards Act, 29 U.S.C. § 201 et seq.
(“FLSA”), by failing to pay Chapman overtime compensation, as well
as the North Carolina Wage and Hour Act, N.C. Gen. Stat. 95-25.1
et seq. (“NCWHA”), by failing to pay him earned wages. (Doc. 1-3
¶¶ 96-99, 103-105.) Just over one month later, on July 29, 2019,
Cellular Sales filed the present action pursuant to Section 4 of
the FAA seeking an order to compel Chapman to arbitrate his claims.
(Doc. 1.) Chapman moved to dismiss, or alternatively to stay,
this action while the Pennsylvania action proceeds (Doc. 11), and
Cellular Sales filed a motion for leave to perfect service (Doc.
13). In a prior order, this court denied Chapman’s motion to stay
without prejudice and granted Cellular Sales an additional period
within which to perfect service on Chapman. (Doc. 20 at 9.)
On March 17, 2020, Chapman, apparently having been served,
filed the present motion to stay (Doc. 23), which Cellular Sales
opposes (Doc. 25). On July 6, 2020, the court heard oral argument
on the motion via videoconference, and it is now ready for
decision.
II. ANALYSIS
Chapman urges this court to stay this action, arguing that
the “first-filed” rule favors the identical and previously-filed
Pennsylvania action. (Doc. 24 at 6.) He notes that in the
Pennsylvania action the parties have already briefed the very
questions to be raised in this case: namely, the validity of the
parties’ arbitration provision purporting to waive his right to
participate in an FLSA collective action as well as whether the
resolution of that issue was relegated to the arbitrator (or
reserved for the court). These questions are raised by Cellular
Sales’s in their motions to dismiss or stay that action in favor
of the present North Carolina case. Activity in the Pennsylvania
action is effectively on hold pending the court’s decision.
Chapman argues that “[t]he principles of comity weigh heavily in
favor of staying this action” and that a refusal to do so would be
“inefficient and risk[] inconsistent adjudications.” (Id. at 6-
7.) Cellular Sales, by contrast, asks the court to depart from
the first-filed rule because its application in this case would
“reward Chapman’s blatant forum-shopping, waste judicial
resources, and run counter to the mandates of the FAA,” as under
the law only this court has the power to enforce the parties’
arbitration provision. (Doc. 25 at 5-6.)
The Fourth Circuit follows the first-filed rule, which holds
that when similar suits are raised in different forums, “the first
suit should have priority.” Ellicott Mach. Corp. v. Modern Welding
Co., 502 F.2d 178, 180 n.2 (4th Cir. 1974) (citation and internal
quotation marks omitted). “Founded on notions of judicial economy,
the rule embodies the concept that the ‘simultaneous prosecution
in two different courts of cases relating to the same parties and
issues leads to the wastefulness of time, energy, and money.’”
MEI Techs., Inc. v. Detector Networks Int'l, LLC, No. CIV 09-0425
RB/LFG, 2009 WL 10665141, at *3 (D.N.M. July 6, 2009) (quoting
Cessna Aircraft Co. v. Brown, 348 F.2d 689, 692 (10th Cir. 1965)).
In determining whether the first-filed rule is applicable, courts
apply a three-factor test, considering “(1) the chronology of the
filings, (2) the similarity of the parties involved, and (3) the
similarity of the issues being raised.” Dillon v. BMO Harris Bank,
N.A., 16 F. Supp. 3d 605, 617 (M.D.N.C. 2014) (quoting Remington
Arms Co. v. Alliant Techsystems, Inc., No. 1:03CV1051, 2004 WL
444574, at *2 (M.D.N.C. Feb. 25, 2004)). However, its application
is not mechanical and district courts “[have] the discretion to
retain jurisdiction given appropriate circumstances justifying
departure from the first-filed rule.” Jefferson Pilot Life Ins.
Co. v. Griffin, No. 1:07CV0096, 2008 WL 2485598, at *3 (M.D.N.C.
June 16, 2008) (citations and internal quotation marks omitted).
Appropriate circumstances include “when the balance of convenience
weighs in favor of the second forum” and where “special
circumstances warrant a departure from the rule.” Mkt. Am., Inc.
v. Chuanjie Yang, No. 1:17CV897, 2018 WL 3406865, at *3 (M.D.N.C.
July 12, 2018) (citations and internal quotation marks omitted).
In the present case, the three-factor test weighs in favor of
a stay. The Pennsylvania action was filed before the North
Carolina action, the parties in both actions are the same, and at
oral argument the parties agreed that the issues before both courts
– the validity of the arbitration provision and who decides
arbitrability - are the same. The court’s independent review of
the filings in the Eastern District of Pennsylvania confirms this.
Further, a stay of this action fosters judicial economy. If this
court were to deny the motion to stay, the parties would be
required to brief the very issues presented months ago to the
Eastern District of Pennsylvania. Both courts would then be
addressing the identical matter between the parties, even though
the parties concede that the decision in one case would bind the
parties in the other. Moreover, a stay would avoid unnecessary
expenditures by the parties as the Pennsylvania action is on hold
pending a decision by the court. The Pennsylvania court may decide
the FLSA waiver issue, or it may decide to defer to this court to
do so. Either way will avoid unnecessary duplication of effort.
Because both the three-factor test articulated in Remington
Arms Co., 2004 WL 444574, at *2, and notions of judicial economy
support staying this case while the first-filed action proceeds,
Cellular Sales must demonstrate either that the balance of
convenience weighs in favor of hearing the case in North Carolina
or special circumstances warrant a departure from the first-filed
rule.
Cellular Sales argues that special circumstances exist:
specifically, that Chapman’s filing of the first action “was
blatant forum-shopping” and that the action was filed “for the bad
faith purpose of creating a procedural hurdle for compelling
arbitration.” (Doc. 25 at 11, 14.) They also argue that the
balance of convenience weighs in favor of this court because
Chapman resides in North Carolina and worked here at all relevant
times. (Id. at 17.) Cellular Sales relies principally on
Jefferson Pilot, 2008 WL 2485598, at *4-5 and MEI Technologies,
2009 WL 10665141, at *4-6. Chapman reiterates the identity of
issues and parties in both actions and urges that judicial economy
supports a stay of this action. (Doc. 26 at 3-6.) He also argues
that the cases relied on by Cellular Sales are distinguishable.
It is true that only this court, and not the Pennsylvania
court, has the power to compel arbitration in North Carolina. See
9 U.S.C. § 4 (arbitration hearings and proceedings “shall be within
the district in which the petition for an order directing such
arbitration is filed”). See also Elox Corp. v. Colt Indus., Inc.,
952 F.2d 395 (4th Cir. 1991) (unpublished) (“[I]f a court orders
arbitration, the arbitration must be held in the same district as
the court.”);1 U.S. ex rel. TGK Enterprises, Inc. v. Clayco, Inc.,
978 F. Supp. 2d 540, 551 (E.D.N.C. 2013) (citation and internal
quotation marks omitted) (“A majority of courts interpreting
[Section 4 of the FAA] have held that where the parties agreed to
arbitrate in a particular forum only a district court in that forum
has authority to compel arbitration under [Section] 4.”). But
this does not constitute the procedural hurdle to its rights under
the arbitration provision that Cellular Sales claims. The company
concedes that the defenses to the arbitration provision Chapman
has raised in the Pennsylvania action are the same issues that
would have to be resolved in the present case.
Cellular Sales has also failed to present a case directly
addressing the question facing the court. In Jefferson Pilot,
similar actions were pending before federal district courts in the
District of Arizona and the Middle District of North Carolina,
with the former having been filed first. 2008 WL 2485598, at *3.
Another judge of this court departed from the first-filed rule and
1 Unpublished decisions “are entitled only to the weight they generate
by the persuasiveness of their reasoning.” See Collins v. Pond Creek
Mining Co., 468 F.3d 213, 219 (4th Cir. 2006) (citation and internal
quotation marks omitted). While the Fourth Circuit may not have
expressly addressed it, the same proposition is followed in this district
as well as others within the circuit. See, e.g., Jefferson Pilot, 2008
WL 2485598, at *4.
declined to stay the action. As Cellular Sales properly notes,
the court then proceeded to determine whether arbitration should
be compelled under Section 4 of the FAA, noting that North Carolina
was the proper forum to consider the issue because the Arizona
court could not compel arbitration outside its district. Id. at
*4-5. On these facts alone, the case is instructive. However, in
declining to follow the first-filed rule, this court noted:
[T]he Arizona court in its discretion declined to
exercise its jurisdiction over the questions surrounding
the arbitration provision and deferred resolution of the
issues presented until this Court had the opportunity to
entertain whether or not it would exercise jurisdiction
over the case. In light of the Arizona court’s
deference, this Court cannot agree that entering a stay
or transferring the case back to the Arizona court would
serve the purposes of judicial economy and effective
disposition of disputes underlying the first-filed rule.
Id. at *4. Ignoring the first-filed rule served judicial economy
only because the Arizona court had signaled that it was going to
defer to this court. At present, the Pennsylvania court has not
indicated any such decision, and so it would not presently serve
the interests of judicial economy for this court to proceed to
litigate the issues already fully briefed in the Pennsylvania
action.
MEI Technologies similarly does not help Cellular Sales. In
that case, MEI Technologies entered into an “Exclusive Teaming
Agreement” with Detector Networks to jointly prepare a proposal to
a third party for developing a radiation detector straddle carrier
system to scan cargo containers. 2009 WL 10665141, at *1. Under
the Exclusive Teaming Agreement, Detector Networks was designated
the prime contractor and MEI Technologies was designated the
subcontractor. Detector Networks was awarded the contract, but it
did not negotiate a subcontract with MEI Technologies, as promised
in the Exclusive Teaming Agreement. MEI Technologies filed an
action in federal district court in the District of New Mexico
against Detector Networks International and two of its employees
– one of whom had recently left MEI Technologies - raising multiple
claims related to work MEI Technologies performed for Detector
Networks. One month later, the Defendants in the New Mexico action
filed a petition in the Western District of Texas seeking an order
requiring the New Mexico plaintiffs to submit the claims in the
New Mexico action to arbitration under Section 4 of the FAA
pursuant to an arbitration provision in the parties’ Exclusive
Teaming Agreement. MEI Technologies moved to enjoin Detector
Networks from proceeding in the Texas action on the grounds that
the New Mexico action was filed first. The New Mexico court
disagreed and granted Detector Networks’ motion to stay “in the
interests of comity,” taking note that under Section 4 of the FAA
only the Texas court could compel arbitration. 2009 WL 10665141,
at *4, 11. Like Jefferson Pilot, this case supports the conclusion
that the court with the power to order arbitration is the favored
court for resolution of an arbitration provision. But also like
Jefferson Pilot, it stayed the action in the district that lacks
the power to order arbitration. It does not suggest that, in the
absence of a stay of the first-filed action, this court should
proceed even though doing so would result in both districts
laboring simultaneously to decide the same issue between the
parties.
Finally, Cellular Sales has not articulated how the balance
of convenience favors this court continuing to proceed under these
circumstances. If anything, the balance favors conducting an
arbitration in this district (and is an argument to be raised in
the Pennsylvania action), but as to the resolution of the legal
issues before the court, they carry little weight at this stage.
III. CONCLUSION
For the reasons set forth above, the court finds that a stay
is warranted under principles of comity and judicial economy.
IT IS THEREFORE ORDERED that Respondent’s motion to stay this
action in favor of a first-filed action in the Eastern District of
Pennsylvania (Doc. 23) is GRANTED. The parties are DIRECTED to
file a report of any decision in the Pennsylvania action that may
affect whether this court should proceed, and in any event a status
report after the passage of four months.
/s/ Thomas D. Schroeder
United States District Judge
July 9, 2020