United States District Court, M.D. North Carolina
MARKET AMERICA, INC., MARKET AMERICA WORLDWIDE, INC., JAMES HOWARD RIDINGER, LOREN RIDINGER, and MARC ASHLEY Petitioners,
CHUANJIE YANG, OLLIE LAN, and LIU LIU, Respondents.
ORDER AND MEMORANDUM OPINION
Elizabeth Peake United States Magistrate Judge.
matter comes before the Court on a Petition for Order
Compelling Arbitration filed by Market America, Inc.
(“Market America”), its parent company Market
America Worldwide, Inc., and its officers James Howard
Ridinger, Loren Ridinger, and Marc Ashley (collectively
“Petitioners”). Petitioners commenced this action
requesting an order compelling arbitration in response to a
lawsuit filed in the United States District Court for the
Central District of California by Respondents Chuanjie Yang,
Ollie Lan, and Liu Liu (“Respondents”). In
response to the Petition, Respondents have filed a Motion to
Dismiss [Doc. #12] and Motion to Strike [Doc. #19]. For the
reasons that follow, the Motion to Dismiss and Motion to
Strike will be denied.
FACTS, CLAIMS, AND PROCEDURAL HISTORY
America is a self-described “product brokerage and
Internet one-to-one marketing company, ” with
headquarters in North Carolina. (Petition [Doc. #1] ¶
1.) Petitioners allege that Respondents are independent
distributors for Market America and that each signed an
“Independent Unfranchise Application and
Agreement” (“Agreement” or
“Distributor Agreement”) that is at the core of
the parties' dispute. (Id. ¶¶ 9-14, n.
2.) The Agreement contains several terms or conditions
relevant to the parties' present dispute:
4. Modification. Market America, at its discretion,
may amend the [Management Performance Compensation Plan], the
policies and procedures in Part 2 of the Career
Manual, and terms of this Agreement, and shall notify
you of any such amendments in the Powerline magazine
or other official Company publications or communications.
20. Distributor Grievances. You agree to submit any
complaint, grievance, or claim against another Distributor or
Market America in accordance with the Grievance Procedure set
forth in the Career Manual. You agree not to seek
arbitration, take legal action except in accordance with the
Grievance Procedure [ . . .]
28. Choice of Law. North Carolina law shall govern
any dispute arising out of, or related to, this Agreement
notwithstanding its choice of law provisions.
29. Arbitration. Any controversy or claim arising
out of or relating to this Agreement, or the breach thereof,
shall ultimately be settled by arbitration . . . in
Greensboro, North Carolina. Either party may seek emergency
or provisional relief in the General Court of Justice,
Guilford County, North Carolina, prior to invoking the
30. Entire Agreement. This Agreement and Part 2 of
the Career Manual constitute the entire agreement between you
and Market America
(Petition, Ex. 3 at 3.) According to the Petition, Respondent
Chuanjie Yang signed the Agreement online in May 2010,
renewed his Agreement in 2010 and 2011, and beginning in
2012, “opted in to automatically renew” by
clicking “I agree” to the following terms:
Acceptance of Amendments to IDA&A. By agreeing to these
terms and conditions for Auto Renewal, you agree to the
incorporation by reference of all amendments and/or revisions
of the IDA&A as you agreed to it originally as provided
during the previous year in official Market America
literature . . . You agree to be bound by the Terms and
Conditions of that Agreement . . .as amended from time to
(Petition ¶ 12.) The Petition alleges that Respondent
Lan signed the Agreement online in November 2015, and
Respondent Liu signed the Agreement online on March 1, 2016.
(Id. ¶¶ 13-14.)
30, 2017, Respondents Yang and Lan commenced a putative class
action (“the California Action”) in the United
States District Court for the Central District of California
against Petitioners. (Petition, Ex. 1; Chuanjie Yang v.
Market America Inc., 2:17cv4012 (C.D. Cal. 2017).
Petitioners filed a motion to compel arbitration, and
Respondents amended the complaint on July 20, 2017, to add
Respondent Liu as a plaintiff and to include an argument that
the district court in California lacked subject matter
jurisdiction to compel arbitration outside its judicial
district. (Petition, Ex. 2 ¶ 72.) As amended, the
complaint in the California Action seeks a declaratory
judgment that the arbitration provision in the Agreement is
unenforceable, and also asserts claims under state law for an
“endless chain scheme, ” for unfair and deceptive
practices, and for false advertising, as well as claims for
damages under 18 U.S.C. § 1962(a) (RICO), and for
federal securities fraud. (Petition, Ex. 2.) Market America
moved to transfer the California Action to this judicial
district, or to stay or dismiss the case pending arbitration.
(Petition, Ex. 4 at 2.) Petitioners then filed the present
action in this Court. The district court in the California
Action subsequently held a hearing on the Motion to Transfer.
While not necessarily sharing the parties' concerns about
its ability to compel arbitration in another judicial
district, the district court nevertheless stayed the
California Action in light of the commencement of this
action, noting that it may not need to confront the
jurisdictional issue in light of any action taken by this
response to the Petition to Compel Arbitration filed in this
Court, Respondents filed the present Motion to Dismiss,
contending that this Court lacks personal jurisdiction, that
the Court lacks subject matter jurisdiction, that venue is
improper, and that the petition fails to state a claim for
arbitration. (Resp'ts' Br. [Doc. #13] at 6-19.)
Respondent Yang further contends that, to “the best of
my recollection” whatever documents he signed did not
contain any “terms and conditions, ” and
therefore Yang contends that he did not agree to arbitrate
claims against Market America. (Yang Decl., Ex. L [Doc.
#14-12] ¶ 3.)
to the Federal Arbitration Act,
A written provision in any ... contract evidencing a
transaction involving commerce to settle by arbitration a
controversy thereafter arising out of such contract or
transaction, or the refusal to perform the whole or any part
thereof, or an agreement in writing to submit to arbitration
an existing controversy arising out of such a contract,
transaction, or refusal, 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. “By its terms, the [FAA] leaves no
place for the exercise of discretion by a district court, but
instead mandates that district courts shall direct
the parties to proceed to arbitration on issues as to which
an arbitration agreement has been signed.” Dean
Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985)
(emphasis in original). “However, a party cannot be
required to arbitrate a dispute that it has not agreed to
submit to arbitration.” Fastener Corp. of Am. v.
Asheboro Elastics Corp., No. 1:12-CV-1296, 2013 WL
3227665, at *2 (M.D. N.C. June 25, 2013) (citing AT &
T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S.
643, 648 (1986)).
Court will compel arbitration under the FAA if “(i) the
parties have entered into a valid agreement to arbitrate, and
(ii) the dispute in question falls within the scope of the
arbitration agreement.” Chorley Enterprises, Inc.
v. Dickey's Barbecue Restaurants, Inc., 807 F.3d
553, 563 (4th Cir 2015) (citing Muriithi v. Shuttle
Express, Inc., 712 F.3d 173, 179 (4th Cir. 2013)).
“In order to compel arbitration under the [Federal
Arbitration Act], a party must show: (1) that a dispute
between the parties exist, (2) that a contract between the
parties includes an arbitration provision which would seem to
cover the dispute, (3) that the contract or transaction at
issue involves interstate or foreign commerce, and (4) that
one party refuses to arbitrate the dispute.”
Abdullah v. Duke Univ. Health Sys., Inc., No.
5:09-CV-8-FL, 2009 WL 1971622 at *3, (E.D. N.C. July 8,
2009)(citing Adkins v. Labor Ready, Inc., 303 F.3d
496, 500-01 (4th Cir. 2002)).
the context of motions to compel arbitration brought under
the Federal Arbitration Act . . . courts apply a standard
similar to that applicable to a motion for summary
judgment.” Minter v. Freeway Food, Inc., No.
1:03CV00882, 2004 WL 735047, at *2 (M.D.N .C. Apr. 2, 2004).
Under the FAA, a court
upon being satisfied that the making of the agreement for
arbitration or the failure to comply therewith is not in
issue, the court shall make an order directing the parties to
proceed to arbitration . . . [and] [i]f the making of the
arbitration agreement or the failure, neglect, or refusal to
perform the same be in issue, the court shall proceed
summarily to the trial thereof.
9 U.S.C. § 4. “If there is an unresolved dispute
over the existence of an arbitration agreement, the court
conducts a ‘restricted inquiry into factual
issues.'” Dillon v. BMO Harris, 173
F.Supp.3d 258, 263 (2016) (quoting Moses H. Cone
Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22
(1983)). “Where a proponent of an arbitration agreement
offers credible, admissible evidence to support a finding of
an agreement to arbitrate, the opponent cannot rely on mere
unawareness of whether it had made an arbitration agreement,
” and “[i]n disputed cases, the party opposing
arbitration must unequivocally deny that there was an
arbitration agreement and produce evidence to substantiate
the denial.” Id. at 264.
opposing the Petition, Respondents raise four issues. First,
Respondents contend that the Petition violates the
“First to File” rule because the California
Action was filed first and should have priority. Second,
Respondents contend that this Court lacks subject matter
jurisdiction because the underlying claims are already
pending in California. Third, Respondents contend that,
despite the Forum Selection Clause, venue is not appropriate
in this district and that the matter should be transferred to
the Central District of California. Finally, Respondents
contend that the Petition does not state a claim for
arbitration because Respondent Yang did not agree to the
arbitration clause and because the arbitration clause is
illusory and unconscionable. The Court will consider each of
these contentions in turn.
“First to File”
contend that this Court lacks “proper venue”
because of the earlier filed California Action.
(Resp'ts' Br. [Doc. #13] at 6.) Typically,
“[w]hen similar lawsuits are filed in multiple forums,
the Fourth Circuit adheres to the ‘first-filed'
rule, which holds that the first-filed suit should have
priority.” Family Dollar Stores, Inc. v. Overseas
Direct Import Co., Ltd., 3:10-cv-278, 2011 WL 148264, at
*2 (M.D. N.C. Jan. 18, 2011) (citing Volvo Constr. Equip.
N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d 581,
594-95 (4th Cir. 2004)). Courts look to whether the cases
have “the same factual issues” and also look to
the chronology of the filings and the similarity of the
parties and issues. Id. However, exceptions to this
rule include circumstances “when the balance of
convenience weighs in favor of the second forum, ”