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Market America, Inc. v. Yang

United States District Court, M.D. North Carolina

July 12, 2018

MARKET AMERICA, INC., MARKET AMERICA WORLDWIDE, INC., JAMES HOWARD RIDINGER, LOREN RIDINGER, and MARC ASHLEY Petitioners,
v.
CHUANJIE YANG, OLLIE LAN, and LIU LIU, Respondents.

          ORDER AND MEMORANDUM OPINION

          Joi Elizabeth Peake United States Magistrate Judge.

         This 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.

         I. FACTS, CLAIMS, AND PROCEDURAL HISTORY

         Market 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 arbitration remedy.
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 time.”

(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.)

         On May 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 Court.

         In 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.)

         II. DISCUSSION

         Pursuant 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)).

         The 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)).

         “[I]n 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.

         In 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.

         1. “First to File”

         Respondents 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, ” Remi ...


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