United States District Court, E.D. Pennsylvania
case is a contractual dispute that arises out of the sale of
the Burger & Beer franchise system from Tony Hannan,
Michele Hannan, B&B Worldwide Holdings, LLC
(“B&B Worldwide”), and Brunswick Square LLC
(collectively “defendants”) to LMP B&B
Holdings, LLC (“plaintiff”). Presently before the
Court is Defendants' Motion to Dismiss Complaint or, in
the Alternative, to Transfer. For the reasons set forth
below, the Court denies the motion.
January 29, 2016, plaintiff and defendants executed a
Membership Interest Purchase and Sale Agreement
(“Purchase Agreement”) for the rights to license,
franchise, and operate restaurants using the “B&B
Burger & Beer Joint” brand. Compl. ¶ 16. Under
the Purchase Agreement, plaintiff acquired a 90 percent
interest in the B&B Franchise Group, LLC (“the
Company”), an entity that licenses the B&B business
concept to franchisees. Id.; Pl. Resp. Def. Mot.
Dismiss at 2. Separately, plaintiff signed a Promissory Note
committing to pay defendant B&B Worldwide an additional
two million dollars. Compl. ¶ 18. Together, the
Purchase Agreement and the Promissory Note
(“Transaction Documents”) governed the terms of
months after executing the Transaction Documents, the
Company, now controlled by plaintiff, received a demand
letter dated September 29, 2016 from its largest franchisees
(“FDG Franchisees”) claiming losses from alleged
misrepresentations, fraud, and various deceptive practices
committed by the Company and Mr. Hannan. Id. ¶
31. Plaintiff promptly notified defendants of the FDG
Franchisees' allegations and demanded indemnification
from defendants under the terms of the Purchase Agreement.
Id. ¶ 44. Defendants B&B Worldwide and Mr.
Hannan agreed to assume the defense of plaintiffs for some of
the claims by FDG Franchisees, but defendants refused to
fully indemnify plaintiff. Id. ¶ 47. The FDG
Franchisee lawsuit progressed, and on January 13, 2017,
plaintiff sent another letter demanding complete
indemnification. Id. ¶ 48. Defendants refused.
Id. ¶ 51.
Franchisee suit was eventually settled in December 2018.
Id. ¶ 53. On January 2, 2019, plaintiff again
demanded indemnification from defendants. Pl. Resp. Def. Mot.
Dismiss, Ex. 1. At that time, plaintiff advised defendants
that if a compromise was not reached by January 15, 2019 it
would file a lawsuit against defendants to recover damages
covering the costs from the FDG Franchisee action and a
return of the purchase price. Id. One day before
plaintiff's January 15 deadline, defendants filed a
complaint in Florida state court alleging (1) anticipatory
repudiation of the Promissory Note and (2) breach of the
Purchase Agreement; defendants also requested (3) declaratory
relief regarding the indemnification provision of the
Purchase Agreement (“the Florida Action”). Def.
Mot. Dismiss, Ex. A; B&B Worldwide Holdings, LLC et
al v. B&B Franchise Group, LLC et al, No.
2019-001206-CA-01 (Fla. Cir. Ct. filed Jan. 14, 2019). A
motion to dismiss filed on August 12, 2019 is pending in the
January 25, 2019, eleven days after defendants filed the
Florida Action, plaintiff filed the present civil action in
federal court, exclusively alleging breach of the Purchase
Agreement (“the Pennsylvania Action”). Compl.
¶¶ 58-94. Plaintiff alleges that the claims by FDG
Franchisees show that defendants made false representations
and warranties in their sale of the Company to plaintiff and
that defendants were unjustly enriched as a result.
Compl. ¶ 43. In addition, plaintiff contends
that it is entitled to indemnification under the Purchase
Agreement for the cost of the subsequent lawsuit brought by
FDG Franchisees against the Company. Id. ¶
April 1, 2019, defendants filed their Motion to Dismiss
Complaint or, in the Alternative, to Transfer (Document No.
12), based on (1) the “first-filed” rule and (2)
convenience of the parties. The issue presented in this
motion arises in part because the Transaction Documents have
conflicting forum selection provisions. The Purchase
Agreement requires that all actions “arising out of or
relating to this Agreement” be heard in a Montgomery
County, Pennsylvania state court or the Eastern District of
Pennsylvania. Purchase Agreement § 8.4(b) (“the
Pennsylvania forum selection provision”). The Promissory
Note requires that all actions arising under the Note be
filed in Miami-Dade County, Florida. Promissory Note ¶ 8
(“the Florida forum selection
provision”). In addition, both the Purchase Agreement
and Promissory Note contain choice of law clauses that
provide for Delaware law. Purchase Agreement § 8.4(a);
Promissory Note ¶ 8. On April 26, 2019, plaintiff filed
a response to defendants' motion (Document No. 17).
Defendants' motion is thus ripe for decision.
The “First-Filed Rule” vs. Colorado
ask this Court to dismiss the Pennsylvania Action because the
Florida Action was filed first. They argue, inter
alia, that rather than litigate in Pennsylvania,
plaintiffs should have brought their claims as compulsory
counterclaims in the Florida Action. Defendants cite the
so-called “first-filed rule, ” which provides
that “‘[i]n all cases of federal concurrent
jurisdiction, the court which first has possession of the
subject must decide it.'” E.E.O.C. v. Univ. of
Pa., 850 F.2d 969, 971 (3d Cir. 1988) (quoting
Crosley Corp. v. Hazeltine Corp., 122 F.2d 925, 929
(3d Cir. 1941)). A district court applying the first-filed
rule “then faces the discretionary choice whether to
stay the second-filed action, transfer it, dismiss it
without prejudice, or dismiss it with
prejudice.” Chavez v. Dole Food Co., Inc., 836
F.3d 205, 216 (3d Cir. 2016). Although the first-filed rule
explicitly refers to concurrent pending federal
cases, defendants contend that the rule can also apply in
situations where “one of the two competing courts is a
state court.” Def. Mot. Dismiss at 4. Some courts have
applied the first-filed rule in this context, but the Third
Circuit has not endorsed this approach. Compare Merrill
Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 675
F.2d 1169, 1174 (11th Cir. 1982) (applying the first-filed
rule), with Unitrin Auto & Home Ins. Co. v. Clayton
Corp. of Delaware, No. 1:15-CV-02079, 2016 WL 8199315,
at *4 (M.D. Pa. Apr. 20, 2016) (refusing to apply the
first-filed rule to parallel pending state and federal cases
until the Third Circuit clarifies otherwise).
Court declines to apply the first-filed rule in this case and
instead applies the doctrine set out by the Supreme Court in
Colorado River Water Conservation District v. United
States, 424 U.S. 800 (1976) and refined in Moses H.
Cone Memorial Hospital v. Mercury Construction Corp.,
460 U.S. 1 (1983). In Colorado River, the Court
noted that generally “the pendency of an action in the
state court is no bar to proceedings concerning the same
matter in the Federal court.” Colo. River, 424
U.S. at 817 (internal quotation marks omitted). However,
under certain “exceptional circumstances” a stay
or dismissal by the federal court in the face of a concurrent
and related state case is permitted on the grounds of
“[w]ise judicial administration, giving regard to
conservation of judicial resources and comprehensive
disposition of litigation.” Id. (internal
quotation marks omitted). These circumstances are rare given
the “virtually unflagging obligation of the federal
courts to exercise the jurisdiction given them.”
Id. See also Univ. of Md. v. Peat Marwick Main &
Co., 923 F.2d 265, 275-76 (3d Cir. 1991) (“The
general rule regarding simultaneous litigation of similar
issues in both state and federal courts is that both actions
may proceed until one has come to judgment, at which point
that judgment may create a res judicata or collateral
estoppel effect on the other action.”).
federal courts have applied Colorado River under
circumstances nearly identical to those presented in this
case, where defendants argued for dismissal in part on the
ground that plaintiffs could have brought their federal
claims as counterclaims in a related pending state court
action that was filed first. See, e.g., Handy v.
Shaw, Bransford, Veilleux & Roth, 325 F.3d 346 (D.C.
Cir. 2003); Allied Nut and Bolt, Inc. v. NSS Industries,
Inc., 920 F.Supp. 626 (E.D. Pa. 1996). Accordingly, this
Court applies the Colorado River standard.
Dismissal or Transfer for Convenience
also argue for dismissal, or alternatively, transfer to the
Southern District of Florida, on the ground that litigating
this dispute in Florida would be more convenient than in
Pennsylvania. In evaluating arguments regarding convenience,
the Court applies the common law doctrine of forum non
conveniens and the standard for transfer of venue under 28
U.S.C. § 1404(a). “[F]orum non conveniens ‘has
continuing application [in federal courts] only in cases
where the alternative forum is abroad' . . . and perhaps
in rare instances where a state or territorial court serves
litigational convenience best.” Sinochem Int'l
Co. Ltd. v. Malaysia Int'l Shipping Corp., 549 U.S.
422, 430 (2007) (citation omitted). The Supreme Court has
held that forum non conveniens applies in the “set of
cases calling for a nonfederal forum” and that
“the appropriate way to enforce a forum-selection
clause pointing to a state or foreign forum is through the
doctrine of forum non conveniens.” Atl. Marine
Constr. Co. v. U.S. Dist. Court for W. Dist. of Tex.,
571 U.S. 49, 60-61 (2013). Nevertheless, when the preferred
alternative forum is a state court, federal district courts
most often opt to transfer to a more convenient federal
district court under 28 U.S.C §§ 1404, 1406.
Jaffe & Hough, P.C. v. Baine, No. CIV.A.
09-3000, 2010 WL 844748, at *4 n.43 (E.D. Pa. Mar. 10, 2010).
reviewing a motion to dismiss on the basis of forum non
conveniens, the Court examines the convenience to the
parties, the convenience to the witnesses, and the interests
of justice. Stewart Org., Inc. v. Ricoh Corp., 487
U.S. 22, 29 (1988). The moving party bears the “heavy
burden” of establishing that these considerations
outweigh the strong preference for plaintiff's choice of
forum and favor dismissal. Sinochem Int'l., 549
U.S. at 430; see also Piper Aircraft Co. v.
Reyno, 454 U.S. 235, 255 (1981). The Third Circuit has
A district court may, in the exercise of its sound
discretion, dismiss a case “when an alternative forum
has jurisdiction to hear the case, and when trial in the
chosen forum would ‘establish…oppressiveness and
vexation to a defendant…out of all proportion to
plaintiff's convenience,' or when the ‘chosen
forum [is] inappropriate because of ...