NDGS, LLC v. Radium2 Capital, Inc.

Background

NDGS, LLC operates a small chain of Jack & Jill grocery stores in North Dakota and is owned by Duane Johnson. Radium2 Capital, Inc. provides working capital to businesses and describes itself as a merchant cash advance company. Radium2 is a New York corporation with its principal place of business in New York.

Dan and Jenna Ross had negotiated with Johnson about possibly purchasing NDGS and its assets. NDGS alleged that, after the negotiations ended, the Rosses used NDGS business and financial documents to obtain a $250,000 payment from Radium2 in exchange for Radium2’s right to $355,000 of NDGS’s future receivables. NDGS alleged that Jenna Ross falsely represented that she owned and managed NDGS and altered or falsified documents. Radium2 generally agreed that the Rosses appeared to have misrepresented their authority, but argued that Johnson was working with them to defraud Radium2.

On September 10, 2018, Radium2 entered into a Future Receipts Agreement with Ross and allegedly NDGS. Radium2 wired $242,475 to a bank account in NDGS’s name, and the agreement provided for daily withdrawals of $2,113.10. NDGS disputed that it was bound by the agreement. After payments stopped, Radium2 filed a confession of judgment in New York state court and obtained a November 9, 2018 judgment against NDGS and Jenna Ross for $363,868.99.

Procedural posture and arguments

Radium2 later began a New York state-court proceeding to enforce and recover under that judgment against NDGS, Jenna Ross, several other NDGS-named entities, Johnson, and Daniel Wessman. NDGS removed that proceeding to the Western District of New York, which later remanded it to New York state court based on the ancillary doctrine. NDGS filed this federal action in the District of Minnesota on June 13, 2019.

NDGS sought declaratory and injunctive relief declaring the Future Receipts Agreement and the New York judgment void and unenforceable and barring Radium2 from pursuing recovery against NDGS. Radium2 moved to dismiss or, alternatively, to transfer venue or stay the case. Radium2 relied on the first-filed rule, a forum-selection clause, and the possibility of transfer. NDGS opposed those arguments and contended that the first-filed rule and forum-selection clause did not apply and that Minnesota was the more convenient forum.

Court’s analysis

The court held that the first-filed rule did not apply because the parallel proceedings were in federal and state court rather than two federal courts. Instead, it applied the Colorado River abstention doctrine, which allows a federal court to defer to a parallel state proceeding in exceptional circumstances when the state case is substantially likely to resolve the federal claims.

The court found that the New York proceeding was parallel because both cases arose from the same facts and concerned the enforceability of the purported agreement between NDGS and Radium2. The court evaluated six abstention factors. It found that the factor concerning property under a court’s control did not apply and that the convenience factor was largely inapplicable. The factor concerning duplicative or conflicting litigation strongly favored abstention because both proceedings addressed the same agreement and judgment. The relative-progress factor favored abstention because the New York proceedings were filed first, a judgment had already been entered there, and the Minnesota case had not progressed beyond the motion.

The court also found that the applicable-law factor favored abstention because the cases involved no federal claims and appeared likely to be decided under state law. The factor concerning the adequacy of the state forum also favored abstention because nothing in the record indicated that NDGS would receive an unfair hearing in state court, and New York law potentially provided a way to seek relief from the judgment. Overall, four factors favored abstention and two were largely inapplicable.

Ruling

The court concluded that abstention was warranted. It determined that a stay, rather than dismissal, was appropriate because the New York proceeding was parallel but not identical, and preserving the federal forum could matter if the state case did not resolve every issue. The court stated that transfer was unavailable because this federal court could not transfer the action to a state court. It did not reach Radium2’s arguments concerning forum non conveniens or the forum-selection clause.

The court ordered that Radium2’s Motion to Dismiss, or in the alternative Transfer Venue or Stay Case, was GRANTED, and that the federal action was STAYED pending resolution of the parallel New York state-court proceeding. The court did not decide whether the Future Receipts Agreement or the New York judgment was valid or enforceable.