Rainbow Business Solutions et al v. Merchant Services, Inc et al

Filing 322

ORDER by Judge Claudia Wilken DENYING #303 MOTION TO STAY OR TRANSFER, DENYING WITHOUT PREJUDICE MOTION FOR PROTECTIVE ORDER AND CLARIFYING ORDER OF AUGUST 29, 2011. (ndr, COURT STAFF) (Filed on 1/3/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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JUST FILM, INC.; RAINBOW BUSINESS
SOLUTIONS, doing business as
PRECISION TUNE AUTO CARE;
BURLINGAME MOTORS, INC.; DIETZ
TOWING, INC.; THE ROSE DRESS,
INC.; VOLKER VON GLASENAPP; JERRY
SU; VERENA BAUMGARTNER; TERRY
JORDAN; LEWIS BAE; and ERIN
CAMPBELL, on behalf of
themselves, the general public
and those similarly situated,

United States District Court
For the Northern District of California

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No. C 10-1993 CW
ORDER DENYING
MOTION TO STAY OR
TRANSFER, DENYING
WITHOUT PREJUDICE
MOTION FOR
PROTECTIVE ORDER
AND CLARIFYING
ORDER OF AUGUST
29, 2011 (Docket
No. 303)

Plaintiffs,
v.
MERCHANT SERVICES, INC.; NATIONAL
PAYMENT PROCESSING; UNIVERSAL
MERCHANT SERVICES, LLC; UNIVERSAL
CARD, INC.; JASON MOORE; NATHAN
JURCZYK; ROBERT PARISI; ERIC
MADURA; FIONA WALSHE; ALICYN ROY;
MBF LEASING, LLC; NORTHERN
FUNDING, LLC; NORTHERN LEASING
SYSTEMS, INC.; GOLDEN EAGLE
LEASING, LLC; LEASE SOURCE-LSI,
LLC; LEASE FINANCE GROUP, LLC;
JAY COHEN; LEONARD MEZEI; SARA
KRIEGER; BRIAN FITZGERALD; SAM
BUONO; MBF MERCHANT CAPITAL, LLC;
RBL CAPITAL GROUP, LLC; WILLIAM
HEALY; JOSEPH I SUSSMAN; JOSEPH
I. SUSSMAN, P.C.; and SKS
ASSOCIATES, LLC,
Defendants.
________________________________/

In a single joint motion, Defendant SKS Associates, LLC,

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moves for a stay pending its appeal of the Court’s order denying
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its motion to compel arbitration with Plaintiff Erin Campbell,
Defendant MBF Leasing, LLC moves for a stay or transfer of

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Plaintiffs’ breach of contract claim against it and Defendant

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Northern Leasing Systems, Inc. moves for a stay or transfer of

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Plaintiffs’ Fair Credit Reporting Act (FCRA) claim against it.

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Defendants also seek protective orders limiting the scope of

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discovery against them.

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Plaintiffs oppose the motion.

has been taken under submission on the papers.

The matter

Having considered

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the papers filed by the parties, the Court DENIES Defendants’
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motion.

The Court also clarifies its August 29, 2011 Order.
BACKGROUND

United States District Court
For the Northern District of California

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The facts relevant to this motion are largely set forth in

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this Court’s Orders of June 13, 2011, August 29, 2011 and August

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30, 2011.

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instant motion are provided below.

Only the additional facts necessary to resolve the

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Prior to the filing of this action, two class action lawsuits
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were filed in the Supreme Court of the state of New York against
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certain Defendants in the instant case.

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Leasing Systems, et al., Index No. 04/101059, filed in 2004 and

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still ongoing, the plaintiffs are pursuing a breach of contract

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claim on behalf of a certified class against Northern Leasing,

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alleging that it improperly charged class members a monthly “loss

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In Pludeman v. Northern

damage waiver” fee that was not disclosed on the first page of

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their lease.

Second Amended Complaint ¶ 323.

In Aldrich v.

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Northern Leasing Systems, Inc., Index No. 07/602803, filed in

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2007, the plaintiffs are pursuing claims under the Fair Credit

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Reporting Act (FCRA) and the New York state law equivalent against
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Northern Leasing for accessing their credit reports without

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permission.

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Simplicio Decl. ¶ 14, Ex. I ¶¶ 63(a)(i)-(ii).

On August 30, 2011, this Court denied without prejudice SKS’s

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first motion to stay proceedings pending its appeal of the order

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denying its motion to compel arbitration and granting Plaintiffs’

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motion for a preliminary injunction against it.

In that order,

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the Court granted SKS leave to renew its motion if it could
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establish that discovery has become unduly burdensome.

The Court

United States District Court
For the Northern District of California

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stated that the renewed motion to stay should be accompanied by

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some evidence that the monies SKS seeks to collect from Plaintiff

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Campbell are for taxes actually owed and paid during her lease

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term.

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DISCUSSION

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I.

SKS’s Motion to Stay Pending Appeal

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“A stay is not a matter of right, even if irreparable injury
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might otherwise result.”

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(2009) (citation and internal quotation marks omitted).

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it is “an exercise of judicial discretion,” and “the propriety of

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its issue is dependent upon the circumstances of the particular

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case.”

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Nken v. Holder, 129 S. Ct. 1749, 1760
Instead,

Id. (citation and internal quotation and alteration marks

omitted).

The party seeking a stay bears the burden of justifying

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the exercise of that discretion.

Id.

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“A party seeking a stay must establish that he is likely to

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succeed on the merits, that he is likely to suffer irreparable

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harm in the absence of relief, that the balance of equities tip in
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his favor, and that a stay is in the public interest.”

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Soc. of U.S. v. Gutierrez, 558 F.3d 896, 896 (9th Cir. 2009); see

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also Perry v. Schwarzenegger, 702 F. Supp. 2d 1132, 1135 (N.D.

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Cal. 2010).

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critical.”

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Humane

The first two factors of this standard “are the most
Nken, 129 S. Ct. at 1761.

Once these factors are

satisfied, courts then assess “the harm to the opposing party” and

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weigh the public interest.

Id. at 1762.

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With the renewed motion, SKS submits what it purports is

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United States District Court
For the Northern District of California

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evidence that it seeks to collect from Campbell taxes actually

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owed and paid during her lease term.

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out, this evidence is not credible for a variety of reasons.

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submits the declaration of Dinesh Kulangroth, Vice President of

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Northern Leasing, from whom SKS “purchased the right to

However, as Plaintiffs point
SKS

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reimbursement for certain taxes and fees,” accompanied by
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documents that Mr. Kulangroth states are evidence that Northern
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Leasing made payments on behalf of Campbell for the periods July

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1, 2006 through June 30, 2007 and July 1, 2007 through June 30,

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2008.

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it is his “understanding that taxes were paid by the lessor on

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behalf of [Campbell] in prior years as well,” but does not

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Kulangroth Decl. ¶¶ 2-5.

Mr. Kulangroth also attests that

indicate that this statement is based on his personal knowledge.

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Id. at ¶ 4.
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Campbell’s lease was terminated in June 2007 and thus any

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payments between July 1, 2007 through June 30, 2008 were not

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within her lease period.
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The documents related to the time period from July 1, 2006

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through June 30, 2007 also lack foundation or otherwise lack

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credibility.

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County of Santa Clara for this time period assessing taxes in the

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amount of $490.31, a “corresponding” check made payable to the

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Mr. Kulangroth provides a property tax bill from the

Santa Clara Tax Collector dated February 28, 2007 in the amount of

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$45,746.46, and a “backup spreadsheet” that Mr. Kulangroth states
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United States District Court
For the Northern District of California

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shows that the tax bill and payment included monies paid on behalf
of Campbell.

Kulangroth Decl. ¶ 2, Exs. A, B, C.

The property tax bill shows taxes assessed upon “GCN Holdings

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LLC” for the time period July 1, 2006 through June 30, 2007.

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Kulangroth Decl. ¶ 2, Ex. A.

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explains who GCN Holdings is or how an assessment upon GCN

Neither SKS nor Mr. Kulangroth

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Holdings could be related to Campbell’s lease with Northern
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Leasing.

Mr. Kulangroth does not describe his relationship with

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GCN Holdings and does not provide any basis for finding that he is

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able to authenticate the document.

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The check made payable to the Santa Clara Tax Collector was

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issued by “PFSC / Northern Leasing Systems,” not GCN Holdings, and

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it is for an amount that is dramatically different than the amount

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on the property tax bill.

Kulangroth Decl. ¶ 2, Exs. A, B.

It

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is thus not clear that this check is related to the tax bill.
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The spreadsheet also lacks foundation and is otherwise

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unreliable.

Mr. Kulangroth does not authenticate the document or

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describe his knowledge of it.

It is not clear if this document is
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from the records of Northern Leasing, GCN Holdings, SKS or some

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other entity, or when it was created.

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indications that this document is not credible.

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of the spreadsheet are missing data in all rows except two that

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purportedly relate to “Sunclare/Silicon Valley Pet C.”

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Decl. ¶ 2, Ex. C.

There are also a number of
Several columns

Kulangroth

However, the lease number in these two rows

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differs from the lease number on Campbell’s lease and from the
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lease number on the letter that SKS sent to Campbell.

Compare

United States District Court
For the Northern District of California

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Kulangroth Decl. ¶ 2, Ex. 3 (spreadsheet with lease number 001-

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0484101-00) with Krieger Decl. in Support of Mot. to Compel

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Arbitration, Ex. 1, at 3 (Campbell’s lease with lease number

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673597), and Campbell Decl. in Support of Mot. for Prelim. Inj.,

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Ex. A, at 1 (SKS letter to Campbell referencing lease number

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0722579A).

It is also not clear how this spreadsheet relates to

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the check and the tax bill.

There is nothing that correlates the

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spreadsheet t the check paid to the Santa Clara Tax Assessor, and

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the tax rate in the spreadsheet differs from that on the tax bill.

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Kulangroth Decl. ¶ 2, Exs. 1-3.

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Further, even if this evidence were credible, the spreadsheet
would establish that the actual taxes paid on behalf of Campbell
totaled $2.35 for 2006 through 2007 and that no fees were assessed

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for this time period, while SKS seeks to collect $85.50 from
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Campbell.

Thus, the spreadsheet does not establish that the

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amount that SKS seeks to collect is for taxes actually owed and

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paid.
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SKS responds to the lack of foundation and the various

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inconsistencies in these documents by arguing that these arguments

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“challenge the weight of the evidence,” which can only properly be

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decided by “the arbitrator.”

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the Court’s reason for suggesting that it present evidence of the

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Reply, at 1-2.

SKS misunderstands

merits of its position, which was to assess its likelihood of

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success.

SKS fails to bolster its showing.

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The Court notes that SKS could have, but did not, seek a stay

United States District Court
For the Northern District of California

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from the Ninth Circuit.

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DENIED.

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II.

Accordingly, SKS’s motion to stay is

MBF and Northern Leasing’s Motion to Stay or Transfer of
Claims

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MBF and Northern Leasing move to stay the claims against them

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to be stayed or to transfer them to the Supreme Court of the State

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of New York based upon the first-to-file rule, arguing that the

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earlier filed New York state actions should take priority over

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this later filed federal action involving some overlapping issues.

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While this Court may transfer a case to another federal

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district court under certain circumstances pursuant to 28 U.S.C.
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§§ 1404 and 1406, MBF and Northern Leasing cite no authority that

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would give this Court authority to transfer the instant case to a

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state court, including the Supreme Court of the State of New York.

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Accordingly, MBF and Northern Leasing’s motion to transfer is

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DENIED.

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The first-to-file rule “is a generally recognized doctrine of

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federal comity which permits a district court to decline

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jurisdiction over an action when a complaint involving the same

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parties and issues has already been filed in another district.”

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Pacesetter Systems, Inc. v. Medtronic, Inc., 678 F.2d 93, 94-5

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(9th Cir. 1982).

This doctrine “gives priority, for purposes of

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choosing among possible venues when parallel litigation has been
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instituted in separate courts, to the party who first establishes

United States District Court
For the Northern District of California

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jurisdiction.”

Northwest Airlines, Inc. v. American Airlines,

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Inc., 989 F.2d 1002, 1006 (8th Cir. 1993).

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file priority presumption has evolved from and is applied in cases

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involving intra-federal conflicts between federal district courts

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of concurrent jurisdiction” in order to promote efficiency and to

Because “the first to

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avoid duplicative litigation, it “is not necessarily the guidepost
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for the setting here, where parallel litigation is pending in
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federal and state courts.”

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Co., 2009 U.S. Dist. LEXIS 52365, at *13 (E.D. Wash. June 21,

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2009) (citing Colorado River Water Conservation Dist. No. 7 v.

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United States, 424 U.S. 800, 817 (1976)).

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MBF and Northern Leasing cite in favor of the application of the

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Newmont USA Ltd. v. Am. Home Assur.

Indeed, each case that

first-to-file doctrine involves simultaneous actions in federal

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district courts.
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“The Supreme Court has in fact repeatedly held that the

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pendency of an action in a state court is no bar to proceedings

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concerning the same matter in the federal court having
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jurisdiction.”

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Industries Corp., 544 U.S. 280, 293 (2005); McClellan v. Carland,

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217 U.S. 268, 282 (1910)).

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duplicative litigation in state and federal court is that “[e]ach

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court is free to proceed in its own way and in its own time,

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Id. at *13-14 (citing Exxon Mobil v. Saudi Basic

The general rule regarding concurrent,

without reference to the proceedings in the other court,” and that

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“whichever court rules first will, via the doctrines of res
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judicata and collateral estoppel, preclude the other from deciding
AmerisourceBergen Corp. v. Roden, 495 F.3d

United States District Court
For the Northern District of California

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that claim or issue.”

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1143, 1151-1152 (9th Cir. 2007) (citation and internal quotation

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and alteration marks omitted).

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York Supreme Court, will guard against double recovery for

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Plaintiffs.

This Court, and surely the New

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Accordingly, MBF and Northern Leasing have not established
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that the first-to-file rule requires that this action be stayed
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and their motion to stay the claims against them is DENIED.
III. Motion for a Protective Order

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Defendants SKS, MBF and Northern Leasing each request a

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protective order limiting the scope of Plaintiffs’ discovery

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against them.

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The Court DENIES without prejudice Defendants’ motion for a

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protective order.

If Defendants renew their motion, it must be

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accompanied by a certification that they have conferred or

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attempted to confer with Plaintiffs again in a good faith effort

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to resolve the dispute without court action and must comply with
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Magistrate Judge Laporte’s Order Regarding Discovery Procedures,

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Docket No. 313, in this case.

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order shall be referred to Magistrate Judge Laporte in accordance

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with Docket No. 312.

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Any renewed motion for a protective

The parties may use reciprocally the discovery obtained in
this case, in the cases pending in the Supreme Court of the State

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of New York and in arbitration to the extent possible to avoid
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duplicative discovery, and shall prioritize discovery that is more

United States District Court
For the Northern District of California

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relevant in light of the pending appeal and New York cases.

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discovery disputes will be referred to Magistrate Judge Laporte,

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after the parties have met and conferred.

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IV.

Any

August 29, 2011 Order

In their opposition, Plaintiffs note that this Court’s August

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29, 2011 Order was less than clear regarding whether the Court had
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dismissed their claim against Northern Leasing alleging a
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violation of California’s Unfair Competition Law (UCL), Cal. Bus.

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& Prof. Code §§ 17200, et seq.

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the Court found that Plaintiffs Volker Von Glasenapp and Lewis Bae

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stated an FCRA claim against several Defendants, including

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Northern Leasing.

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See Opp. at 2 n.1.

Docket No. 292, at 32.

In that Order,

Later in the Order, the

Court stated that “because Plaintiffs do not state claims [for

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violations of federal and state law] against Northern Leasing [and
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certain other Defendants], their UCL claims against these

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Defendants are dismissed.”

Id. at 35.

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summary of its rulings, it omitted Northern Leasing from the list
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However, in the Court’s

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of Defendants against whom the UCL claims were dismissed.

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at 41.

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See id.

Because the Court found that Plaintiffs Von Glasenapp and Bae

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did sufficiently allege a claim against Northern Leasing for a

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violation of the FCRA, they also sufficiently stated a UCL claim

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against Northern Leasing.

The Court’s August 29, 2011 Order did

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not dismiss these Plaintiffs’ UCL claim against Northern Leasing.
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CONCLUSION

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United States District Court
For the Northern District of California

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For the foregoing reasons, the Court DENIES Defendants’

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motion to stay or transfer and DENIES without prejudice their

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motion for a protective order (Docket No. 303).

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IT IS SO ORDERED.
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Dated: 1/3/2012

CLAUDIA WILKEN
United States District Judge

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