Supply Basket, Inc. et al v. Global Equipment Company, Inc.

Filing 9

ORDER denying Plaintiffs' 2 Emergency Motion for Preliminary Injunctive Relief. Defendant's Motion to Dismiss and Compel Arbitration 3 remains pending before the Court. Signed by Judge Richard W. Story on 10/22/2013. (cem)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
SUPPLY BASKET, INC.,
KATHERINE LINDBERG,
MICHAEL BARKER, &
MELINDA HARTLEY,
Plaintiffs,
v.
GLOBAL EQUIPMENT
COMPANY, INC. d/b/a Global
Industrial Equipment, a subsidiary
of Systemax, Inc.,

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CIVIL ACTION NO.
1:13-CV-3220-RWS

Defendant.
ORDER
This case is before the Court on Plaintiffs’ Emergency Motion for
Preliminary Injunctive Relief [2]. The Court held a hearing on Plaintiffs’
motion on October 21, 2013. After considering the Parties’ arguments and
written submissions, the Court enters the following Order.
Background
The relevant facts are largely undisputed. The individual Plaintiffs are
former employees of Defendant. As a condition of their employment with
Defendant, Plaintiffs executed Confidentiality/Non-Solicitation/Assignment

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Agreements (“Agreements”). These Agreements contain non-compete and nondisclosure covenants, as well as choice-of-law and arbitration clauses. They do
not contain a venue selection clause. The Agreements read, in pertinent part:
This agreement shall be governed by and construed in
accordance with the laws of the State of New York,
without regard to its conflicts of law provisions. In
the event of any claim of breach or dispute regarding
this Agreement, the Company may, in its sole
discretion, submit such claim of breach or dispute to
arbitration with the American Arbitration Association
pursuant to its voluntary labor rules, which shall be
binding on the parties hereto. The Company’s right to
institute formal court proceedings regarding claims or
disputes arising under this Agreement is in addition
to, and is not limited by, the Company’s right to
submit any such claim or dispute to arbitration.
(See, e.g., [2-3] at 3 of 3, ¶ 10.)
The individual Plaintiffs separated from Defendant on or before May 20,
2013, and began working for Plaintiff Supply Basket on May 23, 2013. In June
and July, counsel for Plaintiffs and counsel for Defendant exchanged letters
regarding Plaintiffs’ new employment and their non-disclosure and noncompete obligations, if any, under the Agreements. On September 26, 2013,
Defendant filed a demand for arbitration with the American Arbitration
Association (“AAA”) against the individual Plaintiffs. The following day,
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Defendant filed in New York state court a petition for temporary restraining
order in aid of arbitration.
Meanwhile, earlier on September 27, 2013, Plaintiffs filed for emergency
injunctive relief and declaratory relief in the Superior Court of Gwinnett
County, Georgia. Plaintiffs’ suit seeks to prevent Defendant from pursuing
litigation or arbitration outside of Georgia to enforce the Agreements’
covenants. The Georgia state court denied Plaintiffs’ request for emergency
relief. Defendant subsequently removed the action to this Court based on
diversity jurisdiction.
Facing imminent deadlines to reply to Defendant’s demand for arbitration
and appear before the New York state court, Plaintiffs ask this Court to enter
preliminary injunctive relief precluding Defendant from pursuing arbitration or
litigation in New York. Defendant, on the other hand, filed a motion to compel
arbitration and dismiss the underlying case [3]. Defendant’s motion is not
before the Court for consideration at this time.
Discussion
II.

Request to Enjoin New York State Court Litigation
Under the Anti-Injunction Act (“AIA”), 28 U.S.C. § 2283, “[a] court of
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the United States may not grant an injunction to stay proceedings in a State
court except as expressly authorized by Act of Congress, or where necessary in
aid of its jurisdiction, or to protect or effectuate its judgments.” Defendant
argues in its response brief that the AIA prohibits this Court from enjoining the
state court action in New York. (Def.’s Resp. Br., [5] at 4-5 of 7.) The Court
agrees with Defendant.
Plaintiffs did not address this issue in their written submission to the
Court. But during oral argument, they cited Kansas Pub. Emp. Ret. Sys. v.
Reimer & Koger Assoc.s, 77 F.3d 1063 (8th Cir. 1996) for the proposition that
when a defendant removes a case to federal court, it creates an exception to the
AIA, and the federal court may enjoin parallel state court proceedings in foreign
jurisdictions. The Court disagrees with Plaintiffs’ characterization of Reimer’s
reach.
The removal statute, 28 U.S.C. § 1446(d), provides that after a defendant
files a notice of removal with the state court, that state court “shall proceed no
further unless and until the case is remanded.” Thus, the statute does authorize
stays of state court proceedings and falls within the first exception to the AIA.
As the Reimer court noted, “[a]lthough the removal statute only commands the
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state court to stay the case that was actually removed, it has been interpreted to
authorize courts to enjoin later filed state cases that were filed for the purpose
of subverting federal removal jurisdiction.” 77 F.3d at 1069 (emphasis added).
In Reimer, the district court specifically found that the plaintiff’s later-filed
state suit “was an attempt to subvert the removal of the earlier case.” Id. at
1070; see also Fritch v. Blazon-Fexible Flyer, Inc., 512 F.2d 899 (5th Cir. 1975)
(after removal, plaintiff was prohibited from filing essentially the same case in a
second state action to subvert federal jurisdiction); Lou v. Belzberg, 834 F.2d
730, 741 (9th Cir. 1987) (injunction of later state court filing was barred by the
AIA where district court had not found that the second suit was “fraudulent or
an attempt to subvert the purposes of the removal statute”); Billy Jack for Her,
Inc. v. New York Coat, Suit, Dress, Rainwear and Allied Workers’ Union, 515
F. Supp. 456, 460 (S.D.N.Y. 1981) (injunction of later-filed state suit denied
because “[t]his is not a case where the plaintiff in the removed action has
flouted the federal court’s removal jurisdiction by filing substantially the same
complaint in state court subsequent to the removal”).
There is no indication here that Defendant is attempting to subvert the
purpose of the removal statute. In fact, as the removing party, Defendant has no
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incentive to do so (notably, the above-cited cases do not involve defendants
filing state court actions in other jurisdictions post-removal). Therefore, the
Court finds Reimer inapposite. Absent a showing by Plaintiffs of any other
applicable exception, the AIA bars this Court from enjoining the New York
litigation and Plaintiffs’ request for such relief is DENIED.1
II.

Request to Enjoin Arbitration Proceedings
A preliminary injunction is an “extraordinary and drastic remedy.”

Zadui-Quintana v. Richard, 768 F.2d 1213, 1216 (11th Cir. 1985). To obtain a
preliminary injunction, Plaintiffs must show: (1) a substantial likelihood of
success on the merits; (2) irreparable harm to them unless the injunction issues;
(3) that the threatened injury to them outweighs the harm to the defendant if the
injunction issues; and (4) that the injunction will not disserve the public

1

To the extent Plaintiffs’ contention during oral argument was that the All
Writs Act, 28 U.S.C. § 1651(a), gives this Court authority to enjoin the proceedings in
New York state court, the Court disagrees. “One of the main exceptions to the district
court’s otherwise broad power to protect its jurisdiction [under the All Writs Act] is
that, in general, it may not enjoin state court proceedings to protect its ability to render
judgment in ongoing in personam proceedings. The simple fact that litigation
involving the same issues is occurring concurrently in another forum does not
sufficiently threaten the court’s jurisdiction as to warrant an injunction under [the All
Writs Act].” Klay v. United Healthgroup, Inc., 376 F.3d 1092, 1102-03 (11th Cir.
2004).
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interest. MacGinnitie v. Hobbs Grp., LLC, 420 F.3d 1234, 1240 (11th Cir.
2005). The Court finds that Plaintiffs have not satisfied this standard.
Defendant contends that under federal law and the Agreements’
arbitration clause, Plaintiffs must arbitrate this dispute. (See generally, Def.’s
Motion to Dismiss and Compel Arbitration, [3]; Def.’s Resp. Br., [5].) Again,
Plaintiffs have not addressed this issue in their written submission. The issue of
the validity of the Agreements’ arbitration clause was raised for the first time by
Plaintiffs at the October 21, 2013 hearing. Plaintiffs’ oral arguments did not
persuade the Court that they have a substantial likelihood of success on this
point.
As a general rule, courts should determine whether the parties are under
an obligation to arbitrate. See Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
79, 83 (2002) (“[A]rbitration is a matter of contract and a party cannot be
required to submit to arbitration any dispute which he has not agreed so to
submit.”). Under the default rule, “a court should ordinarily resolve a claim that
the arbitration clause is itself invalid, whereas an arbitrator should resolve a
claim that the entire contract is invalid.” Regal Lager, Inc. v. The Baby Club of
America, 2006 WL 3388435, No. 1:06-CV-0962-JEC, at * 3 (N.D. Ga. Nov.
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21, 2006) (citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 44445 (2006)). But because arbitration is fundamentally a matter of contract,
parties may contract around the default rule and agree that arbitrators should
decide arbitrability. Id. at *4 (citing First Options of Chicago, Inc. v. Kaplan,
514 U.S. 938, 943-44 (1995)).
AAA Rules provide that “the arbitrator shall have the power to rule on
his or her own jurisdiction, including any objections with respect to the
existence, scope or validity of the arbitration agreement.”2 Thus, in Regal
Lager, Chief Judge Carnes found that where the parties’ agreement specifically
incorporated the rules of the AAA, they “evince[d] an intent to arbitrate the
issue of arbitrability.” 2006 WL 3388435, at *4 (citing Terminex Int’l Co. v.
Palmer Ranch, 432 F.3d 1327, 1332 (11th Cir. 2005)). Here, the arbitration
clause calls for “arbitration with the American Arbitration Association pursuant
to its voluntary labor rules.”

2

The Court is aware that the AAA applies different rules depending on the
parties’ arbitration agreement and the type of dispute involved. However, after
reviewing the various sets of AAA rules (e.g., Labor, Commerical, Employment, and
even Non-Binding Rules), the Court found that this exact jurisdiction clause is
included in all of them. See AAA Rules & Procedures,
http://www.adr.org/aaa/faces/rules/searchrules? (last visited Oct. 21, 2013).
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As Plaintiffs noted during the hearing, “voluntary labor rules” does not
reference a set of AAA rules currently in place. However, the clause does call
for arbitration administered by the AAA, and the AAA rules themselves
determine which set of rules will apply in a particular arbitration.3 Plaintiffs
also made passing reference during oral arguments to “lack of mutuality”
regarding the arbitration clause, but again, the Court has no basis on which to
conclude that Plaintiffs have a substantial likelihood of succeeding with this
argument.
In sum, Plaintiffs have not shown they have a substantial likelihood of
avoiding arbitration, including arbitration on the arbitrability of their claims.
Consequently, preliminarily enjoining the arbitration proceedings initiated by
Defendant is improper and this request for relief is DENIED.

3

For example, the AAA, in its letter to Plaintiffs regarding Defendant’s
demand for arbitration, stated that the arbitration would be conducted under the
Employment Arbitration Rules and Mediation Procedures. (AAA Letter, [5-1] at 2 of
7.) Under the Employment Rules: “The parties shall be deemed to have made these
rules a part of their arbitration agreement whenever they have provided for arbitration
by the [AAA] or under its Employment Arbitration Rules and Mediation Procedures
or for arbitration by the AAA of an employment dispute without specifying particular
rules.” (emphasis added).
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Conclusion
Based on the foregoing, Plaintiffs’ Emergency Motion for Preliminary
Injunctive Relief [2] is DENIED. Defendant’s Motion to Dismiss and Compel
Arbitration [3] remains pending before the Court.
SO ORDERED, this 22nd

day of October, 2013.

_______________________________
RICHARD W. STORY
UNITED STATES DISTRICT JUDGE

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