MIZAUCTIONS, LLC et al v. CROSS et al

Filing 23

MEMORANDUM/OPINION THAT PLAINTIFFS' EMERGENCY MOTION TO ENFORCE STATE COURT ORDERS AND TO REMAND, ECF NO. 13, IS GRANTED IN PART AND DENIED IN PART. A SEPARATE ORDER FOLLOWS. SIGNED BY HONORABLE JOSEPH F. LEESON, JR ON 8/22/17. 8/22/17 ENTERED AND COPIES MAILED TO UNREPS, E-MAILED AND CERTIFIED COPY MAILED TO LANCASTER COUNTY COURT OF COMMON PLEAS.(ky, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF PENNSYLVANIA
__________________________________________
MIZAUCTIONS, LLC; JARED MIZRAHI;
RESTAURANT AUCTIONS.COM, LLC; and
PCI AUCTION GROUP, LLC,

:
:
:
:
Plaintiffs
:
v.
:
:
RUSSELL CROSS; RONALD HART;
:
LUIS MARTINEZ; ADAM TORRES;
:
RODNEY FRICK; TINA CRAINE; and
:
MEG CANFIELD,
:
:
Defendants
:
__________________________________________

No. 5:17-cv-02935

OPINION
Plaintiffs’ Emergency Motion to Enforce State Court Orders and to Remand, ECF No. 13
Granted in Part and Denied in Part
Joseph F. Leeson, Jr.
United States District Judge
I.

August 22, 2017

Introduction

This case involves a dispute between two former business partners, Jared Mizrahi and
Russell Cross, whose relationship has gone sour. Mizrahi filed this suit in state court, and Cross
promptly removed it here on both diversity and federal question grounds. Forty days later,
Mizrahi moved to remand it, pointing to a series of forum selection clauses in agreements that he
and Cross executed that he believes require this dispute to be heard in state court. Cross opposes
a remand, chiefly on the ground that Mizrahi’s motion came too late under 28 U.S.C. § 1447(c),
which provides that any “motion to remand the case on the basis of any defect other than lack of
subject matter jurisdiction must be made within 30 days after the filing of the notice of removal.”
The problem with this argument is that a federal-jurisdiction-waiving forum selection
clause is not a “defect” within the meaning of the statute. That means that Mizrahi’s motion is
not time-barred, and because he is correct that the forum selection clauses contemplate that the
state courts are the exclusive forum for this dispute to take place, the case will be remanded.
Before that happens, Mizrahi has one other request: he seeks to have Cross compelled to
abide by a series of ex parte injunctions that the state court entered against him shortly before the
case was removed, which Mizrahi claims he has been flouting. That request is denied because
this case was removed before the state court had a chance to hold a hearing on those injunctions,
1

and by operation of state law, ex parte injunctions automatically dissolve if a hearing on them is
not held promptly after they are issued. 1
II.

Mizrahi’s motion is not time-barred.

In Foster v. Chesapeake Insurance Co., 933 F.2d 1207 (3d Cir. 1991), the Third Circuit
considered whether a remand motion based on a forum selection clause that was filed fifty-four
days after the case was removed was untimely under § 1447(c). At the time Foster was decided,
§ 1447(c) was worded slightly differently than it is now. In its current form, the thirty-day time
limit applies to all remand motions based on “any defect other than lack of subject matter
jurisdiction,” but when Foster was decided, the thirty-day time limit applied only to remand
motions based on “any defect in removal procedure.” Foster, 933 F.2d at 1210 (emphasis
added). 2 That text, the Foster court held at the time, “could not be clearer”: the thirty-day time
limit applied only to remand motions “grounded on a defect in removal procedure,” not motions
based on other grounds for a remand, like a forum selection clause. Id. at 1212-13.
In 1996, the statute was amended to delete the phrase “in removal procedure,” making the
thirty-day deadline now broadly applicable to remand motions based on “any defect.” In the
wake of that amendment, some litigants argued that this change was designed to make the statute
categorically applicable to all remand motions (except for those challenging subject matter
jurisdiction, which the statute expressly exempts). The Third Circuit has agreed that the amended
version does indeed have a broader reach than before, but not so broad as to apply to every type
of remand motion. See Cook v. Wikler, 320 F.3d 431, 435 & n.5 (3d Cir. 2003).
It is clear, for example, that the current version of the statute is no longer limited to
remand motions based on defects in procedure—that is, a failure by the removing party to
correctly follow the statutory removal procedures—so the statute now reaches remand motions
based on “even the ‘more substantive’ removal defects, such as [forum defendant] § 1441(b)
violations.” Kamm v. ITEX Corp., 568 F.3d 752, 756 (9th Cir. 2009) (quoting Lively v. Wild Oats
Markets, 456 F.3d 933, 939 (9th Cir. 2006)). But the statute, by its terms, still applies only to
remand motions that are grounded on some type of “defect in removal,” Cook, 320 F.3d at 436
(emphasis added), which, the Third Circuit has explained, means a removal that was “not
authorized by law,” id. at 435 (quoting Pierpoint v. Barnes, 94 F.3d 813, 818 (2d Cir. 1996)).
That stops short of reaching a remand motion like this one because Mizrahi is not
contending that the removal of this case was not authorized by law. Cross removed the case
pursuant to 28 U.S.C. § 1441(a), which authorizes the removal of any case over which the
district courts have original jurisdiction, and no one disputes that this Court has subject matter
1

Mizrahi styled his motion as an “Emergency Motion” because he believes that Cross removed this action in
bad faith in order to dodge those state court injunctions. The fact that forty days passed before Mizrahi moved to
remand the case tends to undercut that supposed need for urgency.
2
The previous version of the statute also expressly carved out remand motions based on a lack of subject
matter jurisdiction from the thirty-day time limit, but it addressed that topic in a separate sentence. See Foster, 933
F.3d at 1210 (“If at any time before final judgment it appears that the district court lacks subject matter jurisdiction,
the case shall be remanded.” (quoting then-§ 1447(c)).

2

jurisdiction over this case by virtue of the complete diversity of the parties and the fact that one
of Mizrahi’s claims raises a federal question. The forum selection clauses do not alter the fact
that this was a removable case under the federal removal statutes because “[a] forum selection
clause does not oust a court of subject matter jurisdiction.” Foster, 933 F.2d at 1212 n.7.
Mizrahi’s remand motion, then, is not based on the notion that the removal of this case
was “not authorized by law.” His contention is that Cross, by agreeing to the forum selection
clauses, waived the right of removal that he would have otherwise had. See Foster, 933 F.2d at
1216-17 (explaining that a forum selection clause that requires a dispute to be heard in state court
“waive[s] the defendant’s right to remove”). That would not, in the language of § 1447(c), be a
“defect” in removal.
So while the 1996 amendment expanded § 1447(c) to reach a broader range of remand
motions than before, the amendment was not broad enough to change Foster’s holding:
§ 1447(c) and its thirty-day clock do not apply to remand motions that are based on forum
selection clauses. See Cook, 320 F.3d at 435 n.5 (“[O]ur review of many of the cases interpreting
the prior language of § 1447(c), including Foster, indicates that most of their holdings appear
unaffected by this statutory change . . . .”); Kamm, 568 F.3d at 757 (holding, under the current
language of the statute, “that a forum selection clause is not a ‘defect’ within the meaning of
§ 1447(c) and that the thirty-day statutory time limit does not apply to a motion to remand based
on a forum selection clause”).
This does not mean that there are no time limits at all on moving to remand a case based
on a forum selection clause. Even without the statutory thirty-day deadline, “a district court in
the proper exercise of its discretion may deny as untimely a [non-§1447(c)] motion to remand if
made at an unreasonably late stage of the federal litigation.” Foster, 933 F.2d at 1213 n.8. But in
this case, Mizrahi’s motion was filed only ten days later than the statutory deadline and no
substantive proceedings have yet occurred. The Court therefore turns to the merits of the motion.
III.

The forum selection clauses provide that state court is the exclusive forum for this
dispute. 3

Before finding themselves embroiled in litigation, Mizrahi and Cross were the co-owners
of a number of companies they formed to operate websites offering online-auction-related
services. A few years ago, Cross sold his interest in two of the companies to Mizrahi, which they
memorialized in two Membership Interest Purchase Agreements. As part of those agreements,
Cross agreed to be bound by confidentiality, non-compete, and non-solicitation clauses, but
according to Mizrahi, Cross has since embarked on “a coordinated effort to harm [those
companies] by . . . hiring away their employees and stealing their clients” and “conduct[ing]

3

Forum selection clauses are to be interpreted in the same way as any other type of contractual provision,
using the same “benchmarks of construction and . . . interpretation” that are used to “resolv[e] all preliminary
contractual questions.” Foster, 933 F.2d at 1217 n.15 (rejecting the notion that a contractual waiver of the right to
remove a case must be “clear and convincing” to be given effect).

3

online auctions in direct competition” with Mizrahi and the companies that the two of them
founded. 4 Compl. ¶¶ 49-50.
In addition to the confidentiality and non-compete clauses, the Purchase Agreements also
contain identical forum selection clauses, which read as follows:
All disputes arising hereunder shall be litigated solely in courts located in
Lancaster County, Pennsylvania, and the parties hereby waive objection to venue
and jurisdiction of such courts.
Compl. Ex. A, ¶ 24(g); Compl. Ex. C, ¶ 19(g).
Mizrahi contends that these clauses mean that the Court of Common Pleas of Lancaster
County, where he originally filed this case, must be the exclusive forum. Cross points out that
Lancaster County is within the Eastern District of Pennsylvania, which is of course correct, but
by providing that disputes would “be litigated solely in courts located in Lancaster County,” it is
clear that the parties did not intend to have their disputes heard in federal court merely because
this district encompasses Lancaster County.
Identifying a county as the exclusive forum for disputes to be resolved is not particularly
uncommon, and it often raises the question of whether the parties meant to include the federal
district court whose district encompasses that county. To answer that question, the federal courts
have in large part drawn a distinction based on whether the federal district court has a physical
presence in that county. See All. Health Grp., LLC v. Bridging Health Options, LLC, 553 F.3d
397, 399-400 (5th Cir. 2008). If the parties identify a county where there is a federal
courthouse—perhaps especially if they identify the county where the district court has its
primary courthouse—it may be quite natural to conclude that they intended that disputes could
be brought to that courthouse. See id. at 400 (“[T]he clause at hand, providing for venue in a
specific county, permits venue in either federal or state court, because a federal courthouse is
located in that county.”); Bodine Elec. Co. v. Viking Access Sys., 2009 WL 3055362, at *3 (N.D.
Ill. Sept. 22, 2009) (“This Court ‘is located’ in Cook County and venue is therefore appropriate
here under the forum selection clause.”).
That is not the case when the parties name a county where the federal court has no
presence. It is difficult to believe that when parties define their forum of choice by reference to
the courts “located in” a county, they intended that disputes could be brought to a federal district
court that does not hear any cases there. See Collin County. v. Siemens Bus. Servs., Inc., 250 F.
App’x 45, 54 (5th Cir. 2007) (“[W]e think it clear that the clause at issue in this case was
intended to relate to where there is a sitting court.”); Sompo Japan Ins. v. Alarm Detection Sys.,
2003 WL 21877615, at *2 (N.D. Ill. Aug. 6, 2003) (“[B]ecause there is no federal court located
in Kane County, Illinois, the express reference to Kane County, Illinois could only have been
intended to mean the state court in Kane County, Illinois. A forum selection clause that specifies
4

Mizrahi has also sued a number of the employees he claims that Cross has poached from him to compete
with Mizrahi and his companies.

4

venue in a county that has no federal court cannot reasonably be interpreted to permit suit in a
federal court located in a different county.”).
This case falls into that latter category. The Eastern District of Pennsylvania has never
had a physical presence in Lancaster County, see Harvey Bartle III, Mortals with Tremendous
Responsibilities 244 (2011) (“[N]o judge has ever been stationed in Lancaster . . . .”), despite the
fact that the district’s enabling statute contemplates that court would be held there, see 28 U.S.C.
§ 118 (“Court for the Eastern District shall be held at Allentown, Easton, Lancaster, Reading, and
Philadelphia.”), and despite long-running efforts to fulfill that mandate, see Satellite Federal
Court Proposed for Lancaster, Morning Call (Nov. 22, 1989), http://articles.mcall.com/1989-1122/news/2715311_1_satellite-court-federal-court-district-court.
There are remarkable similarities between this case and Collin County. There, the parties
specified in their forum selection clause a county where the federal district court had no
courthouse, despite the fact that the enabling statute for that district specified that court would be
held there. In that case, too, there were plans to build a courthouse there—in fact, the federal
government had already leased the land. See 250 F. App’x at 53 n.9. But none of that changed
the fact that when the parties drafted their agreement, there was no federal court presence in the
county and therefore no reason to believe that by naming the county as their exclusive forum,
they intended for their disputes to be heard in federal court. See id. at 54.
The same is true here. The fact that the parties chose to define their forum of choice by
reference to the “courts located in Lancaster County, Pennsylvania,” makes clear that they meant
to confine this dispute to state court. 5
IV.

The ex parte injunctions cannot be enforced because they dissolved by operation of
state law.

Still remaining is Mizrahi’s request that before the case is remanded, the Court compel
Cross to abide by a series of ex parte injunctions the state court issued just before Cross removed
the case. Mizrahi moved for preliminary injunctive relief two days after he filed this suit, and six
days later, on June 28, 2017, the state court issued a series of ex parte injunctions and set a
hearing on them for July 6. Cross removed the case on June 28—the same day the injunctions
issued—and because of the removal, the July 6 hearing in state court never occurred.
Ordinarily, when a case is removed, “[a]ll injunctions, orders, and other proceedings had
in such action prior to its removal . . . remain in full force and effect until dissolved or modified
by the district court.” 28 U.S.C. § 1450. But § 1450 does not “turn ex parte state court temporary
restraining orders of limited duration into federal court injunctions of unlimited duration.”
5

Cross seems to suggest in passing that the forum selection clauses might not apply to all of Mizrahi’s
claims because they are present only in “some contracts” at issue in this dispute, Mem. Opp’n 4-5, ECF No. 21, but
even if he is right, once it is clear that “one claim is not removable due to a forum selection clause, the other claims
may not be severed and removed. To hold otherwise would be to invite piecemeal litigation and to allow plaintiffs to
circumvent forum selection clauses through artful pleading of additional claims.” Carlyle Inv. Mgmt. LLC v.
Moonmouth Co., 779 F.3d 214, 221 (3d Cir. 2015).

5

Granny Goose Foods, Inc. v. Bhd. of Teamsters Local No. 70, 415 U.S. 423, 435 (1974).
Injunctions have no “greater effect after removal to federal court than they would have had if the
case had remained in state court,” so “[a]n ex parte temporary restraining order issued by a state
court prior to removal remains in force after removal no longer than it would have remained in
effect under state law”—and can in fact dissolve even sooner, because once the case is removed,
the order becomes subject to the fourteen-day limit on ex parte temporary restraining orders in
Federal Rule 65(b). Id. at 436, 439-40.
In this case, the ex parte injunctions were issued on June 28, and the state court set a
hearing date on the matter for eight days later, which was never held. Under the Pennsylvania
Rules of Civil Procedure, “[a]n injunction granted without notice to the defendant shall be
deemed dissolved unless a hearing on the continuance of the injunction is held within five days
after the granting of the injunction or within such other time as the parties may agree or as the
court upon cause shown shall direct.” Pa. R. Civ. P. 1531(d). By operation of that rule, then, the
injunction dissolved after that July 6 hearing date came and went without a hearing. At best, the
injunctions could have lasted only until July 12 pursuant to the fourteen-day limit on ex parte
temporary restraining orders in Rule 65(b)—nearly a month before Mizrahi filed his present
motion.
Mizrahi could have moved for preliminary injunctive relief here, but he did not. As a
result, there are no injunctions currently in effect for the Court to enforce.
V.

Conclusion

Because Mizrahi’s remand motion is not barred by the thirty-day time limit in § 1447(c),
and because the forum selection clauses require this dispute to be heard in state court, his motion
to remand is granted. But his motion to compel Cross to abide by the ex parte injunctions the
state court issued prior to removal is denied because those injunctions dissolved over a month
ago. A separate order follows.

6