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Raloid Corp. v. O'Connor

United States District Court, E.D. Virginia, Alexandria Division

July 17, 2019

MICHAEL F. O'CONNOR, d/b/a TYPAY, LLC, et al., Defendants.


          T.S. Ellis, III Judge

         At issue in this matter is defendants Michael O'Connor and TyPay Ventures, LLC's Motion to Dismiss or, in the Alternative, to Change Venue. Defendants primarily argue that the case should be dismissed or stayed pursuant to the abstention doctrine set forth in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976). Alternatively, defendants argue that venue is improper and the case should be transferred to the United States District Court for the District of Columbia or the United States District Court for the District of Maryland. For the reasons discussed infra, both arguments fail.[1]


         According to the Complaint, plaintiff Raloid Corporation ("Raloid") is a Maryland corporation that manufactures parts for the military/aerospace industry under subcontracts with large defense contractors. Compl. ¶¶ 1, 10. Defendant O'Connor is an accountant. Id. ¶ 16-17. He conducts his business as Typay, LLC and owns and operates defendant Typay Ventures, LLC (collectively, "Typay"). Id. ¶¶ 3-4.

         Raloid was founded by Ramon Jadra. Anthony Jadra, Ramon Jadra's son, was previously incarcerated with O'Connor. Id. ¶ 10. O'Connor and Anthony Jadra were both incarcerated for tax offenses.[2] Id. ¶¶ 9-10. While the two were incarcerated, Anthony Jadra informed O'Connor that Ramon Jadra, then the principal owner of Raloid, was interested in selling Raloid. Id. ¶¶ 10-11. O'Connor offered to help Ramon Jadra find buyers for Raloid, and O'Connor ultimately succeeded in doing so. Id. ¶¶ 11-12. Specifically, O'Connor found John and James Halinski, O'Connor's tax clients, and James Zelloe, an attorney who had previously represented O'Connor, to purchase Raloid. Id. ¶ 12. The Halinskis purchased 51% of Raloid's shares through Raloid, LLC; Zelloe purchased the remaining 49% through Raloid Holdings, LLC. Id. ¶ 13.

         Following the acquisition, John Halinski became the president of Raloid, James Halinski became the Chief Security Officer, and Zelloe became the Chief Executive Officer. Id. ¶ 14. Relying on O'Connor's representation that he was a CPA licensed in Maryland, the Halinskis and Zelloe hired TyPay, O'Connor's business, to provide accounting services for Raloid. Id. ¶ 15-16. Raloid alleges that Typay and O'Connor were engaged as contractors. Id. ¶ 35. Unbeknownst to the Halinskis and Zelloe, O'Connor was not a CPA licensed in Maryland or any other state.[3] Id. ¶ 20.

         In early May 2017, Raloid terminated TyPay and O'Connor, citing "security breaches, ... poor tax advice, and general ineptitude." Id. ¶ 35. On March 12, 2019, Raloid filed this action against O'Connor and TyPay. The Complaint alleges counts of (i) breach of contract, (ii) fraud in the inducement, and (iii) civil conspiracy.

         Raloid and O'Connor, but not TyPay, are involved in related litigation in Maryland state court ("Maryland action"). The Maryland action was filed prior to the instant federal suit. In the Maryland action Amended Complaint, O'Connor alleges that he and Zelloe agreed to purchase Raloid; O'Connor would purchase 51% through Raloid, LLC, and Zelloe would purchase 49% through Raloid Holdings, LLC. Baltimore Compl. ¶¶ 15-18. O'Connor further alleges that, acting on a mistaken belief that he could not own Raloid until his period of supervised release ended, he entered an agreement with the Halinskis to make them temporary owners of Raloid, LLC. Id. ¶ 19-22. Specifically, John and James Halinski would each initially own 50% of Raloid, LLC. When O'Connor's supervised release ended, the Halinskis would transfer 90% of Raloid, LLC's shares to O'Connor and collectively retain 10% of the shares. Id. ¶ 22.

         O'Connor further alleges, in the Maryland action, that he and the Halinskis agreed that for two years after the acquisition of Raloid, John Halinski would serve as Raloid's president, James Halinski would serve as Raloid's Chief Security Officer, and O'Connor would serve as Raloid's Chief Financial Officer. Id. Pursuant to this agreement, O'Connor was employed as Chief Financial Officer of Raloid. Id. ¶ 38.

         The Maryland action Amended Complaint further alleges that, on April 6, 2017, O'Connor's supervised release was revoked and he was incarcerated for sixty days, beginning August 4, 2017. Id. ¶ 47. O'Connor alleges that, although he no longer commuted to the Raloid plant, he continued to perform his duties as Chief Financial Officer between April 6, 2017 and August 4, 2017. Id. ¶ 48. Ultimately, Raloid terminated O'Connor on October 6, 2017. Id. ¶ 62. According to O'Connor, Raloid failed to pay him wages from May 12, 2017 until the termination of his employment in October 2017. Id. ¶¶ 61-63.

         O'Connor and Anthony Jadra subsequently filed the Maryland action on November 2, 2018 against Raloid; Raloid, LLC; John Halinski; and James Halinski.[4] O'Connor, et al. v. Halinski, et ai, No. 03-C-18-011059 (Bait. Cty. Cir. Ct. filed Nov. 2, 2018). O'Connor asserted only one claim against Raloid-namely, failure to pay O'Connor wages from May 2017 to October 2017. in violation of the Maryland Wage Payment and Collection Law, Md. Code, Lab. & Empl., § 3-501, et seq.[5] Raloid moved to sever the claim against it from the rest of the case, but the Maryland court denied the motion. The parties represent that the suit is currently in the discovery phase.

         Defendants now contend that Raloid's federal lawsuit arises out of the same circumstances as the pending state lawsuit. Specifically, defendants contend that both lawsuits arise out of the acquisition of Raloid and O'Connor's subsequent provision of financial and accounting services for Raloid. As such, defendants argue that the lawsuits are parallel and that this action should be dismissed or stayed pursuant to the Colorado River abstention doctrine. Alternatively, defendants argue that venue is improper and that the case should be transferred to the United States District Court for the District of Columbia or the United States District Court for the District of Maryland.

         Defendants' abstention argument fails because, as the following discussion demonstrates, this action and the Maryland action are not parallel and defendants have not identified the requisite extraordinary circumstances warranting abstention. See Part II. Further, defendants' venue argument fails because Raloid has made a prima facie showing that venue is proper in this forum. See Part III.


         As the Supreme Court has made clear, "the rule is that the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction." Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976) (internal quotation marks and citation omitted). This is so even though the concurrent proceedings "may appear to result in a duplication of judicial resources." McLaughlin v. United Va. Bank, 955 F.2d 930, 934 (4th Cir. 1992). Yet, despite this general rule, "under the Colorado River doctrine, a federal court may abstain from exercising jurisdiction over a duplicative federal action for purposes of' wise judicial administration.'" vonRosenberg v. Lawrence, 849 F.3d 163, 167 (4th Cir. 2017) (citation omitted). Such abstention may occur only where the state and federal proceedings are parallel and exceptional circumstances exist. Id. at 167-68.

         For state and federal proceedings to be parallel, they must involve "substantially the same parties litigat[ing] substantially the same issues in different forums." Id. at 168 (citation omitted). The Fourth Circuit has construed this requirement "strictly..., requiring that the parties involved be almost identical." Id. Yet even where the parties "are virtually identical," the actions are not parallel if "the issued raised and remedies sought are not." New Beckley Min. Corp. v. Int'l Union. United Mine Workers Am., 946 F.2d 1072, 1074 (4th Cir. 1991). This is true even where the state and federal actions, and thus the issues they involve, arise out of the same factual circumstances. Id. at 1073-74 (holding that state and federal lawsuits arising out of a union's strike and the resulting violence and property destruction were not parallel because the plaintiff sought "compensation in federal court and equitable relief in state court").[6]

         But importantly, the mere existence of parallel state and federal proceedings is insufficient to warrant abstention. Colorado River Water Conservation Dist., 424 U.S. at 817. Exceptional circumstances must also exist for abstention to be permissible. vonRosenberg, 849 F.3d at 167. Such exceptional circumstances are required because "the Supreme Court has held, over and over, ... that in the usual case [of parallel state and federal proceedings] the federal courts must hear the cases that fall within their jurisdiction." McLaughlin v. United Va. Bank, 955 F.2d 930, 934 (4th Cir. 1992) (emphasis in original). Significantly, a finding of exceptional circumstances requires "the "clearest of justifications' ... to justify the surrender of.. .jurisdiction." Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 25-26 (1983) (emphasis in original). Six factors must guide the inquiry into whether the requisite exceptional circumstances exist:

(1) whether the subject matter of the litigation involves property where the first court may assume in rem jurisdiction to the exclusion of others;
(2) whether the federal forum is an inconvenient one;
(3) the desirability of avoiding piecemeal ...

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