United States District Court, E.D. Virginia, Alexandria Division
Ellis, III Judge
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
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. Â¶Â¶ 3-4.
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. 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.
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. Id. ¶ 20.
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
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.
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.
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.
and Anthony Jadra subsequently filed the Maryland action on
November 2, 2018 against Raloid; Raloid, LLC; John Halinski;
and James Halinski. 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. 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.
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.
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.
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.
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
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 ...