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Hyatt Franchising, L.L.C v. Shen Zhen New World I, LLC

United States District Court, N.D. Illinois, Eastern Division

January 26, 2017

HYATT FRANCHISING, L.L.C., Petitioner,
v.
SHEN ZHEN NEW WORLD I, LLC, et al. Respondents.

          MEMORANDUM OPINION AND ORDER

          Virginia M. Kendall United States District Court Judge

         Plaintiff Hyatt filed this action to confirm an arbitration award against Defendant Shen Zhen, and less than two hours later, Shen Zhen filed an action to vacate the same award in the Central District of California. Shen Zhen brings this Motion To Dismiss, Stay Or Transfer Action As Duplicative Or, Alternatively, To Transfer Venue Pursuant to 28 U.S.C. § 1404(a). (Dkt. 22.)[1] For the reasons stated below, Shen Zhen's motion is denied.

         I. BACKGROUND

         Hyatt is a limited liability company with its principal place of business in Chicago, Illinois. (Dkt. 19 at ¶ 2.) Shen Zhen New World I, LLC (“Shen Zhen”) is a California limited liability company with its principal place of business in California, and Shen Zhen New World Investment (USA) Inc., is its corporate parent.

         Hyatt and its Affiliates are engaged in the business of operating and granting franchises to establish and operate hotels. (Id.) On September 24, 2012, Hyatt entered into a written Hyatt Hotel Franchise Agreement (the “Franchise Agreement”) with Shen Zhen New World I, LLC pursuant to which Hyatt granted Shen Zhen a franchise to convert the hotel located at 333 South Figueroa Street, in Los Angeles, California into, and later operate it as, a Hyatt Regency® hotel. (Dkt. 6 at ¶ 7.) Shen Zhen's parent, Shen Zhen New World Investment (USA) Inc., executed a Guaranty and Assumption of Obligations, under which it agreed, among other things, to be liable for any breach of, and bound by, each and every provision in the Franchise Agreement, including, and without limitation, the arbitration agreement.

         The Franchise Agreement includes an arbitration clause that states “[a]ll matters relating to arbitration will be governed by the Federal Arbitration Act (9 U.S.C. Sections 1 et seq.) and not by any state arbitration law.” (Franchise Agreement, § 14.1.) The parties also consented to jurisdiction “in the state or federal court of general jurisdiction closest to Hyatt's then current principal business address, and Franchisee (and each owner) irrevocably submits to the jurisdiction of those courts and waives any objection Franchisee (or the Owner) might have to either the jurisdiction of or venue in those courts.” (Franchise Agreement, § 14.3.)

         On August 31, 2014, Hyatt terminated the Franchise Agreement after several alleged breaches by Shen Zhen. On December 23, 2014, Hyatt filed a Demand for Arbitration with the Chicago, Illinois office of the American Arbitration Association. (Dkt. 6 at ¶ 10.) The parties participated in an in-person evidentiary arbitration hearing, in Chicago, before Arbitrator Gerald Saltarelli on February 15-18, February 22-26, and March 14-16, 2016. (Dkt. 6 at ¶¶ 16, 18.) After the parties submitted post-hearing briefs, the Arbitrator issued a 51-page Interim Award that found in favor of Hyatt and against Shen Zhen and its parent company, jointly and severally, and awarded Hyatt $7, 727, 646. Id. Additionally, because the Franchise Agreement provided that the “non-prevailing party” in any arbitration proceeding “must reimburse the prevailing party for all of the prevailing party's costs and expenses … including reasonable accounting, attorneys', arbitrators' and related fees” (Franchise Agreement § 14.4), the Interim Award gave Hyatt twenty (20) days from the date on which the Interim Award was served to submit a request for fees and costs. On August 24, 2016, the Arbitrator issued a Final Award, incorporating the Interim Award, and also awarding Hyatt $1, 324, 546.36 in attorneys' fees and costs along with post-award interest at 0.56% per annum.

         The same morning that the Final Award was issued, on August 24, Hyatt filed a Petition to Confirm the Arbitration Award in this Court at 11:47 a.m., Central Standard Time. (Dkt. 6.) At 1:33 p.m. Central Standard Time, Shen Zhen filed its Petition to Vacate the Arbitration Award in the United States District Court for the Central District of California. See Shen Zhen New World I, LLC v. Hyatt Franchising LLC, Case No. 2:16-06350-JFW-AS.

         On September 15, 2016, Hyatt filed a motion requesting the Central District of California stay all proceedings until Hyatt's Motion to Confirm is resolved in this Court, and on October 12, 2016, the California District Court granted Hyatt's motion staying the proceedings until: (1) Hyatt's Motion to Confirm the Arbitration Award is resolved, or (2) this Court determines that the Central District of California is not the proper forum to resolve the parties' disputes.[2] (Dkt. 26-1, Exhibit A.) In the meantime, on October 6, 2016, Shen Zhen filed the instant Motion to Dismiss, Stay or Transfer the Action as Duplicative, or, Alternatively, to Transfer Venue (“Motion to Dismiss, Stay, or Transfer”) Pursuant to 28 U.S.C. § 1404(a).

         II. Legal Standard

         “The moving party bears the burden of demonstrating that a transfer is warranted.” A. and P. Corp. v. American Healthcare Capital, Inc., No. 14 C 1905, 2015 WL 738694, at *2 (N.D. Ill. Feb. 19, 2015) (citing Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1293 (7th Cir.1989).) The Supreme Court directs that section 1404(a) “is intended to place discretion in the district court to adjudicate motions for transfer according to [a] ‘… case-by-case consideration of convenience and fairness.” Research v. Automation, Inc. v. Schrader-Bridgeport Intern., Inc., 626 F.3d 973, 977 (7th Cir. 2010) (citing Stewart Organization, Inc. v. Richoh Corp., 487 U.S. 22, 29 (1988)) (internal quotations omitted). Under section 28 U.S.C. § 1404(a), a court may transfer any civil action for the convenience of the parties and the witnesses, and the interests of justice.

         The Court will first address the parties' disputes over the impact of the first-filed rule and the forum-selection clause in the Franchise Agreement before addressing the rest of the Section 1404 analysis.

         III. The First-Filed Rule

         The parties dispute the implications of the first-filed rule. Shen Zhen points out that the rule is not dispositive, and further ...


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