Danziger & De Llano, LLP v. Morgan Verkamp LLC

• Decision Date: 15 January 2020
• Docket Number: No. 19-1986,19-1986
• Citation: 948 F.3d 124
• Parties: DANZIGER & DE LLANO, LLP, Appellant v. MORGAN VERKAMP LLC; Frederick M. Morgan, Jr., Esquire; Jennifer Verkamp, Esquire
• Court: U.S. Court of Appeals — Third Circuit

948 F.3d 124

DANZIGER & DE LLANO, LLP, Appellant

v.MORGAN VERKAMP LLC; Frederick M. Morgan, Jr., Esquire; Jennifer Verkamp, Esquire

No. 19-1986

United States Court of Appeals, Third Circuit.

Argued: November 12, 2019

Filed: January 15, 2020

Gavin P. Lentz [ARGUED], Jeffrey W. Ogren, Bochetto & Lentz, 1524 Locust Street, Philadelphia, PA 19102, Counsel for Appellant

George Jonson, Montgomery Rennie & Jonson, 600 Vine Street, Suite 2650, Cincinnati, OH 45202, Anthony P. McNamara, Thompson Hine, 312 Walnut Street, Suite 1400, Cincinnati, OH 45202, Tejinder Singh [ARGUED], Goldstein & Russell, 7475 Wisconsin Avenue, Suite 850, Bethesda, MD 20814, Ammar S. Wasfi, Killino Firm, 1835 Market Street, Suite 2820, Philadelphia, PA 19103, Counsel for Appellees

Before: AMBRO, KRAUSE, and BIBAS, Circuit Judges

OPINION OF THE COURT

BIBAS, Circuit Judge.

Removal to federal court changes the field of play, but not the game being played. Two law firms, Danziger and Morgan Verkamp, spent almost a year and a half in Pennsylvania state court disputing and ultimately taking discovery over a referral fee before any complaint was filed. After Morgan Verkamp removed the case to federal court, it successfully challenged personal jurisdiction. Danziger now argues that either there is specific personal jurisdiction over Morgan Verkamp in Pennsylvania or that Morgan Verkamp waived that objection. Not so.

There is no specific jurisdiction because Danziger’s claims neither arise out of nor relate to Morgan Verkamp’s activities in Pennsylvania. Nor did Morgan Verkamp consent to personal jurisdiction by merely taking part in pre-complaint discovery, because Pennsylvania law does not let defendants object to jurisdiction until the plaintiff files a complaint. And as we clarify today, a defendant who chooses to remove to federal court does not thus consent to personal jurisdiction; the defendant carries the defenses it had in state court with it to federal court.

Plus, the District Court need not find Danziger a new playing field. When the parties suggest transferring a case with a jurisdictional defect, a district court should ordinarily balance the equities of doing so before deciding to dismiss the case with prejudice. But at oral argument, Danziger conceded that it does not need the District Court to transfer its case; it could timely refile its claims in another forum. So we need not remand to let the District Court consider transferring this case, but will instead affirm.

I. BACKGROUND

Frederick Morgan and Jennifer Verkamp worked together at an Ohio law firm. In 2008, they left that firm and founded their own Ohio law firm, Morgan Verkamp LLC.

Danziger & De Llano, LLP, is a Texas law firm. Danziger says that it has referred potential qui tam clients to Mr. Morgan and Ms. Verkamp since they were at their old firm. One of those referred clients was Michael Epp. According to Danziger, it formed an oral contract with Mr. Morgan and Ms. Verkamp to collect one-third of the attorney’s fees from the Epp suit as a referral fee. Epp, who was living outside the United States, later retained Morgan Verkamp as counsel. But he never promised Danziger, orally or in writing, a referral fee.

Morgan Verkamp brought a qui tam action on Epp’s behalf under the False Claims Act against foreign defendants in the U.S. District Court for the Eastern District of Pennsylvania. After more than four years of litigation, the U.S. Government intervened and settled for hundreds of millions of dollars. As a result, Morgan Verkamp collected several million dollars in attorney’s fees.

When Danziger heard about the settlement, it wanted the referral fee that Morgan Verkamp had allegedly promised. It sued Morgan Verkamp, Mr. Morgan, and Ms. Verkamp (collectively Morgan Verkamp) in Pennsylvania state court. Rather than file a complaint, Danziger filed something called a writ of summons. In Pennsylvania, a plaintiff can file a writ of summons and seek discovery before filing a complaint. See Pa. R. Civ. P. 4003.8.

Danziger then moved to compel Morgan Verkamp to take part in pre-complaint discovery. The parties fought over the scope of discovery, and the Pennsylvania court held a discovery hearing. Morgan Verkamp appealed an adverse ruling.

Almost a year and a half after Danziger served the writ of summons, Morgan Verkamp asked the court to compel Danziger to file a complaint. So Danziger finally filed one. The complaint alleged six claims: fraud, conversion, unjust enrichment, breach of contract, and tortious interference with both contractual and prospective contractual relations. About two weeks later, Morgan Verkamp removed the case to federal court before the deadline for filing preliminary objections. It then moved to dismiss Danziger’s complaint for lack of personal jurisdiction. In the alternative, it asked for a transfer to the Southern District of Ohio. Danziger opposed the motion, but in the alternative suggested transferring the case to Texas. The District Court dismissed the complaint with prejudice for lack of personal jurisdiction. It never considered transferring the case.

Danziger timely appeals, raising three arguments against dismissal: It claims that Pennsylvania courts have specific personal jurisdiction over Morgan Verkamp. It also asserts that Morgan Verkamp has waived any objection to personal jurisdiction. And even if there were no personal jurisdiction, Danziger argues, the District Court should have transferred the case to an appropriate forum instead of dismissing it.

Because the District Court did not hold an evidentiary hearing on personal jurisdiction, we take Danziger’s factual allegations as true. Miller Yacht Sales, Inc. v. Smith , 384 F.3d 93, 97 (3d Cir. 2004). We review the District Court’s dismissal for lack of personal jurisdiction de novo. O’Connor v. Sandy Lane Hotel Co. , 496 F.3d 312, 316 (3d Cir. 2007). We review the District Court’s denial of Danziger’s transfer motion for abuse of discretion. Deleski v. Raymark Indus., Inc. , 819 F.2d 377, 378 (3d Cir. 1987).

II. PENNSYLVANIA COURTS LACK PERSONAL JURISDICTION

Danziger attacks the District Court’s dismissal for lack of personal jurisdiction. Personal jurisdiction can be either general jurisdiction or specific jurisdiction. O’Connor , 496 F.3d at 317 (quoting Helicopteros Nacionales de Colom., S.A. v. Hall , 466 U.S. 408, 416, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984) ). A defendant may also consent to personal jurisdiction by waiving any objection to it. Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee , 456 U.S. 694, 703, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982).

Here, Pennsylvania courts have neither general nor specific jurisdiction. Danziger concedes that Pennsylvania courts lack general jurisdiction. They also lack specific jurisdiction because Danziger’s claims do not arise out of or relate to Morgan Verkamp’s activities in Pennsylvania.

Nor did Morgan Verkamp waive its personal-jurisdiction defense. In Pennsylvania, a defendant need not challenge personal jurisdiction until after a plaintiff files a complaint. When Danziger did so, Morgan Verkamp removed the case to federal court. And removal alone does not waive defenses. So Morgan Verkamp carried that defense with it to federal court and properly raised it there by moving to dismiss. Pennsylvania courts thus lack personal jurisdiction.

A. Pennsylvania courts lack specific jurisdiction

Danziger argues that Morgan Verkamp’s contacts with Pennsylvania support specific jurisdiction there. We disagree.

Pennsylvania’s long-arm statute gives its courts jurisdiction over out-of-state defendants to the maximum extent allowed by the U.S. Constitution. 42 Pa. Cons. Stat. § 5322(b) ; see Kubik v. Letteri , 532 Pa. 10, 614 A.2d 1110, 1113–14 (1992). When a defendant challenges the court’s personal jurisdiction, the plaintiff bears the burden "to come forward with sufficient facts to establish that jurisdiction is proper." Mellon Bank (E.) PSFS, Nat’l Ass’n v. Farino , 960 F.2d 1217, 1223 (3d Cir. 1992).

To meet this burden, the plaintiff must "establish[ ] with reasonable particularity" three elements. Id. at 1223 (quoting Provident Nat’l Bank v. Cal. Fed. Sav. & Loan Ass’n , 819 F.2d 434, 437 (3d Cir. 1987) ). "First, the defendant must have ‘purposefully directed [its] activities’ at the forum." O’Connor , 496 F.3d at 317 (alteration in original) (quoting Burger King Corp. v. Rudzewicz , 471 U.S. 462, 472, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) ). Second, the plaintiff’s claims "must ‘arise out of or relate to’ " the defendant’s activities. Id. (quoting Helicopteros , 466 U.S. at 414, 104 S.Ct. 1868 ). And third, exercising personal jurisdiction must not "offend traditional notions of fair play and substantial justice." Id. at 316 (quoting Int’l Shoe Co. v. Washington , 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945) ). Only the second element is at issue here.

Whether a plaintiff’s claims "arise out of or relate to" the defendant’s contacts with the forum state depends, in part, on the type of claim brought. See O’Connor , 496 F.3d at 317 (quoting Helicopteros , 466 U.S. at 414, 104 S.Ct. 1868 ).

For contract claims, a plaintiff must satisfy a "restrictive standard" by showing proximate causation (also called "substantive relevance"). O’Connor , 496 F.3d at 318, 320. But-for causation is not enough: "[T]he defendant’s contacts with the forum [must have been] instrumental in either the formation of the contract or its breach." Gen. Elec. Co. v. Deutz AG , 270 F.3d 144, 150 (3d Cir. 2001) (emphasis added). So a plaintiff cannot allege simply that but for x ’s occurrence, y (which may have been remote and not foreseeable) would not have happened.

For tort claims, the standard is less restrictive. O’Connor , 496 F.3d at 320. But tort claims still "require[ ] a closer and more direct causal connection than" but-for causation. Id. at 320–23. The defendant must have benefited enough from the forum state’s laws to make the burden of facing...