Cote v. Wadel

• Citation: 796 F.2d 981
• Decision Date: 21 July 1986
• Docket Number: No. 85-2550,85-2550
• Parties: Colleen A. COTE, Plaintiff-Appellant, v. Peter J. WADEL and Wadel & Bulger, P.C., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 981

796 F.2d 981

55 USLW 2084

Colleen A. COTE, Plaintiff-Appellant, v. Peter J. WADEL and Wadel & Bulger, P.C., Defendants-Appellees.

No. 85-2550.

United States Court of Appeals Seventh Circuit.

Submitted May 6, 1986.

Decided July 21, 1986.

Challoner Morse McBride, McBride Law Office, Sturgeon Bay, Wis., for plaintiff-appellant.

David M. Quale, Prosser, Wiedabach & Quale, S.C., Dorothy H. Dey, Milwaukee, Wis., for defendants-appellees.

Before POSNER and COFFEY, Circuit Judges, and PELL, Senior Circuit Judge.

POSNER, Circuit Judge.

Colleen Cote, who lives in Wisconsin, brought a diversity suit against Peter Wadel a lawyer in Michigan, and his law firm, Wadel & Bulger, P.C., a professional corporation that is incorporated in Michigan (see Mich.Comp.L. Sec. 450.222(b)) and has its principal place of business there. The suit charges that Wadel committed malpractice in representing the plaintiff in a matter in Michigan. The district court dismissed the suit for lack of personal jurisdiction over the defendants and turned down the plaintiff's plea to transfer the case to a federal district court in Michigan under 28 U.S.C. Sec. 1404(a) rather than dismiss it. She cannot file a new suit, because the statute of limitations has run. She appeals, arguing that either there was personal jurisdiction over the defendants or, if not, the district judge should have transferred rather than dismissed the suit.

A threshold question, one of first impression in this circuit, is whether for purposes of diversity jurisdiction a professional corporation is to be treated like any other corporation or like a partnership; if the latter, the existence of subject-matter jurisdiction would depend on which states the shareholders of Wadel & Bulger are citizens of, since for diversity purposes a partnership is a citizen of all the states of which its partners are citizens. See, e.g., Elston Investment, Ltd. v. David Altman Leasing Corp., 731 F.2d 436 (7th Cir.1984).

A professional corporation is primarily a device for enabling a partnership of professionals to enjoy the tax advantages of a corporation. Realistically it lacks the two defining characteristics of a conventional corporation--legal liability and perpetual existence. The professional relationship is between the individual professional and the client rather than between the corporation and the client. Thus, the professional remains personally liable for malpractice, and his death or resignation severs the corporation relationship with the client. See American Bar Association, Code of Professional Responsibility, EC 6-6, DR 6-102A (1982); see generally Henn & Alexander, Laws of Corporations and Other Business Enterprises Sec. 77 (3d ed. 1983); Oleck, Nonprofit Corporations, Organizations, and Associations 187-88 (4th ed. 1980). Since, moreover, professional corporations rarely require substantial capital (other than the "human capital" of the professionals themselves), the essential purpose of the corporate form--to enable the raising of substantial capital from risk-averse investors by allowing them to limit their liability to the amount of the investment (see In re Kaiser, 791 F.2d 73, 75 (7th Cir.1986))--is irrelevant, quite apart from the fact that the professional corporation does not shield its shareholders from the largest potential source of personal liability that they face.

To give the professional corporation determinative significance for diversity jurisdiction is therefore to attach an unintended consequence to federal tax legislation, and yet we conclude that a professional corporation is a corporation within the meaning of 28 U.S.C. Sec. 1332. Jurisdictional rules should be as simple as possible, so that the time of litigants and judges is not wasted deciding where a case should be brought and so that fully litigated cases are not set at naught (as in our recent case of Kanzelberger v. Kanzelberger, 782 F.2d 774 (7th Cir.1986)) because a subtle jurisdictional bar was overlooked until the appeal. We therefore agree with the Second Circuit's conclusion, in the only other case on the question, that a professional corporation is to be treated like other corporations for purposes of determining the presence or absence of diversity jurisdiction. Saxe, Bacon & Bolan, P.C. v. Martindale-Hubbell, Inc., 710 F.2d 87, 89 (2d Cir.1983). To paraphrase Gertrude Stein, for purposes of diversity jurisdiction a corporation is a corporation is a corporation.

Having satisfied ourselves that the district court had subject-matter jurisdiction we turn to the question of personal jurisdiction. According to Cote's allegations, which for purposes of this appeal we must take as true, she hired Wadel in January 1983 to represent her in a suit for medical malpractice that she had filed pro se in a Michigan state court. Wadel filed an appearance for her in the state court on February 10, 1983, and on March 1 mailed her a bill for $118.25 for court costs that he had paid on her behalf. She paid him the next month. In July she learned from the defendant's lawyer that her case had been dismissed for lack of prosecution back in April. She called Wadel's office and someone there told her that settlement negotiations were in progress with the defendant's insurer. As she knew that the defendant was not insured, she asked another lawyer to find out what was going on, but no one at Wadel's firm would discuss the case with this other lawyer.

Wisconsin's long-arm statute confers jurisdiction on the Wisconsin courts (and hence, through the operation of Fed.R.Civ.P. 4(e), on the Wisconsin federal courts in diversity suits, see Afram Export Corp. v. Metallurgiki Halyps, S.A., 772 F.2d 1358, 1362 (7th Cir.1985)) over nonresident defendants "in any action claiming injury to person or property within or without this state arising out of an act or omission within this state by the defendant." Wis.Stat. Sec. 801.05(3). Unfortunately for Cote there was no act or omission in Wisconsin by Wadel or other persons in his firm. The act or omission of which Cote complains is the failure to prosecute her suit and to cooperate with the lawyer whom she asked to investigate the failure, and these failures occurred in Michigan. She had (she claims) a valuable property in Michigan consisting of a cause of action against a doctor, and she lost that property, also in Michigan, allegedly through the defendants' negligence there. Neither Wadel nor anyone else in his firm ever set foot in Wisconsin in connection with this matter. The only significant connection between the suit and Wisconsin is that the plaintiff lives there; and you cannot get jurisdiction over a nonresident just by showing that you are a resident and would prefer to sue in your own state's courts. By that reasoning, there would be no limits to personal jurisdiction over nonresidents.

The handful of letters and phone calls that passed between Cote and the Wadel firm is not enough to close the gap. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984); Young v. Colgate-Palmolive Co., 790 F.2d 567, 570 (7th Cir.1986); Lakeside Bridge & Steel Co. v. Mountain State Construction Co., 597 F.2d 596, 598, 604 (7th Cir.1979); Madison Consulting Group v. South Carolina, 752 F.2d 1193, 1203 n. 18 (7th Cir.1985) (dictum). Personal jurisdiction over nonresidents...