New Wellington v. Flagship Resort Development

• Decision Date: 21 July 2005
• Docket Number: No. 04-2216.,04-2216.
• Citation: 416 F.3d 290
• Parties: NEW WELLINGTON FINANCIAL CORPORATION, Plaintiff-Appellant, v. FLAGSHIP RESORT DEVELOPMENT CORPORATION; First Flagship Financial Services Corporation, Defendants — Appellees, and Atlantic Palace Development, L.L.C., Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

416 F.3d 290

NEW WELLINGTON FINANCIAL CORPORATION, Plaintiff-Appellant, v. FLAGSHIP RESORT DEVELOPMENT CORPORATION; First Flagship Financial Services Corporation, Defendants — Appellees, and Atlantic Palace Development, L.L.C., Defendant.

No. 04-2216.

United States Court of Appeals, Fourth Circuit.

Argued May 25, 2005.

Decided July 21, 2005.

ARGUED: Thomas E. Albro, Tremblay & Smith, Charlottesville, Virginia, for Appellant. Dennis Alan Richard, Richard & Richard, P.A., Miami, Florida, for Appellees. ON BRIEF: Joseph D. Pope, Nicole Tuman, Cohen Pope, P.L.L.C., New York, New York; M.E. Gibson, Jr., Patricia D. McGraw, Tremblay & Smith, L.L.P., Charlottesville, Virginia, for Appellant. Patrick C. Asplin, Keeler Obenshain, P.C., Harrisonburg, Virginia, for Appellees.

Before MOTZ and GREGORY, Circuit Judges, and HAMILTON, Senior Circuit Judge.

Affirmed by published opinion. Judge GREGORY wrote the opinion, in which Senior Judge HAMILTON joined. Judge MOTZ concurred in the judgment.

GREGORY, Circuit Judge.

This appeal requires us to determine whether personal jurisdiction exists over an out-of-state defendant and, if so, whether the district court could decline to exercise jurisdiction. Because the district court was entitled to exercise its discretion to decline to hear a declaratory judgment action in light of a parallel state-court case, we affirm.

I.

Flagship Resort Development Corp., First Flagship Financial Services Corp. (together, "Flagship"), and Atlantic Palace Development, L.L.C. ("Atlantic Palace") operate timeshare resorts in New Jersey. According to New Wellington Financial Corp. ("Wellington"), Flagship and Atlantic Palace mailed consumer credit applications, credit reports, and collateral from outside Virginia to Wellington's Virginia headquarters every week from 1993 to 2003. Wellington reviewed and processed these credit documents on behalf of lenders including Liberty Bank ("Liberty") and Finova Capital Corp. ("Finova"), among others (collectively, "the lenders"). With Wellington's aid, Flagship and Atlantic Palace secured financing from the lenders for their resorts.

In June 2003 a sharp disagreement arose between the parties. Flagship and Atlantic Palace confronted Wellington with allegations that Wellington violated its duty as their agent by taking undisclosed payments from the lenders. On June 13, 2003, Flagship and Atlantic Palace sent a letter from New Jersey to Finova's headquarters in Arizona. The letter sought Finova's cooperation with Flagship and Atlantic Palace's investigation of the allegedly undisclosed payments and requested that, in the interim, Finova cease payments to Wellington relating to their loans. Five days later Flagship and Atlantic Palace also wrote to Liberty, in Connecticut. The letter told Liberty that Flagship and Atlantic Palace would no longer be working with Wellington. That same day Flagship informed Wellington by letter that they would terminate their relationship with Wellington, requested a list of the dates, amounts and form of all payments received from the lenders, and stated that they would seek return of all fees paid by the lenders on their loans. Wellington insists that it has never acted as Flagship's or Atlantic Palace's agent or broker or taken improper payments from lenders.

Wellington filed its initial complaint on August 13, 2003. It sought a declaratory judgment that no agency relationship existed between the parties and that it owed Flagship and Atlantic Palace no money that it had received from the lenders. A month later Wellington amended its complaint by adding a claim against Flagship for tortious interference with Wellington's agreement with Liberty and by dropping Atlantic Palace to preserve complete diversity, which was the sole basis for subject-matter jurisdiction.¹ Both complaints asserted personal jurisdiction because the action arose "from the transaction of business in this state and from the commission of torts outside this state causing injury in this state." J.A. 12, 32.

Between the filing of Wellington's initial and amended complaints, Flagship and Atlantic Palace sued Wellington, Finova, and two of Wellington's officers in New Jersey state court. Flagship and Atlantic Palace alleged, among other things, fraud, commercial bribery, violation of New Jersey racketeering law, breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. The parties agree that the conduct underlying the two cases is identical.

On April 30, 2004, Flagship filed motions to dismiss the Virginia case because of the parallel New Jersey suit and for lack of personal jurisdiction. In its brief opposing Flagship's motion to dismiss for lack of personal jurisdiction, Wellington argued that personal jurisdiction existed only under Va.Code Ann. § 8.01-328.1(A)(4) ("subsection 4"),² not § 8.01-328.1(A)(1) ("subsection 1").³ At the oral argument, however, Wellington changed course and argued both subsections 1 and 4 of Virginia's long-arm statute. Only on August 18, 2004 — over three months after filing its opposition brief and the court's deadline for reply briefs, after oral argument, and the day before the court issued its opinion — did Wellington put the subsection 1 argument to paper, in a "supplemental memorandum of law" that Wellington admits to us was untimely and unauthorized.

Wellington acknowledged in both its May 14, 2004 brief opposing the motion to dismiss and at the August 13, 2004 oral argument on the motion before the district court that it had released the claim for tortious interference with Liberty's contract because of settlement. At the oral argument on the motions to dismiss Wellington also claimed it would amend its complaint again to allege tortious interference with Wellington's contract with Finova. Despite its claim, and despite the fact that it must have been aware of any alleged tortious interference at least three months before the oral argument, when it submitted a declaration of its president containing the information Wellington claims states a claim of tortious interference,⁴ Wellington never submitted a motion for leave to amend.

On August 19, 2004, the district court dismissed the case. The court held that because Wellington withdrew the claim that Flagship tortiously interfered with Wellington's contract with Liberty and because Wellington never filed any motion seeking to amend the complaint to add the Finova contract claim, the only claim remaining was the request for a declaration of the nature of the parties' relationship. The court found that because Wellington only argued jurisdiction under subsection 4 of Virginia's long-arm statute, which requires an allegation that the defendant caused an actual tortious injury, and because no claim of tortious injury remained, personal jurisdiction did not exist. The court then explained that even if jurisdiction were proper, it would exercise its discretion not to hear the declaratory judgment action in light of the New Jersey state-court suit. This appeal followed.

II.

We first address whether personal jurisdiction existed over Flagship. We review this legal question de novo, but review any underlying factual conclusions for clear error. See ePlus Tech., Inc. v. Aboud, 313 F.3d 166, 176 (4th Cir.2002) (citing ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707, 710 (4th Cir.2002)).

A.

When a defendant moves to dismiss for lack of personal jurisdiction, the plaintiff ultimately bears the burden of proving to the district court judge the existence of jurisdiction over the defendant by a preponderance of the evidence. Combs v. Bakker, 886 F.2d 673, 676 (4th Cir.1989). "But when, as here, the court addresses the question on the basis only of motion papers, supporting legal memoranda and the relevant allegations of a complaint, the burden on the plaintiff is simply to make a prima facie showing of a sufficient jurisdictional basis to survive the jurisdictional challenge." Id.; see also In re Celotex Corp., 124 F.3d 619, 628 (4th Cir.1997). Under such circumstances, courts "must construe all relevant pleading allegations in the light most favorable to the plaintiff, assume credibility, and draw the most favorable inferences for the existence of jurisdiction." Combs, 886 F.2d at 676; see also Mitrano v. Hawes, 377 F.3d 402, 406 (4th Cir.2004).⁵

Because federal courts exercise personal jurisdiction in the manner provided by state law, we first decide whether Virginia state law authorizes jurisdiction over the defendant; if so, we then must determine whether exercise of such jurisdiction is consistent with the Due Process Clause of the Fourteenth Amendment. ESAB Group, Inc. v. Centricut, Inc., 126 F.3d 617, 622 (4th Cir.1997); see also Mitrano, 377 F.3d at 406. Virginia law provides in relevant part that:

A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action arising from the person's:

1. Transacting any business in this Commonwealth;

. . . .

4. Causing tortious injury in this Commonwealth by an act or omission outside this Commonwealth if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in this Commonwealth....

Va.Code. Ann. § 8.01-328.1(A) (emphasis added). Virginia, like other states, expands its specific grants of personal jurisdiction as far as the Due Process Clause allows. See Peninsula Cruise, Inc. v. New River Yacht Sales, Inc., 257 Va. 315, 319, 512 S.E.2d 560 (1999).⁶

Wellington only alleges specific, not general, jurisdiction. We have synthesized the requirements of the Due Process Clause for asserting specific jurisdiction into a three-part test. Specifically, we consider: " `(1) the extent to which the defendant purposefully availed itself of the privilege of conducting activities in the State; (2)...