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KLAUDER & NUNNO ENTERPRISES v. HEREFORD ASSOCS.

October 25, 1989

KLAUDER AND NUNNO ENTERPRISES, INC.
v.
HEREFORD ASSOCIATES, INC.; KLAUDER AND NUNNO ENTERPRISES, INC. and GERALD J. KLAUDER v. HEREFORD ASSOCIATES, INC. and BERNARD J. MURTAUGH, JR.



The opinion of the court was delivered by: CAHN

 EDWARD N. CAHN, UNITED STATES DISTRICT JUDGE

 Plaintiff Klauder and Nunno Enterprises, Inc. ("K & N") filed an action, No. 89-5654, against Hereford Associates, Inc. ("Hereford") on July 31, 1989, alleging breach of contract, fraud, and reckless conduct stemming from a failed construction contract of September 18, 1987. K & N and Gerald J. Klauder ("Klauder") sued Hereford and Bernard J. Murtaugh, Jr. ("Murtaugh") in No. 89-5129 (filed July 13, 1989) for libel and reckless conduct arising from the same transaction.

 The parties here are embroiled in a good deal of litigation in New Jersey state and federal courts on related matters, though the claims before this court have not yet been raised elsewhere. The foremost is probably a suit filed by Klauder against Hereford and two of its general partners in Cape May County Superior Court on July 17, 1989, alleging breach of an April 28, 1989 condominium purchase agreement. Hereford and a partner filed a third-party complaint against K & N and some John Doe subcontractors sometime between September 21, 1989, and October 4, 1989 *fn1" for breach of the September 18 contract. K & N has sued Garden State Title Agency, Inc. in the United States District Court for the District of New Jersey, alleging, inter alia, negligent title transfer for units in the condominium project that is the subject of the disputes before this court. K & N has also used Camden County Superior Court to sue City Federal Savings and Loan for violating the terms of the September 18 contract that governed payment to a construction draw account. Finally, K & N has sued Construction Equipment Services, Inc., in Cape May County Superior Court for breach of its subcontract for work arising from the September 18 contract.

 Hereford and Murtaugh have filed a motion to dismiss for lack of jurisdiction over the subject matter (Fed. R. Civ. P. 12(b)(1)), lack of jurisdiction over the person (Fed. R. Civ. P. 12(b)(2)), improper venue (Fed.R.Civ.P. 12(b)(3)), failure to join an indispensable party (Fed.R.Civ.P. 12(b)(7), 19), and forum non conveniens. In the alternative, they seek a change of venue under 28 U.S.C. §§ 1404 & 1406(a) to the District of New Jersey at Camden. For the reasons presented below, the motions are denied. *fn2"

 I. Subject Matter Jurisdiction

 The first argument -- lack of subject matter jurisdiction -- is advanced only in the notice of motion. In any event, defendants do not challenge any of the predicates to this court's diversity jurisdiction. K & N and Klauder are Floridians, as stated by Klauder's uncontested affidavit. While defendant Murtaugh disputes Klauder's contention that Hereford maintains a presence in Pennsylvania, plaintiffs do state without dispute that Hereford is a New Jersey corporation and that Murtaugh is a New Jersey citizen. Even if Murtaugh's averments are accepted, diversity remains complete. Defendant also does not argue that this dispute is valued at under $ 50,000, the amount now required under 28 U.S.C. § 1332(a). This court thus has subject matter jurisdiction.

 II. Personal Jurisdiction

 Defendants challenge this court's personal jurisdiction more seriously, though with equal effect. They argue variously that (a) because neither Hereford nor Murtaugh maintained offices in Pennsylvania or otherwise subjected themselves to Pennsylvania's jurisdiction, that Pennsylvania courts can have no personal jurisdiction and (b) because the matters in dispute in No. 89-5654 are under arbitration, this court is divested of jurisdiction. These shall be addressed in turn.

 A. The Long-Arm Statute

 It is clear that personal jurisdiction is a prerequisite to adjudication. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 110, 23 L. Ed. 2d 129, 89 S. Ct. 1562 (1969). Since this court sits in diversity, it must apply Pennsylvania's long-arm statute to determine whether it has in personam jurisdiction. The statute states, in pertinent part, that "the jurisdiction of the tribunals of this Commonwealth shall extend to all persons . . . to the fullest extent allowed under the Constitution of the United States and may be based on the most minimum contact with this Commonwealth allowed under the Constitution of the United States." 42 Pa.Cons.Stat.Ann. § 5322(b) (Purdon 1981). *fn3" Pennsylvania's reach is thus limited only by the strictures read into the Due Process Clause of the Fourteenth Amendment by the courts. Koenig v. International Bhd. of Boilermakers, 284 Pa. Super. 558, 567, 426 A.2d 635, 639 (1980).

 The Supreme Court has long made clear that the Due Process Clause bars jurisdiction when the state "has no contacts, ties, or relations" with the defendant. International Shoe Co. v. Washington, 326 U.S. 310, 319, 90 L. Ed. 95, 66 S. Ct. 154 (1945). This ensures that a defendant will be able to control, to a degree, its exposure to remote actions. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 62 L. Ed. 2d 490, 100 S. Ct. 559 (1980). To determine when a defendant has subjected himself to foreign suit, a court must first examine whether the action arises from or relates to the defendant's purposeful contacts with the forum state ("specific jurisdiction") or, instead, if jurisdiction must be bottomed on the defendant's unrelated contacts ("general jurisdiction"). Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472-73 & n. 15, 85 L. Ed. 2d 528, 105 S. Ct. 2174 (1985); Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 & nn. 8-9, 80 L. Ed. 2d 404, 104 S. Ct. 1868 (1984); Provident Nat'l Bank v. California Fed. Sav. & Loan Ass'n, 819 F.2d 434, 437 (3d Cir. 1987). For specific jurisdiction, the Due Process Clause's demands are met if the defendant has "carr[ied] on a 'part of its general business'" in the forum state, which is sufficient to put the defendant on notice that it may find itself in court as a result of its activities there. Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 780, 79 L. Ed. 2d 790, 104 S. Ct. 1473 (1984) (quoting Perkins v. Benguet Mining Co., 342 U.S. 437, 438, 96 L. Ed. 485, 72 S. Ct. 413 (1952)); World-Wide Volkswagen, 444 U.S. at 297. To secure general jurisdiction, the plaintiff must show that the defendant had "systematic and continuous" contacts with the forum state. International Shoe, 326 U.S. at 320; see also Provident, 819 F.2d at 437; Beatrice Foods Co. v. Proctor & Schwartz, Inc., 309 Pa. Super. 351, 455 A.2d 646, 649 (1982).

 Hereford and Murtaugh argue vigorously that they lack systematic and continuous contacts with Pennsylvania and hence that this court may not assume jurisdiction. As the statement of the law above indicates, this ignores the concept of specific jurisdiction. Even should Hereford and Murtaugh be correct, which this court need not and shall not address, they would not therefore have removed themselves from this court's reach. *fn4"

 Turning first to the breach of contract action, we find the facts hotly disputed. Klauder avers that Hereford's stationery indicated that it maintained its office in Philadelphia, Pennsylvania; that he believes fraud to have occurred in Philadelphia; that he negotiated the contract and the change orders, in part with Murtaugh and always with Hereford officers, in Philadelphia, and often in Hereford's offices; that change orders were signed in Philadelphia; and that the contract (appended to the complaint in No. 89-5654) states that Hereford's office is in Philadelphia. In contrast, Murtaugh avers that Hereford "does not do business in the State (sic) of Pennsylvania" and at no time wished to subject itself to Pennsylvania's jurisdiction and that he has "no[t] even minimal contacts" in Pennsylvania and never intended to bring himself within Pennsylvania's jurisdiction.

 The Murtaugh affidavit and the representations of his and Hereford's counsel seem somewhat disingenuous. The letters appended to the complaint in No. 89-5129 and the contract appended to the complaint in No. 89-5654 clearly give Hereford's address as 830-A South Street, Philadelphia, Pennsylvania. Moreover, Murtaugh signed the letters, which certainly diminishes the value of his asseverations. In their reply, defendants assert only that the address on the letterhead was "an administrative mistake" and that "Hereford Associates at all times attempted to rectify that mistake by crossing out that address and indicating the correct address." First, the copies of the letters that have been made part of the record here show no such crossing out. Second, the contract attached to the complaint bears the Philadelphia address -- typed on, with no elisions. These facts substantially vitiate the force of defendants' assertions. Since defendants have otherwise presented nothing save "bald and unconvincing narrative" *fn5" to counter the specific, documented allegations of the plaintiffs, the evidence lists heavily toward the plaintiff. Whatever Hereford's intentions might have been, it is abundantly clear that Hereford acted in Pennsylvania on matters relating to this contract. This court must thus determine whether defendant's contacts with Pennsylvania qualify as the "minimum contacts" required by Keeton and World-Wide Volkswagen.

 Following Judge Pollak's analysis in Strick Corp. v. A.J.F. Warehouse Distrib., Inc., 532 F. Supp. 951, 958 (E.D.Pa. 1982), the most pertinent factors are "(1) the character of the pre-contract negotiations; (2) the location of these negotiations; (3) the terms of the . . . agreement; and (4) the type of [contract involved]." See also 26 Designs, Inc. v. Skibells, Inc., 1989 U.S. Dist. LEXIS 3102, No. 89-0050, slip op. at 3-4 (E.D.Pa. Mar. 28, 1989). The pre-contract negotiations are averred to have occurred in part in this district. Though the importance of these negotiations is uncertain, it appears that many, including most of the change orders, took place here, which suggests strongly that the negotiations here were significant. The third Strick criterion -- the terms of the agreement -- moves somewhat against this district, as does the fourth. Since this is a contract to build condominiums in New Jersey, there would be some reason for the parties to believe that New Jersey law might apply. There are, however, no forum selection or choice of law clauses in the contract.

 Although the Strick analysis does not produce unequivocal results, this court finds that there were enough explicit forum contacts to warrant personal jurisdiction over the defendant. The negotiations, combined with the business address on the contract itself and on the correspondence, make clear the defendant's purposeful contact with this jurisdiction. To be sure, the third and fourth Strick criteria point away from Pennsylvania. However, it must be remembered that Strick was decided before Keeton, in which the Court made yet clearer the liberality with which courts may extend their long-arm jurisdiction within the Due Process Clause's ambit. Surely the conduct here qualifies as "part of [defendant's] general business." This court thus may exercise in personam jurisdiction in this action. See, e.g., Mantua Oil, Inc. v. C.J. Mktg. Co., 621 F. Supp. 1194, 1196 (E.D. Pa. 1985) (jurisdiction proper where negotiations in Pennsylvania); Webb Research Corp. v. Rockland Indus., Inc., 580 F. Supp. 990, 993 (E.D. Pa. 1983) (same).

 Likewise, the defamation action, No. 89-5129, falls within this court's specific jurisdiction. Klauder, against only the general denials of Murtaugh, avers that the letters signed by Murtaugh on Hereford stationery bore a Philadelphia letterhead and that a defamatory message was sent by Murtaugh to the American Arbitration Association in Philadelphia. These were made part of the record as attachments to the complaint. Plaintiffs' brief also points out that one letter sent from Philadelphia was sent to, among others, plaintiffs' counsel, who avers that he received the letter labeled "C" in Philadelphia. This fits squarely within Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 79 L. Ed. 2d 790, 104 S. Ct. 1473 (1984), in which the Supreme Court upheld long-arm jurisdiction for a libel action based on a statement published where neither plaintiff nor defendant resided. The Court held that a state has an interest "in protecting [non-residents] from libel, as well as in safeguarding its populace from falsehoods." 465 U.S. at 777. Like New Hampshire, the forum state in Keeton, Pennsylvania has adopted the "single publication rule." 42 Pa. Cons. Stat. Ann. § 8341 (Purdon 1982). Neither long-arm statute restricts actions in tort to state residents. Keeton, 465 U.S. at 777; 42 Pa. Cons. Stat. Ann. § 5322(a)(3)-(4) (Purdon 1981). Thus, this court also has personal jurisdiction over the defendants in No. 89-5129.

 B. Arbitration

 The defendants have also argued that the pending arbitration action removes this court's jurisdiction in No. 89-5654. They are mistaken. The Federal Arbitration Act, 9 U.S.C. §§ 1-9, does require that any court's actions be stayed pending arbitration, as long as the matter is referred to arbitration upon a written agreement and one party moves for a stay. 9 U.S.C. §§ 2-3; see also Southland Corp. v. Keating, 465 U.S. 1, 11-12, 79 L. Ed. 2d 1, 104 S. Ct. 852 (1984) (Federal Arbitration Act applies to states). The plain language of the statute, buttressed by judicial constructions, makes clear that courts may not deny jurisdiction on that basis. The Anaconda v. American Sugar Refining Co., 322 U.S. 42, 44, 88 L. Ed. 1117, 64 S. Ct. 863 (1944). Were that so, the courts would lose supervisory powers over arbitration, save by costly separate actions. Consequently, this court must, and shall, retain its jurisdiction.

 III. Improper Venue

 Following Fed.R.Civ.P. 12(b)(3), the defendants argue that both actions must be dismissed because of improper venue. *fn6" In both actions, they argue that, since the defendant is a New Jersey resident and since the contract allegedly breached was executed in New Jersey and was to be performed in New Jersey, the proper venue cannot be in Pennsylvania.

 The federal statute governing venue for diversity actions is 28 U.S.C. § 1391(a), which states that "[a] civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in the judicial district where all plaintiffs or all defendants reside, or in which the claim arose." This is made clearer by § 1391(c) on corporate citizenship: "A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes." The first question before this court is thus whether K & N and Klauder have brought one cause of action or two. If one, then the criteria above must cover all elements; if two, then they must apply to each cause of action. See, e.g., Beattie v. United States, 244 U.S. App. D.C. 70, 756 F.2d 91, 100 (D.C.Cir. 1984); Scotch Whisky Ass'n v. Majestic Distilling Co., 681 F. Supp. 1297, 1301 (N.D.Ill. 1988); International Patent Dev. Corp. v. Wyomont Partners, 489 F. Supp. 226, 230 (D.Nev. 1980); 15 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3808 (1986).

 Here, the defendants argue that, since the defamation and breach of contract actions arose from the same business transaction, they are simply parts of the same cause of action. While their initial assumption is unimpeachable, their conclusion does not follow from it. Establishing a common origin for two possibly similar causes of action only begins the inquiry. As the Supreme Court has stated, the real question is whether the relief sought is "to put an end to an essentially single wrong, however differently characterized, not to enjoin distinct wrongs constituting the basis for independent causes of action." Hurn v. Oursler, 289 U.S. 238, 246, 77 L. Ed. 1148, 53 S. Ct. 586 (1933). Focusing on the wrongs shows that the causes of action here are distinct. Breach of contract sounds, obviously, in contract; the remedies are designed to make the breached-against party whole. Massachusetts Bonding & Ins. Co. v. Johnston & Harder, Inc., 343 Pa. 270, 278, 22 A.2d 709 (1941); Restatement (Second) of Contracts § 344 and introductory note (1981). Defamation, on the other hand, is a tort; its damages are intended in part to salve the party whose reputation has been besmirched. Corabi v. Curtis Pub. Co., 441 Pa. 432, 473, 273 A.2d 899 (1971); Restatement (Second) of Torts §§ 620-23 and special note (1977). The wrongs -- breach of contract and harm to reputation -- are different, and so the causes of action must stand apart.

 That decided, we must turn to whether the strictures of § 1391 are obeyed. In No. 89-5129, the defamation action, the plaintiffs are Floridians, Hereford is for this purpose both a New Jerseyite and a Pennsylvanian, and Murtaugh is a New Jerseyite. The purely geographical part of this section thus does not support a Pennsylvania forum, though it would support Florida or New Jersey. The "in which the claim arose" provision, however, makes this court a proper venue.

  Determining whether a claim has arisen in a venue is a matter of federal law. Leroy v. Great W. United Corp., 443 U.S. 173, 183 n. 15, 61 L. Ed. 2d 464, 99 S. Ct. 2710 (1979). In Leroy, the leading case on such determinations, the Court appears to have resolved the issue -- at least for close cases -- by weighing the contacts between the defendant and the possible fora, as well as the availability of witnesses and the accessibility of other relevant evidence. 443 U.S. at 185-86. The Court left unresolved the means by which lower courts might resolve the more routine cases in which the locus is relatively obvious. See 1A J. Moore, Moore's Federal Practice para. 0.342[5.-2-2], at 4165-66 (1989). As a result, this court will employ a modified version of the now-common "weight of contacts" test first espoused by Judge John Lord in Philadelphia Hous. Auth. v. American Radiator & Standard Sanitary Corp., 291 F. Supp. 252 (E.D. Pa. 1968). This, as stated, requires that the court examine whether a "significant and substantial" part of the offense occurred in the district; if the contacts rest more heavily in one jurisdiction than in others, the jurisdiction with the weightiest contacts prevails. Philadelphia Housing, 291 F. Supp. at 260-61; see also Lieb v. American Pac. Int'l Inc., 489 F. Supp. 690, 695-96 (E.D. Pa. 1980). There is intrinsic tension here; the first part of the test suggests that more than one jurisdiction could have the requisite contacts, while the second does not. Moreover, the Leroy holding suggests that the first part, at least, needs some qualification. Still, using a comparative method, whether stated as "weight of the contacts" or "predominant locus," has received enough judicial and academic approbation that it may reasonably guide this court's decision. See e.g., 1A J. Moore, Moore's Federal Practice para. 0.342[5.-2-2], at 4161-63, 4167-68 (1989) (collecting cases and setting out suggested test); 15 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3806, at 61-66 (1986) (approving of weight of contacts test; is consistent with Leroy).

 Here, the allegedly defamatory letters were written on stationery with a Pennsylvania letterhead and hence might reasonably be expected to have been written in Pennsylvania. The letters were sent to, among others, residents of this District. The note to the American Arbitration Association was sent to Pennsylvania. Hereford is, at least in part, a Pennsylvania firm, insofar as the record shows that it has transacted business in Pennsylvania, including the contract that established the parties' relationships. Against this, we have Murtaugh's residence in New Jersey and plaintiffs' in Florida, as well as Hereford's partial residence and incorporation in New Jersey. In addition, some of the allegedly defamatory letters were sent to other states, including Florida and probably New Jersey. *fn7" Most of the contacts, including those most critical for a defamation action, appear to have occurred in this District. Moreover, while some witnesses would undeniably have to travel from New Jersey were the action here, others would have to travel from Pennsylvania were the action in New Jersey.

 Although these decisions are necessarily highly fact-dependent, other courts facing venue disputes in defamation actions have resolved them similarly. For example, in Davis v. Costa-Gavras, 580 F. Supp. 1082, 1088-90 (S.D.N.Y. 1984), the court placed venue in the district in which the defendant researched and wrote libelous material, most publication occurred, and some key witnesses resided, even though the primary place of injury was elsewhere. Similarly, the court in Akbar v. New York Magazine Co., 490 F. Supp. 60, 67 (D.D.C. 1980) found the contacts sufficiently weighty where some witnesses and evidence were in the district, the underlying events occurred in the district, and some plaintiffs resided in the district, though the defendants were located elsewhere and editorial decisions on libelous material were made where the defendants resided. Indeed, the court in Jaffe v. Dolan, 264 F. Supp. 845, 848 ...


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