The opinion of the court was delivered by: Bartle, C.J.
This is a diversity action brought by plaintiff Villari Brandes & Kline, P.C. ("Villari"), a Pennsylvania law firm, against defendants Plainfield Specialty Holdings II, Inc., Plainfield Offshore Holdings XI, Inc., and Plainfield Offshore Holdings X, Inc. (collectively "Plainfield"),*fn1 Delaware corporations. Villari seeks damages from Plainfield for breach of contract, fraud, tortious interference with contractual relations, and defamation. It also requests that we enjoin Plainfield preliminarily and finally from adjudicating in Michigan issues related to a referral fee agreement between Villari and Children's Legal Services, P.L.L.C. ("CLS"), a Michigan law firm that is not a party to this action.
Villari and Plainfield both have ongoing disputes with CLS. Plainfield is proceeding against CLS in a lawsuit in federal court in Michigan, and Villari and CLS are engaged in arbitration in Pennsylvania.
Now before the court is the motion of Plainfield to dismiss the complaint for improper venue pursuant to 28 U.S.C. § 1406(a), or in the alternative to transfer venue in the interest of justice to the United States District Court for the Eastern District of Michigan pursuant to 28 U.S.C. § 1404(a). The defendants have the burden to prove that a change of venue is justified. Jumara v. State Farm Ins. Co., 55 F.3d 873, 879 (3d Cir. 1995).
The battle between Villari and Plainfield is inextricably connected to their respective disputes with CLS. In order to understand the complete picture it is necessary to set forth the allegations in the lawsuit Plainfield has pending against CLS in the Eastern District of Michigan and those in the arbitration between Villari and CLS, which is proceeding in Pennsylvania.
The parties appear to be in agreement about many of the background facts underlying this action. Villari is a Pennsylvania law firm specializing in the representation of plaintiffs with medical malpractice claims arising out of birth injuries. CLS is a Michigan law firm owned and operated by Kenneth Stern ("Stern"). CLS owns and uses the trademark "4MyChild" in television and website advertising to find clients with meritorious medical malpractice cases based on birth injuries. Since 1999 the two firms, and their predecessors, have had a symbiotic relationship whereby Villari depends on CLS to fund its advertisements and to generate cases, and CLS depends on Villari to win judgments and to provide CLS with a source of revenue. On June 16, 2006, CLS entered into a loan agreement with Plainfield*fn2 in which it borrowed $15 million to fund its advertising expenses (the "Loan Agreement"). As collateral for the loan, Plainfield apparently acquired and perfected a first priority security interest in CLS's personal property.
When CLS's predecessor went into bankruptcy, Villari chose to enter into a new agreement with CLS rather than purchase the 4MyChild intellectual property. On December 27, 2004, Villari and CLS signed a written agreement (the "Villari-CLS Agreement") under which CLS agreed to refer to Villari worthy cases originating in Pennsylvania, New Jersey, and Washington D.C., and Villari pledged to share with CLS any fees it obtained in connection with those cases on a 60%-40% basis. As part of the Villari-CLS Agreement, the two firms established a joint venture called Villari Brandes, Kline & Stern, L.L.C. (the "Villari-CLS Joint Venture"). The Villari-CLS Agreement was modified and supplemented during the period in which CLS was negotiating its loan from Plainfield. One of the enduring terms was a dispute resolution clause that provided for mediation and arbitration in Pennsylvania. See Am. Agreement of May 29, 2007, § 29; Agreement of Dec. 27, 2004, § 29.
Three different disputes have evolved from the VillariCLS Agreement and the Plainfield-CLS Loan Agreement: Plainfield sued CLS for default in Michigan; Villari brought CLS to arbitration in Pennsylvania; and, in the present action, Villari sued Plainfield for damages for breach of contract and tortious conduct and is also seeking injunctive relief.
Initially, Plainfield*fn3 sued CLS in the United States District Court for the Eastern District of Michigan on November 24, 2008 for defaulting under the terms of the Loan Agreement (the "Michigan action"). See Complaint, Plainfield Specialty Holdings II Inc. v. Children's Legal Servs. PLLC, No. 08-14905 (E.D. Mich. Nov. 24, 2008) (hereinafter "Plainfield v. CLS"). Plainfield alleges in its complaint that all referral fees due to CLS under the Villari-CLS Agreement are part of the collateral owed to Plainfield and that CLS is improperly withholding or concealing them. Plainfield claims in Count I for breach of contract in excess of $20 million in damages for CLS's failure to pay the amounts due under the Loan Agreement. In Count II, entitled "Claim and Delivery," Plainfield seeks to recover fees paid to CLS through its referral agreements with various law firms, including Villari. To that end, Plainfield requests an order directing CLS to (1) show cause "why possession of the Collateral should not be delivered to Plaintiff (or in the alternative, to a custodian) pending final disposition of this action," and (2) "immediately turn over to Plaintiff or its designees, including but not limited to, any custodian appointed pursuant to Count III, all Collateral, and authorizing Plaintiff to dispose of the Collateral according to the Uniform Commercial Code." Complaint at 13, Plainfield v. CLS. Plainfield's Count III requests, pursuant to the terms of the Loan Agreement, the appointment of a custodian to protect its interests in the collateral. Finally, in Count IV Plainfield seeks foreclosure and a judgment in rem in the amount of $20,528,897 plus interest.
The court in the Michigan action initially denied the motion of Plainfield to appoint a custodian to oversee Villari's payment of fees to CLS. See Order of Dec. 19, 2008, Plainfield v. CLS. However, after a two-day evidentiary hearing, the court granted Plainfield's request for a preliminary injunction in April, 2009. The order provided:
* Defendants shall immediately, and continually as required to effectuate the result contemplated by the Court's order, deposit all funds in which it has an interest (including without limitation any joint venture account with any Villari, Brandes & Kline, P.C. ("Villari") affiliate or affiliate of McKeen & Associates ("McKeen") or otherwise) in to [sic] the "lockbox" account and shall not use or disburse any such funds except as provided for herein.
* Defendants shall immediately notify all third parties, including Villari and McKeen, that hold funds in which Defendants hold or may hold an interest, whether contingent or not, in writing, demanding each of them transfer such funds to the CLS lockbox account and otherwise not disburse any of the funds.
* [Person to be determined] shall be, and hereby is, appointed custodian for CLS with the powers as set forth ...