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Philadelphia Professional Collections, LLC v. Robert O. Young


December 22, 2010


The opinion of the court was delivered by: Rufe, J.


Before the Court is Defendants' Motion to Dismiss for Lack of Personal Jurisdiction, Improper Venue, Failure to State a Claim, and Failure to Join a Party Under Rule 19, pursuant to Rules 12(b)(2), 12(b)(3), 12(b)(6) and 12(b)(7) of the Federal Rules of Civil Procedure. For the reasons that follow, Defendants' Motion is denied. *fn1


In January 2010, Plaintiff Philadelphia Professional Collections LLC ("PPC"), a limited liability company with its principal place of business in Philadelphia, Pennsylvania, filed common law claims for unjust enrichment, breach of contract and quantum meruit against Robert O. and Shelley R. Young and Hikari Holdings, LLC (collectively "Defendants") in the Court of Common Pleas in Philadelphia County, Pennsylvania seeking recovery of $132,691.59 in unpaid legal fees. *fn2 PPC is "engaged in the business of collecting accounts receivable and other claims of professional organizations . . . ." *fn3 Robert and Shelley Young ("the Youngs") are residents of Valley Center, California, and Hikari Holdings LLC ("Hikari") is a Utah limited liability company with its principal place of business in Valley Center, California. *fn4 Defendants timely removed the action to this Court pursuant to 28 U.S.C. §§ 1332(a) and 1441(a) [doc. no. 1]. *fn5 On April 7, 2010, Defendants filed the pending motion to dismiss for lack of personal jurisdiction, improper venue, failure to state a claim, and failure to join a party under Rule 19 [doc. no. 4].

PPC's claims stem from Defendants' failure to pay the law firm White and Williams LLP ("W&W") for legal services rendered in the defense of the Youngs in an unrelated dispute filed against them by Darius International, Inc. and others in the Eastern District of Pennsylvania. *fn6 In December 2005, Michael N. Onufrak, an attorney with W&W's Philadelphia office, sent an engagement letter ("Engagement Agreement") to the Youngs, Hikari and non-party Mana LLC in care of their then-counsel Douglas Thayer at his Provo, Utah, office address. *fn7 The Engagement Agreement was printed on W&W letterhead bearing the address of only the firm's Philadelphia office and set out the terms of an agreement under which W&W would serve as local counsel for Defendants in the matter filed against them in Philadelphia and assist with legal strategy. *fn8 The Agreement stated W&W's rates and other terms of the representation, informed defendants that Mr. Onufrak would be the primary attorney in charge of the litigation, requested an initial retainer of $10,000, and noted W&W would bill Defendants monthly thereafter with the bills payable upon receipt. *fn9 Onufrak noted that W&W looked "forward to serving [Defendants] on an ongoing basis." *fn10 Finally, the letter requested that either Thayer or Defendants were to "sign a copy of this letter and return it . . . along with the $10,000 retainer." *fn11 On December 7, 2005, the Defendants, not Thayer, signed the letter. *fn12

The relationship between W&W and Defendants apparently ran smoothly for nearly two years, with Defendants paying W&W's legal fees from January 2006 to about September 2007. *fn13

W&W's fees and costs apparently totaled more than $492,000 over the course of the representation. *fn14 Beginning in about October 2007, Defendants stopped paying its bills, leaving a $132,631.59 balance unpaid. *fn15 W&W sent its last invoice to Defendants in early 2009. *fn16

On January 15, 2010, W&W assigned all of its rights and claims against Defendants to PPC. *fn17 The Assignment Agreement, signed by Robert A. Kargen, the manager of PPC, and George Hartnett, a W&W partner, stated in relevant part:

W&W hereby sells, assigns, transfers, and conveys unto PPC all of W&W's right, title, interest and ownership of any nature whatsoever, in, to, or under any Claims which W&W has or may have against Robert O. Young, Shelly R. Young, Hirkari Holdings, LLC, and Mana, LLC (the "Account Debtors"). Such Assignment is non-recourse to W&W. . . .

W&W represents and warrants that the total amount of accounts receivable due and owing by the Account Debtors to W&W as of January 2, 2010 is $132,691.59. *fn18

Consequently, in February 2010, PPC filed this collection action. White and Williams represents PPC in this action.


Plaintiffs bear the burden of demonstrating personal jurisdiction over Defendants. *fn19 If a jurisdictional defense is raised and neither discovery nor an evidentiary hearing has been held, a plaintiff need make only a prima facie showing of personal jurisdiction. *fn20 Courts must construe all disputed facts alleged in the light most favorable to the plaintiff. *fn21 Plaintiffs cannot rely on general averments of jurisdiction in the complaint or unsupported statements in their response, but instead must provide jurisdictional facts supported by affidavits or competent evidence to sustain their burden. *fn22 The jurisdictional burden is met "by establishing with reasonable particularity sufficient contacts between the defendant and the forum state." *fn23

Whereas plaintiffs bear the burden of establishing personal jurisdiction, defendants bear the burden of showing improper venue *fn24 or the need for transfer. *fn25 "In considering a motion to dismiss for improper venue . . . courts must generally accept as true the allegations in the Complaint, although the parties may submit affidavits in support of their positions." *fn26 But the court draws "all reasonable inferences and resolve all factual conflicts in favor of the Plaintiff." *fn27

In reviewing a Rule 12(b)(6) and 12(b)(7) motion to dismiss for failure to state a claim upon which relief may be granted or failure to join a party required under Rule 19, the Court must accept a plaintiff's factual allegations as true and draw all logical inferences in favor of the non-moving party. *fn28 Courts are not, however, bound to accept as true legal conclusions couched as factual allegations. *fn29 The Complaint must set forth direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory. *fn30 And the plaintiff must allege "enough facts to state a claim for relief that is plausible on its face." *fn31

In considering a 12(b)(1) motion for lack of subject matter jurisdiction, *fn32 the Court must first determine whether the jurisdictional attack is facial or factual. *fn33 If the former, the Court relies solely on the pleadings, assumes all allegations are true, and draws all reasonable inferences in favor of the plaintiff. *fn34 If the latter, the Court is "free to weigh the evidence and satisfy itself as to the existence of its power to hear the case." *fn35


A. Personal Jurisdiction

Federal courts in Pennsylvania may assert jurisdiction over a defendant to the extent that the defendant would be subject to jurisdiction in Pennsylvania state courts. *fn36 Pennsylvania's long-arm statute permits the exercise of jurisdiction over non-resident defendants to the full extent permitted under the Due Process Clause of the United States Constitution. *fn37 Therefore this Court need only evaluate whether the Constitutional requirements are satisfied. *fn38

Defendants appear to argue this Court lacks jurisdiction over them because they "do not have contacts with . . . Pennsylvania," and they did not consent to jurisdiction in the Engagement Agreement. *fn39 PPC counters that Defendants have sufficient contacts for general jurisdiction because they "maintained a website directed to Pennsylvania consumers and sell their phMiracle products through their interactive website" from which "customers . . . learn about and purchase the Young's products in Pennsylvania." *fn40 Alternatively, PPC argues that the Court has specific jurisdiction because their claims arise from the Engagement Agreement between W&W, and Defendants specifically and purposefully retained Philadelphia attorneys and to represent them in litigation occurring in this District. *fn41 Finally, PPC argues that the four-year-old findings of the court in Darius International, Inc. v. Young *fn42 -the matter in which W&W provided its legal services to Defendants, and which was based on different claims against Defendants by different plaintiffs-that Defendants are subject to jurisdiction in the Eastern District of Pennsylvania also supports jurisdiction by this Court in this matter. *fn43

1. General Jurisdiction

To establish general jurisdiction-jurisdiction based on contacts with the state that are unrelated to the cause of action-due process requires the plaintiff to demonstrate that the non-resident defendant's contacts with Pennsylvania were "continuous and substantial." *fn44 The standard is demanding, *fn45 and PPC has not satisfied it here. PPC's reliance on Defendants' interactive website is unavailing for two reasons. First, PPC has presented only a web address in support of its assertions about Defendants' web-based contacts, rather than providing competent evidence or affidavits with its responsive papers regarding the nature of the website. *fn46 This is insufficient to meet its burden of production. Second, without more, even competent evidence of an interactive, commercial website accessible in this state is insufficient to confer general jurisdiction over the site operator. *fn47 Though the greater the interactivity and commercial nature of the exchange of information via the site, the more likely it is that jurisdiction is proper, *fn48 "the advent of the Internet did not alter the Third Circuit's requirement that the plaintiff make a very high showing before a court exercises general jurisdiction over a non-resident defendant." *fn49

Consequently, to be sufficient for general jurisdiction, an interactive website must either be targeted specifically to Pennsylvanians or central to the defendant's business in Pennsylvania. *fn50

PPC has neither argued nor presented evidence suggesting Defendants' website targeted Pennsylvania residents or was somehow central to their business. And the jurisdictional contacts considered by the Darius court in 2006, even if sufficient for general jurisdiction there, cannot sustain a finding of general jurisdiction here. Only contacts occurring within a reasonable period of time prior to the filing of this action are relevant to this Court's general jurisdiction inquiry. *fn51

The contacts considered by the Darius court appear to have occurred during the earlier years of this decade, *fn52 far too remote in time from the filing of this action for the Court to consider them.

2. Specific Jurisdiction

Specific jurisdiction exists where the plaintiff's claim is "related to or arises out of the defendant's contacts with the forum," and the defendant has constitutionally sufficient minimum contacts with the forum state. *fn53 Minimum contacts demand "some act by which the defendant purposely avail[ed] itself of the privilege of conducting business within the forum State, thus invoking the protection and benefits of its laws," such that the Defendant should reasonably anticipate being haled into court in that state. *fn54 Depending on its nature and quality, a single act may be sufficient for specific jurisdiction "[s]o long as it creates a substantial connection with the forum." *fn55 The Court should also determine that exercising jurisdiction "comport[s] with fair play and substantial justice." *fn56 Factors relevant to that inquiry include:

[T]he burden on the defendant, the forum State's interest in adjudicating the dispute, the plaintiff's interest in obtaining convenient and effective relief, the interstate judicial system's interest in obtaining the most efficient resolution of controversies, and the shared interest of the several States in furthering fundamental substantive social policies. *fn57

"To defeat jurisdiction based on this fairness inquiry, a defendant must 'present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.'" *fn58

PPC has, however, made a prima facie showing of specific jurisdiction over all Defendants for each claim. *fn59 First, there can be little doubt that PPC's claims "arise out of or relate to" Defendants' contacts with this District. To satisfy that requirement, the contacts must have been more than the but-for cause of the injury, but need not rise to the level of proximate cause. *fn60 Instead, a reciprocity principle governs: the nature of the contact must have been such that the defendant could reasonably have expected to enjoy the benefits of the forum's laws and thus be subject to its obligations. *fn61 "In contract cases, the Third Circuit has typically required 'substantial relevance,' specifically, 'whether the defendant's contacts with the forum were instrumental in either the formation of the contract or its breach.'" *fn62 Here, Defendants' attorney, acting on their behalf, had prior phone conversations with W&W's Onufrak regarding the relationship, *fn63 Defendants entered into a contract with a Pennsylvania law firm for services to be rendered here and sent the executed Engagement Agreement to W&W's Philadelphia Offices. *fn64

These contacts are not only instrumental in the formation of the contract and the breach, *fn65 but they also satisfy this Circuit's reciprocity principle: by entering into a contract to be performed in Pennsylvania, Defendants could reasonably have expected to enjoy the state's protections and be subject to its obligations. Accordingly, the breach of contract and other claims arise from or are related to Defendants' contacts with this District.

Second, Defendants have sufficient minimum contacts that demonstrate they purposefully availed themselves of the protections of this forum. A contractual relationship with a forum resident does not, alone, establish the requisite contacts for specific jurisdiction. *fn66 Courts should consider the contracting parties' prior negotiations, contemplated future consequences, terms of the contract and actual course of dealing. *fn67 Physical presence in the forum is not required. *fn68

And when a defendant creates continuing obligations with the residents of the forum, it is presumptively not unreasonable for the defendant to submit to the burdens of litigation in that forum. *fn69

Consideration of these factors support a finding of minimum contacts here. First, the Engagement Letter references multiple communications between W&W's Onufrak and Defendants' attorney prior to the execution of the Engagement Agreement. Second, all of the Defendants signed the Agreement for legal services to be performed in Pennsylvania, with the files associated therewith maintained in this state. *fn70 The executed agreement was returned to W&W in Pennsylvania either by Defendants themselves or by their agent. Third, Defendants knew or should have known that the work would be performed in Pennsylvania by Pennsylvania attorneys since the Agreement was printed on W&W's letterhead, which included only its Philadelphia address and stated the W&W would serve as local counsel for litigation pending in Philadelphia. Fourth, the Agreement directly anticipated a long-term contractual agreement with W&W, noting that W&W "look[ed] forward to serving [Thayer] and [Defendants] on an ongoing basis." Finally, in addition to Defendants' payment of the initial $10,000 retainer fee, for nearly two years, Defendants sent regular, monthly payments to W&W for the legal services performed by the firm totaling approximately $360,000. *fn71 Defendants contacts with this state and its purposeful entry into an ongoing contractual relationship that created continuing obligations with a citizen of this state are together sufficient for this Court to exercise jurisdiction over each Defendant consistent with due process. *fn72

Exercising jurisdiction also comports with fair play and substantial justice. Defendants did not submit any evidence demonstrating that the assertion of jurisdiction would be unreasonably burdensome. They argue only that "it would be highly inconvenient and unfair" to require litigation here, "especially where there are substantive reasons for nonpayment of the invoices relating to the legal services rendered and the amounts charged," and that they would be prejudiced by having to litigate against Pennsylvania attorneys regarding legal matters previously pending before Pennsylvania courts. *fn73 Defendants do not explain why their substantive defenses render jurisdiction burdensome given much of the evidence and many of the witnesses are likely to be found here, where the representation occurred. And PPC has an interest in obtaining "convenient and effective relief, and Pennsylvania has an interest in providing redress for a contractual breach inflicted on its citizen[s]." *fn74 Thus, execising jurisdiction over Defendants comports with fair play and substantial justice.

B. Venue

Defendants also seek dismissal on grounds of improper venue pursuant to Rule 12(b)(3) of the Federal Rules of Civil Procedure. For cases founded on diversity jurisdiction, 28 U.S.C. § 1391(a) provides that venue is properly laid in either:

(1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, . . . or (3) a judicial district in which any defendant is subject to personal jurisdiction at the time the action is commenced, if there is no district in which the action may otherwise be brought. *fn75

Despite their motion to dismiss under Rule 12(b)(3), Defendants neither argue nor provide facts or legal authority that demonstrate that venue is improperly laid in the Eastern District of Pennsylvania under Section 1391, as is their burden in this Circuit. *fn76 Defendants assert only that venue in the Eastern District of Pennsylvania is "highly inconvenient and unfair" to Defendants. *fn77 That circular argument cannot sustain Defendant's burden because concerns of unfairness and inconvenience are addressed when the requirements of the venue statute are satisfied, *fn78 and Defendants fail to argue they are not met here. *fn79 Accordingly, the Court finds that venue is properly laid in this District.

Defendants do assert, however, that the Southern District of California is the proper venue because the contract was executed there, and litigating there is preferable because California law will govern the interpretation of the contract. *fn80 The Court infers that Defendants' are seeking permissive transfer under 28 U.S.C. § 1404. Section 1404 provides that even if venue is properly laid in the forum district, "for the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." Though a district court has substantial discretion to grant a motion for transfer, a "plaintiff's choice of venue should not be lightly disturbed." *fn81

In evaluating the propriety of transfer, *fn82 courts consider "whether on balance the litigation would more conveniently proceed and the interests of justice be better served by transfer to a different forum." *fn83 Private interests considered include: (1) the plaintiff's choice of forum; (2) the defendant's preference; (3) where the claim arose; (4) the convenience of the parties based on their "physical and financial condition;" (5) the extent to which witnesses may actually be unavailable for trial in the forum; and (6) the extent to which relevant books and records could not be produced in another forum. *fn84 Public interests considered include: (1) the degree to which judgment may be enforced; (2) "practical considerations that could make the trial easy, expeditious, or inexpensive;" (3) court congestion in the competing forums; (4) the forum's "interest in deciding local controversies at home;" (5) public policy of the competing forum; and (6) in diversity cases, the trial judge's familiarity with relevant state law. *fn85

Here, the private and public interests weigh in favor of maintaining venue in this District. As for the private interests, PPC and the Defendants each understandably prefer to litigate in their home district, but the burden of litigating on an opposite coast is no heavier on Defendants than it would be on PPC. Defendants have not presented any evidence of financial or physical hardship of litigating here, and the law is clear that the plaintiff's choice receives heavy weight. Further, because the legal representation at issue in this case occurred not just in W&W's Philadelphia offices, but also before a Court in this District, it is likely that both relevant books and records and most of the witnesses are located here, making this District more convenient. *fn86

The public interests likewise favor venue here. Defendants contend that California law will govern interpretation of the contract because the contract was executed there, and this Court should defer to California courts. *fn87 However, a transferee court must apply the law the transferor district would have applied, including the applicable choice-of-law rules. *fn88 This Court, sitting in diversity, applies the choice-of-law provisions of Pennsylvania. *fn89 And "Pennsylvania applies the more flexible, 'interest/contacts' methodology to contract choice-of-law questions," rather than the rigid rule of lex loci contractus. *fn90 In contract cases, Pennsylvania courts consider the following contacts in determining which state has the greater interest in applying its law: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties." *fn91 Even if California and Pennsylvania contract law differs, *fn92 based on these factors, Pennsylvania has a greater interest in applying its law than does California: not only is W&W a Pennsylvania law firm, the subject matter of the contract-legal services-was to be performed by W&W in Pennsylvania and in connection with litigation pending here. Further, this state has a strong interest in regulating its legal profession. Beyond their California residences, Defendants have identified no interest California may have in this dispute. *fn93 Accordingly, Pennsylvania law applies *fn94 and venue is more appropriate in this District given its experience with Pennsylvania law. The Court thus declines to transfer this case.

C. Failure to State a Claim & Failure to Join a Party Under Rule 19

Defendants appear to argue the Complaint must be dismissed because: (1) under Rule 12(b)(6), PPC has "no claim against Defendants" because the assignment is invalid; (2) PPC therefore lacks standing to bring the claim; and (3) under Rule 12(b)(7), W&W is a party required by Rule 19 to be joined to this action. *fn95 Though Defendants' motion invokes Rule 12(b)(6), because Defendants do not challenge the sufficiency of the Complaint's factual allegations in supporting PPC's breach of contract and other claims, but instead assert that PPC is not the proper party to bring those claims in this Court, the Court treats Defendants' motion as seeking dismissal for lack of subject matter jurisdiction rather for failure to state a claim. *fn96

Defendants assert that W&W's assignment of its claims to PPC is invalid because: (1) it was not supported by consideration; (2) and Defendants did not expressly consent to assignment in the Engagement Agreement with W&W; and (3) PPC is owned, at least in part, by some lawyers at W&W and the assignment is motivated to shield the action from the public and malpractice insurers. The Court disagrees. First, even if the assignment lacked consideration, it is nonetheless valid. *fn97 Pennsylvania law, which governs the validity of W&W's assignment to PPC, *fn98 does not require assignments be supported by consideration so long as they evince an intent of the parties to be legally bound by it. *fn99 The Assignment Agreement clearly evinces W&W's intent to be so bound. *fn100 Consequently, the assignment is valid even without consideration. Moreover, even if consideration were required here, the face of the agreement clearly states that the assignment was made "for good and valuable consideration." *fn101 And at least one form of consideration is apparent from the face of the agreement: PPC's "assumption . . . of the time and burden of bringing the claim, as well as the risk of loss should the claim be unsuccessful." *fn102 Second, contrary to Defendant's suggestion, *fn103 the absence of an express provision in the underlying Engagement Agreement authorizing assignment does not invalidate an otherwise valid assignment. The reverse is true: "[a]bsent an express provision against assignment, the rights and duties under an executory bilateral contract which does not involve personal skill, trust, or confidence may be assigned without the consent of the other party so long as it does not materially alter the other party's duties and responsibilities." *fn104 Here, Defendants' unperformed obligations-payment of fees-does not involve personal skill, trust or confidence and thus may be assigned absent a prohibition in the Engagement Agreement. Therefore, the assignment valid and PPC has standing to pursue the assigned claims. *fn105

Equally unavailing are Defendants arguments that the assignment is invalid because: (1) W&W is merely assigning the agreement to itself since PPC is owned in part or whole by W&W attorneys; (2) W&W assigned its claim to shield its collection efforts from the public and malpractice insurers; and (3) assignment of legal fees in such a manner is against public policy. *fn106

First, Defendants ignore the strong presumption of corporate separateness under Pennsylvania law, and present neither facts nor law sufficient to disregard the presumption as to W&W and PPC. *fn107 Second, under Pennsylvania law, if an assignment is valid, the motivation underlying the assignment is irrelevant. *fn108 Third, Pennsylvania permits creditors to assign debt to collection agencies, *fn109 and permits assignment of claims for attorneys' fees so long as there is a clear agreement to do so between the parties to the assignment. *fn110 Here, the Assignment Agreement expressly warranted the amount of accounts receivable owed by Defendants and assigned to PPC, which is identical to the amount of attorneys fees alleged to be owed here. *fn111 This Court finds such an express statement sufficient to demonstrate a clear agreement between PPC and W&W to include claims for attorneys' fees in the assignment. Moreover, as a matter of policy, this Court sees no reason why a law firm, like any other creditor, should not be free to assign delinquent debt to collection agencies, much less why law firms should be discouraged from assigning debt to collection entities they wholly own, since doing so may better protect confidential information of former clients, at least up to the point of filing. Accordingly, the Court finds no reason to invalidate a presumptively valid assignment.

Finally, Defendants' invocation of Rule 12(b)(7) for PPC's failure to join W&W is misplaced. Under Rule 19(a) of the Federal Rules of Civil Procedure, joinder is required of any person: (1) without whom the court cannot accord complete relief among the existing parties; or

(2) who retains an interest in the subject matter of the action and cannot adequately protect that interest without being joined. *fn112 Dismissal is a permissible remedy only if the required party cannot be joined because either they cannot be served or joinder will destroy subject matter jurisdiction. *fn113 Thus even if W&W were a required party, dismissal would be unwarranted because W&W is a Pennsylvania citizen and its joinder would not defeat jurisdiction. *fn114 Second,

W&W does not have any interest in the claims here and is therefore not a required party. *fn115

Under Pennsylvania law, a valid assignment divests the assignor of its interest unless the assignment is partial. *fn116 And an assignment is not partial where "the language of the assignment is clear that . . . [the assignor] does not retain any rights to bring claims against Defendants." *fn117

Here, the agreement unequivocally states that "W&W hereby sells, assigns, transfers, and conveys unto PPC all of W&W's right, title, interest and ownership of any nature whatsoever, in, to or under any Claims which W&W has or may have against [Defendants]." *fn118 Thus, W&W maintains no interest in the claims, *fn119 and Rule 19 is inapplicable.


For the foregoing reasons, Defendants' Motion to Dismiss is denied. An appropriate Order follows.

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