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Mendelsohn, Drucker & Associates v. Titan Atlas Manufacturing

August 8, 2012

MENDELSOHN, DRUCKER & ASSOCIATES
v.
TITAN ATLAS MANUFACTURING, INC., ET AL.



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

MEMORANDUM RE: DEFENDANTS' MOTION TO DISMISS

I. Introduction

This case involves claims of breach of contract*fn1 and common law fraudulent inducement arising out of a client's failure to pay legal fees. Plaintiff is the law firm Mendelsohn, Drucker & Associates ("Mendelsohn") and Defendants are Titan Atlas Manufacturing ("Titan") and its CEO Jeremy Blackburn ("Blackburn"). Mendelsohn brings claims of breach of contract and fraudulent inducement against Titan as well as a claim of fraudulent inducement against Blackburn in his individual capacity.

Presently before the court is Defendants' Motion to Dismiss for lack of personal jurisdiction, improper venue, and failure to state a claim upon which relief can be granted, under Federal Rules of Civil Procedure, 12(b)(2), 12(b)(3), and 12(b)(6), respectively. For the reasons discussed below, Defendants' Motion is denied.

II. Factual Allegations

Mendelsohn is a law firm located in Philadelphia. Compl. ¶ 2. Titan is a Delaware corporation located in South Carolina. Compl. ¶ 3. Blackburn is the CEO of Titan and resides part-time in New York and part-time in South Carolina. Compl. ¶ 4; Blackburn Aff. ¶¶ 3-4 (Ex. C to Defs.' Br.).*fn2

The Complaint alleges that on February 4, 2011, Titan hired Mendelsohn as legal counsel through the execution of an Engagement Letter that detailed, in relevant part, Mendelsohn's billing requirements for all services. Compl. ¶ 11; Ex. A to Compl. On April 3, 2011, Mendelsohn entered a Joint Representation Agreement with Titan and its customer, Strata Mine Services ("Strata"). Compl. ¶ 16. Titan had previously entered a Purchase and Indemnification Agreement with Strata, indemnifying Strata against costs and attorney's fees arising from any conflict with Frank A. Sisk ("Sisk") or his company, Precision Mine Repair, Inc. ("PMR"), relating to a particular patent. Compl. ¶ 12.

On January 17, 2011, Mendelsohn commenced action in the Western District of Virginia on behalf of Titan and Strata against Sisk and PMR. Compl. ¶¶ 14-15, 17-18; Pl.'s Br. at 6. Sisk and PMR filed a cross-claim in the Southern District of Illinois on April 5, 2011, and Mendelsohn represented Titan in that case as well. Compl. ¶¶ 19-21. The Illinois litigation was transferred to Virginia on September 8, 2011, and the two Titan cases were consolidated in Virginia on September 22, 2011. Compl. ¶ 22.

Throughout representation, Titan failed to provide timely payment for legal services rendered and Mendelsohn repeatedly contacted Titan to remedy the situation. Compl. ¶¶ 41-65. Blackburn repeatedly gave assurances to Mendelsohn attorneys that payment was forthcoming. Compl. ¶¶ 33-34, 46-52, 54, 56, 62. By September of 2011, Titan's unpaid legal dues totaled $244,563.78. Compl. ¶ 35. On September 8, 2011, Blackburn agreed by phone to pay Mendelsohn $10,000 per week towards Titan's balance. Compl. ¶¶ 35, 66. Pursuant to this agreement, Mendelsohn received a $10,000 payment from Titan on September 19, 2011. Compl. ¶¶ 35, 70-71.

On September 27, 2011, Blackburn sent an email to Mendelsohn that included a United States Postal Service ("U.S.P.S.") Priority Mail tracking number for the second weekly $10,000 payment. Compl. ¶¶ 72-73. Relying on the September 27 email, Mendelsohn filed an Answer to an Amended Complaint in the consolidated litigation, instead of filing a Motion to Withdraw. Compl. ¶ 77. Mendelsohn never received the September 27 payment and the U.S.P.S. reported that the provided tracking number did not match any envelope sent. Compl. ¶¶ 74-76. Mendelsohn emailed Blackburn on September 30, 2011, requesting a replacement check and advising Blackburn that Mendelsohn would require compliance with the payment schedule in order to continue representation. Compl. ¶ 80. Blackburn replied that he understood and that payment would be forthcoming. Compl. ¶¶ 81. Blackburn repeated this promise of payment, though payment was never received by Mendelsohn. Compl. ¶¶ 82-105. On November 23, 2011, Mendelsohn filed a Motion to Withdraw in the Virginia Litigation. Compl. ¶¶ 106. Titan opposed this Motion, but failed to respond to Mendelsohn's further requests for payment. Compl. ¶¶ 107-10.

On December 5, 2011, Mendelsohn's Motion to Withdraw was granted. Compl. ¶¶ 25, 111. As of January 27, 2012,*fn3 Titan owed Mendelsohn $402,511.06. Compl. ¶ 26.

Mendelsohn brings claims against Titan for breach of contract and fraudulent inducement.*fn4 Compl. ¶¶ 112-119, 170-172. Mendelsohn also raises a claim of fraudulent inducement against Blackburn in his individual capacity. Compl. ¶¶ 131-169.

Titan moved to dismiss Mendelsohn's claims for lack of personal jurisdiction, improper venue, and failure to state a claim upon which relief can be granted. Titan filed a memorandum supporting this movement (ECF No. 21), to which Mendelsohn filed a response, (ECF No. 24). Titan then filed a reply brief (ECF No. 25), and, after requesting and receiving permission (ECF Nos. 25-29), Mendelsohn filed a sur-reply brief under seal (ECF No. 30). The Court heard oral argument on July 26, 2012.

III. Jurisdiction

This Court has subject-matter jurisdiction because Mendelsohn is a Pennsylvania company, Titan is a Delaware corporation located in South Carolina, Blackburn is a resident of New York and South Carolina, and the amount in controversy exceeds $75,000. See 28 U.S.C. § 1332; Compl. ¶¶ 2-5; Blackburn Aff. ¶¶ 3-4.

IV. Personal Jurisdiction

A. Legal Standard

"Under Federal Rule of Civil Procedure 4(k), a District Court typically exercises personal jurisdiction according to the law of the state where it sits. O'Connor v. Sandy Lane Hotel, Ltd., 496 F.3d 312, 316 (3d Cir. 2007). Pennsylvania's long-arm statute provides that a court may exercise personal jurisdiction over non-residents "to the fullest extent allowed under the Constitution of the United States . . ." 42 Pa. Cons. Stat. Ann. § 5322(b).

There are two types of personal jurisdiction: general jurisdiction and specific jurisdiction. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 nn.8-9 (1984).Mendelsohn conceded in its Brief that Titan lacks the contacts necessary to support general jurisdiction, see Pl.'s Br. at 2, so this Court only considers specific jurisdiction here.

The test for specific jurisdiction is satisfied where (i) a defendant purposefully directed activities at the forum state, (ii) the claim arises out of or is related to those activities, and (iii) the court's exercise of jurisdiction would not offend traditional notions of fair play and substantial justice. D'Jamoos ex rel. Estate of Weingeroff v. Pilatus Aircraft Ltd., 566 F.3d 94, 102 (3d Cir. 2009) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472, 476 (1985); Helicopteros, 466 U.S. at 414).

i. Purposeful Direction

In analyzing specific jurisdiction in the context of a breach of contract claim, district courts consider "whether the defendant's contacts with the forum were instrumental in either the formation of the contract or its breach." Gen. Elec. Co. v. Deutz AG, 270 F.3d 144, 150 (3d Cir. 2001).By creating "continuing obligations between [themselves] and residents of the forum," parties may purposely avail themselves of the forum state. Burger King, 471 U.S. at 476. The mere existence of a contract, however, "is insufficient to establish minimum contacts." Metcalfe v. Renaissance Marine, Inc., 566 F.3d, 324, 333 n.7 (3d Cir. 2009). The court evaluates "the totality of the circumstances, including the location and character of the contract negotiations, the terms of the contract, and the parties' actual course of dealing." Remick v. Manfredy, 238 F.3d 248, 256 (3d Cir. 2001).

Jurisdiction may be asserted even when a party does not physically enter the forum state. Burger King, 471 U.S. at 476. Although physical presence will generally enhance a party's contacts with the forum state, "it is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted." Id.

In Remick v. Manfredy, a suit brought by an attorney for fees for his services, the Third Circuit found that the client-defendant had minimum contacts with the state in which his attorney-plaintiff worked because the client had knowledge of the attorney's location at the point of contract formation. Remick, 238 F.3d at 256. Specifically, the Third Circuit held that "[m]ost of the services performed by [the attorney] on behalf of [the client] were conducted at [the attorney's] Philadelphia office, and [the client] certainly should have expected as much as he knew that [the attorney's] home office is in Philadelphia." Id. The Third Circuit further held that contacts between a client and his attorney regarding legal issues are "more entangling than the mere 'informational communications'" that might otherwise fail to support minimum contacts. Id. (distinguishing Vetrotex Certainteed Corp., v. Consol. Fiber Glass Prods. Co., 75 F.3d 147, 152 (3d Cir. 1996) ("[I]nformational communication in furtherance of [a contract between a resident and a nonresident] does not establish the purposeful activity necessary for a valid assertion of personal jurisdiction over [the nonresident defendant]." (brackets in original) (quoting Sunbelt Corp. v. Noble, Denton & Assoc., Inc., 5 F.3d 28, 32 (3d Cir.1993)))).

ii. "Arising Out of" Contacts

The litigation must also arise out of or relate to at least one of the defendant's contacts with the forum State. Helicopteros, 466 U.S. at 414. The Third Circuit "requires a closer and more direct causal connection than that provided by the but-for test . . . the analysis should hew closely to the reciprocity principle upon which specific jurisdiction rests." O'Connor, 496 F.3d at 323. If "a meaningful link exists between a legal obligation that arose in the forum and the substance of the plaintiffs' claims," the "arising out of" requirement is satisfied. Id. at 324.

Because the Third Circuit has stated that "[t]he first two parts of the test determine whether a defendant has the requisite minimum contacts with the forum[,]" D'Jamoos, 566 F.3d at 102, the Court will use the term "minimum contacts" to refer to the first two steps together.

iii. Traditional Notions of Fair Play and Substantial Justice

When minimum contacts are present, the exercise of personal jurisdiction over defendants must accord with traditional notions of fair play and substantial justice. Mesalic v. Fiberfloat Corp., 897 F.2d 696, 701 (3d Cir. 1990) (quoting Int'l Shoe Co. v. State of Wash, 326 U.S. 310, 316 (1945)). Once a plaintiff establishes minimum contacts, the burden shifts to the defendant to "present a compelling case that the presence of some other considerations would render jurisdiction unreasonable," to the point of unconstitutionality. Carteret Sav. Bank, FA v. Shushan, 954 F.2d 141, 150 (quoting Burger King, 471 U.S. at 477 (1985)); see also Mellon Bank (East) PSFS, Nat'l Ass'n v. Farino, 960 F.2d 1217, 1226 (3d Cir. 1992) (citing Burger King, 471 U.S. at 482). "The burden on a defendant who wishes to show an absence of fairness or lack of substantial justice is heavy." Grand Entm't Grp., Ltd. v. Star Media Sales, Inc., 988 F.2d 476, 483 (3d Cir. 1993). When determining fair play and substantial justice, courts consider the burden on the defendant, the interests of the forum state, the plaintiff's interest in obtaining relief, the national judicial interest in efficient dispute resolution, and the national interest in furthering "fundamental substantive social policies." Asahi Metal Indus. Co. v. Super. Ct., 480 U.S. 102, 113 (1987) (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980)). "When minimum contacts have been established, often the interests of the plaintiff and the forum in the exercise of jurisdiction will justify even the serious burdens placed on the [nonresident] defendant." Asahi, 480 U.S. at 114; see also, e.g., O'Connor, 496 F.3d at 324-25 (finding jurisdiction in Pennsylvania where the defendant, the scene of the accident, many witnesses, and substantial evidence were located in Barbados).

2. The Effects Test for Specific Jurisdiction of Torts Claims

To establish specific jurisdiction over an intentional tort claim, courts apply the "effects test" set forth by the Third Circuit in IMO Industries, Inc. v. Kiekert AG, 155 F.3d 254, 265-66 (3d Cir. 1998). The effects test requires that: "(1) [t]he defendant committed an intentional tort; (2) [t]he Plaintiff felt the brunt of the harm in the forum such that the forum can be said to be the focal point of the harm suffered . . . ; [and] (3) [t]he defendant expressly aimed his tortious conduct at the forum. . ." Id. (summarizing Calder v. Jones, 465 U.S. 783, 788-89 (1984)).

To satisfy the first prong of this test, the plaintiff need only allege that the defendant committed an intentional tort. See Remick, 238 F.3d at 258 (finding that the first prong was satisfied by allegation of defamation, an intentional tort). The second prong of the test is satisfied where the plaintiff "may reasonably contend that he suffered the brunt of the harm" in the forum state. Id. (holding that defamation letter that questioned plaintiff's professional abilities caused harm in the state where plaintiff primarily practiced); see also IMO Indus., 155 F.3d at 263 ("[I]t is true that a corporation "feels" lost sales at its headquarters. . .") (citing ESAB Grp., Inc. v. Centricut, Inc., 126 F.3d 617, 625-26 (4th Cir. 1997)); Marlin Leasing Corp. v. Biometrieux, Inc., No. 06-cv-5609, 2007 WL 1468840, at *3 (E.D. Pa. May 16, 2007) (holding that fraudulent lease transactions caused harm in the state where plaintiff accepted the fraudulent leases and handled the leasing finances). To satisfy the third prong of the test, the plaintiff must "point to contacts which demonstrate that the defendant expressly aimedits tortious conduct at the forum, and thereby made the forum the focal point of the tortious activity." IMO Indus., 155 F.3d at 265 (emphasis in original).

A. Parties' Contentions

1. Titan's Brief

Titan argues primarily that Mendelsohn has failed to establish minimum contacts because the Engagement Letter between Titan and Mendelsohn (Ex. D to Pl.'s Sur-reply Br.) did not seek to "establish a common venture extending over a substantial period of time," but instead limited the relationship specifically to Virginia and Illinois. Defs.' Br. at 11-12 (quoting Rotondo Weinreich Enters., Inc. v. Rock City Mech., Inc., No. 04-cv-5285, 2005 WL 119571, at *4 (E.D. Pa. Jan. 19, 2005)). Titan adds that minimum contacts cannot be satisfied by the mere existence of a contract or the initiation of a relationship. Id. at 11.

Regarding the torts claims under the effects test, Titan argues that Mendelsohn's complaint alleges torts aimed at Virginia and Illinois, not at Pennsylvania, because the alleged fraud sought to induce representation in the Virginia and Illinois litigations. Id. at 14. Next, Titan asserts that jurisdiction over Blackburn must fail because Blackburn did not enter a contract with Mendelsohn in his individual capacity. Id. at 15.

Finally, Titan argues that jurisdiction in Pennsylvania would offend traditional notions of fair play and substantial justice because the South Carolina company has no contacts in Pennsylvania and because evidence and witnesses are located in Virginia, Illinois, and South Carolina. Id. at 15.

Titan supports its Brief with one affidavit by Blackburn in which he describes his part-time residencies in New York and South Carolina, his position at Titan, and his contacts with Mendelsohn. Blackburn Aff. ¶¶ 3-4, 7-18 (Ex. C to Defs.' Br.) Blackburn describes at length the contacts that Titan does not have with Pennsylvania. Id. at ¶¶ 7-18 (asserting that Titan and Blackburn have never conducted business, owned property, paid taxes, shipped product, or visited Pennsylvania in a professional capacity). None of the contacts mentioned by Blackburn are asserted in the Complaint. The only paragraph of consequence in the Affidavit is Blackburn's assertion that Mendelsohn's representation of Titan was "solely limited to the Illinois Litigation and the Virginia ...


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