Danziger & De Llano LLP v. Morgan Verkamp LLC ( 2020 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
No. 19-1986
______________
DANZIGER & DE LLANO, LLP,
Appellant
v.
MORGAN VERKAMP LLC;
FREDERICK M. MORGAN, JR., ESQUIRE;
JENNIFER VERKAMP, ESQUIRE
_______________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2:18-cv-02082)
District Judge: Honorable Petrese B. Tucker
_______________
Argued: November 12, 2019
Before: AMBRO, KRAUSE, and BIBAS, Circuit Judges
(Filed: January 15, 2020)
_______________
Gavin P. Lentz [ARGUED]
Jeffrey W. Ogren
Bochetto & Lentz
1524 Locust Street
Philadelphia, PA 19102
Counsel for Appellant
George Jonson
Montgomery Rennie & Jonson
600 Vine Street
Suite 2650
Cincinnati, OH 45202
Anthony P. McNamara
Thompson Hine
312 Walnut Street
Suite 1400
Cincinnati, OH 45202
Tejinder Singh [ARGUED]
Goldstein & Russell
7475 Wisconsin Avenue
Suite 850
Bethesda, MD 20814
Ammar S. Wasfi
Killino Firm
1835 Market Street
Suite 2820
Philadelphia, PA 19103
Counsel for Appellees
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OPINION OF THE COURT
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BIBAS, Circuit Judge.
Removal to federal court changes the field of play, but not
the game being played. Two law firms, Danziger and Morgan
Verkamp, spent almost a year and a half in Pennsylvania state
court disputing and ultimately taking discovery over a referral
fee before any complaint was filed. After Morgan Verkamp re-
moved the case to federal court, it successfully challenged per-
sonal jurisdiction. Danziger now argues that either there is spe-
cific personal jurisdiction over Morgan Verkamp in Pennsyl-
vania or that Morgan Verkamp waived that objection. Not so.
There is no specific jurisdiction because Danziger’s claims
neither arise out of nor relate to Morgan Verkamp’s activities
in Pennsylvania. Nor did Morgan Verkamp consent to personal
jurisdiction by merely taking part in pre-complaint discovery,
because Pennsylvania law does not let defendants object to ju-
risdiction until the plaintiff files a complaint. And as we clarify
today, a defendant who chooses to remove to federal court does
not thus consent to personal jurisdiction; the defendant carries
the defenses it had in state court with it to federal court.
Plus, the District Court need not find Danziger a new play-
ing field. When the parties suggest transferring a case with a
jurisdictional defect, a district court should ordinarily balance
the equities of doing so before deciding to dismiss the case with
prejudice. But at oral argument, Danziger conceded that it does
3
not need the District Court to transfer its case; it could timely
refile its claims in another forum. So we need not remand to let
the District Court consider transferring this case, but will in-
stead affirm.
I. BACKGROUND
Frederick Morgan and Jennifer Verkamp worked together
at an Ohio law firm. In 2008, they left that firm and founded
their own Ohio law firm, Morgan Verkamp LLC.
Danziger & De Llano, LLP, is a Texas law firm. Danziger
says that it has referred potential qui tam clients to Mr. Morgan
and Ms. Verkamp since they were at their old firm. One of
those referred clients was Michael Epp. According to Dan-
ziger, it formed an oral contract with Mr. Morgan and Ms. Ver-
kamp to collect one-third of the attorney’s fees from the Epp
suit as a referral fee. Epp, who was living outside the United
States, later retained Morgan Verkamp as counsel. But he
never promised Danziger, orally or in writing, a referral fee.
Morgan Verkamp brought a qui tam action on Epp’s behalf
under the False Claims Act against foreign defendants in the
U.S. District Court for the Eastern District of Pennsylvania.
After more than four years of litigation, the U.S. Government
intervened and settled for hundreds of millions of dollars. As a
result, Morgan Verkamp collected several million dollars in at-
torney’s fees.
When Danziger heard about the settlement, it wanted the
referral fee that Morgan Verkamp had allegedly promised. It
sued Morgan Verkamp, Mr. Morgan, and Ms. Verkamp (col-
lectively Morgan Verkamp) in Pennsylvania state court. Rather
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than file a complaint, Danziger filed something called a writ of
summons. In Pennsylvania, a plaintiff can file a writ of sum-
mons and seek discovery before filing a complaint. See Pa. R.
Civ. P. 4003.8.
Danziger then moved to compel Morgan Verkamp to take
part in pre-complaint discovery. The parties fought over the
scope of discovery, and the Pennsylvania court held a discov-
ery hearing. Morgan Verkamp appealed an adverse ruling.
Almost a year and a half after Danziger served the writ of
summons, Morgan Verkamp asked the court to compel Dan-
ziger to file a complaint. So Danziger finally filed one. The
complaint alleged six claims: fraud, conversion, unjust enrich-
ment, breach of contract, and tortious interference with both
contractual and prospective contractual relations. About two
weeks later, Morgan Verkamp removed the case to federal
court before the deadline for filing preliminary objections. It
then moved to dismiss Danziger’s complaint for lack of per-
sonal jurisdiction. In the alternative, it asked for a transfer to
the Southern District of Ohio. Danziger opposed the motion,
but in the alternative suggested transferring the case to Texas.
The District Court dismissed the complaint with prejudice for
lack of personal jurisdiction. It never considered transferring
the case.
Danziger timely appeals, raising three arguments against
dismissal: It claims that Pennsylvania courts have specific per-
sonal jurisdiction over Morgan Verkamp. It also asserts that
Morgan Verkamp has waived any objection to personal juris-
diction. And even if there were no personal jurisdiction,
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Danziger argues, the District Court should have transferred the
case to an appropriate forum instead of dismissing it.
Because the District Court did not hold an evidentiary hear-
ing on personal jurisdiction, we take Danziger’s factual allega-
tions as true. Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97
(3d Cir. 2004). We review the District Court’s dismissal for
lack of personal jurisdiction de novo. O’Connor v. Sandy Lane
Hotel Co., 496 F.3d 312, 316 (3d Cir. 2007). We review the
District Court’s denial of Danziger’s transfer motion for abuse
of discretion. Deleski v. Raymark Indus., Inc., 819 F.2d 377,
378 (3d Cir. 1987).
II. PENNSYLVANIA COURTS LACK
PERSONAL JURISDICTION
Danziger attacks the District Court’s dismissal for lack of
personal jurisdiction. Personal jurisdiction can be either gen-
eral jurisdiction or specific jurisdiction. O’Connor, 496 F.3d at
317 (quoting Helicopteros Nacionales de Colom., S.A. v. Hall,
466 U.S. 408, 416 (1984)). A defendant may also consent to
personal jurisdiction by waiving any objection to it. Ins. Corp.
of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694,
703 (1982).
Here, Pennsylvania courts have neither general nor specific
jurisdiction. Danziger concedes that Pennsylvania courts lack
general jurisdiction. They also lack specific jurisdiction be-
cause Danziger’s claims do not arise out of or relate to Morgan
Verkamp’s activities in Pennsylvania.
Nor did Morgan Verkamp waive its personal-jurisdiction
defense. In Pennsylvania, a defendant need not challenge
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personal jurisdiction until after a plaintiff files a complaint.
When Danziger did so, Morgan Verkamp removed the case to
federal court. And removal alone does not waive defenses. So
Morgan Verkamp carried that defense with it to federal court
and properly raised it there by moving to dismiss. Pennsylvania
courts thus lack personal jurisdiction.
A. Pennsylvania courts lack specific jurisdiction
Danziger argues that Morgan Verkamp’s contacts with
Pennsylvania support specific jurisdiction there. We disagree.
Pennsylvania’s long-arm statute gives its courts jurisdiction
over out-of-state defendants to the maximum extent allowed
by the U.S. Constitution. 42 Pa. Cons. Stat. § 5322(b); see Ku-
bik v. Letteri, 614 A.2d 1110, 1113–14 (Pa. 1992). When a de-
fendant challenges the court’s personal jurisdiction, the plain-
tiff bears the burden “to come forward with sufficient facts to
establish that jurisdiction is proper.” Mellon Bank (E.) PSFS,
Nat’l Ass’n v. Farino, 960 F.2d 1217, 1223 (3d Cir. 1992).
To meet this burden, the plaintiff must “establish[ ] with
reasonable particularity” three elements. Id. at 1223 (quoting
Provident Nat’l Bank v. Cal. Fed. Sav. & Loan Ass’n, 819 F.2d
434, 437 (3d Cir. 1987)). “First, the defendant must have ‘pur-
posefully directed [its] activities’ at the forum.” O’Connor,
496 F.3d at 317 (alteration in original) (quoting Burger King
Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985)). Second, the
plaintiff’s claims “must ‘arise out of or relate to’ ” the defend-
ant’s activities. Id. (quoting Helicopteros, 466 U.S. at 414).
And third, exercising personal jurisdiction must not “offend
traditional notions of fair play and substantial justice.” Id. at
7
316 (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316
(1945)). Only the second element is at issue here.
Whether a plaintiff’s claims “arise out of or relate to” the
defendant’s contacts with the forum state depends, in part, on
the type of claim brought. See O’Connor, 496 F.3d at 317
(quoting Helicopteros, 466 U.S. at 414).
For contract claims, a plaintiff must satisfy a “restrictive
standard” by showing proximate causation (also called “sub-
stantive relevance”). O’Connor, 496 F.3d at 318, 320. But-for
causation is not enough: “[T]he defendant’s contacts with the
forum [must have been] 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) (emphasis added). So a plaintiff
cannot allege simply that but for x’s occurrence, y (which may
have been remote and not foreseeable) would not have hap-
pened.
For tort claims, the standard is less restrictive. O’Connor,
496 F.3d at 320. But tort claims still “require[ ] a closer and
more direct causal connection than” but-for causation. Id. at
320–23. The defendant must have benefited enough from the
forum state’s laws to make the burden of facing litigation there
proportional to those benefits. Id. at 323 (citing Schwarzeneg-
ger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir.
2004)).
Plus, intentional torts require more: “The defendant [must
have] expressly aimed [its] tortious conduct at the forum” to
make the forum “the focal point of the tortious activity.” IMO
Industries, Inc. v. Kiekert AG, 155 F.3d 254, 265–66 (3d Cir.
8
1998). And “the plaintiff [must have] felt the brunt of the harm
in the forum.” Id.
Here, none of Danziger’s six contract or intentional-tort
claims arises out of or relates to Morgan Verkamp’s activities
in Pennsylvania. At bottom, its claims allege that Morgan Ver-
kamp refused to pay Danziger the promised referral fee. But
the alleged oral referral contract was neither formed nor
breached in Pennsylvania. Nor did the alleged communications
or misappropriation take place there. The parties exchanged
emails and spoke on the phone while working in Ohio and
Texas. And during this time, Epp did not live in any of these
states, but rather abroad.
Danziger relies on Morgan Verkamp’s litigating the Epp
suit in federal district court in Pennsylvania. But all this shows
is but-for causation, which is not enough to support personal
jurisdiction. See O’Connor, 496 F.3d at 323.
Danziger also stresses that Pennsylvania is where Morgan
Verkamp “created the legal fee pool of money.” Appellant’s
Br. 27. But Danziger’s complaint does not say that the pool of
money ever touched Pennsylvania. On the contrary, Morgan
Verkamp contends that the federal government wired its share
of the recovery directly to the firm’s office in Ohio. Even if the
money touched Pennsylvania, that momentary contact would
be too remotely related to Danziger’s contract and intentional-
tort claims to support personal jurisdiction. So Pennsylvania
courts lack specific jurisdiction.
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B. Morgan Verkamp did not waive its personal-
jurisdiction defense
Danziger next argues that Morgan Verkamp consented to
personal jurisdiction by taking part in pre-complaint discovery
for almost a year and a half before removing the case to federal
court. Again, we disagree.
Morgan Verkamp could not challenge personal jurisdiction
in Pennsylvania state court until after Danziger filed its com-
plaint. So taking part in pre-complaint discovery was no
waiver. The act of removal did not surrender the defense. And
under the Federal Rules of Civil Procedure, Morgan Verkamp
properly raised the personal-jurisdiction defense for the first
time in its motion to dismiss. So it did not waive the defense in
federal court either.
1. In Pennsylvania, a defendant does not waive a personal-
jurisdiction defense by failing to assert it and taking part in
discovery before a complaint is filed. Filing a writ of summons,
like filing a complaint, “commence[s]” a suit in Pennsylvania
state court. Pa. R. Civ. P. 1007. The writ requires only the par-
ties’ names and addresses, not a cause of action or factual alle-
gations. See id. r. 1351; 1 Charles B. Gibbons et al., West’s
Pennsylvania Forms § 7:0 (West 2019). A plaintiff can use this
writ to flesh out its claims in discovery before filing a com-
plaint. See Pa. R. Civ. P. 4003.8. In response to this writ, at any
time, the defendant can ask the court to compel the plaintiff to
file a complaint within twenty days. Id. r. 1037(a).
But filing a writ of summons, unlike filing a complaint,
does not force the defendant to raise its personal-jurisdiction
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defense. Pennsylvania’s rules let defendants raise this defense
in a “preliminary objection.” Pa. R. Civ. P. 1028(a)(1). Prelim-
inary objections may be filed only in response to a “pleading.”
Id. A “complaint” is a pleading. Id. r. 1017(a)(1). But “[a] writ
is not a pleading,” so “any objection to it must await the filing
of the complaint.” Id. r. 1017 explanatory cmt. to 1991 amend-
ment; see Fox v. Thompson, 546 A.2d 1146, 1147 (Pa. Super.
Ct. 1988); Monaco v. Montgomery Cab Co., 208 A.2d 252, 255
(Pa. 1965) (“[P]reliminary objections may not be filed until af-
ter the complaint is filed.”). Thus, in Pennsylvania state court,
the defendant does not waive its personal-jurisdiction defense
by awaiting the filing of a complaint.
In response, Danziger cites three cases it reads as suggest-
ing that Morgan Verkamp consented to personal jurisdiction
by not challenging it earlier. But none found a waiver based on
taking part in pre-complaint discovery. One held that a defend-
ant waived its personal-jurisdiction defense by failing to raise
it after he filed a complaint seeking appointment of a receiver.
Levin v. Barish, 481 A.2d 1183, 1185, 1187 (Pa. 1984). The
second likewise found that a defendant’s “active participation
in the litigation of the lawsuit on the merits” waived an objec-
tion to defective service because it was “subsequent to the fil-
ing of [the] complaint.” O’Barto v. Glossers Stores, Inc., 324
A.2d 474, 476 (Pa. Super. Ct. 1974). The third found no
waiver. Cathcart v. Keene Indus. Insulation, 471 A.2d 493, 499
(Pa. Super. Ct. 1984) (en banc), abrogated on other grounds
by Marinari v. Asbestos Corp., 612 A.2d 1021 (Pa. Super. Ct.
1992) (en banc).
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In sum, Pennsylvania law makes clear that a defendant does
not consent to personal jurisdiction until after a complaint is
filed. Danziger cites no contrary authority. So Morgan Ver-
kamp did not waive this defense in state court.
2. Removal to federal court does not consent to personal
jurisdiction. Danziger also argues that Morgan Verkamp con-
sented to personal jurisdiction by removing this case to federal
court instead of filing a preliminary objection in state court.
This is a question of first impression in this circuit. We hold
today that removal to federal court does not waive defenses that
a defendant would otherwise have in state court.
Our sister circuits have long held that “[r]emoval, in itself,
does not constitute a waiver of any right to object to lack of
personal jurisdiction, but after removal, the federal court takes
up the case where the state court left off.” Nationwide Eng’g &
Control Sys., Inc. v. Thomas, 837 F.2d 345, 347–48 (8th Cir.
1988) (citation omitted); see, e.g., Cantor Fitzgerald, L.P. v.
Peaslee, 88 F.3d 152, 157 n.4 (2d Cir. 1996); see also Lambert
v. Kysar, 983 F.2d 1110, 1113 n.2 (1st Cir. 1993) (same, for
venue).
This rule is now hornbook law: “A party who removes an
action from a state to a federal court does not thereby waive
any of his or her Federal Rule 12(b) defenses or objections.”
5C Charles Alan Wright & Arthur R. Miller, Federal Practice
and Procedure § 1395 (3d ed. 2019); see 17 James Wm.
Moore, Moore’s Federal Practice § 111.36[5][b] (3d ed.
2019).
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We now adopt this rule. On removal, a defendant brings its
defenses with it to federal court. This is because “[t]he [federal
court’s] jurisdiction exercised on removal is original not appel-
late.” Freeman v. Bee Mach. Co., 319 U.S. 448, 452 (1943).
Removal does not cure jurisdictional defects, so defendants can
still challenge jurisdiction after removal. Id. at 451.
And on removal, the Federal Rules of Civil Procedure gov-
ern. Fed. R. Civ. P. 81(c)(1). Under these rules, a defendant
may challenge jurisdiction by moving to dismiss under Rule
12(b)(2). Shortly after removal, Morgan Verkamp did just that.
So it never waived its personal-jurisdiction defense.
III. THE DISTRICT COURT PROPERLY DECLINED TO
TRANSFER THE CASE
Finally, Danziger argues that, rather than dismiss its case,
the District Court should have transferred it to a proper forum.
It sought a transfer to Texas; Morgan Verkamp, to Ohio. The
District Court did neither. Without considering a transfer, it
simply dismissed with prejudice for lack of personal jurisdic-
tion.
But a district court that lacks personal jurisdiction must at
least consider a transfer. The relevant statute provides that the
district court “shall” transfer the case rather than dismiss it “if
[doing so] is in the interest of justice.” 28 U.S.C. § 1631. The
district court does, however, have “broad discretion” not to
transfer. Jumara v. State Farm Ins. Co., 55 F.3d 873, 883 (3d
Cir. 1995). And though it may transfer a case at the parties’
request or sua sponte, it need not investigate on its own all
other courts that “might” or “could have” heard the case. 28
13
U.S.C. §§ 1404(a), 1406(a); see Amica Mut. Ins. Co. v. Fogel,
656 F.3d 167, 171 (3d Cir. 2011) (recognizing sua sponte trans-
fers); Island Insteel Sys., Inc. v. Waters, 296 F.3d 200, 218 n.9
(3d Cir. 2002). Still, the court must make some findings under
§ 1631, at least when the parties identify other courts that might
be able to hear their case. Here, the District Court did not.
Ordinarily, when a district court does not consider whether
transferring the case would be “in the interests of justice,” we
would remand to let it consider whether to transfer. 28 U.S.C.
§ 1631. But this is no ordinary case. At oral argument, Danziger
made a key concession that obviates transfer: it admitted that
the Ohio and Texas statutes of limitations do not bar it from
refiling its claims there. Because the basis for the District
Court’s involuntary dismissal with prejudice was limited to
lack of personal jurisdiction in Pennsylvania courts, the dis-
missal was not an adjudication on the merits. Fed. R. Civ. P.
41(b). So the dismissal does not trigger claim preclusion. Or-
ange Theatre Corp. v. Rayherstz Amusement Corp., 139 F.2d
871, 875 (3d Cir. 1944). All it precluded was relitigating the
issue of personal jurisdiction in Pennsylvania. See 18A Charles
Alan Wright et al., Federal Practice and Procedure, § 4435, at
133 (3d ed. 2017). Danziger can refile its claims in Ohio or
Texas.
If a plaintiff may, on its own, refile its case in a proper fo-
rum, “the interests of justice” do not demand transfer. Given
Danziger’s concession, the District Court did not abuse its dis-
cretion in refusing to transfer this case to Ohio or Texas. There
is thus no need to remand.
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* * * * *
In Pennsylvania, a defendant cannot challenge personal ju-
risdiction until after the plaintiff files its complaint. And the
defendant does not waive this defense by removing to federal
court. Morgan Verkamp properly raised that defense for the
first time right after removal. So the District Court properly
dismissed for lack of personal jurisdiction. Because Danziger
concedes that it can refile in either Ohio or Texas, we will af-
firm.
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