Reynolds v. Henderson & Lyman et al
ORDER denying dismissal, and granting a transfer, as to 13 Motion to Dismiss for Lack of Personal Jurisdiction, or in the Alternative, to Transfer Venue by Judge Lewis T. Babcock on 10/14/14.(dkals, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
LEWIS T. BABCOCK, JUDGE
Civil Case No. 13-cv-03283-LTB
HENDERSON & LYMAN, and
DOUGLAS E. AREND,
This matter is before me on Defendants Henderson & Lyman and Douglas E. Arend’s
(collectively, “H&L”) Motion to Dismiss for Lack of Personal Jurisdiction, or in the Alternative,
to Transfer Venue [Doc #13]. In its motion, H&L moves to dismiss this legal malpractice suit
for lack of personal jurisdiction. Alternatively, H&L moves to transfer venue to the United
States District Court for the Northern District of Illinois (“Northern District of Illinois”) pursuant
to 28 U.S.C. § 1404. I have considered the motion and all related pleadings and exhibits. Oral
argument would not materially assist me in determining the motion. For the following reasons, I
DENY the motion to dismiss, GRANT the motion to transfer pursuant to 28 U.S.C. § 1631 rather
than 28 U.S.C. § 1404, and TRANSFER this case to the Northern District of Illinois.
I. Factual Background
Unless otherwise noted, the following facts are undisputed. Plaintiff Bryan Reynolds is a
Colorado resident. B. Reynolds Aff. ¶ 1 [Doc #19-1]. Mr. Reynolds co-founded three Colorado
limited liability companies that operated as broker-dealers: Paradigm Capital Markets LLC
(“Paradigm”), Arjent Capital Markets LLC, and Chicago Trading Partners U.S. LLC. Id. ¶ 3.
Mr. Reynolds was the managing member of these companies at all relevant times. Id. ¶ 4.
Defendant Henderson & Lyman is a law firm organized as an Illinois general partnership with its
principal place of business in Chicago, Illinois. D. Arend Aff. ¶ 1 [Doc #13, Ex. A]. Defendant
Douglas Arend is a partner of the firm and an Illinois resident. Id. ¶ 2.
H&L began advising Paradigm in 2006 and the other two broker-dealers (collectively,
“the LLCs”) at some unspecified time thereafter. Id. ¶¶ 9-11. H&L did not solicit the LLCs’
business. Rather, one of the LLCs’ co-founders, Spencer Montgomery, approached Mr. Arend
about providing legal advice related to Paradigm’s broker-dealer operations in Chicago, which
Paradigm operated in association with the Chicago Board Options Exchange and the National
Futures Association there. D. Arend Aff. ¶ 12 [Doc #13, Ex. A]; J. Henderson Aff. ¶ 10 [Doc
#13, Ex. B]. Specifically, Mr. Arend explains that “H&L was retained to assist in forming
certain investment vehicles which I understood would be used for raising funds in a joint back
office agreement that [Mr. Montgomery] already had in place with Goldman Sachs Execution
and Clearing.” D. Arend Aff. ¶ 9 [Doc #13, Ex. A]. H&L’s representation continued through
2009 (according to H&L) or 2010 (according to Mr. Reynolds). B. Reynolds Aff. ¶ 6 [Doc #191]; Mot. at 1 [Doc #13].
In 2012, the U.S. Commodity Futures Trading Commission (“CFTC”) sued Mr. Reynolds
in federal court in New York, claiming that he had defrauded investors by issuing account
statements for certain commodity pools that failed to reflect debits in the LLCs’ capital accounts.
Compl. ¶ 20 [Doc #1]. Mr. Reynolds settled that lawsuit in 2013. Id. ¶ 21. Mr. Reynolds (but
not the LLCs) now brings this suit against H&L for negligence, breach of contract, and breach of
fiduciary duty. Among other things, Mr. Reynolds alleges that H&L improperly advised him
that it was unnecessary to disclose certain debits in the LLCs’ capital accounts. Id. ¶ 23(c).
In its motion, H&L points out that it did not reach out to Colorado to solicit the business
at issue here; rather, the LLCs approached H&L, as described above. Further, H&L was retained
to advise the LLCs regarding their broker-dealer operations in Chicago, as is also described
above. H&L performed all of its work for the LLCs in Illinois; nobody from the firm traveled to
Colorado in connection with the representation. D. Arend Aff. ¶ 13 [Doc #13, Ex. A]; J.
Henderson Aff. ¶ 12 [Doc #13, Ex. B]. The firm does not have an office, employees, or property
in Colorado; it does not maintain accounts or pay taxes in Colorado; and it does not advertise or
solicit business in Colorado. J. Henderson Aff. ¶¶ 4-7 [Doc #13, Ex. B]. Mr. Arend likewise
owns no property in Colorado; does not maintain accounts or pay taxes in Colorado; is not
licensed to practice law in Colorado; has never appeared in a Colorado court; and has never
advertised or solicited business in Colorado. D. Arend Aff. ¶¶ 4-7 [Doc #13, Ex. A].
Mr. Reynolds does not dispute these facts. He says the LLCs were “based” in Colorado
but does not deny that H&L performed its legal work in Illinois and in support of the LLCs’
broker-dealer operations there. B. Reynolds Aff. ¶ 3 [Doc #19-1]. Mr. Reynolds does not
identify any matters in Colorado—such as litigations or transactions—with respect to which
H&L represented the LLCs. Rather, Mr. Reynolds focuses on the fact that he and certain other
representatives of the LLCs were in Colorado when H&L communicated with them. Mr.
Reynolds spoke on the phone with Mr. Arend “around 10 times,” “corresponded via email
around 10 times,” and “was courtesy copied on numerous other emails” throughout the
representation. Id. ¶ 7. Mr. Reynolds was in Colorado when all of these communications took
place. Id. Mr. Reynolds also identifies “numerous” other email and phone conversations that
Mr. Arend had with other people associated with the LLCs, including Mr. Montgomery, who
were in Colorado during the conversations. Id. ¶¶ 8-9. Finally, Mr. Reynolds argues that H&L
“collected substantial fees paid by the Colorado companies” and that “the effects of [H&L’s]
representation were all felt more in Colorado than anywhere else.” Pl.’s Opp’n at 7, 10 [Doc
The parties dispute whether Mr. Reynolds himself was H&L’s client. Id. ¶¶ 8-11, 14; B.
Reynolds Aff. ¶¶ 5-6 [Doc #19-1]. They also dispute whether, in addition to the LLCs, certain
other Colorado companies that Mr. Reynolds co-founded were H&L’s clients. Reply at 1-2 [Doc
#22]. For purposes of resolving the instant motion, however, these disputes do not appear to
II. Motion to Dismiss
A. Burden of Proof
A defendant may move to dismiss a complaint for lack of personal jurisdiction under
Federal Rule of Civil Procedure 12(b)(2). When a defendant does so, the plaintiff has the burden
of establishing that the court has personal jurisdiction over the defendant. Soma Med. Int’l v.
Standard Chartered Bank, 196 F.3d 1292, 1295 (10th Cir. 1999). Where the court does not
conduct an evidentiary hearing, as here, “the plaintiff need only make a prima facie showing of
personal jurisdiction to defeat the motion.” Id. (quoting OMI Holdings, Inc. v. Royal Ins. Co. of
Canada, 149 F.3d 1086, 1090 (10th Cir. 1998)). The court must “resolve all factual disputes in
favor of the plaintiff in determining whether plaintiff has made a prima facie showing.” Benton
v. Cameco Corp., 375 F.3d 1070, 1074-75 (10th Cir. 2004) (quoting Far W. Capital, Inc. v.
Towne, 46 F.3d 1071, 1075 (10th Cir. 1995)). But only “‘well pled facts,’” as opposed to
“conclusory allegations, must be accepted as true.’” Wenz v. Memery Crystal, 55 F.3d 1503,
1505 (10th Cir. 1995) (citing Ten Mile Indus. Park v. W. Plains Serv. Corp., 810 F.2d 1518,
1523 (10th Cir. 1987)).
B. Personal Jurisdiction in Diversity Cases
Federal courts sitting in diversity—which is the only basis for jurisdiction alleged here,
see Compl. ¶ 5—may only exercise personal jurisdiction over a nonresident defendant where
both state law and federal due process are satisfied. See, e.g., Doering v. Copper Mountain, Inc.,
259 F.3d 1202, 1209 (10th Cir. 2001); Taylor v. Phelan, 912 F.2d 429, 431 (10th Cir. 1990).
“Colorado’s long arm statute is coextensive with constitutional limitations imposed by the due
process clause. Therefore, if jurisdiction is consistent with the due process clause, Colorado’s
long arm statute authorizes jurisdiction over a nonresident defendant.” Benton, 375 F.3d at 1075
(quoting Day v. Snowmass Stables, Inc., 810 F. Supp. 289, 291 (D. Colo 1993)); accord Keefe v.
Kirschenbaum & Kirschenbaum, P.C., 40 P.3d 1267, 1270 (Colo. 2002) (citing Colo. Rev. Stat.
§§ 13–1–124(1)(a)–(b) (2007)). Accordingly, the only question here is whether exercising
personal jurisdiction over H&L comports with due process, a question of federal law. Nat’l Bus.
Brokers, Ltd. v. Jim Williamson Prods., Inc., 115 F. Supp. 2d 1250, 1253 (D. Colo. 2000)
(“Federal law, not state law, guides the due process analysis.”), aff’d, 16 F. App’x 959 (10th Cir.
“The Supreme Court has held that, to exercise jurisdiction in harmony with due process,
defendants must have ‘minimum contacts’ with the forum state, such that having to defend a
lawsuit there would not ‘offend traditional notions of fair play and substantial justice.’”
Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1070 (10th Cir. 2008) (quoting
Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). Personal jurisdiction may be either
general or specific. Mr. Reynolds only argues for specific personal jurisdiction, or “jurisdiction
specific to this dispute.” Newsome v. Gallacher, 722 F.3d 1257, 1264 (10th Cir. 2013). To
determine whether the defendant has minimum contacts with the forum state such that the court
may exercise specific personal jurisdiction, a court must ask “(1) whether the defendant
purposefully directed its activities at residents of the forum state; [and] (2) whether the plaintiff’s
injury arose from those purposefully directed activities.” Id.; Dudnikov, 514 F.3d at 1071. If the
court determines that minimum contacts exist, the court then asks whether exercising jurisdiction
would offend traditional notions of fair play and substantial justice. Id.
C. The Court Does Not Have Personal Jurisdiction Over H&L
Applying these standards, I hold that the Court does not have personal jurisdiction over
H&L because H&L did not purposefully direct its activities at residents of Colorado. I rely on
the Tenth Circuit’s recent opinion in Newsome, 722 F.3d 1257, in reaching this conclusion.
There, the court of appeals held that federal due process did not allow a federal district court in
Oklahoma to exercise personal jurisdiction over a Canadian law firm hired by a corporation that
operated exclusively in Oklahoma. Id. at 1279. The law firm facilitated a transaction that was
“negotiated, arranged, closed [and] documented” outside of Oklahoma except for certain liens on
the corporation’s Oklahoma property that the law firm arranged. Id. The court held that the
district court did not have personal jurisdiction over the law firm, explaining that “an out-of-state
attorney working from out-of-state on an out-of-state matter does not purposefully avail himself
of the client’s home forum’s laws and privileges, at least not without some evidence that the
attorney reached out to the client’s home forum to solicit the client’s business.” Id. at 1280-81.
Here, as in Newsome, the defendant attorneys did not reach out to forum residents to
solicit business; rather, the LLCs came to H&L. It is undisputed that H&L’s legal advice
centered on the LLCs’ broker-dealer operations in Illinois. Mr. Reynolds has not identified any
work H&L performed in connection with litigation, transactions, or other interests the LLCs may
have had in Colorado. Mr. Reynolds also has not identified any work that Mr. Arend or anyone
else at the firm performed for the LLCs while physically present in Colorado. The argument that
the law firm purposefully directed its activities at the forum state is actually weaker here than in
Newsome, where the law firm facilitated the placement of liens on property in the forum state.
Id. at 1279. It also bears noting that Henderson & Lyman does not have any other connections to
Colorado. It has no employees, property, or accounts in Colorado. It also does not advertise,
solicit business, or pay taxes here. The same is true of Mr. Arend; he is not licensed to practice
law in Colorado, has never appeared in a Colorado court, and has never advertised or solicited
business in Colorado.
The Newsome court specifically rejected arguments similar to Mr. Reynolds’ three main
arguments here. First, Mr. Reynolds relies on the frequent communications between H&L and
representatives of the LLCs in Colorado. But Newsome explained that “communications that
make up an active attorney-client relationship” are not “the sort of repeated, purposeful contacts
with the client’s home forum sufficient to establish personal jurisdiction.” Id. at 1280. Second,
Mr. Reynolds states that H&L “collected substantial fees paid by the Colorado companies.” But
the Newsome court was not persuaded by the fact that the defendant law firm received payments
for the work in question from the Oklahoma corporation’s bank accounts. 722 F.3d at 1280-81.
Finally, Mr. Reynolds argues that the effects of H&L’s alleged malpractice were felt in Colorado
more than anywhere else. Yet “even though a client may feel the effects of the lawyer’s
misdeeds in the client’s home forum, the client cannot sue the lawyer there on that account
alone.” Id. at 1280; see also Walden v. Fiore, 134 S. Ct. 1115, 1125 (2014) (“The proper
question is not where the plaintiff experienced a particular injury or effect but whether the
defendant’s conduct connects him to the forum in a meaningful way.”).
Other courts have reached the same conclusion on similar facts. See, e.g., Sawtelle v.
Farrell, 70 F.3d 1381, 1391-94 (1st Cir. 1995) (New Hampshire federal court had no personal
jurisdiction over Florida and Virginia attorneys representing New Hampshire residents in Florida
litigation even where attorneys transmitted legal advice to New Hampshire by phone and mail);
Austad Co. v. Pennie & Edmonds, 823 F.2d 223, 226-27 (8th Cir. 1987) (South Dakota federal
court had no personal jurisdiction over New York based law firm where firm did not seek out
client’s business and represented client in “litigation taking place wholly outside South Dakota”
despite “numerous phone calls between New York and South Dakota, the use of courier services
(at [the law firm’s] expense), monthly billings mailed to South Dakota, and checks paid by a
South Dakota bank”); see also CVR Energy, Inc. v. Wachtell, Lipton, Rosen & Katz, No. 132547, 2014 WL 4059761 (D. Kan. Aug. 14, 2014) (federal court in Kansas applying Newsome
and concluding that it had no personal jurisdiction over New York law firm hired to help Kansas
company resist hostile takeover bid where “out-of-state lawyers neither solicited business from
the plaintiff nor performed services in Kansas” but merely communicated with client in Kansas
Mr. Reynolds correctly notes that the Colorado Supreme Court has held that Colorado
courts could exercise personal jurisdiction on materially indistinguishable facts. See, e.g., Keefe,
40 P.3d at 1372-73 (court had personal jurisdiction over New York law firm solicited by
Colorado client’s representative to handle single lawsuit in New York because law firm
communicated with client to “advis[e] about the progress of the suit” and lawyer’s alleged
malpractice had “potential consequences for [the client’s] assets in [Colorado]”); Scheuer v.
District Ct., 684 P.2d 249, 250-52 (Colo. 1984) (court had personal jurisdiction over New
Mexico attorney solicited by Colorado client to represent client with respect to interests in New
Mexico because attorney placed phone calls to client in Colorado, received funds sent from
client in Colorado, and mailed billing statements and files to client in Colorado). Newsome,
however, specifically rejected Keefe and other cases that it characterized as “show[ing] no
hesitation to exercise jurisdiction over out-of-state attorneys.” 722 F.3d at 1280. I am bound by
Newsome’s holding regarding the limits of federal due process, not the contradictory decisions of
the Colorado Supreme Court. See, e.g., Sher v. Johnson, 911 F.2d 1357, 1363 n.2 (9th Cir.
1990) (“[W]e are not bound by the decisions of [state] courts; the ultimate question here is one of
federal constitutional law.”).
In sum, Mr. Reynolds has not shown that H&L was anything other than an “out-of-state
[law firm] working from out-of-state on an out-of-state matter,” Newsome, 722 F.3d at 1280-81,
so I cannot conclude that H&L purposefully directed its activities to Colorado. Accordingly, I
do not reach the question of whether exercising jurisdiction would offend traditional notions of
fair play and substantial justice, id. at 1271, and I conclude that the Court does not have personal
jurisdiction over H&L. As discussed in the next section, however, the proper course is not to
dismiss this case but to transfer it to the Northern District of Illinois.
III. Motion to Transfer Venue
A. Transfer of Venue Where Court Lacks Personal Jurisdiction
H&L’s alternative argument is that I should transfer this case to the Northern District of
Illinois pursuant to 28 U.S.C. § 1404(a) based on the convenience of the parties and witnesses
and the interest of justice. Mr. Reynolds agrees that I should do so if I conclude that the Court
does not have personal jurisdiction over H&L, as I have done.
Where the transferor court lacks personal jurisdiction, however, the “correct course” is to
consider transferring the case pursuant to 28 U.S.C. § 1631, rather than 28 U.S.C. § 1404(a).
Ross v. Colorado Outwards Bound School, Inc., 822 F.2d 1524, 1527 (10th Cir. 1987); see also
Trujillo v. Williams, 465 F.3d 1210, 1222-23 (10th Cir. 2006) (noting that a “court may sua
sponte cure jurisdictional and venue defects by transferring a suit under [Section] 1631”).
Section 1631 provides that if the “court finds that there is a want of jurisdiction, the court shall,
if it is in the interest of justice, transfer such action or appeal to any other such court in which the
action or appeal could have been brought at the time it was filed.”
B. Transfer to the Northern District of Illinois Under 28 U.S.C. § 1631 Is Warranted
I conclude that transfer to the Northern District of Illinois is appropriate under Section
1631 because this action could have been brought there when it was filed and transfer is in the
interest of justice.
1. This Case Could Have Been Brought in the Northern District of Illinois
This case could have been brought in the Northern District of Illinois at the time it was
filed, on December 4, 2013, because both personal jurisdiction and venue were proper there at
that time. That court would have had general personal jurisdiction over Henderson & Lyman at
the time of filing because, among other reasons, the firm was and is an Illinois general
partnership with its principal place of business in Chicago. Compl. ¶ 2 [Doc #1]; J. Henderson
Aff. ¶ 1 [Doc #13, Ex. B]; Daimler AG v. Bauman, 134 S. Ct. 746, 760 (2014) (“With respect to
a corporation, the place of incorporation and principal place of business are “paradig[m] . . .
bases for general jurisdiction.”) (internal citations omitted). That court would have had general
personal jurisdiction over Mr. Arend at the time of filing because it is undisputed that he was and
is Illinois resident. Compl. ¶ 3; D. Arend Aff. ¶ 2 [Doc #13, Ex. A].
Venue also would have been proper in the Northern District of Illinois at the time of
filing. Venue is proper in any “judicial district in which any defendant resides, if all defendants
are residents of the State in which the district is located.” 28 U.S.C. § 1391(b)(1). Here, all
defendants were residents of Illinois, the state in which the Northern District of Illinois is
located, at the time of filing. Henderson & Lyman was a “resident” of Illinois at the time of
filing under the venue statute because it was subject to the Northern District of Illinois’
“personal jurisdiction with respect to the civil action in question,” as established above. Id. §
With respect to Mr. Arend, it is undisputed that he was an Illinois resident at the time of filing, as
2. Transfer Is in the Interest of Justice
It is in the interest of justice to transfer this case rather than dismiss it. “Factors
considered in deciding whether a transfer is in the interest of justice include whether the claims
would be time barred if filed anew in the proper forum, whether the claims alleged are likely to
have merit, and whether the claims were filed in good faith or if, on the other hand, it was clear
at the time of filing that the court lacked the requisite jurisdiction.” In re Cline, 531 F.3d 1249,
1251 (10th Cir. 2008). To make these determinations, it is proper to “consider the consequences
of a transfer by taking ‘a peek at the merits’ to avoid raising false hopes and wasting judicial
resources that would result from transferring a case which is clearly doomed.” Haugh v. Booker,
210 F.3d 1147, 1150 (10th Cir. 2000) (internal citation omitted). I am also mindful that
“[n]ormally transfer will be in the interest of justice because normally dismissal of an action that
could be brought elsewhere is ‘time-consuming and justice-defeating.’” Miller v. Hambrick, 905
F.2d 259, 262 (9th Cir. 1990) (quoting Goldlawr, Inc. v. Heiman, 369 U.S. 463, 467 (1962)).
With respect to the first factor, the limited record before me suggests that Mr. Reynolds’
claims may be time barred if filed anew in the Northern District of Illinois. Under Illinois law,
claims “against an attorney arising out of an act or omission in the performance of professional
services must be commenced within 2 years from the time the person bringing the action knew
or reasonably should have known of the injury for which damages are sought,” but no “more
than 6 years after the date on which the act or omission occurred.” 735 Ill. Comp. Stat.
5/13-214.3(b) & (c) (West 2010); 800 S. Wells Commercial, LLC v. Horwood Marcus & Berk
Chartered, 995 N.E.2d 472, 476 (Ill. App. 2013). Mr. Reynolds alleges legal malpractice
resulting in the CFTC’s suit against him on March 13, 2012. By way of example, to the extent
his claims accrued on that date—and I express no view as to whether they did—they may be
time-barred if brought now.
Turning to the second factor, at this juncture I cannot say whether it is “likely” that Mr.
Reynolds’ claims have merit. Based on the papers filed to date, it appears the viability of Mr.
Reynolds’ claims may turn on whether he can prove he was H&L’s client or otherwise has
standing to sue H&L. As discovery has not begun, this issue is unclear. Therefore, I do not give
the second factor any weight. As to the final factor, I find that Mr. Reynolds filed his lawsuit in
this Court in good faith. As discussed above, the Tenth Circuit’s recent holding in Newsome
conflicts with earlier decisions of the Colorado Supreme Court. A reasonable litigant could have
believed that this Court had personal jurisdiction over H&L. Balancing these factors, and in
consideration of the judicial resources saved by transferring this case instead of dismissing it, I
conclude that the interest of justice is served by transferring this case to the Northern District of
For the foregoing reasons, H&L’s motion to dismiss is DENIED, its motion to transfer is
GRANTED pursuant to 28 U.S.C. § 1631 rather than 28 U.S.C. § 1404, and this case is
TRANSFERRED to the United States District Court for the Northern District of Illinois.
, 2014 in Denver, Colorado.
BY THE COURT:
s/Lewis T. Babcock
LEWIS T. BABCOCK, JUDGE
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