Tutor Doctor Systems, Inc. v. Kestenbaum et al

Filing 43

MEMORANDUM. Signed by Judge J. Frederick Motz on 12/31/2014. (ca2s, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

TUTOR DOCTOR SYSTEMS, INC.

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v.
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HAROLD L. KESTENBAUM, ESQ., ET AL. *
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Civil No. – JFM-14-519

MEMORANDUM

Tutor Doctor Systems, Inc. (“TDS”) has brought this action against Harold Kestenbaum,
Esq., Ruskin Moscou Faltischek, P.C., (“RMF”) and Gordon & Rees, LLP. Jurisdiction is based
upon the diverse citizenship of the parties. Kestenbaum and RMF have filed motions to dismiss
for lack of personal jurisdiction. Gordon & Rees has filed a motion to dismiss or transfer for
improper venue. Because I have concluded that transfer of the action to the Eastern District of
New York is appropriate, I will grant Gordon & Rees’ motion to transfer and decline to rule
upon the motion to dismiss for lack of personal jurisdiction filed by Kestenbaum and RMF.
A.
TDS franchises tutoring services. The company’s principal place of business is in
Wilmington, Delaware, and it is incorporated in Delaware. TDS purchased its business from
Tutor Systems, Inc., a Canadian company. Kestenbaum represented Tutor Systems, Inc. and
solicited the franchising business of TDS. After conducting an investigation, TDS retained
Kestenbaum.
From August 2007 to August 2011, Kestenbaum was “of Counsel” to RMF. He was
chair of the firm’s Distribution Licensing Practicing Group, and the firm paid the premium for
his legal malpractice insurance. Kestenbaum also represented the firm in various outside
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activities. Since September 2011, Kestenbaum has been a partner in Gordon & Rees’ Franchise,
Hospitality and Business Transactions Practice Groups. Gordon & Rees maintains an office in
Maryland. All of the defendants are subject to personal jurisdiction to the Eastern District of
New York.
Kestenbaum agreed to represent TDS in connection with the filing and registration of
franchise renewal documents in Maryland and other states, the modification of franchise
documents according to the laws of each of the states in which TDS was registered as a
franchisor, the negotiation of franchise agreements with attorneys for prospective franchisees and
the ensuring of compliance with franchise laws in each of the states in which TDS was registered
as a franchisee. Allegedly, Kestenbaum permitted TDS’ registration to lapse in Maryland,
California, Hawaii, Illinois, Michigan, Minnesota, New York, Virginia, Washington, and
Wisconsin. Moreover, Kestenbaum also allegedly failed to follow through with TDS’ request to
obtain an exemption from Connecticut’s business opportunity sales act.
TDS alleges that Kestenbaum never told TDS that its registration in Maryland had lapsed
and, indeed, falsely represented to TDS that it was registered in Maryland and in the other states
where Kestenbaum permitted the registration to lapse. TDS violated Maryland law by engaging
in franchising activities when it was not registered. It was subject to civil and criminal penalties
and was required to offer to rescind franchise agreements it entered into during the period that it
was not registered and to refund monies that had been paid by various franchisees. During the
period September 2007 to May 2012, Kestenbaum represented 125 separate clients with
franchises in Maryland and handled at least 215 franchise-related filings in Maryland.

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TDS asserts claims for professional malpractice, negligent misrepresentation, negligent
supervision1, fraud, disgorgement, and indemnity against the three defendants.
B.
On these facts I would be inclined to find that personal jurisdiction exists over
Kestenbaum and RMF in Maryland in connection with its franchising activities in Maryland. It
would seem that by undertaking to file franchise documents in Maryland for TDS and to keep
these current, and by initially filing such documents, Kestenbaum transacted business in
Maryland and contracted to supply services within the state. This is particularly true in light of
the fact that Kestenbaum filed franchising documents for other clients. These activities appear to
be sufficient to bring Kestenbaum’s activities within the reach of the Maryland long-arm statute.
See Md. Cts. & Jud. Proc. Code, §6-103(b). Further, it appears clear that as counsel to RMF,
Kestenbaum acted as RMF’s agent in Maryland.
It is, however, decidedly less clear to me that to the extent that TDS is asserting claims
for Kestenbaum’s acts or failure to act in states other than Maryland, Kestenbaum and RMF are
subject to personal jurisdiction in Maryland. It does not appear that either Kestenbaum or RMF
are “doing business” within Maryland so as to give rise to general jurisdiction here, and any
claims asserted by TDS for Kestenbaum’s acts or failures to act in connection with the lapsing of
franchises in other states did not arise out of Kestenbaum’s and RMF’s contacts with Maryland.
Furthermore, it is extremely questionable whether TDS’ claims for negligent misrepresention
and fraud arose in Maryland. The alleged misrepresentations were developed in New York

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It is alleged that Helen Rajcooar, a paralegal at Gordon & Rees was directly supervised by
Kestenbaum, made the misrepresentations to TDS concerning the effectiveness of its franchising
status.
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(where Kestenbaum and RMF have their offices) and, presumably, communicated to TDS in
Delaware, where TDS has it principal place of business.2
Under these circumstances I deem it appropriate to transfer this action to the Eastern
District of New York, where, as indicated above, RMF, Kestenbaum, and Gordon and Rees are
all subject to personal jurisdiction. There are several reasons for my decision.
First, as I have indicated, there are questions as to whether this court has personal
jurisdiction over Kestenbaum and RMF in regard to some of the claims that TDS appears to have
asserted. Under these circumstances I deem it in the public interest to transfer the case to a
district where the questions about personal jurisdiction do not exist. See Harry and Jeanette
Weinberg Foundation v. A&B Inv. Mgmt. & Trust Co., 966 F. Supp. 389, 391 (D. Md. 1997);
Joseph M. Coleman & Associates, LTD. v. Colonial Meadows, 87 F. Supp 116, 120 (D. Md.
1995). The public interest is not served by litigation uncertainty.
Second, although Maryland clearly has an interest in ensuring that its franchising laws are
upheld, that interest has been served by the fact that Maryland regulators required TDS to offer
to rescind the franchise agreements entered into during the time that TDS’ registration had lapsed
and to make refunds to the franchisees. Maryland has no interest whatsoever in resolving a
solely monetary dispute between parties domiciled in other jurisdictions.
Third, it is in the interest of the witnesses that this litigation proceed in the Eastern
District of New York. That is the state in which defendant’s alleged failures to act occurred, and
the jurisdiction in which the alleged misrepresentations were generated. The lapse in TDS’

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It is likewise somewhat questionable whether TDS’ claim for “negligent supervision” arose in
Maryland. Although that claim clearly is intertwined with the claim for malpractice, any
negligent supervision occurred in New York.
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registration in Maryland that allegedly flowed from defendants’ misconduct is a matter of public
record and can either be stipulated to or easily proved by deposition testimony.
A separate order transferring this action to the Eastern District of New York is being
entered herewith.

Date: December 31, 2014

__/s/____________________
J. Frederick Motz
United States District Judge

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