Thornapple Associate, Inc. v. Izadpanah
Filing
47
MEMORANDUM OPINION re: Motions to Dismiss the Third-Party Complaint [32,36] filed by the Third-Party Defendants, Joseph A. Clark and Gregory Collett. Signed by District Judge James C. Cacheris on 9/30/2014. (jall)
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
THORNAPPLE ASSOCIATES, INC.,
Plaintiff,
v.
ALLEN IZADPANAH,
Defendant,
v.
GREGORY S. COLLETT D/B/A
COLLETT LEGAL, et al.
Third-Party Defendants.
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M E M O R A N D U M
1:14cv767 (JCC/TRJ)
O P I N I O N
This matter is before the Court on Third-Party
Defendants Joseph A. Clark (“Clark”) and Gregory Collett’s
(“Collett”) Motions to Dismiss the Third-Party Complaint [Dkts.
32, 36].
For the reasons set forth below, the Court will grant
in part and deny in part Defendants’ motions.
I. Background
This case arises out of a dispute over an expert fee
agreement.
Plaintiff Allen Izadpanah (“Plaintiff” or
“Izadpanah”) retained the legal services of Collett Legal and
later Collett Clark LLP to represent him in a National Futures
Association (“NFA”) arbitration proceeding (Third-Party Compl.
1
[Dkt. 21] ¶¶ 12-13.)
As part of that proceeding, Collett Clark
LLP and Izadpanah engaged the expert witness services of
Thornapple Associates, Inc. (“Thornapple”) (Id. ¶ 7.)
In the
original complaint, Thornapple asserts breach of contract,
account stated, quantum meruit, and unjust enrichment claims
arising out of Izadpanah’s alleged non-payment of expert witness
fees.
(Id.)
Thornapple originally filed the case in the U.S.
District Court for the District of Maryland, but upon consent of
both parties Judge Theodore D. Chuang transferred the case to
this Court.
(See 6/20/14 Order [Dkt. 13].)
Izadpanah denies liability for Thornapple’s fees.
(Third-Party Compl. ¶ 7.)
However, to the extent that he is
found liable, Izadpanah contends that Collett and Clark are
legally responsible for half of the outstanding balance as well
as half of any money already paid to Thornapple.
(Id. ¶ 9.)
This purported indemnification agreement arises out of two
documents.
The first is the retainer agreement signed by
Collett on May 8, 2012 and sent to Izadpanah for his signature. 1
In that agreement, Izadpanah agreed to pay any arbitration
1
According to Izadpanah, Collett Legal is not a distinct legal entity from
Collett and was never registered to conduct business in New York and New
Jersey. (Third-Party Compl. ¶ 4.)
2
expenses. 2
(Third-Party Compl., Ex. A at 2.)
Additionally, the
agreement contained the following language:
[Collett Legal] anticipates the following primary
expenses: (1) until roughly three months before any
hearing, the primary expense is an NFA filing fee of
approximately $1550; and (2) after roughly three
months before any hearing, [Collett Legal] will
discuss with you the anticipated expenses of (i)
expert witnesses, (ii) hearing fees, and (iii) travel
expenses to the hearing.
(Id.)
The second document that Izadpanah alleges gives rise to
liability is an email sent from Collett to Izadpanah, copying
Clark, sent on May 3, 2012.
(Third-Party Compl., Ex. D, at 1.)
In relevant part, that email states: “As discussed yesterday, as
an addendum to the retainer agreement between Collett Clark LLP
and you, if we do not get you a recovery, we will reimburse you
for 50% of Thornapple’s bill.”
(Id.)
On the basis of these two documents, Izadpanah asserts
a breach of contract claim against Collett and Clark. 3
Party Compl. ¶¶ 23-28.)
(Third-
Both defendants have moved to dismiss
the complaint on the basis of lack of personal jurisdiction,
improper venue, and failure to state a claim.
Dismiss at 1; Collett’s Mot. to Dismiss at 1.)
2
(Clark’s Mot. to
Having been
The Court may consider the retainer agreement because it is incorporated
into the complaint by reference as well as attached to the complaint. See
Philips v. Pitt Cnty. Mem’l Hosp., 572 F.3d 176, 180 (4th Cir. 2009).
3
The complaint requested attorney fees. However, Izadpanah consents to
striking this request in the relief section of the complaint. (Pl.’s Opp. to
Collett’s Mot. to Dismiss [Dkt. 41] at 5.) Therefore, the Court will order
it so stricken.
3
fully briefed and argued, Defendants’ motions are now before the
Court.
II. Analysis
A. Rule 12(b)(2) Motion to Dismiss for Lack of Personal
Jurisdiction
Before turning to other issues raised by Defendants,
the Court must first consider whether it has personal
jurisdiction over the Defendants “for lacking this the remainder
of its ruling would be wasted effort.”
Willis v. Semmes, Bowen
& Semmes, 441 F. Supp. 1235, 1238 (E.D. Va. 1977).
Federal
Rules of Civil Procedure 12(b)(2) and 14 permit a third-party
defendant to raise lack of personal jurisdiction as a defense in
a pre-answer motion.
The third-party plaintiff bears the burden
of proving to the court the existence of jurisdiction over the
defendant by a preponderance of the evidence.
See New
Wellington Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d
290, 294 (4th Cir. 2005) (citation omitted).
If there are
disputed factual questions as to the existence of jurisdiction,
the court may hold a separate evidentiary hearing or may defer
ruling pending relevant evidence produced at trial.
See Combs
v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989); Long v. Chevron
Corp., No. 4:11cv47, 2011 WL 3903066, at *3 (E.D. Va. Sept. 2,
2011).
In the absence of an evidentiary hearing, the burden on
the plaintiff is simply to make a prima facie showing of a
4
sufficient jurisdictional basis.
294.
New Wellington, 416 F. 3d at
In determining whether a plaintiff has met this burden,
courts “‘must construe all relevant pleading allegations in the
light most favorable to the plaintiff, assume credibility, and
draw the most favorable inferences for the existence of
jurisdiction.’”
Id. (quoting Combs, 886 F.2d at 676).
Federal courts exercise personal jurisdiction in the
manner provided by state law.
New Wellington, 416 F.3d at 294.
Determining whether personal jurisdiction exists involves two
steps: (1) whether the state’s long-arm statue authorizes the
exercise of jurisdiction and, if so (2) whether the exercise of
jurisdiction is consistent with the Due Process Clause of the
Fourteenth Amendment.
Eagle Paper Int’l, Inc. v. Expolink, Ltd.
No. CIV.A. 2:07CV160, 2008 WL 170506, at *3 (E.D. Va. Jan. 17,
2008).
In Virginia, “[i]t is manifest that the purpose of
Virginia’s long-arm statute is to assert jurisdiction over
nonresidents who engage in some purposeful activity in this
State to the extent permissible under the due process clause.”
Peninsula Cruise, Inc. v. New River Yacht Sales, Inc., 512
S.E.2d 560, 562 (Va. 1999).
Because Virginia’s long-arm statute
is intended to extend personal jurisdiction to the outer limits
of due process, the constitutional and statutory inquiry merge.
Id.; see also Consulting Eng’rs Corp. v. Geometric Ltd., 561
F.3d 273, 277 (4th Cir. 2009).
5
There are two types of personal jurisdiction that meet
the requirements of due process: specific and general
jurisdiction.
473-74 (1985).
Burger King Corp. v. Rudzewicz, 471 U.S. 462,
In both instances, a non-resident defendant must
have sufficient “minimum contacts” with the forum state such
that “the maintenance of the suit does not offend traditional
notions of fair play and substantial justice.”
Int'l Shoe Co.
v. Washington, 326 U.S. 310, 316 (1945).
General jurisdiction exists for claims entirely
distinct from the defendant’s in-state activities when a
defendant’s activities in the state have been “continuous and
systematic.”
Helicopteros Nacionales de Colombia, S.A. v. Hall,
466 U.S. 408, 414 & n.9 (1984).
Here, Izadpanah has not shown
that Defendants’ Virginia contacts meet this standard such that
general jurisdiction would be appropriate.
Clark is a citizen
of New Jersey and Collett is a citizen of New York.
(See
Clark’s Mot. to Dismiss Mem., Ex. A [Dkt. 32], Clark Decl. ¶ 1
[hereinafter Clark Decl.]; Collett’s Motion to Dismiss Mem., Ex.
A [Dkt. 37], Collett Decl. ¶ 1 [hereinafter Collett Decl.].)
Defendants own no property in Virginia and do not regularly
conduct business here.
(Clark Decl. ¶ 16; Collett Decl. ¶ 10.)
Therefore, if personal jurisdiction exists over Defendants, it
must be specific jurisdiction.
6
To adequately allege specific jurisdiction, the
plaintiff must show that a defendant “purposefully directed his
activities at the residents of the forum and the litigation
results from alleged injuries that arise out of those
activities.”
Burger King, 471 U.S. at 472 (citations omitted)
(internal quotation marks omitted).
This test protects a
defendant from having to defend himself in a forum where he
could not have anticipated being sued.
561 F.3d at 276.
Consulting Engineers,
It prevents “jurisdiction solely as a result
of random, fortuitous, or attenuated contacts.”
Burger King,
471 U.S. at 475 (citations omitted) (internal quotation marks
omitted).
In analyzing the due process requirements for
asserting specific jurisdiction, the Fourth Circuit has set out
a three-part test in which the Court must consider, in order,
“(1) the extent to which the defendant purposefully availed
itself of the privilege of conducting activities in the State;
(2) whether the plaintiffs' claims arise out of those activities
directed at the State; and (3) whether the exercise of personal
jurisdiction would be constitutionally reasonable.”
Consulting
Engineers, 561 F.3d at 278 (citing ALS Scan, Inc. v. Digital
Serv. Consultants, Inc., 293 F.3d 707, 712 (4th Cir. 2002)).
Each factor will be considered in turn.
7
1. Purposeful Availment
“The first prong articulates the minimum contacts
requirement of constitutional due process that the defendant
purposefully avail himself of the privilege of conducting
business under the laws of the forum state.”
Engineers, 561 F. 3d at 278.
Consulting
In evaluating this requirement,
courts have considered various nonexclusive factors, including:
whether the defendant maintains offices or
agents in the forum state; whether defendant
owns property in the forum state; whether
the defendant reached into the forum state
to solicit or initiate business; whether the
defendant
deliberately
engaged
in
significant or long-term business activities
in the forum state; whether the parties
contractually agreed that the law of the
forum state would govern disputes; whether
the defendant made in-person contact with
the resident of the forum in the forum state
regarding the business relationship; the
nature, quality, and extent of the parties’
communications
about
the
business
being
transacted; and whether the performance of
contractual duties was to occur within the
forum.
Consulting Engineers, 561 F. 3d at 278 (citations omitted).
Collett and Clark purposefully availed themselves of
the privilege of doing business in Virginia.
The original
letter of engagement from Collett Legal to Izadpanah was
addressed to Izadpanah as president and CEO of ViTel Net LLC and
sent to Izadpanah’s Virginia business address and business email
address.
(Third-Party Compl., Ex. A, at 1.)
8
Izadpanah was
physically present in Virginia when he executed the retainer
agreement, which had already been digitally signed by Collett.
(Third-Party Compl., Ex. A; Third-Party Pl.’s Opp. [Dkts. 39,
41] at 6.) 4
The agreement contained an arbitration clause that
stated: “If a dispute arises between us relating to our fees,
you may have the right to arbitration of the dispute pursuant to
Part 137 of the Rules of the Chief Administrator of the Courts
of New York State[.]” 5
(emphasis added).
(Third-Party Compl., Ex. A, at 2)
Shortly thereafter, in early June 2012
Collett and Clark formed Collett Clark LLP and continued
representation of Izadpanah.
(Third-Party Compl. ¶¶ 4, 12;
Clark’s Mot. to Dismiss Mem. at 6.)
According to Defendants,
Collett Legal “later became” Collett Clark LLP.
to Dismiss Mem. at 6.)
(Clark’s Mot.
Collett Clark LLP initiated the NFA
arbitration on July 23, 2012.
(Third-Party Compl. ¶ 13.)
4
Izadpanah makes substantially similar arguments in his opposition to both
motions. Therefore, unless otherwise noted, “Pl.’s Opp.” refers to his
opposition against both Collett and Clark’s motions to dismiss.
5
The Court takes judicial notice of Part 137 of the Rules of the Chief
Administrator of the Courts of New York State. See Philips v. Pitt Cnty.
Mem’l Hosp., 572 F.3d 176, 180 (4th Cir. 2009) (stating that on a motion to
dismiss, courts may properly consider matters of public record). Part 137
establishes a Fee Dispute Resolution Process (“FDPR”) to resolve fee disputes
between lawyers practicing in New York and clients. There are three ways in
which this program can be triggered: (1) the lawyer mails the client a notice
of the client’s right to arbitrate; (2) the client initiates arbitration; or
(3) the lawyer and the client previously agreed in writing to use the FDPR.
See Fee Dispute Brochure, available at
http://www.nycourts.gov/admin/feedispute/. Situations (1) and (2) are not
applicable here. Based on the language of the Collett Legal retainer
agreement, FDPR is not mandatory. Therefore, the fact that Izadpanah was
advised of his right to potentially pursue arbitration in New York does not
operate as a binding arbitration clause, nor is it a relevant forum-selection
clause for the purposes of determining personal jurisdiction in Virginia.
9
Izadpanah communicated with Defendants through his
ViTel Net email address and maintained records relating to this
action in his Virginia business office.
(Pl.’s Opp. at 6.)
He
also exchanged several phone calls with Defendants while in
Virginia.
(Pl.’s Opp. at 10.)
In preparation for the
arbitration, Collett attended a pre-hearing mediation in Tysons
Corner, Virginia. 6
(Collett Decl. ¶ 8.)
He also met with
Izadpanah three times in person: once in Virginia at the ViTel
Net office, once in Washington, D.C., and once the day before
the start of arbitration at Izadpanah’s Maryland home.
(Id.)
Clark was also present at the meeting at Izadpanah’s home and
met with Izadpanah in-person on three additional occasions:
two
meetings in Washington, D.C. and one meeting at the ViTel Net
office in Virginia.
(Clark Decl. ¶ 10.)
Both Clark and Collett
were present at the Virginia arbitration hearing, which took
place over nine days throughout three months.
(Clark’s Mot. to
Dismiss Mem. at 3; Collett Mot. to Dismiss Mem. at 10.)
The
arbitration was resolved against Izadpanah on September 12,
2013, over a year after he commenced the action.
Compl. ¶ 20.)
(Third-Party
Thus, Izadpanah has made a prima facie showing
that there was a significant business relationship between the
parties that involved a long-term commitment from Defendants,
6
Clark notes that the mediation session was held in Virginia “to accommodate
the parties.” (Clark’s Reply at 4.)
10
including coming to Virginia to prepare for and attend the
arbitration.
Collett maintains that the location for the
arbitration hearing was set by the NFA, and, in fact, Izadpanah
had requested the arbitration to take place in Florida, where he
now lives, or Washington, D.C.
(Collett Decl. ¶ 5.)
Furthermore, both Collett and Clark assert that the contract at
issue is a result of Izadpanah’s unilateral activity.
Reply [Dkt. 42] at 4; Collett Reply [Dkt. 43] at 3.)
(Clark
arguments lack merit.
These
First, in agreeing to represent
Izadpanah, Collett and Clark assumed the risk that the
arbitration would require them to fulfill their contract
obligations in an unknown forum.
It is not a defense for
Collett or Clark to claim that at the time they were initially
hired they did not know the arbitration hearing would be held in
Virginia.
Furthermore, part performance in Virginia of the
contract to provide legal services to Izadpanah is enough to
confer jurisdiction.
See Cooper Materials Handling, Inc. v.
Tegeler, No. 1:14cv956 (JCC/TRJ), 2014 WL 4748915, at *6 (Sept.
24, 2014); Prod. Grp. Int’l v. Goldman, 337 F. Supp. 2d 788, 795
(E.D. Va. 2004); Peninsula Cruise, Inc. v. New River Yacht
Sales, Inc., 512 S.E.2d 560, 563 (Va. 1999); Prolinks, Inc. v.
Horizon Organic Dairy, Inc., No. 193616, 2001 WL 1829993, at *23 (Va. Cir. Ct. July 9, 2001).
11
Second, contrary to their assertions, neither
defendant was a passive recipient of Izadpanah’s overtures. 7
Izadpanah did not unilaterally decide to have Defendants
represent him; Defendants had to agree in order to form a
contract.
See Allfirst Bank v. Progress Rail Serv. Corp., 521
Fed. App’x 122, 127 (4th Cir. 2013) (“The creation of a contract
requires an offer by one party and acceptance by the other
party.”) (citation omitted) (internal quotation marks omitted).
Clark and Collett performed the contract through in-person
meetings, phone calls, and emails with Izadpanah in Virginia.
Therefore, Defendants purposefully availed themselves of doing
business in Virginia.
2. “Arising From”
This prong requires the defendant’s contacts with the
forum state to form the basis for the suit.
471 U.S. at 472.
See Burger King,
As relevant here, Virginia’s long-arm statute
7
In his reply, Clark cites Processing Research, Inc. v. Larson, 686 F. Supp.
119, 121-22 (E.D. Va. 1988) and Unidyne Corp. v. Aerolineas Argentinas, et
al., 590 F. Supp. 391, 396 (E.D. Va. 1984) as support for the proposition
that his contact with Virginia was the “product of external factors, not
purposeful activity.” (Clark’s Reply [Dkt. 41] at 5.) These cases are
distinguishable. In Processing Research, the Virginia plaintiff bought an
airplane through the Colorado defendant. 686 F. Supp. at 120-21. The
defendant had never set foot in Virginia, insured that the contract was
formed in Colorado and governed by its laws, and delivered the airplane in
Colorado. Id. at 123. Those facts led the court to hold that defendant had
deliberately avoided Virginia and thus did not have sufficient minimum
contacts in the state. Id. In Unidyne, neither the defendant corporation
nor its agents had ever physically entered Virginia to transact any business.
Unidyne, 590 F. Supp. at 396. Here, Clark has been to Virginia to attend
meetings and the arbitration in furtherance of his representation of
Izadpanah. Additionally, there is no contract language similar to Processing
Research that would lead the Court to believe Clark intended to avoid
personal jurisdiction in Virginia.
12
permits Virginia courts to exercise personal jurisdiction over
an individual where the cause of action “arises from” the
person’s:
(1)
transacting
Commonwealth;
any
business
in
this
(2) contracting to supply services or things
in this Commonwealth;
(3) causing tortious injury by
omission in this Commonwealth;
an
act
or
(4)
causing
tortious
injury
in
this
Commonwealth by an act or omission outside
this Commonwealth if he regularly does or
solicits business, or engages in any other
persistent course of conduct, or derives
substantial revenue from goods used or
consumed or services rendered, in this
Commonwealth[.]
Va. Code. Ann. § 8.01-328.1(A)(1)-(4).
all four sections apply here.
Izadpanah argues that
(Pl.’s Opp. at 11-12.)
However,
since Izadpanah’s claim is for breach of contract, it is
appropriate to consider only sections (1) and (2).
See Cent.
Virginia Aviation, Inc. v. N. Am. Flight Servs., Inc., No.
3:14cv265-HEH, 2014 WL 2002247, at *3 (E.D. Va. May 15, 2014)
(considering whether sections (3) and (4) of the Virginia longarm statute confer jurisdiction where plaintiff had alleged
tortious interference in addition to breach of contract).
Virginia is a single act state, requiring only one
transaction in Virginia to confer jurisdiction on its courts.
John G. Kolbe, Inc. v. Chromodern Chair Co., 180 S.E.2d 664, 667
13
(Va. 1971).
“A single act of business can confer jurisdiction
provided that it is significant and demonstrates purposeful
activity in Virginia.”
Production Group, 337 F. Supp. 2d at
793; see also English & Smith v. Metzger, 901 F.2d 36, 38 (4th
Cir. 1990); Dollar Tree Stores, Inc. v. Mountain Pac. Realty,
LLC, Civil No. 12-1130, 2013 WL 8216346, at *2 (Va. Cir. Ct.
Jan. 29, 2013).
When a contract between the parties gives rise
to a defendant’s business in Virginia, courts look at: “(i)
where any contracting occurred, and where the negotiations took
place; (ii) who initiated the contact; (iii) the extent of the
communications, both telephonic and written, between the
parties; and (iv) where the obligations of the parties to the
contract were to be performed.”
Dollar Tree Stores, 2013 WL
8216346, at *2.
In this case, the parties’ relationship arises from
the May 8, 2012 retainer agreement and the alleged email
addendum to that agreement on May 3, 2013.
As noted earlier,
Izadpanah consummated the retainer agreement by signing it in
Virginia.
(Pl.’s Opp. at 10.)
while he was in Virginia.
He received the email addendum
(Id.)
There were numerous phone
calls and emails “directed to Izadpanah in Virginia.”
The arbitration took place in McLean, Virginia.
(Id.)
The alleged
addendum notes that Collett Clark LLP would pay for half of
Thornapple’s fees should Izadpanah lose the arbitration, thus
14
contemplating that performance of this part of the contract
would take place from Collett Clark LLP’s offices in New Jersey.
But one of Defendants’ obligations under the contract was to
represent Izadpanah in the arbitration hearing, which took place
in Virginia.
The Fourth Circuit has held such representation is
a sufficient business transaction giving rise to personal
jurisdiction.
Willis, 441 F. Supp. at 1239 (finding personal
jurisdiction in Virginia where Maryland law firm represented
Virginia plaintiff in Virginia bankruptcy action through local
counsel).
Personal jurisdiction over Defendants is also proper
under Va. Code. Ann. § 8.01-328.1(A)(2), “contracting to supply
services or things.”
In addition to finding jurisdiction under
what is now Va. Code. Ann. § 8.01-328.1(A)(1), the Willis Court
found that in representing the plaintiff in Virginia, the law
firm had contracted to supply services in the Commonwealth.
F. Supp. at 1239.
441
In so holding, the Willis Court stated:
“Although the contract was made outside the state and did not
specifically require performance in Virginia, jurisdiction may
still be based on this provision since performance did actually
occur within this state.”
Id. at 1240.
Similarly, though the
contract between Izadpanah and Defendants did not contemplate
where the representation would take place, jurisdiction is
proper because ultimately Defendants’ performance of the
15
contract took place in Virginia.
Therefore, representation of
Izadpanah in a proceeding in Virginia is sufficient to establish
jurisdiction under both the “transacting business” and
“contracting to supply services or things” prongs of Virginia’s
long-arm statute.
3. Constitutionally Reasonable
Finally, a court must consider whether the exercise of
personal jurisdiction is constitutionally reasonable.
A court
may consider additional factors to ensure the appropriateness of
the forum.
Such factors include:
(1)
the
burden
on
the
defendant
of
litigating in the forum; (2) the interest of
the forum state in adjudicating the dispute;
(3) the plaintiff’s interest in obtaining
convenient and effective relief; (4) the
shared interest of the states in obtaining
efficient resolution of disputes; and (5)
the interests of the states in furthering
substantive social policies.
Consulting Engineers, 561 F.3d at 279.
Considering these
factors, it is constitutionally reasonable for Defendants to
litigate in Virginia.
Though Clark and Collett are New Jersey
citizens, the balance of these factors promote resolving this
issue in Virginia.
Joining Defendants as third-party defendants
promotes efficient resolution of the underlying dispute, thus
serving the purposes of third-party practice under Rule 14.
See
6 Charles Alan Wright, Arthur Miller, & Mary Kay Kane, Federal
Practice & Procedure, § 1442 (3d ed. 2008) (“In short, Rule 14
16
is intended to provide a mechanism for disposing of multiple
claims arising from a single set of facts in one action
expeditiously and economically.”).
In light of all three Consulting Engineers factors,
this Court finds it appropriate to exercise personal
jurisdiction over the Defendants.
Therefore, the Court will
deny Defendants’ motions to dismiss for lack of personal
jurisdiction.
B. Rule 12(b)(3) Motion to Dismiss for Improper Venue
Federal Rule of Civil Procedure 12(b)(3) permits a
defendant to raise improper venue in a pre-answer motion.
Defendants argue that venue is improper under 28 U.S.C. §
1391(b)(2), while Izadpanah claims the doctrine of ancillary
venue precludes this challenge.
(Clark’s Mot. to Dismiss Mem.
at 9; Collett Mot. to Dismiss Mem. at 13; Pl.’s Opp. at 14-18.)
Defendants cite Noble Sec., Inc. v. MIZ Eng’g, Ltd., 611 F.
Supp. 2d 513 (E.D. Va. 2009), as support for the proposition
that the doctrine of ancillary venue does not apply where venue
in the original action was the product of an agreement between
the original plaintiff and the defendant/third-party plaintiff.
(Collett’s Mot. to Dismiss Mem. at 9; Clark’s Reply at 5.)
However, that case does not address ancillary venue and thus is
irrelevant to the analysis here.
17
As an initial matter, this action could have
originally been brought in the Eastern District of Virginia.
The change of venue statute, 28 U.S.C. § 1404, allows a transfer
of venue “to any other district or division where it might have
been brought or to any district or division to which all parties
have consented.” 8
For purposes of laying venue, a civil action
may be brought “in a judicial district in which a substantial
part of the events or omissions giving rise to the claim
occurred[.]”
28 U.S.C. § 1391(b)(2).
That requirement is met
here, as Thornapple provided services to Izadpanah in connection
with and at the NFA arbitration that took place in Tysons
Corner, Virginia.
6.)
(Izadpanah’s Mot. to Dismiss Mem. [Dkt. 8] at
Since the parties agreed to transfer, Judge Chuang did not
have occasion to consider whether venue could lie in this
district.
(See 6/20/2014 Order.)
Therefore, whether the
original parties agreed to venue is irrelevant to the
application of the doctrine of ancillary venue because the case
is properly in this district anyway.
“The doctrine of ancillary venue simply posits that if
venue is proper for the original action, an independent basis of
venue for third-party claims is not required.”
One Beacon Ins.
Co. v. JNB Storage Trailer Rental Corp., 312 F. Supp. 2d 824,
8
The parties’ joint stipulation to transfer venue [Dkt. 12] notes that the
case could have been brought in the Eastern District of Virginia.
18
828 (E.D. Va. 2004); see also 6 Wright, Miller, & Kane § 1445
(“[T]he statutory venue limitations have no application to Rule
14 claims even if they would require the third-party action to
be heard in another district had it been brought as an
independent action.”).
Otherwise, “[t]he spirit and purpose of
Rule 14 to a great extent would be frustrated if the venue
statutes had to be applied to third-party proceedings.”
Morrell
v. United Air Lines Transp. Corp., 29 F. Supp. 757, 759
(S.D.N.Y. 1939).
Accordingly, third-party defendants have no
standing to raise a defense that venue is improper.
One Beacon,
312 F. Supp. 2d at 829; see also R.E. Linder Steel Erection, 88
F.R.D. 629, 633 (D. Md. 1980) (“That is, the party against whom
[Rule 14] claims are brought may raise no venue defense, because
venue statutes apply only to an original action.”).
It is clear that the doctrine of ancillary venue
applies in this case.
Therefore, Defendants have no standing to
challenge venue, and the Court will deny their motion to dismiss
for improper venue under Rule 12(b)(3).
C. Rule 12(b)(6) Motion to Dismiss for Failure to State a
Claim
Finally, the Court turns to whether Izadpanah has
stated a claim for relief under Federal Rule of Civil Procedure
12(b)(6).
“A motion to dismiss under Rule 12(b)(6) tests the
sufficiency of a complaint[.]”
Republican Party of N.C. v.
19
Martin, 980 F.2d 943, 952 (4th Cir. 1992) (citation omitted).
The Supreme Court has stated that in order “[t]o survive a
motion to dismiss, a [c]omplaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)).
“A claim has facial plausibility when the pleaded
factual content allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.”
Id.
The issue in resolving such a motion is not
whether the non-movant will ultimately prevail, but whether the
non-movant is entitled to offer evidence to support his or her
claims.
“Determining whether a complaint states a plausible
claim for relief [is] . . . a context-specific task that
requires the reviewing court to draw on its judicial experience
and common sense.”
Iqbal, 556 U.S. at 679 (citations omitted).
While legal conclusions can provide the framework for a
complaint, all claims must be supported by factual allegations.
Id.
Based upon these allegations, the court will determine
whether the plaintiff’s pleadings plausibly give rise to an
entitlement to relief.
Id.
To survive a motion to dismiss, a
plaintiff’s complaint must demand more than “an unadorned, thedefendant-unlawfully-harmed-me accusation.”
20
Id. at 678;
Twombly, 550 U.S. at 555.
Legal conclusions couched as factual
allegations are not sufficient. Twombly, 550 U.S. at 555.
Hence, a pleading that offers only “formulaic recitation of the
elements of a cause of action will not do.”
678; Twombly, 550 U.S. at 557.
Iqbal, 556 U.S. at
Nor will a complaint that
tenders mere “naked assertion[s]” devoid of “further factual
enhancement.”
Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at 557.
Moreover, the plaintiff does not have to show a
likelihood of success on the merits.
Rather, the complaint must
merely allege - directly or indirectly - each element of a
“viable legal theory.”
Twombly, 550 U.S. at 562-63.
At the
motion to dismiss stage, the court must construe the complaint
in the light most favorable to the plaintiff, read the complaint
as a whole, and take the facts asserted therein as true.
Iqbal,
556 U.S. at 678.
Izadpanah’s sole claim against Defendants is for
breach of contract.
Contract law requires a legally enforceable
obligation of a defendant to a plaintiff.
Filak v. George, 594
S.E.2d 610, 619 (Va. 2004); Weichert Realtors v. Ryan, 608 A.2d
280, 284 (N.J. 1992). 9
Defendants argue that no such obligation
incurs to them as individuals, as Collett Clark LLP is the party
that may have an enforceable obligation to Izadpanah.
9
(Clark
For the purpose of this analysis, it is not necessary to decide whether
Virginia law or New Jersey law governs the contract here, as both
jurisdictions require this element as a prerequisite to finding an
enforceable contract.
21
Mot. to Dismiss Mem. at 12; Collett Mot. to Dismiss Mem. at 3.)
In opposition, Izadpanah states “every member of a partnership
is jointly and severally liable for torts committed by other
members of the partnership acting within the scope of the firm’s
business.” (Pl.’s Opp. to Clark’s Mot. to Dismiss Mem. at 15-17;
Pl.’s Opp. to Collett’s Mot. to Dismiss at 4-5.)
Izadpanah has not alleged any tort claims.
Therefore,
his claim that partners are liable for their co-partner’s torts
is inapplicable here.
Nevertheless, the Court will look to New
Jersey partnership law to determine whether Defendants as
individuals can be held personally liable on this contract.
New
Jersey Code § 41:1A-18 states, in relevant part:
An obligation of a partnership incurred
while the partnership is a limited liability
partnership, whether arising in contract,
tort, or otherwise, is solely the obligation
of
the
partnership.
A
partner
is
not
personally liable, directly or indirectly,
by way of contribution or otherwise, for
such an obligation solely by reason of being
or so acting as a partner.
(emphasis added).
Collett Clark LLP was a limited liability
partnership organized under the laws of New Jersey.
Party Compl. ¶ 4.)
(Third-
During Izadpanah’s representation, the firm
was a limited liability partnership.
Therefore, under New
Jersey partnership law, Collett and Clark cannot be personally
liable for any alleged breach of contract by the partnership.
The correct party to sue is Collett Clark LLP, not Collett and
22
Clark individually, as individuals in a limited liability
partnership are not personally liable for the debts of the
partnership.
Notwithstanding, Izadpanah argues that Collett remains
individually liable.
The original retainer agreement was
between Izadpanah and Collett Legal.
Izadpanah alleges that
Collett Legal was never registered to do business in New Jersey,
and therefore the alleged addendum to the agreement modified
Collett’s individual responsibility under the original fee
agreement.
Again, Izadpanah cites no case law in support of
this proposition.
However, the Court notes that the original
contract with Collett Legal left the determination of expert
fees to be determined at a later date.
By the time that
determination was made, Collett Clark LLP had undertaken
Izadpanah’s representation.
Collett Clark LLP therefore entered
into the alleged addendum, not Collett individually.
Therefore,
Collett cannot be individually liable.
Additionally, Izadpanah’s complaint alleges that
Collett and Clark are “successors in interest or otherwise
liable for the obligations” of Collett Clark LLP.
Compl. ¶¶ 2, 3.)
However, his opposition to their motions to
dismiss makes no mention of this theory.
not apply here.
(Third-Party
Nevertheless, it does
The successor-in-interest theory states that,
subject to four exceptions, “where one company sells or
23
otherwise transfers all of its assets to another company, the
transferee of those assets is not ordinarily liable for the
debts of the transferor company, including those arising out of
the transferor's tortious conduct.”
Woodrick v. Jack J. Burke
Real Estate, 703 A.2d 306, 312 (N.J. Super. Ct. App. Div. 1997).
Collett Clark LLP was dissolved on December 31, 2013.
Party Compl. ¶ 4.)
(Third-
No asset sale is alleged in the complaint,
rendering the successor-in-interest doctrine irrelevant here.
The Court declines to consider additional arguments
raised by the parties relating to the merits of the breach of
contract claim in light of its holding that Collett and Clark
are not the proper parties.
This does not preclude either party
from raising these issues at a later stage in the litigation.
III. Conclusion
For the reasons set forth above, the Court will
dismiss the action without prejudice for failing to name the
proper party.
An appropriate order will follow.
September 30, 2014
Alexandria, Virginia
/s/
James C. Cacheris
UNITED STATES DISTRICT COURT JUDGE
24
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