Opinion
CIVIL NO. CCB-08-1675.
January 8, 2009
MEMORANDUM
Now pending is a motion to dismiss or, in the alternative, to transfer venue filed by defendants Phoenix Group Holdings, LLC ("Phoenix"), Scius, LLC ("Scius"), and Tracy Doyle ("Doyle") (together "defendants") against plaintiffs Rheumatology Nurses Society, Inc. ("RNSI") and Rheumatology Nurses Society Foundation ("RNSF") (together "plaintiffs"). The plaintiffs allege various federal and state causes of action arising from their relationship with the defendants. The defendants contend that the court does not have jurisdiction over them and that venue is improper. The issues in this motion have been fully briefed and no hearing is necessary. For the reasons stated below, the defendants' motion will be granted, and the court will transfer venue to the District of New Jersey.
BACKGROUND
This dispute arises from the formation of a professional association, RNSI, and its offshoot foundation, RNSF. Both organizations were formed by a group of rheumatology nurses, with the assistance of the defendants. Defendant Phoenix is a holding company that operates solely to provide administrative support to its subsidiaries. Scius, a Phoenix subsidiary, develops continuing medical education programs for medical professionals and related professional organizations. During the events at issue in this litigation, Doyle was the chief executive officer of Phoenix and, according to plaintiffs, an officer of Scius. Phoenix and Scius are both New Jersey corporations, and Doyle is a citizen of New Jersey.
The parties' relationship began in March 2006 when the nurses met Doyle at a nursing conference in Boston and discussed the formation of a professional association for rheumatology nurses. Following the conference, Doyle offered the assistance of Phoenix in the formation and management of the organization. After several months of collaboration, RNSI was incorporated in January 2007. During the summer of 2007, Doyle traveled to Maryland on three occasions to meet with representatives and pursue funding opportunities for the organization. In September 2007, RNSF was formed to seek grant funds from pharmaceutical companies to assist in the continuing education of rheumatology nurses. Both RNSI and RNSF are New Jersey entities.
Soon after the formation of the organizations, the parties' relationship began to deteriorate. According to the plaintiffs, the defendants improperly claimed ownership of and distributed an educational tool that RNSI developed for rheumatology nurses, improperly listed themselves as the owners of the RNSI website, and submitted vague and exorbitant reimbursement requests for their management and consulting services. Additionally, the plaintiffs claim that in November 2007 Scius submitted grant requests to various pharmaceutical companies on the plaintiffs' letterhead without their knowledge or consent. These grant requests were submitted jointly with the Institute of Johns Hopkins Nursing ("IJHN"), a Maryland entity, which received the grant funds and disbursed over one million dollars in grant monies to Scius. The plaintiffs allege that Scius improperly retained those funds.
In May 2008, the plaintiffs severed their relationship with the defendants. Thereafter, the plaintiffs contend that the defendants improperly shut down their website and retained their mail and other property, which caused the plaintiffs considerable expense in planning their annual conference. On June 25, 2008, the plaintiffs filed suit in this court alleging eleven counts of misconduct by the defendants. On August 13, 2008, the defendants filed a motion to dismiss for lack of personal jurisdiction and improper venue, or in the alternative, to transfer venue to the District of New Jersey.
ANALYSIS
When defendants challenge personal jurisdiction under Rule 12(b)(2), the burden is on the plaintiffs to prove grounds for personal jurisdiction over them by a preponderance of the evidence. Mylan Labs., Inc. v. Akzo, NV, 2 F.3d 56, 59-60 (4th Cir. 1993). "When, however, as here, a district court decides a pretrial personal jurisdiction motion without conducting an evidentiary hearing, the plaintiff need only make a prima facie showing of personal jurisdiction." Carefirst of Md., Inc. v. Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 396 (4th Cir. 2003) (citing Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989)). In deciding whether the plaintiff has made this showing, the court must resolve all disputed facts and reasonable inferences in the plaintiff's favor. Id.
The court may assert either specific or general personal jurisdiction over non-resident defendants. Specific jurisdiction may exist where the claim is related to or arises out of the defendants' contacts with the state. See Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 414 n. 8 (1984). General jurisdiction may exist where the defendants' contact with the forum state is "continuous and systematic." Id. at 414-15 n. 9 (quoting Perkins v. Benguet Consol. Mining Co., 342 U.S. 437, 438 (1952)). The plaintiffs contend that the court has general and specific personal jurisdiction over the defendants.
The court must perform a two-step inquiry to determine whether it may exercise personal jurisdiction over a defendant. First, the court must determine if jurisdiction is authorized under the long-arm statute of the forum state. See Carefirst, 334 F.3d at 396; Christian Sci. Bd. of Dirs. of First Church of Christ, Scientist v. Nolan, 259 F.3d 209, 215 (4th Cir. 2001). Second, the court must decide whether personal jurisdiction comports with Fourteenth Amendment due process requirements. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980). The Maryland Court of Appeals has held that Maryland's long-arm statute is co-extensive with the scope of jurisdiction permitted by the Fourteenth Amendment due process clause, and so the statutory and constitutional inquiries merge. See Carefirst, 334 F.3d at 396-97. The Maryland long-arm statute, however, restricts specific jurisdiction to cases where the cause of action "aris[es] from any act enumerated" in the statute itself. Md. Code Ann., Cts. Jud. Proc. § 6-103(a). Thus, a plaintiff must "identify a specific Maryland statutory provision authorizing jurisdiction." Ottenheimer Publishers, Inc. v. Playmore, Inc., 158 F.Supp.2d 649, 652 (D. Md. 2001). While the plaintiffs do not cite a specific provision of the long-arm statute in their complaint, in their opposition to the motion to dismiss they rely on § 6-103(b)(1), which extends personal jurisdiction to any "person, who directly or by an agent . . . [t]ransacts any business . . . in the State."
A. Doyle
The plaintiffs allege that Doyle visited Maryland on three occasions to conduct business on behalf of Phoenix or Scius or both and that she communicated with IJHN regarding the joint grant application. Such contacts fall far short of the "continuous and systematic" contacts required to establish general jurisdiction. It is unclear, however, whether Doyle's contacts within the state of Maryland involved tortious activity that would render the fiduciary shield doctrine inapplicable and subject her to the court's specific jurisdiction. See Columbia Briargate Co. v. First Nat'l Bank, 713 F.2d 1052, 1064 (4th Cir. 1983); see also Harte-Hanks Direct Marketing/Baltimore, Inc. v. Varilease Tech. Finance Group, Inc., 299 F.Supp.2d 505, 514 (D. Md. 2004) (finding lack of jurisdiction where corporate agent's allegedly tortious conduct occurred outside forum state).
The plaintiffs further suggest that the court should pierce the corporate veil to establish jurisdiction over Doyle, an officer of both corporate defendants. Maryland generally is more restrictive than other jurisdictions in allowing a plaintiff to pierce the corporate veil, Residential Warranty Corp. v. Bancroft Homes Greenspring Valley, Inc., 728 A.2d 783, 790-91 (Md.App. 1999), and courts do so only where necessary to prevent fraud or to enforce a paramount equity, id. at 789. Among the factors to be considered in determining whether the corporate veil must be pierced to enforce a paramount equity are gross undercapitalization of the corporation, a dominant shareholder's siphoning of corporate funds, the absence of corporate records, or other indicators that the corporation is merely a facade for the shareholder's operation. Id. Here, the plaintiffs allege merely that Doyle, as an officer of both corporations, had "considerable control over both companies and, perhaps, potential financial and stock incentives." (Opp. at 16.) Such allegations fail to meet the strict standard for piercing the corporate veil. See, e.g., Bart Arconti Sons, Inc. v. Ames-Ennis, Inc., 340 A.2d 225, 234-35 (Md. 1975) (declining to pierce the corporate veil, even though the principals transferred assets of the corporation and rendered it insolvent for the purpose of evading its legal obligations).
B. Phoenix
The plaintiffs attempt to establish personal jurisdiction over Phoenix in two ways. First, they claim that Phoenix, through its representative Doyle, was directly involved in the joint grant applications with IJHN and thus had sufficient contacts in Maryland to be subject to the court's jurisdiction. They appear to rely solely on the fact that Doyle was an officer of Phoenix to establish the corporation's involvement, as they do not allege any specific actions taken on behalf of Phoenix. Rather, in their complaint, the plaintiffs identify only Scius as being involved in preparing and filing the grant applications, receiving the funds from IJHN, and improperly retaining those funds. Moreover, only Scius, not Phoenix, is an accredited partner of IJHN. Thus, it is not clear from the face of the complaint whether Phoenix had sufficient contacts in the state of Maryland to be subject to the court's jurisdiction.
The plaintiffs also attempt to impute to Phoenix the jurisdictional contacts of its subsidiary Scius. As noted above, Maryland law is generally more restrictive than other jurisdictions in allowing a plaintiff to pierce the corporate veil and will do so only where necessary to prevent fraud or enforce a paramount equity. Residential Warranty, 728 A.2d at 790-91; see also Saudi v. Northrop Grumman Corp., 427 F.3d 271, 276 (4th Cir. 2005) ("[I]t is generally the case that the contacts of a corporate subsidiary cannot impute jurisdiction to its parent entity."). The court may attribute the subsidiary's actions to the parent "only if the parent exerts considerable control over the activities of the subsidiary." Mylan, 2 F.3d at 61. The central inquiry in this regard is "whether significant decisions of the subsidiary must be approved by the parent," but the court also examines factors such as whether the parent and subsidiary keep separate books and records, use separate accounting procedures, and hold separate directors' meetings. Id. The court also looks to see if there is an independent reason for the existence of the company. Id.
The complaint alleges that Phoenix and Scius often worked in tandem in providing services to the plaintiffs, committed some of the same alleged misconduct, and that Phoenix submitted reimbursement requests on behalf of itself and Scius. In their opposition, the plaintiffs further allege that "Phoenix officers, such as Ms. Doyle, were frequently involved in the administration of Scius business matters." (Opp. at 15.) The plaintiffs acknowledge, however, that they are unaware of whether Phoenix must approve Scius's business decisions or whether the two corporations maintain separate books. In light of Maryland's restrictive standard, it appears from the face of the complaint that the plaintiffs' allegations are insufficient to pierce the corporate veil. At best, the allegations suggest that Phoenix, through its representatives, exercised some control over Scius, but this does not rise to the level required to pierce the corporate veil. See, e.g., Glynn v. EDO Corp., 536 F.Supp.2d 595, 607-08 (D. Md. 2008) (imputing subsidiary's contacts to parent where parent approved subsidiary's purchases and monitored activities on a daily basis, both corporations had the same board of directors and accounting and financial recording system, and subsidiary was undercapitalized).
C. Scius
The plaintiffs contend that the court has general jurisdiction over Scius, pointing to the approximately sixty medical educational programs that Scius has planned and coordinated in Maryland over the past five years, Scius's status as an accreditation partner of IJHN, and Scius's contacts with Maryland individuals and entities specific to its involvement with the plaintiffs. These contacts, representing a small percentage of Scius's activities nationwide, fall short of the "systematic and continuous" business contacts required to establish general jurisdiction. See, e.g., Nichols v. G.D. Searle Co., 991 F.2d 1195, 1198 (4th Cir. 1993) (finding general jurisdiction lacking over defendant who had conducted between $9 and $13 million worth of sales in the forum state, and who had employed residents as sales representatives and as a district manager); see also Atlantech Distrib., Inc. v. Credit Gen. Ins. Co., 30 F.Supp.2d 534, 536 (D. Md. 1998) ("[C]ourts will typically only assert general jurisdiction over nonresidents who are essentially domiciled within the forum state.") (internal quotation marks and citation omitted).
Whether the court can exercise specific jurisdiction over Scius based on its involvement in submitting the joint grant applications with IJHN is a closer question. In light of the lack of clarity as to whether the court has specific jurisdiction over any of the defendants, the most efficient course of action is to transfer venue to the District of New Jersey. See Joseph M. Coleman Assocs., Ltd. v. Colonial Metals, 887 F.Supp. 116, 120 (D. Md. 1995) (finding transfer appropriate under § 1404(a) where doing so avoids the unnecessary "inject[ion]" of close jurisdictional question into a case). Transferring the claims against all parties to New Jersey prevents duplicative proceedings and unnecessary inconvenience to potential witnesses. See id. ("It would not be in the interest of any of the parties or any of the witnesses to litigate this case in Maryland, only to have a ruling upholding the assertion of jurisdiction over [the defendant] reversed on appeal."). It is undisputed that the plaintiffs are New Jersey entities and that all defendants reside in New Jersey, thus it would not be unduly burdensome or unfair to require the parties to litigate the case there. Moreover, the educational materials at issue in this case in addition to the financial books and records of the organizations are located in New Jersey. Under these circumstances, the court determines that the plaintiffs' choice of forum must yield to other interests and will grant defendants' motion to transfer. A separate order follows.
Transfers of venue are authorized under both 28 U.S.C. § 1404(a) "[f]or the convenience of parties and witnesses, in the interest of justice" and 28 U.S.C. § 1406(a), which provides that "[t]he district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought." The Fourth Circuit has interpreted § 1406(a) to authorize transfers in cases where venue is proper but an impediment (such as lack of personal jurisdiction) exists that would prevent the action from going forward in that district. In re Carefirst of Md., Inc., 305 F.3d 253, 255-56 (4th Cir. 2002). The analysis of whether a transfer is "in the interest of justice" under § 1406(a) is the same as under § 1404(a). Nichols, 991 F.2d at 1201 n. 5 (citing 15 Charles A. Wright, Arthur R. Miller Edward H. Cooper, Federal Practice and Procedure, § 3827, at 246-66 (1986)).
Even if venue were proper for Scius in Maryland, venue can be proper in more than one district. Mitrano v. Hawes, 377 F.3d 402, 405 (4th Cir. 2004).
While the current president of RSNI and RSNF, Victoria Ruffing, resides in Maryland, as the defendants correctly point out, she is not a party to the litigation. Her convenience as a potential witness does not outweigh the other present interests.
In light of the fact that Scius is going out of business, the court acknowledges the plaintiffs' legitimate concerns prompting their supplemental motion seeking limited paper discovery against Scius (docket entry no. 18). Accordingly, the court grants permission for and suggests that the plaintiffs serve their written discovery requests on Scius to place the defendant specifically on notice of what material will be requested during discovery. It will be up to the transferee court to establish appropriate time tables for this and any other discovery requests.
ORDER
For the reasons stated in the accompanying Memorandum, it is hereby ORDERED that:1. the defendants' motion to dismiss or to transfer (docket entry no. 9) is treated as one to transfer and, as such, is GRANTED; and
2. this case shall be TRANSFERRED to the District of New Jersey.