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Cote v. Wadel

United States Court of Appeals, Seventh Circuit
Jul 21, 1986
796 F.2d 981 (7th Cir. 1986)

Summary

holding a "handful of letters and phone calls" were insufficient to establish personal jurisdiction

Summary of this case from Bump Boxes, Inc. v. Licea

Opinion

No. 85-2550.

Submitted May 6, 1986.

Decided July 21, 1986.

Challoner Morse McBride, McBride Law Office, Sturgeon Bay, Wis., for plaintiff-appellant.

David M. Quale, Prosser, Wiedabach Quale, S.C., Dorothy H. Dey, Milwaukee, Wis., for defendants-appellees.

Appeal from the United States District Court for the Eastern District of Wisconsin.

Before POSNER and COFFEY, Circuit Judges, and PELL, Senior Circuit Judge.


Colleen Cote, who lives in Wisconsin, brought a diversity suit against Peter Wadel, a lawyer in Michigan, and his law firm, Wadel Bulger, P.C., a professional corporation that is incorporated in Michigan (see Mich.Comp.L. § 450.222(b)) and has its principal place of business there. The suit charges that Wadel committed malpractice in representing the plaintiff in a matter in Michigan. The district court dismissed the suit for lack of personal jurisdiction over the defendants and turned down the plaintiff's plea to transfer the case to a federal district court in Michigan under 28 U.S.C. § 1404(a) rather than dismiss it. She cannot file a new suit, because the statute of limitations has run. She appeals, arguing that either there was personal jurisdiction over the defendants or, if not, the district judge should have transferred rather than dismissed the suit.

A threshold question, one of first impression in this circuit, is whether for purposes of diversity jurisdiction a professional corporation is to be treated like any other corporation or like a partnership; if the latter, the existence of subject-matter jurisdiction would depend on which states the shareholders of Wadel Bulger are citizens of, since for diversity purposes a partnership is a citizen of all the states of which its partners are citizens. See, e.g., Elston Investment, Ltd. v. David Altman Leasing Corp., 731 F.2d 436 (7th Cir. 1984).

A professional corporation is primarily a device for enabling a partnership of professionals to enjoy the tax advantages of a corporation. Realistically it lacks the two defining characteristics of a conventional corporation — legal liability and perpetual existence. The professional relationship is between the individual professional and the client rather than between the corporation and the client. Thus, the professional remains personally liable for malpractice, and his death or resignation severs the corporation relationship with the client. See American Bar Association, Code of Professional Responsibility, EC 6-6, DR 6-102A (1982); see generally Henn Alexander, Laws of Corporations and Other Business Enterprises § 77 (3d ed. 1983); Oleck, Nonprofit Corporations, Organizations, and Associations 187-88 (4th ed. 1980). Since, moreover, professional corporations rarely require substantial capital (other than the "human capital" of the professionals themselves), the essential purpose of the corporate form — to enable the raising of substantial capital from risk-averse investors by allowing them to limit their liability to the amount of the investment (see In re Kaiser, 791 F.2d 73, 75 (7th Cir. 1986)) — is irrelevant, quite apart from the fact that the professional corporation does not shield its shareholders from the largest potential source of personal liability that they face.

To give the professional corporation determinative significance for diversity jurisdiction is therefore to attach an unintended consequence to federal tax legislation, and yet we conclude that a professional corporation is a corporation within the meaning of 28 U.S.C. § 1332. Jurisdictional rules should be as simple as possible, so that the time of litigants and judges is not wasted deciding where a case should be brought and so that fully litigated cases are not set at naught (as in our recent case of Kanzelberger v. Kanzelberger, 782 F.2d 774 (7th Cir. 1986)) because a subtle jurisdictional bar was overlooked until the appeal. We therefore agree with the Second Circuit's conclusion, in the only other case on the question, that a professional corporation is to be treated like other corporations for purposes of determining the presence or absence of diversity jurisdiction. Saxe, Bacon Bolan, P.C. v. Martindale-Hubbell, Inc., 710 F.2d 87, 89 (2d Cir. 1983). To paraphrase Gertrude Stein, for purposes of diversity jurisdiction a corporation is a corporation is a corporation.

Having satisfied ourselves that the district court had subject-matter jurisdiction we turn to the question of personal jurisdiction. According to Cote's allegations, which for purposes of this appeal we must take as true, she hired Wadel in January 1983 to represent her in a suit for medical malpractice that she had filed pro se in a Michigan state court. Wadel filed an appearance for her in the state court on February 10, 1983, and on March 1 mailed her a bill for $118.25 for court costs that he had paid on her behalf. She paid him the next month. In July she learned from the defendant's lawyer that her case had been dismissed for lack of prosecution back in April. She called Wadel's office and someone there told her that settlement negotiations were in progress with the defendant's insurer. As she knew that the defendant was not insured, she asked another lawyer to find out what was going on, but no one at Wadel's firm would discuss the case with this other lawyer.

Wisconsin's long-arm statute confers jurisdiction on the Wisconsin courts (and hence, through the operation of Fed.R.Civ.P. 4(e), on the Wisconsin federal courts in diversity suits, see Afram Export Corp. v. Metallurgiki Halyps, S.A., 772 F.2d 1358, 1362 (7th Cir. 1985)) over nonresident defendants "in any action claiming injury to person or property within or without this state arising out of an act or omission within this state by the defendant." Wis.Stat. § 801.05(3). Unfortunately for Cote there was no act or omission in Wisconsin by Wadel or other persons in his firm. The act or omission of which Cote complains is the failure to prosecute her suit and to cooperate with the lawyer whom she asked to investigate the failure, and these failures occurred in Michigan. She had (she claims) a valuable property in Michigan consisting of a cause of action against a doctor, and she lost that property, also in Michigan, allegedly through the defendants' negligence there. Neither Wadel nor anyone else in his firm ever set foot in Wisconsin in connection with this matter. The only significant connection between the suit and Wisconsin is that the plaintiff lives there; and you cannot get jurisdiction over a nonresident just by showing that you are a resident and would prefer to sue in your own state's courts. By that reasoning, there would be no limits to personal jurisdiction over nonresidents.

The handful of letters and phone calls that passed between Cote and the Wadel firm is not enough to close the gap. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984); Young v. Colgate-Palmolive Co., 790 F.2d 567, 570 (7th Cir. 1986); Lakeside Bridge Steel Co. v. Mountain State Construction Co., 597 F.2d 596, 598, 604 (7th Cir. 1979); Madison Consulting Group v. South Carolina, 752 F.2d 1193, 1203 n. 18 (7th Cir. 1985) (dictum). Personal jurisdiction over nonresidents of a state is a quid for a quo that consists of the state's extending protection or other services to the nonresident, a feature lacking here. See, e.g., Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958); Afram Export Corp. v. Metallurgiki Halyps, S.A., supra, 772 F.2d at 1362-63. The case for jurisdiction is even weaker than in Wallace v. Herron, 778 F.2d 391 (7th Cir. 1985).

The last question is whether the district court was justified in refusing to transfer rather than dismiss the case. The transfer statute provides that "for the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." 28 U.S.C. § 1404(a). Ordinarily, of course, transfer is sought by the defendant rather than the plaintiff; if the plaintiff had wanted to be in another district (where the suit could have been brought) he would have brought his suit there in the first place. To understand the use of the statute by plaintiffs we must turn for a moment to section 1406(a), which provides that "the district court of a district in which is field 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." In Goldlawr, Inc. v. Heiman, 369 U.S. 463, 467, 82 S.Ct. 913, 916, 8 L.Ed.2d 39 (1962), the Supreme Court held that where the plaintiff had accidentally filed suit in the wrong district and the statute of limitations had since run, the interest of justice required that the district court transfer the suit to the right district rather than dismiss it. It was irrelevant that the first district court also lacked personal jurisdiction over the defendant. In the present case venue was proper, because the sole plaintiff resides in the Eastern District of Wisconsin, see 28 U.S.C. § 1391(a); and in cases such as this the courts reason quite sensibly as it seems to us that a transfer under section 1404(a) is proper in the same circumstances that it would be if venue had been improper, notwithstanding the small difference in wording between 1404(a) and 1406(a) ("may" versus "shall"). See 15 Wright, Miller Cooper, Federal Practice and Procedure § 3827, at pp. 264-66 (2d ed. 1986). And under 1404(a) as under 1406(a), the transferring court need not have personal jurisdiction over the defendants. Andrews v. Heinold Commodities, Inc., 771 F.2d 184, 189 n. 5 (7th Cir. 1985).

Under either section, the district court has broad discretion to grant or deny a motion to transfer the case. See, e.g., Coffey v. Van Dorn Iron Works, 796 F.2d 217, 219-221 (7th Cir. 1986). For "the interest of justice" is not a definite standard, departure from which an appellate court can readily discern and correct. Cf. Mosey Mfg. Co. v. NLRB, 701 F.2d 610, 615 (7th Cir. 1983) (en banc); Noonan v. Cunard S.S. Co., 375 F.2d 69, 71 (2d Cir. 1967) (Friendly, J.). Although we know from Goldlawr that the district court's discretion is not unlimited, we know from Piper Aircraft Co. v. Reyno, 454 U.S. 235, 257, 102 S.Ct. 252, 266, 70 L.Ed.2d 419 (1981), that we can reverse its exercise of that discretion only for a "clear abuse of discretion," implying a very limited scope of appellate review.

In effect the district court penalized Cote heavily for filing her suit in the wrong district: she is forever barred from bringing a suit that for all we know has great merit. If her mistake were one easy to commit, the penalty might be so disproportionate to the wrong that it would have to be reversed, as a clear abuse of discretion. But the mistake was elementary. Elementary prudence would have indicated to her lawyer that he must file a protective suit in Michigan because there was only a slight probability of obtaining personal jurisdiction in Wisconsin over the defendants. Compare Orthmann v. Apple River Campground, Inc., 757 F.2d 909, 911, 914 (7th Cir. 1985). The proper penalty for obvious mistakes that impose costs on opposing parties and on the judicial system is a heavy one. Brown v. Grimm, 624 F.2d 58, 59 (7th Cir. 1980) (per curiam), up-held a refusal to transfer a case in circumstances like those of the present case. We adhere to Brown and remind plaintiffs and their counsel that they must determine where the plaintiff can get personal jurisdiction over the defendant before, not after, the statute of limitations runs; otherwise they court disaster. If the result in the present case seems harsh, that is because the costs to Colleen Cote are palpable. while the benefits are largely invisible. But the benefits are not trivial; litigants and the public will benefit substantially in the long run from better compliance with the rules limiting personal jurisdiction.

AFFIRMED.


Summaries of

Cote v. Wadel

United States Court of Appeals, Seventh Circuit
Jul 21, 1986
796 F.2d 981 (7th Cir. 1986)

holding a "handful of letters and phone calls" were insufficient to establish personal jurisdiction

Summary of this case from Bump Boxes, Inc. v. Licea

holding that an "elementary" mistake by plaintiff does not require a court to transfer rather than dismiss a suit under § 1406

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holding "handful of letters and phone calls" exchanged between plaintiff and foreign defendant were insufficient to establish jurisdiction

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holding that a handful of letters and phone calls are insufficient to establish specific jurisdiction over a defendant under Wisconsin's long-arm statute

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finding insufficient a "handful" of letters and phone calls exchanged between plaintiff and defendant

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finding insufficient a "handful" of letters and phone calls exchanged between plaintiff and defendant

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upholding district court's decision not to transfer case though limitations period had expired because filing suit in Wisconsin when neither the cause of action nor the defendants had any relationship with that state was an "elementary" mistake

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denying transfer when plaintiff makes an "elementary" mistake as to venue

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denying motion for transfer because counsel made an "elementary mistake by filing in the wrong district"

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affirming dismissal of plaintiff's claim even though it barred her from filing in another jurisdiction because "[e]lementary prudence would have indicated to her lawyer that . . . there was only a slight probability of obtaining personal jurisdiction in Wisconsin over the defendants"

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affirming order of dismissal and denial of transfer where it resulted in plaintiff's claims being barred by the statute of limitations

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affirming dismissal of suit for lack of personal jurisdiction, and noting that "litigants and the public will benefit substantially in the long run from better compliance with the rules limiting personal jurisdiction"

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affirming dismissal where counsel made "elementary mistake by filing in wrong district

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affirming denial of motion for transfer, finding "[e]lementary prudence would have indicated to [plaintiff's] lawyer that he must file a protective suit in Michigan because there was only a slight probability of obtaining personal jurisdiction in Wisconsin over defendants. . . . The proper penalty for obvious mistakes that impose costs on opposing parties and on the judicial system is a heavy one"

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In Coté, for example, the handful of interstate communications between the parties were at best only tenuously connected to the conduct underlying the malpractice suit.

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In Coté v. Wadel, 796 F.2d 981, 983 (7th Cir. 1986), however, we held, as had the Second Circuit in Saxe, Bacon Bolan, P.C. v. Martindale-Hubbell, Inc., 710 F.2d 87, 89 (2d Cir. 1983), that for purposes of the diversity jurisdiction a professional corporation should be treated like any other corporation, rendering the members' citizenship irrelevant.

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In Coté, 796 F.2d at 983-84, for example, the plaintiff, a Wisconsin resident, hired the defendant, a Michigan lawyer, to represent her in a lawsuit in Michigan state court and the lawyer failed to prosecute her suit.

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In Coté, for example, the handful of interstate communications between the parties were at best only tenuously connected to the conduct underlying the malpractice suit.

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In Coté, plaintiff (a Wisconsin citizen) sued an out-of-state law firm (with Michigan citizenship) for malpractice that was allegedly occurred in Michigan.

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refusing to transfer even though the statute of limitations had run on plaintiff's claim, since plaintiff's mistake in filing suit in the wrong court was elementary and could have been easily avoided with prudence

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noting that a district court may transfer a case for improper venue even if it lacks personal jurisdiction over the defendant

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explaining that the broad discretion accorded the trial court is a product of the "in the interest of justice" language

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noting that "'the interest of justice' is not a definite standard"

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explaining that the broad discretion accorded the trial court is a product of the "in the interest of justice" language

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analyzing denial of transfer under 28 U.S.C. § 1404

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Case details for

Cote v. Wadel

Case Details

Full title:COLLEEN A. COTE, PLAINTIFF-APPELLANT, v. PETER J. WADEL AND WADEL BULGER…

Court:United States Court of Appeals, Seventh Circuit

Date published: Jul 21, 1986

Citations

796 F.2d 981 (7th Cir. 1986)

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