E-Alert Case Updates

Virginia Federal Court Lacks Jurisdiction Over Arizona Resident

Hirsch v. Johnson
No. 1:14CV332 (United States District Court for the Eastern District of Virginia, June 26, 2014)
by Richard J. Medoff, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at http://docs.justia.com/cases/federal/district-courts/virginia/vaedce/1:2014cv00332/304339/17

In Hirsch v. Johnson, the United States District Court for the Eastern District of Virginia held that the court lacked personal jurisdiction over the defendant, an Arizona resident, under Virginia law and the Fourteenth Amendment to the United States Constitution. The Court rejected Plaintiffs’ argument that the Defendant had purposefully availed himself of the benefits and protections of Virginia law by contracting and corresponding with the Plaintiffs in Virginia. The Court granted Defendant’s motion to dismiss for lack of personal jurisdiction and improper venue. Judge James Cacheris wrote the opinion.

By way of factual background, on November 20, 2011, Defendant Robert Johnson (“Johnson”) executed an assignment of claims, defenses and interests in an action captioned Wanchuk, et al. v. PCM Ventures, I, LLC et al. (“Wanchuk litigation”) to Rocco DeLeonardis (“DeLeonardis”) and Robert Hirsch (“Hirsch”). DeLeonardis and Hirsch, the Plaintiffs in this action, alleged that the assignment was made in consideration of Plaintiffs’ agreement to provide Johnson with “cash, assistance, Arizona legal counsel, payment of legal expenses, fees and costs” to pursue Johnson’s claims against Phoenix Capital management, P.C.M. Ventures I, LLC (“PCM”), and defend against PCM’s counterclaims. Under the assignment, any proceeds of recovery would be split on a 65-35 percent basis. The 65 percent share was to go to Hirsch and DeLeonardis and the 35 percent was to go to Johnson.

On December 6, 2012, DeLeonardis and Defendant Adam Romney (“Romney”) signed a retainer agreement whereby Romney would act as attorney for DeLeonardis and Hirsch, in their capacities as assignees and interested parties in the Wanchuk litigation. On May 13, 2013, Johnson retained Romney to defend him in a separate suit filed against them in the Superior Court of Maricopa County, Arizona. Plaintiffs allege that Romney colluded with Johnson to defraud them of their 65 percent interest in the Wanchuk litigation, while Romney was still acting as Plaintiffs' counsel in the Wanchuk litigation. Specifically, Plaintiffs claim that the Wanchuk litigation was settled, that all interested parties executed a Settlement Agreement on October 24, 2013, and that the defendants in the Wanchuk litigation wired $200,000 in settlement proceeds to Romney’s escrow account on November 1, 2014. Plaintiffs claimed that since that date, Romney refused to disburse the $130,000 allegedly owing to Hirsch and DeLeonardis. Plaintiffs filed suit against Johnson and Romney on March 31, 2014, asserting claims including breach of contract, conversion and misappropriation, breach of fiduciary duty, and legal malpractice. On April 30, 2014, Romney filed a motion to dismiss for lack of personal jurisdiction.

Virginia’s long arm statute extends personal jurisdiction to the fullest extent permitted by due process. As a result, to establish personal jurisdiction over a non-resident, Virginia courts need only inquire whether the exercise of jurisdiction comports with the Fourteenth Amendment’s due process requirements. To satisfy the requirements of due process, a 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. Two types of personal jurisdiction meet these constitutional requirements: specific jurisdiction and general jurisdiction. Regarding specific jurisdiction, the Fourth Circuit has set out a three part test 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.’”

In considering the first prong of the test, the Court concluded that Romney did not purposefully avail himself of the privilege of conducting activities in Virginia. The Court noted the only possible basis it could have for exercising specific jurisdiction over Romney was his contractual relationship with the Plaintiffs, as Romney did not maintain offices, agents or own property in Virginia. The Court distinguished this case from cases where the Court exercised personal jurisdiction over out-of-state attorneys who had initiated and carried out relationships with Virginia residents, noting that Romney became involved with Plaintiffs when he responded to a request posted on “phoenix.craigslist.org” seeking an Arizona attorney to act as local counsel in the Wanchuk litigation. The Court added that Romney neither reached into Virginia to initiate this business, nor conducted any work on this matter outside of Arizona.

The Court rejected Plaintiffs argument that the fact Romney entered into a contract with a resident of Virginia was sufficient for the Court to establish jurisdiction, noting that the services Romney contracted to provide would necessarily be performed solely in Arizona. The Court also rejected Plaintiffs argument that the fact that Romney had sent hundreds of communications by mail, email, and phone to DeLeonardis in Virginia was sufficient to establish jurisdiction, noting that correspondence alone is insufficient, as a matter of law, to establish minimum contacts that satisfy due process. Accordingly, the Court concluded that Romney did not purposefully direct his activities at Virginia such that the exercise of specific jurisdiction would comport with due process.

Additionally, the Court found it did not have general jurisdiction over Romney, noting that Romney was a resident of Arizona who had no contacts with Virginia, other than with Plaintiff DeLeonardis. Finally, the Court rejected Plaintiffs argument that the Court could exercise quasi in rem jurisdiction over Romney because he wired the settlement funds at issue in this action to a bank in Washington, D.C. that was headquartered in Virginia. The Court noted that funds transferred to a bank in Washington, D.C. do not provide a basis for the exercise of jurisdiction in Virginia, and the fact that the bank is headquartered in Virginia did not change that analysis. Thus, because the Plaintiff was unable to establish the Court had personal jurisdiction over Romney, the Court granted Romney’s motion to dismiss.