New Wellington Financial Corp. v. Flagship Resort Development Corp.

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
NEW WELLINGTON FINANCIAL 
CORPORATION,
Plaintiff-Appellant,
v.
FLAGSHIP RESORT DEVELOPMENT
CORPORATION; FIRST FLAGSHIP
FINANCIAL SERVICES CORPORATION,  No. 04-2216
Defendants-Appellees,
and
ATLANTIC PALACE DEVELOPMENT,
L.L.C.,
Defendant.

Appeal from the United States District Court
for the Western District of Virginia, at Charlottesville.
Norman K. Moon, District Judge.
(CA-03-74)
Argued: May 25, 2005
Decided: July 21, 2005
Before MOTZ and GREGORY, Circuit Judges,
and HAMILTON, Senior Circuit Judge.
Affirmed by published opinion. Judge Gregory wrote the opinion, in
which Senior Judge Hamilton joined. Judge Motz concurred in the
judgment.
2 NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT
COUNSEL
ARGUED: Thomas E. Albro, TREMBLAY & SMITH, Charlottes-
ville, Virginia, for Appellant. Dennis Alan Richard, RICHARD &
RICHARD, P.A., Miami, Florida, for Appellees. ON BRIEF: Joseph
D. Pope, Nicole Tuman, COHEN POPE, P.L.L.C., New York, New
York; M. E. Gibson, Jr., Patricia D. McGraw, TREMBLAY &
SMITH, L.L.P., Charlottesville, Virginia, for Appellant. Patrick C.
Asplin, KEELER OBENSHAIN, P.C., Harrisonburg, Virginia, for
Appellees.
OPINION
GREGORY, Circuit Judge:
This appeal requires us to determine whether personal jurisdiction
exists over an out-of-state defendant and, if so, whether the district
court could decline to exercise jurisdiction. Because the district court
was entitled to exercise its discretion to decline to hear a declaratory
judgment action in light of a parallel state-court case, we affirm.
I.
Flagship Resort Development Corp., First Flagship Financial Ser-
vices Corp. (together, "Flagship"), and Atlantic Palace Development,
L.L.C. ("Atlantic Palace") operate timeshare resorts in New Jersey.
According to New Wellington Financial Corp. ("Wellington"), Flag-
ship and Atlantic Palace mailed consumer credit applications, credit
reports, and collateral from outside Virginia to Wellington’s Virginia
headquarters every week from 1993 to 2003. Wellington reviewed
and processed these credit documents on behalf of lenders including
Liberty Bank ("Liberty") and Finova Capital Corp. ("Finova"), among
others (collectively, "the lenders"). With Wellington’s aid, Flagship
and Atlantic Palace secured financing from the lenders for their
resorts.
In June 2003 a sharp disagreement arose between the parties. Flag-
ship and Atlantic Palace confronted Wellington with allegations that
NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT 3
Wellington violated its duty as their agent by taking undisclosed pay-
ments from the lenders. On June 13, 2003, Flagship and Atlantic Pal-
ace sent a letter from New Jersey to Finova’s headquarters in Arizona.
The letter sought Finova’s cooperation with Flagship and Atlantic
Palace’s investigation of the allegedly undisclosed payments and
requested that, in the interim, Finova cease payments to Wellington
relating to their loans. Five days later Flagship and Atlantic Palace
also wrote to Liberty, in Connecticut. The letter told Liberty that
Flagship and Atlantic Palace would no longer be working with Wel-
lington. That same day Flagship informed Wellington by letter that
they would terminate their relationship with Wellington, requested a
list of the dates, amounts and form of all payments received from the
lenders, and stated that they would seek return of all fees paid by the
lenders on their loans. Wellington insists that it has never acted as
Flagship’s or Atlantic Palace’s agent or broker or taken improper pay-
ments from lenders.
Wellington filed its initial complaint on August 13, 2003. It sought
a declaratory judgment that no agency relationship existed between
the parties and that it owed Flagship and Atlantic Palace no money
that it had received from the lenders. A month later Wellington
amended its complaint by adding a claim against Flagship for tortious
interference with Wellington’s agreement with Liberty and by drop-
ping Atlantic Palace to preserve complete diversity, which was the
sole basis for subject-matter jurisdiction.1 Both complaints asserted
personal jurisdiction because the action arose "from the transaction of
business in this state and from the commission of torts outside this
state causing injury in this state." J.A. 12, 32.
Between the filing of Wellington’s initial and amended complaints,
Flagship and Atlantic Palace sued Wellington, Finova, and two of
Wellington’s officers in New Jersey state court. Flagship and Atlantic
Palace alleged, among other things, fraud, commercial bribery, viola-
tion of New Jersey racketeering law, breach of contract, breach of the
implied covenant of good faith and fair dealing, and breach of fidu-
1
Flagship is incorporated in both New Jersey and Florida. Atlantic Pal-
ace is a limited liability company whose citizenship is ultimately uncer-
tain from the record because of its abbreviated presence in this suit.
4 NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT
ciary duty. The parties agree that the conduct underlying the two
cases is identical.
On April 30, 2004, Flagship filed motions to dismiss the Virginia
case because of the parallel New Jersey suit and for lack of personal
jurisdiction. In its brief opposing Flagship’s motion to dismiss for
lack of personal jurisdiction, Wellington argued that personal jurisdic-
tion existed only under Va. Code Ann. § 8.01-328.1(A)(4)
("subsection 4"),2 not § 8.01-328.1(A)(1) ("subsection 1").3 At the oral
argument, however, Wellington changed course and argued both sub-
sections 1 and 4 of Virginia’s long-arm statute. Only on August 18,
2004 — over three months after filing its opposition brief and the
court’s deadline for reply briefs, after oral argument, and the day
before the court issued its opinion — did Wellington put the subsec-
tion 1 argument to paper, in a "supplemental memorandum of law"
that Wellington admits to us was untimely and unauthorized.
Wellington acknowledged in both its May 14, 2004 brief opposing
the motion to dismiss and at the August 13, 2004 oral argument on
the motion before the district court that it had released the claim for
tortious interference with Liberty’s contract because of settlement. At
the oral argument on the motions to dismiss Wellington also claimed
it would amend its complaint again to allege tortious interference with
Wellington’s contract with Finova. Despite its claim, and despite the
fact that it must have been aware of any alleged tortious interference
at least three months before the oral argument, when it submitted a
declaration of its president containing the information Wellington
2
This subsection provides jurisdiction over a person as to:
a cause of action arising from the person’s . . . [c]ausing tortious
injury in this Commonwealth by an act or omission outside the
Commonwealth if he regularly does or solicits business, or
engages in any other persistent course of conduct, or derives sub-
stantial revenue from goods used or consumed or services ren-
dered, in this Commonwealth[.]
Va. Code Ann. § 8.01-328.1(A)(4).
3
This subsection confers jurisdiction over a person as to "a cause of
action arising from the person’s . . . [t]ransacting any business in this
Commonwealth." Va. Code Ann. § 8.01-328.1(A)(1).
NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT 5
4
claims states a claim of tortious interference, Wellington never sub-
mitted a motion for leave to amend.
On August 19, 2004, the district court dismissed the case. The
court held that because Wellington withdrew the claim that Flagship
tortiously interfered with Wellington’s contract with Liberty and
because Wellington never filed any motion seeking to amend the
complaint to add the Finova contract claim, the only claim remaining
was the request for a declaration of the nature of the parties’ relation-
ship. The court found that because Wellington only argued jurisdic-
tion under subsection 4 of Virginia’s long-arm statute, which requires
an allegation that the defendant caused an actual tortious injury, and
because no claim of tortious injury remained, personal jurisdiction did
not exist. The court then explained that even if jurisdiction were
proper, it would exercise its discretion not to hear the declaratory
judgment action in light of the New Jersey state-court suit. This
appeal followed.
II.
We first address whether personal jurisdiction existed over Flag-
ship. We review this legal question de novo, but review any underly-
ing factual conclusions for clear error. See ePlus Tech., Inc. v. Aboud,
313 F.3d 166, 176 (4th Cir. 2002) (citing ALS Scan, Inc. v. Digital
Serv. Consultants, Inc., 293 F.3d 707, 710 (4th Cir. 2002)).
A.
When a defendant moves to dismiss for lack of personal jurisdic-
tion, the plaintiff ultimately bears the burden of proving to the district
court judge the existence of jurisdiction over the defendant by a pre-
ponderance of the evidence. Combs v. Bakker, 886 F.2d 673, 676 (4th
Cir. 1989). "But when, as here, the court addresses the question on the
basis only of motion papers, supporting legal memoranda and the rel-
4
Specifically, the declaration stated in relevant part that, "FINOVA has
renegotiated its loan agreements with Defendants and with Atlantic Pal-
ace. The renegotiated loan agreements enabled Defendants and with [sic]
Atlantic Palace to prepay their respective loans, which has resulted in
reduced fees to Wellington from FINOVA." J.A. 162 (emphasis added).
6 NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT
evant allegations of a complaint, the burden on the plaintiff is simply
to make a prima facie showing of a sufficient jurisdictional basis to
survive the jurisdictional challenge." Id.; see also In re Celotex Corp.,
124 F.3d 619, 628 (4th Cir. 1997). Under such circumstances, courts
"must construe all relevant pleading allegations in the light most
favorable to the plaintiff, assume credibility, and draw the most favor-
able inferences for the existence of jurisdiction." Combs, 886 F.2d at
676; see also Mitrano v. Hawes, 377 F.3d 402, 406 (4th Cir. 2004).5
Because federal courts exercise personal jurisdiction in the manner
provided by state law, we first decide whether Virginia state law
authorizes jurisdiction over the defendant; if so, we then must deter-
mine whether exercise of such jurisdiction is consistent with the Due
Process Clause of the Fourteenth Amendment. ESAB Group, Inc. v.
Centricut, Inc., 126 F.3d 617, 622 (4th Cir. 1997); see also Mitrano,
377 F.3d at 406. Virginia law provides in relevant part that:
A court may exercise personal jurisdiction over a person,
who acts directly or by an agent, as to a cause of action aris-
ing from the person’s:
1. Transacting any business in this Commonwealth;
....
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
....
5
However, "[a] threshold prima facie finding that personal jurisdiction
is proper does not finally settle the issue; plaintiff must eventually prove
the existence of personal jurisdiction by a preponderance of the evidence,
either at trial or at a pretrial evidentiary hearing." Production Group Int’l
v. Goldman, 337 F. Supp. 2d 788, 793 n.2 (E.D. Va. 2004) (citation omit-
ted).
NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT 7
Va. Code. Ann. § 8.01-328.1(A) (emphasis added). Virginia, like
other states, expands its specific grants of personal jurisdiction as far
as the Due Process Clause allows. See Peninsula Cruise, Inc. v. New
River Yacht Sales, Inc., 257 Va. 315, 319 (1999).6
Wellington only alleges specific, not general, jurisdiction. We have
synthesized the requirements of the Due Process Clause for asserting
specific jurisdiction into a three-part test. Specifically, we consider:
"‘(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 constitu-
tionally reasonable.’" Mitrano, 377 F.3d at 407 (quoting ALS Scan,
Inc., 293 F.3d at 712).
B.
Wellington now attempts to argue that specific personal jurisdic-
tion exists under both subsections 1 and 4 of Virginia’s long-arm stat-
ute. But the subsection 1 argument was never properly presented.
Here, some three months after briefing on the motion, Wellington
decided to adopt a different theory of personal jurisdiction at oral
argument from the only one argued in its brief. Then, after oral argu-
ment and the day before the court issued its decision, Wellington sub-
mitted the subsection 1 argument in an unauthorized and untimely
"supplemental memorandum." The court was fully within its rights to
prevent this ambush.7 District courts have the inherent authority —
6
It is nonetheless still possible "‘for the contacts of a non-resident
defendant to satisfy due process but not meet the specific grasp of a Vir-
ginia long-arm statute provision.’" Bochan v. LaFontaine, 68 F. Supp. 2d
692, 698 (E.D. Va. 1999) (quoting Telco Communications v. An Apple
A Day, 977 F. Supp. 404, 405 (E.D. Va. 1997)); see also Blue Ridge
Bank v. Veribanc, Inc., 755 F.2d 371, 373 (4th Cir. 1985). Virginia’s spe-
cific grants of jurisdiction are not meaningless. Moreover, plaintiffs who
assert jurisdiction under only one provision of the long-arm statute can-
not obtain jurisdiction under an unclaimed provision.
7
See, e.g., Skipper v. Giant Food, Inc., 68 Fed.Appx. 393, 396 n.3 (4th
Cir. 2003) ("After all papers were filed in the district court and the par-
ties had conducted oral argument, plaintiffs’ counsel filed a supplemental
8 NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT
and in fact the duty — to manage cases by setting time limits for the
filing of motions. An inseparable corollary is that the court can ignore
arguments forfeited because they are not presented consistent with the
court’s time limits. So it is clear that Wellington can only contend
personal jurisdiction exists under subsection 4.
As the district court also recognized rightly, Wellington plainly
released the only tortious interference with contract claim made in its
amended complaint because of settlement in both its brief opposing
the motion and at oral argument on the motion. Wellington contends
that the district court should have read the complaint and the May 13,
2004 declaration by Wellington’s president in a manner that somehow
constructed a new and separate claim for tortious interference with
Wellington’s contract with Finova. We disagree. Over three months
of time passed after Wellington filed the declaration of its president
which, it claims, contained a sufficient basis for belief that a new tor-
tious interference claim existed. Yet throughout this time Wellington
never moved for leave to amend its complaint so as to add a new tor-
tious interference claim.8 Given this inexplicable failure to amend
during this extensive opportunity, it was perfectly reasonable for the
district court to find that Wellington had not and either could not or
would not allege a new claim of tortious interference.9
memorandum. . . . Finding that the memorandum had not been filed in
a timely manner, the district court declined to address. . . [it] and we
decline to do so as well."); OV Foy v. Norfolk & Western R. Co., 377
F.2d 243, 246 (4th Cir. 1967) (where plaintiff offered no timely response
to motion for summary judgment and no explanation for that failure, dis-
trict court did not abuse its discretion in granting summary judgment for
defendant; district court’s decision to deny late motion was not an abuse
of discretion).
8
At oral argument Wellington stated that "[a]nd now we’re seeking, we
will be seeking, Judge, to amend it to encompass the claim of tortious
interference with a different bank that they’ve interfered with." J.A. 257.
Yet as the district court held, Wellington never filed this promised
motion to amend "and given the absence of such a motion the Court can-
not find that [ ] Wellington’s hypothetical proposed amendment is proper
or that such an amendment would create jurisdiction." J.A. 284.
9
Wellington argues to us that "mere lateness or delay in seeking leave
to amend are not, by themselves, reasons to deny amendment," Appel-
NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT 9
Wellington’s remaining argument is that under subsection 4 its
declaratory judgment action arises from a tortious injury. Wellington
submits that, even without the tortious interference with contract
claim, it alleged a tortious injury in the amended complaint with the
truncated claim that Flagship’s correspondence with Finova "dispar-
ages Wellington in its trade and business." J.A. 34. While this asser-
tion is rather cursory, when we construe the complaint in the light
most favorable to the plaintiff, see Combs, 886 F.2d at 676, and rec-
ognize the minimal requirements of the notice-pleading regime, see
Fed. R. Civ. P. 8(a), (e)(1), and (f), as we must, it is fair to say that
this allegation could be shaped into an allegation of the tort of defama-
tion.10 We will thus assume that the declaratory judgment claim can
satisfy subsection 4 by "arising from" this tort, thus satisfying Vir-
ginia law. Because, as explained below, we resolve this appeal by
lant’s Br. at 25. True enough, but this is insufficient to carry the day
where, as here, counsel never properly moved for amendment. That Wel-
lington managed to hide an alternative request to amend the complaint
in what it admits to us is an untimely and unauthorized "supplemental
memorandum of law" opposing the motion to dismiss is of no moment.
Filing a motion for leave to amend is not difficult — Wellington already
did it once in this case, and could have done so again easily. Improperly
filed briefs are a nullity and counsel should expect courts to ignore sug-
gestions tucked inside such papers.
10
In contrast with other arguments in this case, Wellington preserved
the defamation argument. The argument was made in Wellington’s
response to the motion to dismiss, see J.A. 308-310, and to the district
court at oral argument. At oral argument before the district court Wel-
lington stated that "letters were sent that were demeaning, derogatory,
and defaming of Wellington, and those letters were sent by Flagship
from New Jersey to other places. That’s a tort. There’s a tort of business
defamation and there was a tort of interference with business relations."
J.A. 246. Subsequently, Wellington stated that "[w]e have, in our original
and amended claim, we alleged business defamation. We didn’t set it out
as a separate count, but it is alleged." J.A. 247. We note that in Virginia
false, publicized statements that "prejudice a person in his or her profes-
sion or trade" are defamatory per se, and "a defamatory charge need not
be made in direct terms; rather, it may be made ‘by inference, implica-
tion[,] or insinuation.’" Perk v. Vector Resources Group, Ltd., 253 Va.
310, 316 (1997) (citing Carwile v. Richmond Newspapers, 196 Va. 1, 7
(1954)).
10 NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT
holding that the district court did not abuse its discretion by refusing
to entertain the declaratory judgment action in light of the New Jersey
suit, we will also assume without analysis that jurisdiction would sat-
isfy the familiar due process requirements.
III.
But this does not end things. "In the declaratory judgment context,
the normal principle that federal courts should adjudicate claims
within their jurisdiction yields to considerations of practicality and
wise judicial administration." Wilton v. Seven Falls Co., 515 U.S.
277, 287 (1995); see also Brillhart v. Excess Ins. Co., 316 U.S. 491,
494-95 (1942) (district courts are "under no compulsion" to exercise
jurisdiction over declaratory judgment action). "This circuit has long
recognized the discretion afforded to district courts in determining
whether to render declaratory relief," Aetna Cas. & Sur. Co. v. Ind-
Com Elec. Co., 139 F.3d 419, 421-22 (4th Cir. 1998). Accordingly,
we review a district court’s decision to decline to exercise such juris-
diction for an abuse of that discretion. Id. at 421 (citing Wilton, 515
U.S. at 290).
This discretion, while not unbounded, is especially crucial when,
as here, a parallel or related proceeding is pending in state court. See
Brillhart, 316 U.S. at 495 (district court considering hearing a declar-
atory judgment action "should ascertain whether the questions in con-
troversy between the parties to the federal suit . . . can better be
settled in the proceeding pending in the state court."). In such situa-
tions federal courts must weigh "‘considerations of federalism, effi-
ciency, and comity.’" United Capitol Ins. Co. v. Kapiloff 155 F.3d
488, 493 (4th Cir. 1998) (quoting Nautilus Ins. Co. v. Winchester
Homes, Inc., 15 F.3d 371, 376 (4th Cir. 1994)); see also Penn-
America Ins. Co. v. Coffey, 368 F.3d 409, 412 (4th Cir. 2004). As the
Supreme Court explained:
Ordinarily it would be uneconomical as well as vexatious
for a federal court to proceed in a declaratory judgment suit
where another suit is pending in a state court presenting the
same issues, not governed by federal law, between the same
parties. Gratuitous interference with the orderly and compre-
NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT 11
hensive disposition of a state court litigation should be
avoided.
Brillhart, 316 U.S. at 495. These considerations led us to require the
consideration of four factors when deciding whether to hear a declara-
tory judgment action when a related state-court proceeding exists:
(1) whether the state has a strong interest in having the
issues decided in its courts; (2) whether the state courts
could resolve the issues more efficiently than the federal
courts; (3) whether the presence of "overlapping issues of
fact or law" might create unnecessary "entanglement"
between the state and federal courts; and (4) whether the
federal action is mere "procedural fencing," in the sense that
the action is merely the product of forum-shopping.
Kapiloff, 155 F.3d at 493 (quoting Nautilus Ins., 15 F.3d at 377); see
also Penn-America Ins. Co., 368 F.3d at 412.
Applying these guidelines to this case, we do not believe the dis-
trict court abused its discretion when it held that it would have
declined to exercise jurisdiction.
First, we agree with the district court that New Jersey has a strong
interest in having the dispute resolved in its courts. The conduct at
issue in these two suits involves and concerns New Jersey companies,
writing letters from New Jersey, regarding loans for New Jersey prop-
erty. In addition to the parties, actions, and property implicated, Flag-
ship and Atlantic Palace’s complaints in the New Jersey suit
exclusively involve claims based in New Jersey state law, several of
which can fairly be called complex, including those for "commercial
bribery," New Jersey RICO, and conspiracy to violate New Jersey
RICO.11 As we explained in Mitcheson v. Harris, 955 F.2d 235 (4th
Cir. 1992), "[t]here exists an interest in having the most authoritative
voice speak on the meaning of applicable law, and that voice belongs
to the state courts when state law controls the resolution of the case."
11
We pause to make clear that insofar as Wellington seeks to assert in
this action that it has a good defense to Flagship’s New Jersey action, it
is entirely proper to look to Flagship’s New Jersey claims.
12 NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT
Id. at 237. Likewise, Wellington asserts no claims under federal law.
As we said in Mitcheson, "[a]bsent a strong countervailing federal
interest, the federal court here should not elbow its way into this con-
troversy to render what may be an ‘uncertain and ephemeral’ interpre-
tation of state law." Id. at 238 (citation omitted).
Second, the New Jersey state court can resolve the matter more
efficiently. Other parties present there apparently could not be joined
in this case without destroying subject-matter jurisdiction. In the New
Jersey case, Finova and two of Wellington’s principals are named as
defendants. Wellington first removed the New Jersey case to New
Jersey federal district court but then filed a suggestion of remand,
because it believed one of the individual defendants was not diverse
from all of the members of Atlantic Palace. Remand was granted.
Moreover, Wellington first joined Atlantic Palace as a defendant to
this case, which evidences Wellington’s belief that Atlantic Palace is
a proper party, if not a necessary one. But Wellington’s counsel has
represented to the court that Atlantic Palace’s presence in this case
would destroy complete diversity of the parties.12 Besides the parties
present in New Jersey and absent here, it is easy to believe that the
New Jersey state court could resolve the New Jersey state law issues
alleged by Flagship and Atlantic Palace more efficiently than could
a federal court sitting in Virginia. We have previously found that the
presence of other parties and issues in the state action not present in
the federal declaratory judgment action is "particularly salient," and
we also find that to be the case here. See Centennial Life Ins. Co. v.
Posten, 88 F.3d 255, 257 (4th Cir. 1996). Indeed, if the district court
heard the case without the other parties and without addressing Flag-
ship’s state-law claims as counter-claims, then this could indeed cause
"excessive entanglement" by resolving the dispute in a piecemeal and
inefficient fashion.13
12
Now Wellington’s counsel claims that it erred in representing that
Atlantic Palace would destroy diversity in this case, and that Atlantic
Palace is indeed diverse and could be re-joined to this suit. Litigation
cannot proceed in this fashion; at some point an attorney’s representation
must have consequences.
13
Like the district court, we do not suggest that the filing of this action
was "mere procedural fencing."
NEW WELLINGTON FINANCIAL v. FLAGSHIP RESORT 13
IV.
Given all this, we cannot conclude that the district court abused its
discretion in deciding to decline to hear this declaratory judgment
action if personal jurisdiction existed. Clear as day, considerations of
"federalism, comity, and efficiency," Penn-America Ins. Co., 368
F.3d at 412, counsel against running this action simultaneously with
the New Jersey lawsuit. Accordingly, after careful consideration we
conclude that the district court’s decision to dismiss is
AFFIRMED.