Swarey v. Stephenson

REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 1272
September Term, 2013
ISRAEL SWAREY, et ux.,
v.
KERRY STEPHENSON, et al.
Eyler, Deborah S.
Leahy,
Thieme, Raymond G., Jr.
(Retired, specially assigned)
JJ.
Opinion by Leahy, J.
Filed: April 1, 2015
Israel and Linda Swarey (“the Swareys” or “Appellants”) fell prey to purportedly
false asseverations about investment opportunities in undercapitalized shell companies
owned and operated by Todd B. Parriott, Phillip Parriott, and Kerry Stephenson
(“Appellees”). The Swareys allege that in searching for secure sources of retirement
income in 2008, they were induced by Appellees to invest substantial sums in real estate
projects that never developed and companies that were either bankrupt, without assets, or
had ceased to exist. Ultimately, the Swareys lost $3.7 million, including their home—a
house that Mr. Swarey, once a builder by trade, had built himself.
On May 18, 2011, the Swareys filed a 21-count complaint in the Circuit Court for
St. Mary’s County, Maryland, alleging, inter alia, fraud, embezzlement, elder abuse,
conspiracy to commit fraud, violations of the Consumer Protection Act, and violation of
the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§
1961 to 1968. The Swareys’ complaint named six defendants in addition to the
Appellees.1
Appellees Todd and Phillip Parriott removed the case to federal court on December
15, 2011. Upon removal, the Parriotts filed separate motions to dismiss for lack of
personal jurisdiction, and Appellee Stephenson filed an answer to the complaint. The
1
In addition to Appellees, the named defendants were: Desert Capital REIT, Inc.;
Nick Andrews, individually and as owner or managing member of N. Andrews, LLC; N.
Andrews, LLC, individually and as alter-ego of Nick Andrews; Sean Zausner, individually
and as owner, manager, or officer of First Universal Lending, LLC; David Zausner,
individually and as owner, manager, or officer of First Universal Lending, LLC; and David
Feingold, individually and as owner, manager, or officer of First Universal Lending, LLC.
federal court dismissed the RICO claim and remanded the remaining state law claims back
to the circuit court.
On remand, the circuit court determined that the defendants associated with First
Universal Lending, LLC (“FUL”)—Nicholas Andrews, N. Andrews LLC, Sean Zausner,
David Zausner, and David Feingold (collectively referred to as the “FUL Defendants”)—
were never properly served with the complaint and summons under Maryland Rule 2-121.
Those determinations by the circuit court were not appealed and are not properly before
this Court. As discussed infra, an automatic bankruptcy stay barred pursuit of the claims
against Desert Capital REIT, Inc. (“Desert Capital”), the only defendant that is a Maryland
resident. The Swareys’ Notice of Appeal limits itself to Appellees, and stems from three
orders of the circuit court dismissing the complaints against all Appellees for lack of
personal jurisdiction, and for insufficiency of service of process as to Appellee Stephenson.
The Swareys present the following issues in their briefing, which we have rephrased
and combined for clarity:
I. Did the circuit court err in concluding that Appellee Stephenson was not
properly served, and therefore, must be dismissed from the action?
II. Did the circuit court err in granting the Appellees’ motions to dismiss for
lack of personal jurisdiction?
In view of the uncontested particulars that upon removal of the case to federal court,
Appellee Stephenson was properly served with federal summons and answered the
complaint, including all state law claims, we hold that he waived the defense of
2
insufficiency of service of process and was barred from raising it for the first time upon
remand back to the circuit court. We also find the circuit court abused its discretion in
failing to give the Swareys an opportunity to obtain responses to their discovery requests,
specifically aimed at determining the quality and quantity of Appellees’ contacts with
Maryland for the purpose of long-arm jurisdiction, prior to granting Appellees’ motions to
dismiss. Accordingly, we reverse the judgments of the circuit court and remand for further
proceedings.
BACKGROUND2
In 2008, Mr. Swarey was 69 years old. Prompted by a television advertisement,
Mr. Swarey attended a financial planning seminar on how to invest in real estate tax sales.
During this seminar, Mr. Swarey spoke to a representative of Strategic Wealth
Management about participating in some real estate development projects. Through this
contact, Mr. Swarey was put in touch with the Appellees and their related entities: Desert
Capital, Consolidated Mortgage LLC, and R&D Properties. Soon thereafter, the Swareys
were contacted by First Universal Lending, LLC and encouraged to secure a $2,000,000.00
non-purchase money loan, secured by their primary residence (the “FUL loan”), for the
purpose of making investments with Appellees.
2
Since this appeal arises from the grant of motions to dismiss, we review the relevant
and materials facts “in the light most favorable to appellant[s].” Ferguson v. Cramer, 116
Md. App. 99, 103 (1997).
3
In March of 2008, and before the Swareys entered into the FUL loan, Mr. Swarey
entered into a joint venture agreement and invested $440,000.00 in Pebble Creek JV, LLC
(“Pebble Creek”). The Pebble Creek joint venture agreement was executed by Appellee
Stephenson and sent to Mr. Swarey at his home address in Maryland, where Mr. Swarey
signed the agreement on March 27, 2008.3 The Swareys’ $440,000.00 investment was
wire-transferred to Pebble Creek from Mr. Swarey’s personal account at Maryland Bank
and Trust Company.
Pebble Creek was a subsidiary of R & D Properties, LLC, organized as a Nevada
company and owned by Appellee Kerry Stephenson. The declared purpose of Pebble
Creek was to purchase and develop 47 pre-identified residential lots in the Las Vegas area.
Once acquired, the Swareys would take an income producing ownership interest in the real
property. In their opposition to Appellee Todd Parriott’s Motion to Dismiss, the Swareys
provided numerous exhibits, including three letters from Appellee Stephenson sent to their
Maryland home, advising them that development of the Pebble Creek community
“continue[d] to move forward.” By email, dated January 13, 2009, Appellee Stephenson
assured his investors that the “community continues to move forward … [w]e have
received all approvals on the engineering and archetechural [sic] plans for all the home
3.
The joint venture agreements signed by Stephenson were not presented to the court
on the motions to dismiss or in opposition thereto. They are a part of the record, however,
as photocopies attached to an early motion for writ of attachment. Our review is not limited
to the record on the motions, but rather, is based upon the entire record. Himes Assocs.,
Ltd. v. Anderson, 178 Md. App. 504, 525-26 (2008).
4
models and are ready to pull permits to begin the building process.” But Pebble Creek
never purchased or developed any property, and eventually the Swareys’ $440,000.00
investment evaporated along with Pebble Creek JV, LLC when its status as a Nevada LLC
was revoked.
Meanwhile, in May 2008, Mr. Swarey entered into a second joint venture agreement
involving a different subsidiary of R & D Properties, LLC, owned by Appellee Stephenson.
The Ann Road Industrial 007, LLC, joint venture agreement was executed by Stephenson
and sent to Mr. Swarey at his home in Maryland, where he signed it on May 20, 2008.
This time the Swareys invested a total of $1,150,000.00 in Ann Road Industrial 007, LLC.
Again, the stated purpose of the venture was to purchase and develop real estate along Ann
Road in Clark County, Nevada. However, as before, no land was purchased, the
company’s status as a Nevada LLC was revoked, and no accounting was ever made to the
Swareys for their investment.
Around this time, the loan process initiated by lender FUL was delayed because
Mrs. Swarey was undergoing surgery for her recently diagnosed Renal Cell Carcinoma.
Undeterred by the Swareys’ hardship, the FUL loan officer, defendant Nick Andrews,
allegedly pursued the loan by meeting with Mr. Swarey near the hospital on the evening
before Mrs. Swarey’s surgery and threatening a lawsuit if the Swareys backed out of the
deal. That night, Andrews sent the FUL settlement officer to obtain a signature from an
ailing, semi-conscious Mrs. Swarey granting power of attorney to Mr. Swarey, and then
5
instructed him in executing the closing documents for the $2,000,000.00 loan. Mr.
Swarey dutifully invested that $2,000,000.00 in the “Mid-Bar Property Project” through
Appellee Todd Parriott and his Maryland investment company, Desert Capital. The
Swareys were told their money would be used to purchase a certain parcel of land for
construction of a high-rise condominium building. Correspondence regarding the Mid-
Bar investment came through Consolidated Mortgage, LLC—the surviving entity from the
merger of Appellee Phillip Parriott’s Consolidated Mortgage Corporation in Nevada, with
a South Dakota LLC of the same name. The Swareys allege Mid Bar was deliberately
underfunded and designed to fail. When the Mid-Bar Project defaulted on the loans it
received from Desert Capital, Desert Capital acquired the land in foreclosure at a greatly
discounted value, and allegedly laundered away the lost equity. The land was then
transferred to Mid Blue, LLC, another subsidiary of Appellee Phillip Parriott’s
Consolidated Mortgage, LLC. The Swareys were notified of this transfer by CM Capital
Services, LLC, a subsidiary of Parriott’s Delaware Company CM Group, LLC, owned by
Appellee Todd Parriott.4
In 2009, Mr. Swarey telephoned and wrote Appellees repeatedly, trying to ascertain
the state of the Swareys’ $3.7 million investments. By the fall of that year, all
communications from Appellees and their array of subsidiary entities ceased. On May 18,
4
It bears noting that the alleged investment scheme involves no fewer than 18 inter-
related business entities, owned by and between the Appellees Todd Parriott, Phillip
Parriott, and Kerry Stephenson, and incorporated in four different states.
6
2011, the Swareys filed a complaint in the Circuit Court for St. Mary’s County in the instant
case.
Writs of summons were issued as to all of the defendants on August 12, 2011. On
October 21 & 27, 2011, Appellees Phillip and Todd Parriott filed motions to dismiss for
lack of personal jurisdiction and insufficiency of service of process. Following
considerable difficulties, process was finally served on Appellees Todd Parriott and Phillip
Parriott on November 20, 2011. Four days later, Desert Capital filed a Notice of
Automatic Bankruptcy Stay pursuant to 11 U.S.C. § 362.
On December 15, 2011, the Swareys’ case was removed to the United States District
Court for the District of Maryland, Southern Division. Thereafter, Appellee Stephenson
was served with a federal summons and a copy of the complaint. On February 1, 2012,
he filed an answer and request for jury trial. In his answer, Stephenson raised as an
affirmative defense that he had no dealings as an individual with the Swareys and therefore
could not be sued in his personal capacity. Appellees Todd and Phillip Parriott filed
separate motions to dismiss based on lack of personal jurisdiction, improper venue, and
failure to state a claim upon which relief can be granted.
In its September 20, 2012, Memorandum Opinion, the federal district court
determined that the Swareys failed to state a RICO claim, because according to the
complaint, the defendants’ “purported actions were narrowly directed toward a single
fraudulent goal: to swindle the Swarey’s out of their life savings.” “The alleged scheme
7
involved a single set of victims (the Swareys), and caused a single discrete injury (the
Swareys’ monetary loss)[.]”5 Accordingly, the September 20, 2012, order of the district
court dismissed the RICO count as to all defendants. With the only federal count
dismissed, the district court declined to exercise supplemental subject matter jurisdiction
over the remaining state law claims and remanded the case to the circuit court.6
From here, the Swareys’ remaining claims disappeared almost as quickly as their
life savings. On July 31, 2013, the Circuit Court for St. Mary’s County granted: (1)
Appellee Todd Parriott’s Motion to Dismiss for Lack of Personal Jurisdiction; (2) Appellee
Phillip Parriott’s Motion to Dismiss for Lack of Personal Jurisdiction; and (3) Appellee
5
Operation of the RICO statute requires a pattern of “continuing racketeering
activity.” Menasco, Inc. v. Wasserman, 886 F.2d 681, 683-84 (4th Cir. 1989) (citing H.J.
Inc. v. Nw. Bell Tel. Co., 492 U.S. 229 (1989)). “In providing a remedy of treble damages
for injury by reason of a violation of RICO's substantive provisions, 18 U.S.C. § 1964(c),
Congress contemplated that only a party engaging in widespread fraud would be subject to
such serious consequences.” Id. at 683 (citing S. Rep. No. 617, 91st Cong., 1st Sess. 158
(1969)) (“One isolated ‘racketeering activity’ was thought insufficient to trigger the
remedies provided under the proposed chapter, largely because the net would be too large
and the remedies disproportionate to the gravity of the offense.”). Where a plaintiff’s
allegations only concern actions by a defendant “narrowly directed towards a single
fraudulent goal,” the continuity prong of RICO’s pattern requirement is not satisfied. Id.
at 684.
6
The court did not undertake an analysis of personal jurisdiction over the defendants
under Maryland’s long-arm statute because it decided the RICO statute provided a basis
for exercising personal jurisdiction, making it permissible to assert pendent personal
jurisdiction as to the Swareys’ state law claims. After declining to exercise supplemental
jurisdiction, however, the court observed in a footnote that: “[b]ecause the RICO count will
be dismissed, there also will no longer be a basis for exercising pendent personal
jurisdiction over the Parriott Defendants as to the state law claims, necessitating an analysis
of personal jurisdiction under Maryland’s long-arm statute.”
8
Kerry Stephenson’s Motion to Dismiss for Lack of Personal Jurisdiction and Insufficiency
of Service of Process.
Additional facts will be presented as they pertain to the discussion of each issue.
DISCUSSION
I.
Appeal from a Final Judgment
As a threshold matter, Appellees assert that no final judgment has been entered as
to all nine named defendants in the suit and, therefore, this appeal must be dismissed under
Maryland Rule 8-602(a)(1). We disagree.
“The right of appeal exists from a final judgment entered by a court in the exercise
of original, special, limited, statutory jurisdiction, unless in a particular case the right of
appeal is expressly denied by law.” Maryland Code (1973, 2013 Repl. Vol.), Courts &
Judicial Proceedings Article (“CJP”) § 12-301. An order or decision that “adjudicates
fewer than all of the claims in an action . . . or that adjudicates the rights and liabilities of
fewer than all the parties to the action is not a final judgment.” Md. Rule 2-602(a)(1). A
“‘named defendant who has not been served is not a party for the purpose of determining
a final judgment’ and . . . , if the judgment entered by the court disposes of all claims
against all persons over whom the court has acquired jurisdiction, the judgment is final
without a certification under Rule 2-602(b).’” Turner v. Kight, 406 Md. 167, 172 n.3
(2008) (quoting State Highway Admin. v. Kee, 309 Md. 523, 529 (1987)). If the orders
9
issued by the circuit court resolve all claims against the parties over whom that court has
acquired jurisdiction (i.e., all parties who were properly served), the judgment is final and
appealable. Higginbotham v. Pub. Serv. Comm’n of Maryland, 171 Md. App. 254, 265
(2006). Thus, the Court of Appeals has made it plain that under Rule 2-602, this Court is
not deprived of jurisdiction where unresolved claims remain solely against defendants who
were not served.
Of the nine named defendants in this case, there is no dispute that process was served
on Appellees Todd Parriott and Phillip Parriott. The circuit court determined that
Stephenson was not properly served, although the parties contest this on appeal. The
circuit court also determined that the five “FUL Defendants” were not properly served.
The circuit court dismissed the claims against Appellees Todd Parriott, Phillip Parriott, and
Kerry Stephenson in separate orders issued on July 31, 2013. Thus, the circuit court has
reached a final decision regarding all defendants excluding Desert Capital. The pertinent
inquiry is then whether process was served properly on Desert Capital.7
An affidavit by the Swareys’ agent states that process was served on Desert Capital
via certified mail on August 22, 2011. However, prior to that service, on April 29, 2011,
Desert Capital became subject to involuntary Chapter 11 bankruptcy proceedings pursuant
7
Neither the parties nor the circuit court address the issue of service of process on
this corporation in any substantive manner.
10
to 11 U.S.C. § 303. The commencement of the bankruptcy action triggered an automatic
stay under 11 U.S.C. § 362(a),8 which provides, in pertinent part:
(a) Except as provided in subsection (b) of this section, a petition filed under
section 301, 302, or 303 of this title, or an application filed under section
5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay,
applicable to all entities, of--
(1) the commencement or continuation, including the issuance or
employment of process, of a judicial, administrative, or other action or
proceeding against the debtor that was or could have been commenced before
the commencement of the case under this title, or to recover a claim against
the debtor that arose before the commencement of the case under this title;
(Emphasis added). As a result, if the cause of action underlying the Swareys’ complaint
accrued at such a time as the action could have been commenced prior to April 29, 2011,
the service of process after that time was improper. Id.
Under the discovery rule, the causes of action stated in the underlying complaint
accrued when the Swareys became aware of the potential problems with their investments.9
8
The parties represent in their briefing that the bankruptcy stay is still in place.
9
Under the judicially-created “discovery rule,” a cause of action accrues when the
wrong is discovered or when with due diligence it should have been discovered. Mathews
v. Cassidy Turley Maryland, Inc., 435 Md. 584 (2013) (citing Poffenberger v. Risser, 290
Md. 631, 634 (1981)). The alleged injury, however, may elude discovery for some time,
as it is widely recognized that Ponzi schemes, similar to that alleged in the Swareys’
complaint, “can maintain the illusion of a profit-making enterprise for years, and
sophisticated investors may not be able to discover the fraud until long after its
perpetration.” Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 377
(1991) (citing American Bar Association, Report of the Task Force on Statute of
Limitations for Implied Actions, 41 Bus. Lawyer 645, 656 (1985)). Here, the record
reflects that very little discovery was obtained from the parties prior to the circuit court’s
orders dismissing the claims, and the circuit court made no factual findings regarding the
11
Although the case was not sufficiently developed to answer exactly when this occurred,
the record does establish that by 2009, the Swareys were actively trying to track down their
lost investments.10 Clearly the action could have been initiated prior to the commencement
of the bankruptcy stay on April 29, 2011, entered just weeks before the instant case was
filed. Consequently, the service of process on Desert Capital completed after April 29,
2011, was in violation of the § 362(a) stay.
Acts in violation of the automatic stay are generally determined to be void ab initio.
Kochhar v. Bansal, ___ Md. App. ___, ___, No. 435 Sept. Term 2014, slip op. at 11 & n.3
(Md. Ct. Spec. App. Feb. 27, 2015) (citing Dates v. Harbor Bank of Maryland, 107 Md.
App. 362, 370 (1995)). The prevailing view is that a state court lacks subject matter
jurisdiction over a civil action commenced during the automatic stay. Id. The protection
of the § 362 automatic stay has been deemed:
one of the fundamental debtor protections provided by the bankruptcy laws.
It gives the debtor a breathing spell from his [or her] creditors. It stops all
collection efforts, all harassment, and all foreclosure actions. It permits the
debtor to attempt a repayment or reorganization plan, or simply to be relieved
of the financial pressures that drove him into bankruptcy.
accrual date of the causes of action alleged in the complaint.
10
The record contains various documents demonstrating that by mid-2009, the
Swareys began to suspect there were problems with the investments they made with
Appellees. For example, in an email from the Swareys to Appellee Stephenson dated
April 16, 2009, the Swareys threaten that if Stephenson continues to ignore their attempts
to contact him inquiring about their investments, they will have no choice but to call the
banking and trade authorities.
12
In re Schwartz, 954 F.2d 569, 571 (9th Cir. 1992) (emphasis in original) (quoting H.R.
Rep. No. 595, 95th Cong., 1st Sess. 340 (1978)). The protection granted by the automatic
stay has been viewed as so important and inclusive that once a creditor or other actor is put
on notice of a debtor’s bankruptcy filing, any actions intentionally taken thereafter,
including service of process, in violation of automatic stay may be deemed willful stay
violations, and may subject the creditor or other party to a damages award. In re Kinsey,
349 B.R. 48, 52 (Bankr. D. Idaho 2006); 11 U.S.C. § 362(h).
The circuit court correctly recognized the effect of the automatic stay on this case
when it denied the Swareys’ Amended Motion Requesting an Order of Default against
defendant Desert Capital on the basis that the automatic stay had not been lifted. Where
the circuit court found sufficient basis to conclude that the automatic stay operated to bar
the “commencement or continuation … [of an] action or proceeding against the debtor,”
the same basis must bar the “issuance or employment of process” in that action. 11 U.S.C.
§ 362(a)(1). Accordingly, the issuance and service of process on Desert Capital after the
effective date of the automatic stay was barred by 11 U.S.C. § 362(a)(1). Therefore,
Desert Capital is not a served defendant and the court had not yet acquired jurisdiction over
it. No judgment regarding Desert Capital is necessary for a final judgment in this case.
Where final judgment has been entered as to each of the properly served, or in the case of
Appellee Stephenson, allegedly served, parties, this Court may review the merits of the
case. Kee, 309 Md. at 529.
13
II.
Service on Appellee Stephenson
After the case was remanded to the circuit court, Stephenson filed the underlying
motion to dismiss pursuant to Maryland Rule 2-322(a) on December 12, 2012. In his
motion to dismiss, Stephenson argued that (1) he was not properly served with state court
process; (2) he had never filed an answer in a Maryland court; and (3) because the Supreme
Court has left it to the states to decide what effect to give federal pleadings on remand, and
the Maryland courts had yet to address the issue specifically, the circuit court should
decline to exercise jurisdiction predicated on the federal service.
In its July 31, 2013, Order dismissing the complaint as to Defendant Kerry
Stephenson, the court stated:
[T]his Court finds that the [Appellee] Kerry Stephenson was not properly
served with the Complaint and Maryland State Court Summons pursuant to
Maryland Rule 2-121. The Court finds that the service of federal pleadings
while the matter was pending in the U.S. District Court and the filing of an
answer in the same, does not require the state trial court to accept the federal
pleadings on remand. Ayres v. Wiswall, 112 U.S. 187, 190 (1884) (Court
held that the effect given to Federal pleadings is one for the state court to
determine after remand). See Edward Hanson, Inc. v. Kearny Post Office
Associates 166 N.J. Supr. 161, 399 A.2d 319 (1979) and Metropolitan Cas.
Ins. Co. v. Stevens, 61 S. Ct. 715, 718, 312 U.S. 563, 569 (1941).
The circuit court did not address the Swareys’ contention, raised in their response
to Stephenson’s motion, that the failure to assert the defense of insufficient service of
process prior to answering the complaint in the federal district court constituted a waiver
of that defense in the state court.
14
On appeal the Swareys assert the circuit court erred in granting Appellee
Stephenson’s motion to dismiss for insufficiency of service of process because he waived
the defense, and in any case, he was served with process on three separate occasions. They
contend that a state court summons and a copy of the complaint were served on Stephenson
on August 16, 2011 via certified mail. Then again, “in an abundance of caution,” a new
writ of summons was issued in November 2011, and the documents were delivered to
Stephenson’s wife at their primary residence on November 27, 2011.
Appellee Stephenson asserts that the Swareys failed to comply with the rules
governing service of process in Maryland,11 but he does not dispute that after the case was
11
The Swareys’ never presented the court with a copy of the original return receipt to
support their contention that they served Stephenson by certified mail. The record contains
a certified mail transaction receipt for the pre-delivery, but it lists a cost of $0.00 for the
restricted delivery fee. Maryland Rule 2-121(a)(3) requires for valid service, certified
mail must be sent requesting restricted delivery.
In regard to Swareys’ contention that Stephenson was served by delivery of
summons to his wife at their home on November 27, 2011, Stephenson argues that this
service was invalid because the date of notarization conflicts with the date of service as set
forth in the Affidavit of Service. The Notary states the affidavit was signed before her on
December 13, 2011, but the affiant, Mr. McGrue, wrote on the affidavit that the summons
and complaint were served on “11/27/2012.” The Swareys contend that this is a simple
typographical error, and that Mr. McGrue mistakenly wrote 2012 instead of 2011.
Stephenson presented no evidence that the complaint and summons were not served
on Ms. Stephenson on November 27, 2011. In fact, Stephenson never alleged in the
motions filed in the circuit court that the summons and complaint were not delivered as
attested in the Affidavit of Service. He merely pointed out the error on the affidavit and
argued that the erroneous date on the affidavit rendered it invalid. We recently addressed
the issue of proper in personam service in Wilson v. Maryland Department of Environment.
Judge Graeff, writing for this Court, stated: “A proper return of service is prima facie
evidence of valid service of process” and that although the presumption of validity can be
rebutted, “a mere denial of service is not sufficient[.]” 217 Md. App. 271, 285 (2014) (citing
15
removed to federal court on December 20, 2011, he was properly served with a federal
summons and a copy of the complaint. Appellee Stephenson argues, however, that
because the RICO claim was dismissed and the remaining claims were remanded, the State
is not able to exercise jurisdiction over his person without proper service in state court.
In its order granting Appellees’ motion to dismiss set out above, the circuit court
decided, without stating a reason, Stephenson was not properly served with the state court
summons pursuant to Maryland Rule 2-121. We apply an ‘abuse of discretion’ standard
of review as to whether the circuit court erred in granting the motion to dismiss for
insufficiency of process, Hariri v. Dahne, 412 Md. 674, 686 (2010); however, we need not
resolve the issues raised on appeal regarding the state court summons. We are satisfied
that the requirements for service of process and notice in this case were met after it was
removed to federal court, and that Appellee Stephenson is barred from raising the defense
of insufficiency of service of process after having answered the complaint.
Pickett v. Sears, Roebuck & Co., 365 Md. 67, 84 (2001). In Chapman v. State, the Court
of Appeals stated: “we conclude that the obvious single typographical error in the affidavit
does not undermine the reliability of its otherwise trustworthy hearsay.” 331 Md. 448,
474 (1993). It is not clear how the circuit court concluded there was no valid service,
especially where Stephenson produced no conflicting affidavit or other evidence showing
that the summons and complaint were not properly served on November 27, 2011, cf.
Chapman, 331 Md. 448, but again, we need not review the court’s decision under our
holding.
16
Disposition of Federal Pleadings on Remand
In Ayres v. Wiswall, the Supreme Court briefly examined the appropriateness of
adopting pleadings and other papers filed in a federal case in a state action upon remand,
and stated:
It will be for the state court, when the case gets back there, to determine what
shall be done with pleadings filed and testimony taken during the pendency
of the suit in the other jurisdiction.
112 U.S. 187, 189-91 (1884). Thus, it is for the courts of Maryland to decide what weight
to accord to Stephenson’s receipt of service of process and his responsive answer to the
complaint. Specifically, we must determine whether a defendant may move on remand to
state court, pursuant to Maryland Rule 2-322(a), to dismiss for insufficiency of service of
process where a federal court summons was properly served on the defendant and where
the defendant filed an answer to the complaint prior to remand. This precise issue has not
been decided by the courts of Maryland and has seldom been addressed in other
jurisdictions.12
“To determine whether notice in a particular case is constitutionally sufficient, the
court ‘must balance the interests of the state or the giver of notice against the individual
12
There are, however, reported cases in Maryland in which, after remand from the
federal court, it is implied but not stated that pleadings filed or amended in federal court
are given full effect. See, e.g., MBC Realty, LLC v. Mayor & City Council of Baltimore,
403 Md. 216 (2008) (on remand proceeding on complaint that was amended while in
federal court); Okwa v. Harper, 360 Md. 161 (2000) (on remand proceeding with case in
which at least one party filed answer to complaint while the case was in federal court).
17
interest sought to be protected by the fourteenth amendment.’” Miserandino v. Resort
Props., Inc., 345 Md. 43, 53 (1997) (quoting Golden Sands Club Condo., Inc. v. Waller,
313 Md. 484, 496 (1988)). “At a minimum, the notice must be ‘reasonably calculated,
under all the circumstances, to apprise interested parties of the pendency of the action and
afford them an opportunity to present their objections.’” Id. (quoting Mullane v. Cent.
Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950)).
The federal removal statute does not directly address the problem presented here.
Although 28 U.S.C. § 1447(b) provides that the district court may require the party
petitioning for removal to file copies of the state court record with the clerk of the federal
court, it does not expressly require a similar procedure upon remand. However, it is
abundantly clear that cases do proceed in the state court following remand from the federal
district court. See, e.g., Okwa v. Harper, 360 Md. 161, 173 n.6 (2000). Moreover, during
the period of removal to federal court and prior to remand, additional pleadings and papers
may be filed, and additional defendants may be served. 28 U.S.C. § 1448 provides:
In all cases removed from any State court to any district court of the United
States in which any one or more of the defendants has not been served with
process or in which the service has not been perfected prior to removal, or in
which process served proves to be defective, such process or service may be
completed or new process issued in the same manner as in cases originally
filed in such district court.
Pursuant to 28 U.S.C. § 1367, a federal district court may exercise supplemental
jurisdiction over state law claims sufficiently related to a claim over which the district court
has subject matter jurisdiction. White v. Cnty. of Newberry, S.C., 985 F.2d 168, 172 (4th
18
Cir. 1993) (citing United Mine Workers v. Gibbs, 383 U.S. 715 (1966)). However, as
demonstrated by what happened in the case sub judice, the federal court has the discretion
to decline to exercise supplementary jurisdiction over remaining state law claims when it
has disposed of all federal law claims. Carlsbad Tech., Inc. v. HIF Bio, Inc., 556 U.S.
635, 639 (2009). Where the district court declines to exercise supplemental jurisdiction,
the case may be remanded to the state court from which it was removed. Hinson v.
Norwest Fin. S. Carolina, Inc., 239 F.3d 611, 616 (4th Cir. 2001) (citing Carnegie-Mellon
Univ. v. Cohill, 484 U.S. 343, 357 (1988)) (“Because [28 U.S.C. § 1367] is silent about
how a district court declines to exercise supplemental jurisdiction, the principles inherent
in supplemental jurisdiction, or pendent jurisdiction, as articulated by Carnegie–Mellon,
continue to apply. As the Court in Carnegie–Mellon observed, a court may dismiss the
claim or, if it was removed, remand it to State court.”). Thus, the federal removal
framework contemplates that a case will continue to progress in the district court, and in
the event of remand, will continue to proceed efficiently in state court. As noted above,
however, the Supreme Court has left it to the states to decide the precise use and effect of
pleadings and papers filed in the other jurisdiction.
Over the last half-century, other state courts presented with this issue have routinely
chosen to give full effect to pleadings filed in federal court prior to a remand to state court.
See, e.g., Teamsters Local 515 v. Roadbuilders, Inc., 291 S.E.2d 698, 701 (Ga. 1982)
(holding that a timely answer filed in district court following timely removal of the action
19
is sufficient to prevent a default in a state court if the case is subsequently remanded by the
district court); Williams v. St. Joe Minerals Corp., 639 S.W.2d 192, 194–95 (Mo. Ct. App.
1982) (holding that the amended complaint filed in federal court was properly before state
court on remand even absent refiling); Armentor v. Gen. Motors Corp., 399 So. 2d 811, 812
(La. Ct. App. 1981) (treating an answer filed in federal court as if filed in state court for
purposes of ruling on “exceptions of venue”); Edward Hansen, Inc. v. Kearny P.O. Assoc.,
399 A.2d 319, 323 (N.J. Sup. Ct. 1979) (adopting the pleadings filed in federal court “as if
they had been originally filed in [state] court”); Shelton v. Bowman Transp., Inc. 230
S.E.2d 762, 764 (Ga. Ct. App. 1976) (holding that the trial court acted within its discretion
in relieving from default a defendant who had filed an answer in federal court before
remand); Citizens Nat. Bank, Grant City v. First Nat. Bank, Masion, 331 N.E.2d 471, 476–
77 (Ind. Ct. App. 1975) (holding that following remand, the state court appropriately ruled
on a motion to dismiss filed in federal court and therefore defendants were not in default);
Bolden v. Brazile, 172 So. 2d 304, 310 (La. Ct. App. 1965) (treating answer and motion to
dismiss filed in federal court as a form of responsive pleading upon remand to state court);
Grone v. N. Ins. Co. of New York, 130 A.2d 452, 453 (Pa. 1957) (holding that after removal
to federal court “when, a year and a half later, the case was remanded to the State Court,
the answers to the complaint, which had been duly filed in the Federal Court, were a part
of the record upon its return to the State Court.”).
20
In Banks v. Allstate Indemnity Co., the Court of Appeals of Ohio, Ninth District,
favoring substance over procedural form, held that, as a matter of first impression, the state
trial court, on remand, should have given effect to the answer filed in federal district court.
757 N.E.2d 776, 777-78 (Ohio Ct. App. 2001). That court observed:
[T]he primary objective and function of our courts is to adjudicate cases on
the merits by applying the substantive law whenever possible, and not to
adjudicate cases with finality upon a strained construction of procedural law
yielding unjust results.
Id. at 777 (quoting Svoboda v. Brunswick, 453 N.E.2d 648, 651 (Ohio 1983)). In the
absence of rules within our jurisdiction governing the effect of federal pleadings upon
remand to state court, we too turn to the policy considerations underlying Maryland’s
summons and notice requirements.
Maryland Rule is Consonant with the Federal Rule
In the federal courts, service of process is generally governed by Federal Rule of
Civil Procedure 4, which provides in pertinent parts:
(c)(1) A summons must be served with a copy of the complaint. The plaintiff
is responsible for having the summons and complaint served within the time
allowed by Rule 4(m) and must furnish the necessary copies to the person
who makes service.
***
(e) Unless federal law provides otherwise, an individual--other than a minor,
an incompetent person, or a person whose waiver has been filed--may be
served in a judicial district of the United States by:
(1) following state law for serving a summons in an action brought in courts
of general jurisdiction in the state where the district court is located or where
service is made; or
(2) doing any of the following:
21
(A) delivering a copy of the summons and of the complaint to the
individual personally;
(B) leaving a copy of each at the individual's dwelling or usual place
of abode with someone of suitable age and discretion who resides
there; or
(C) delivering a copy of each to an agent authorized by appointment
or by law to receive service of process.
The requirements for state court service of process, under Maryland Rule 2-121, mirror the
federal requirements with the addition of a provision for service by certified mail. Md.
Rule 2-121(a)(3). Pursuant to Fed. R. Civ. P. 4(e)(1), service in the Federal District Court
for the District of Maryland may also be achieved through certified mail pursuant to Rule
1-121(a)(3) as a method “following state law . . . in the state where the district court is
located or where service is made[.]” 13 See, e.g., Quann v. Whitegate-Edgewater, 112
F.R.D. 649, 653 (D. Md. 1986). Thus, the rules governing in personam service of process
on an individual in the courts of Maryland, either state or federal, authorize using the same
mechanisms to achieve proper service of a summons and complaint.
13
In 1982, the Supreme Court forwarded to Congress a proposed revision of Federal
Rule of Civil Procedure 4 allowing the utilization of restricted delivery registered or
certified mail as an alternative to personal service even without a state rule allowing service
by mail. Miserandino, 345 Md. at 60 (citing Brown v. Hart, 96 F.R.D. 64, 116–135
(N.D.Ill.1982)). Thereafter, Fed. R. Civ. P. Rule 4(c) was amended effective February 26,
1983, to authorize service of process by first-class mail. That service by mail provision
was abolished in a 1993 revision and replaced with a waiver provision. Fed. R. Civ. P. 4,
Notes of Advisory Committee on Rules—1993 Amendment. However, service by mail
remains proper where it is utilized as a method “following state law … in the state where
the district court is located” pursuant to Fed. R. Civ. P. 4(e)(1).
22
Service in Federal Court Meets State Notice Requirements
The Due Process Clause of the Fourteenth Amendment “at a minimum ... require[s]
that deprivation of life, liberty or property by adjudication be preceded by notice and
opportunity for hearing appropriate to the nature of the case.” Mullane, supra, 339 U.S.
at 313. Further, Article 24 of the Maryland Declaration of Rights, which has been
interpreted to guarantee due process for the people of Maryland, has also been interpreted
as requiring that a defendant be given adequate notice before a claim against him may
proceed. See, e.g., Pickett v. Sears, Roebuck & Co., 365 Md. 67, 71 (2001). However,
no particular procedure for notice through service of process is constitutionally required in
all cases. Miserandino, 345 Md. at 52-53. “On the contrary, due process is flexible and
calls only for such procedural protections as the particular situation demands. Procedures
adequate under one set of facts may not be sufficient in a different situation.” Dep’t of
Transp. v. Armacost, 299 Md. 392, 416 (1984) (citations omitted). When determining
whether notice is constitutionally sufficient, the court “must balance the interests of the
state or the giver of notice against the individual interest sought to be protected by the
fourteenth amendment.” Miserandino, 345 Md. at 52 (quoting Golden Sands Club v.
Waller, 313 Md. 484, 496 (1988)).
In Miserandino v. Resort Properties, Inc., the Court of Appeals quoted the
Restatement (Second) of Conflict of Laws § 25 cmt. d. (1971), stating:
What is a sufficient method of notification depends upon the nature of the
action and the circumstances. The interests to be considered are, on the one
23
hand, those of the state and of the plaintiff in bringing the issues involved to
a final settlement and, on the other hand, those of the defendant in being
afforded an opportunity to defend. The practicalities of the situation must be
considered. A state is not precluded from exercising such judicial jurisdiction
as it may possess by the fact that under the circumstances it is impossible to
make certain that notice will reach the defendant or because the only sure
way of giving notice to the defendant would be so burdensome and expensive
as to be impracticable.
Miserandino, 345 Md. at 54 (citation omitted).
The nature of the action and the circumstances of the case before us; namely, a
single case containing state and federal claims that was removed and remanded from state
to federal court and back, entreat us to presume that all service of process and all pleadings
filed in the case should be recognized as valid, regardless of whether the pleadings were
filed or the process was served in state or federal court. Certainly, service under the
federal rules, of the very same complaint that was filed in state court prior to removal,
satisfies the requirements of due process. See generally State v. Hess Corp., 982 A.2d
388, 392-96 (N.H. 2009); Hansen, supra, 399 A.2d at 322–23. Here, as in Hess Corp. and
Hansen, there is nothing to suggest that Appellee Stephenson would be deprived of his
right to notice and an opportunity to be heard if service under the federal rules is deemed
sufficient to bring him before the state court.
In 2009, the Supreme Court of New Hampshire in State v. Hess Corporation held
that an amended complaint filed in federal court remained viable in state court after remand
and that service on a defendant in federal court was proper for purposes of state law. 982
A.2d at 395. There, even though federal service did not strictly comport with the state
24
statutes governing service of process, the court found that the defendants were not deprived
of their right to notice and an opportunity to be heard. Id. at 396. Requiring re-service,
the court held, would have conflicted with the policy of deciding cases on their merits, and
of favoring substance over procedural form. Id. The Supreme Court of New Hampshire
stated: “[w]hile we recognize that, generally, we have required strict compliance with New
Hampshire’s statutory requirements for service of process to obtain jurisdiction over a
defendant, we find competing policy considerations more compelling under the unique
circumstances of this case.” Id. at 778-79 (internal citation omitted).
Requiring re-service upon remand to the state court, in this case, would
unnecessarily favor procedural form over substance, where there is no readily discernable
prejudice to Appellee Stephenson. Service in the federal court satisfies the requirements
of due process, affords the same procedures and protections as service under the Maryland
Rules, and provided Stephenson with adequate notice and opportunity to defend.
Stephenson does not dispute that he was properly served pursuant to the Federal Rules of
Civil Procedure with the same complaint while the case was pending in federal court.
Therefore, we hold that service of the federal court summons and a copy of the complaint
that was filed in state court prior to removal was sufficient to bring Appellee Stephenson
properly before the state court on remand.
25
Maryland Rule 2–322(a)
The record demonstrates that during the seven months prior to removal, Stephenson
failed to respond to any papers and pleadings filed in the state court.14 Following removal,
however, on February 1, 2012, Stephenson filed an answer to the Swareys’ complaint in
federal district court‒‒the same complaint that was filed in state court. He also filed an
amended answer on February 23, 2012. In his answers, Stephenson responded to all state
law and federal claims, and did not assert insufficiency of service of process as a defense.
Only after the case was remanded to the state court (and well after Stephenson had filed
his answers to the Swareys’ complaint) did he file a motion to dismiss for lack of personal
jurisdiction and insufficiency of service of process pursuant to Maryland Rule 2-322 on
December 12, 2012. Maryland Rule 2–322(a), provides:
(a) Mandatory. The following defenses shall be made by motion to dismiss
filed before the answer, if an answer is required: (1) lack of jurisdiction over
the person, (2) improper venue, (3) insufficiency of process, and (4)
insufficiency of service of process. If not so made and the answer is filed,
these defenses are waived.
(Emphasis supplied). Similarly, Federal Rule of Civil Procedure 12(b) provides, in
pertinent part:
(b) Every defense to a claim for relief in any pleading must be asserted in the
responsive pleading if one is required. But a party may assert the following
defenses by motion:
14
The pleadings to which Stephenson failed to respond included: the complaint; two
motions for writ of attachment before judgment (dated May 18, 2011 and October 5, 2011);
an October 20, 2011, Motion Requesting Order of Default; and an October 24, 2011,
Amended Motion requesting Order of Default.
26
***
(2) lack of personal jurisdiction;
***
(5) insufficient service of process;
***
A motion asserting any of these defenses must be made before pleading if a
responsive pleading is allowed.
Both Maryland Rule 2-322 and Federal Rule of Civil Procedure 12(b) require that
defenses asserting the lack of personal jurisdiction and insufficiency of service of process
must be raised through preliminary motion prior to the defendant’s answer or, under the
federal rule, as part of the answer. The purpose of Rule 2–322(a) is to have the legal
question decided before the trial of the action on its merits. Irvine v. Montgomery Cnty.,
239 Md. 113, 117 (1965). In the instant case, Stephenson answered the complaint,
including all state law claims, and the federal court could have addressed those claims had
it exercised supplemental jurisdiction. Had the court exercised supplemental jurisdiction,
the federal court would have applied Maryland law to the state law claims. We find
Appellee Stephenson’s contention that giving effect to the answer filed in the U.S. District
Court would be fundamentally unfair because it was filed in a different court with different
rules to be without merit here. Accordingly, Stephenson is deemed to have waived the
defense of insufficient service of process by not raising it either prior to or in his answer to
the Swareys’ complaint filed in federal court. Md. Rule 2-322; Fed. R. Civ. P. 12(b).
27
III.
Personal Jurisdiction
“The applicable standard of appellate review of the grant of a motion to dismiss for
lack of personal jurisdiction is whether the trial court was legally correct[.]” Bond v.
Messerman, 391 Md. 706, 718 (2006); accord Kortobi v. Kass, 410 Md. 168, 175 (2009).
Appellee Stephenson Did Not Waive Defense
As a preliminary matter, we find that although Maryland Rule 2-322(a) requires that
mandatory defenses be filed before filing an answer, Appellee Stephenson did not waive
the defense of lack of personal jurisdiction because he raised it as an affirmative defense
in the answer he filed in federal court.15 Upon removal to federal court, Stephenson was
required to adhere to federal procedure and, accordingly, he was permitted to file an
answer raising lack of personal jurisdiction under Federal Rule 12(b)(2). See, e.g., M.
Lowenstein & Sons, Inc. v. Austin, 430 F. Supp. 844, 845 (S.D.N.Y. 1977) (“Rule 12(b),
Fed. R. Civ. P., indicates that each of these [12(b)] defenses may be raised by motion.
However, Rule 12(h)(1), which governs waiver of these defenses, indicates that they are
preserved as long as they are contained in the responsive pleading or raised in the first
prepleading motion. Since the defenses are contained in defendant's answer, they are not
waived.”).
15
In his answer, Appellee Stephenson also responded “denied” to allegations contained
in the complaint that the court had personal jurisdiction over him pursuant based on his
conduct and contacts in Maryland.
28
When the case was remanded to state court, Stephenson filed the underlying motion
to dismiss pursuant to Maryland Rule 2-322(a). Again, a paucity of cases have addressed
this exact issue, but we find the Court of Appeal of Louisiana best articulated the logical
tenet: “[a] party who properly avails himself of [Federal Rule 12(b) as a] procedural device
while his case is pending in federal court should not be penalized upon remand to the state
court because of procedural pleading differences between state and federal courts.” de
Reyes v. Marine Mgmt. & Consulting, Ltd., 544 So. 2d 1259, 1260 (La. Ct. App.), writ
denied sub nom. deReyes v. Marine Mgmt. & Consulting, Ltd., 548 So. 2d 1249 (La.
1989). We hold that because Stephenson’s answer in federal court raised the defense of
lack of personal jurisdiction, he was permitted to re-assert that defense upon remand
pursuant to Maryland Rule 2-322(a).
Minimum Contacts with Maryland
Appellees each contend they lacked sufficient contacts with Maryland to allow the
courts of Maryland to have personal jurisdiction over them as a non-residents of the State.
Stephenson avers, inter alia, that he is a resident of Nevada, that he does not own any real
estate or conduct any type of business in Maryland, that he has not advertised or contracted
to provide goods or services in Maryland, and that he has had no contact with the Swareys
in Maryland.
Appellee Todd Parriott contends, inter alia, that “he has not personally transacted
or solicited any business from, or performed any character or work or service for, any
29
individual or entity in Maryland,” although he admits he was a former officer of a Maryland
corporation that he says did not conduct business in Maryland. He claims he has not
advertised or furnished marketing materials in Maryland, has not caused any tortious injury
in Maryland, and has “not received any revenue from goods and/or services from within
Maryland.” Appellee Phillip Parriott’s contentions are different. He avers, inter alia,
that that he does not reside in Maryland, never maintained a mailing address in Maryland,
does not have any interest in any trust administered in Maryland, and “does not personally
transact or solicit any business from, or perform any character of work or service for, any
individual or entity in Maryland.”
The Swareys aver in their complaint that Stephenson purposefully availed himself
of Maryland’s laws by advertising financial products in Maryland; contracting to provide
financial services and retirement planning to the Swareys in Maryland; collecting money
from the Swareys in Maryland; and committing a tortious injury and making fraudulent
misrepresentations and/or omissions to the Swareys in Maryland. Regarding the Parriotts,
the Swareys aver in their complaint that the Appellees contracted with the Swareys to
provide financial advice and retirement planning in Maryland; received substantial revenue
from services provided within Maryland; and knowingly and intentionally engaged in a
continuing scheme for the purpose of defrauding Maryland residents out of their life
savings. On April 5, 2013, the Swareys requested—as part of their oppositions to
30
Appellees’ motions to dismiss—that the court allow additional discovery regarding the
Appellees’ contacts with Maryland.
In determining whether a Maryland court may exercise personal jurisdiction over a
foreign defendant, we must evaluate the dual considerations of whether the exercise of
jurisdiction is (1) authorized under Maryland’s Long-Arm Statute and (2) comports with
the due process requirements of the Fourteenth Amendment. Kortobi v. Kass, 410 Md.
168, 184-85 (2009).
Maryland’s long-arm statute is found in CJP § 6-103 and provides:
In general
(a) If jurisdiction over a person is based solely upon this section, he may be
sued only on a cause of action arising from any act enumerated in this
section.
Business transactions or injuries in State
(b) A court may exercise personal jurisdiction over a person, who directly or
by an agent:
(1) Transacts any business or performs any character of work or service
in the State;
(2) Contracts to supply goods, food, services, or manufactured products
in the State;
(3) Causes tortious injury in the State by an act or omission in the State;
(4) Causes tortious injury in the State or outside of the State by an act or
omission outside the State if he regularly does or solicits business,
engages in any other persistent course of conduct in the State or
derives substantial revenue from goods, food, services, or
manufactured products used or consumed in the State;
(5) Has an interest in, uses, or possesses real property in the State; or
(6) Contracts to insure or act as surety for, or on, any person, property,
risk, contract, obligation, or agreement located, executed, or to be
performed within the State at the time the contract is made, unless the
parties otherwise provide in writing.
31
Definitions
(c)(1) (i) In this subsection the following terms have the meanings indicated.
(ii) “Computer information” has the meaning stated in § 22-102 of the
Commercial Law Article.
(iii) “Computer program” has the meaning stated in § 22-102 of the
Commercial Law Article.
(2) The provisions of this section apply to computer information and
computer programs in the same manner as they apply to goods and
services.
“Only one provision of the statute need be satisfied in order to assert jurisdiction.” Bahn
v. Chicago Motor Club Ins. Co., 98 Md. App. 559, 568 (1993) (citing Tate v. Blue Cross
of Washington & Alaska, 59 Md. App. 206, 217 (1984)). The Court of Appeals has
“consistently held that the purview of the long-arm statute is coextensive with the limits of
personal jurisdiction set by the due process clause of the Federal Constitution.” Beyond
Sys., Inc. v. Realtime Gaming Holding Co., LLC, 388 Md. 1, 15 (2005) (citing Mohamed
v. Michael, 279 Md. 653, 657 (1977); Geelhoed v. Jensen, 277 Md. 220, 224
(1976); Lamprecht v. Piper Aircraft Corp., 262 Md. 126, 130 (1971)).
The Due Process Clause requires that in order to establish jurisdiction over a
defendant who is not present in the state, the defendant must have “minimum contacts”
with Maryland, such that the exercise of personal jurisdiction in Maryland “does not offend
‘traditional notions of fair play and substantial justice.’” Int’l Shoe Co. v. Washington,
326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). The
nature of the defendant’s contacts with Maryland are important, but we also must consider
“the relationship among the defendant, the forum, and the litigation,” Shaffer v. Heitner,
32
433 U.S. 186 (1977), to determine whether the defendant “should reasonably anticipate
being haled into court” in Maryland. Kortobi, 410 Md. at 185 (quoting World–Wide
Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)). “[I]t is essential in each case
that there be some act by which the defendant purposefully avails itself of the privilege of
conducting activities within [Maryland], thus invoking the benefits and protections of its
laws.” Hanson v. Denckla, 357 U.S. 235, 253 (1958) (citing Int’l Shoe Co., 326 U.S. at
319).
Two forms of jurisdiction may arise under the minimum contacts analysis: general
jurisdiction and specific jurisdiction. This Court succinctly explained the difference
between the two in Himes Associates, Ltd. v. Anderson:
If the defendant's contacts with the forum state do not form the basis for the
plaintiff's suit, then personal jurisdiction, if it exists, “must arise from the
defendant's general, more persistent contacts with the State.” Beyond
Systems, supra, 388 Md. at 22, 878 A.2d 567. To establish “general
jurisdiction,” the defendant's activities in the state must be shown to have
been “‘continuous and systematic.’ ” Id. at 22–23, 878 A.2d 567 (quoting
Carefirst of Maryland, Inc. v. Carefirst Pregnancy Centers, Inc., 334 F.3d
390, 397 (4th Cir.2003)); see also Helicopteros Nacionales de Colombia,
S.A. v. Hall, 466 U.S. 408, 414 & n. 9, 104 S. Ct. 1868, 80 L. Ed. 2d 404
(1984). “If the defendant's contacts with the forum state form the basis for
the suit, however, [the plaintiff] may establish ‘specific jurisdiction [over the
defendant].’” Beyond Systems, supra, 388 Md. at 26, 878 A.2d 567 (quoting
Carefirst, supra, 334 F.3d at 397). In deciding the existence vel non of
specific jurisdiction, a court should consider “(1) the extent to which the
defendant has 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.” Beyond Systems, supra,
388 Md. at 26, 878 A.2d 567 (quoting Carefirst, supra, 334 F.3d at 397).
33
178 Md. App. 504, 527-28 (2008). “The concept of specific and general jurisdiction is a
useful tool in the sometimes difficult task of detecting how much contact is enough, and
most cases will fit nicely into one category or the other.” Camelback Ski Corp. v. Behning,
312 Md. 330, 339 (1988). But if “the facts of a given case do not naturally place it at
either end of the spectrum,” the Court of Appeals has explained that the proper approach
is not to “force-fit” the case, but “to identify the approximate position of the case on the
continuum that exists between the two extremes, and apply the corresponding standard,
recognizing that the quantum of required contacts increases as the nexus between the
contacts and the cause of action decreases.” Id.
“[T]he quality and quantity of contacts required to support the exercise of personal
jurisdiction will depend upon the nature of the action brought and the nexus of the contacts
to the subject matter of the action.” Id. at 338. Where neither the defendant nor his agent
has physically entered the state, the court may look to other relevant contacts. See Walden
v. Fiore, 134 S. Ct. 1115, 1122 (2014). In such a case, “telephone calls and
correspondence with the plaintiff in the forum state” alone are insufficient to establish a
substantial connection. Bond v. Messerman, 391 Md. 706, 723–24 (2006) (citing Cape v.
Maur, 932 F. Supp. 124, 128 (D. Md. 1996)). When, however, the defendant has
maintained a set of “continuing obligations” between himself and a resident of the forum
state, he has “‘availed himself of the privilege of conducting business there, and because
his activities are shielded by ‘the benefits and protections’ of the forum’s laws it is
34
presumptively not unreasonable to require him to submit to the burdens of litigation in that
forum as well.’” Sleph v. Radtke, 76 Md. App. 418, 428–29 (1988) (quoting Burger King,
supra, 471 U.S. at 476).
In Sleph v. Radtke, for example, this Court held that Virginia residents who executed
a purchase money mortgage in favor of a Maryland mortgagee as part of an investment in
Maryland property were subject to personal jurisdiction in Maryland. 76 Md. App. at 429-
30. We explained that “[t]he requirements of due process are satisfied if the suit is based
on a contract which has a substantial connection with the forum State.” Id. at 428.
Although the nonresident-defendants executed the mortgage in Virginia, we nevertheless
deemed them to have established minimum contacts with Maryland “by creating a
‘continuing obligation’ between themselves and a Maryland resident which invoked the
benefits and protections of Maryland law.”16 Id. at 429. We also concluded that they
“transacted business” in this State within the meaning of subsection (b)(1) of Maryland’s
long-arm statute because their actions culminated in “purposeful activity” within
Maryland. Id. at 427-28. See also McGee v. Int’l Life Ins. Co., 355 U.S. 220, 223 (1957)
(holding that the exercise of specific jurisdiction is proper when the disputed insurance
contract has a substantial connection with residents of the state); Mohamed v. Michael, 279
Md. 653, 659, 370 (1977) (holding that defendant’s agents’ negotiations in Maryland with
16
We later characterized this holding as concluding that specific jurisdiction existed
when the suit was based on a contract substantially connected to Maryland. Himes
Assocs., Ltd., 178 Md. App. at 528.
35
plaintiff to reach a settlement on a contract dispute were of sufficient duration and quality
to satisfy ‘transaction of business’ requirement of long-arm statute and due process
requirement that defendant have ‘minimum contacts’ with the state before personal
jurisdiction can be exercised over him); Snyder v. Hampton Indus., Inc., 521 F. Supp. 130,
141 (D. Md. 1981) (stating that because subsection (b)(1) of the Maryland long arm statute
is indeed coextensive with the Due Process Clause, a nonresident can reasonably be held
to have transacted business in Maryland although never physically present in the state).
The Supreme Court has also upheld the exercise of specific jurisdiction over
defendants who have “purposefully reached out beyond their State and into another by . . .
entering a contractual relationship that envisioned continuing and wide-reaching contacts
in the forum State.” Walden, 134 S. Ct. at 1122 (citing Burger King Corp. v. Rudzewicz,
472 U.S. 462, 479–80 (1985)). A similar rationale has been employed outside the realm
of contractual disputes. For example, the Supreme Court in Keeton v. Hustler Magazine,
Inc., found that circulating magazines to “deliberately exploi[t]” a market in the forum state
supported the state court’s exercise of long-arm jurisdiction. 465 U.S. 770, 781 (1984).
Additionally, “physical entry into the State—either by the defendant in person or through
an agent, goods, mail, or some other means—is certainly a relevant contact.” Walden v.
Fiore, 134 S. Ct. at 1122 (emphasis added) (citing Keeton, 465 U.S. at 773–74).
The burden rests with the Swareys to “at least mak[e] a prima facie showing of, the
jurisdictional facts to show that the individual defendants regularly do or solicit business
36
in Maryland, engage in another persistent course of conduct in the state, or derive
substantial revenue from goods, services or manufactured products used or consumed in
the state.” Quinn v. Bowmar Pub. Co., 445 F. Supp. 780, 786 (D. Md. 1978) (citing Weller
v. Cromwell Oil Co., 504 F.2d 927 (6th Cir. 1974); see also Holfield v. Power Chem. Co.,
382 F. Supp. 388 (D. Md. 1974)). However, because courts have recognized that a
personal jurisdiction analysis is necessarily fact-specific, discovery should be permitted
where the court’s determination would otherwise rest upon a meager record. Quinn, 445
F. Supp. at 638-39. Indeed, “[w]hen a motion to dismiss is based upon lack of jurisdiction,
the court can consider affidavits or hold an evidentiary hearing on the motion to dismiss
without converting the motion into a motion for summary judgment.” Evans v. Cnty.
Council of Prince George’s, 185 Md. App. 251, 256 (2009) (citing Beyond Systems, Inc.
v. Realtime Gaming Holding Co., 388 Md. 1, 11-12 (2005)). Therefore, where the
Swareys seek discovery “specifically aimed at the contact which the defendant has with
this State,” and the “[d]etermination of quality and quantity of those contacts [is] essential
to the court’s proper conclusion as to whether defendant [is] subject to the long arm
jurisdiction of the court,” preventing them from discovering those facts is an abuse of
discretion. Androutsos v. Fairfax Hospital, 323 Md. 634, 639-40 (1991).
The record before us contains numerous exhibits submitted by the Swareys.
Certainly, they tend to establish prima facie that: (1) the Appellees maintained long-term
business relationships with Maryland residents and entities; (2) Appellees’ solicitations
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resulted in the Swareys sending approximately $3,700,000.00 to the out-of-state Appellees
via checks and wire transfers; (3) Appellees regularly communicated with the Swareys in
Maryland by mail, e-mail, and telephone; (4) Appellees sent emails to parties in Maryland
soliciting investment business; (5) and Stephenson sent joint venture agreements to the
Swareys to be executed in Maryland. The record also provides glimpses of other material
that may have been available to the court had discovery been conducted prior to the court’s
ruling.
The circuit court should have allowed discovery on the factual issues raised before
any ruling was made on the motion to dismiss for lack of personal jurisdiction.
Androutsos, 323 Md. at 639 (citing Oppenheimer Fund Inc. v. Sanders, 437 U.S. 340, 351
n.13 (1978)). Accordingly, we remand and instruct the circuit court to allow the parties to
conduct discovery on the specific issue of the full extent of Appellees’ connections to
Maryland, and for further proceedings consistent with this opinion.
JULY 31, 2013 ORDER OF THE
CIRCUIT COURT AS TO APPELLEE
TODD PARRIOT VACATED; JULY 31,
2013 ORDER OF THE CIRCUIT COURT
AS TO APPELLEE PHILLIP
PARRIOTT VACATED; JULY 31, 2013
ORDER OF THE CIRCUIT COURT AS
TO APPELLEE STEPHENSON
VACATED IN PART AND REVERSED
AS TO INSUFFICIENCY OF SERVICE
OF PROCESS. CASE REMANDED.
COSTS TO BE PAID BY APPELLEES.
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