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Yancey v. International Fidelity Insurance Co.

United States District Court, E.D. Virginia, Alexandria Division

May 25, 2016

RAYMOND A. YANCEY, as Receiver,



         This matter is before the Court on Defendants International Fidelity Insurance Company, Nationwide Electrical Services, Inc., and John P. Young’s motion to dismiss the complaint for lack of venue or, alternatively, to transfer to the United States District Court for the District of Maryland. [Dkt. 17.] Also before the Court is Defendant R. Vaughn Herbert’s motion to dismiss for lack of personal jurisdiction. [Dkt. 11.] For the following reasons, the Court will deny the motions to dismiss and will grant the motion to transfer.

         I. Background

         On September 9, 2014, this Court granted a consent motion to appoint Raymond A. Yancey (“Yancey” or “Receiver”) as Receiver for various Truland[1] businesses that had filed for Chapter 7 bankruptcy. (See Receiver Order [Dkt. 1-2].) This Court’s Receiver Order tracked the language of a Bankruptcy Court[2] order lifting the bankruptcy stay to permit BMO Harris Bank to enforce its lien on certain Truland property. (See Stay Lift Order [Dkt. 1-1].) The Stay Lift Order applied broadly to Truland’s accounts, chattel paper, instruments, documents, general intangibles, inventory, equipment, fixtures, and proceeds of the foregoing, among other categories of Truland property. (Stay Lift Order at 3-4.) This Court appointed Yancey as Receiver “to take change of all the property of Truland described in the Stay Lift Order.” (Receiver Order ¶ 1.) Acting in that role, Yancey filed this lawsuit against four Defendants who allegedly possess Truland property defined in the Stay Lift and Receiver Orders.

         Yancey alleges that Defendants owe payments to Truland for subcontractor work Truland performed in Maryland. Specifically, one Truland entity supplied labor and materials as an electrical subcontractor on a project at the University of Maryland in College Park. (Compl. ¶ 2.) Another Truland entity supplied labor and materials as an electrical subcontractor on two highway travel-plaza projects in Aberdeen, Maryland. (Compl. ¶¶ 3-4.) Truland is allegedly owed over $10 million for this work, approximately $8 million of which remains unpaid. (Compl. ¶¶ 118, 127.)

         The state of Maryland owns the projects[3] and hired a general contractor to oversee the construction. (Compl. ¶¶ 20, 51.) The general contractor hired a Maryland company named Nationwide Electrical Services, Inc. (“Nationwide”) to perform electrical subcontractor work. (Compl. ¶¶ 22-23, 52-53.) Defendant John P. Young is the President and CEO of Nationwide, and Defendant R. Vaughn Herbert is a Vice President. (Compl. ¶¶ 17-18.) Defendant International Fidelity Insurance Company (“Fidelity”) issued surety bonds for these subcontracts naming Nationwide as the principal and the general contractor as the obligee. (Compl. ¶¶ 15, 39-41, 77-79.)

         Nationwide subcontracted some of its obligations on the projects to Truland entities through a tiered subcontract. (Compl. ¶¶ 23, 53.) Yancey alleges that Truland performed its contractual obligations in a timely, workmanlike, and acceptable manner, and that Nationwide received payments from the general contractor for Truland’s work. (Compl. ¶¶ 25-29, 36, 55-61.) Truland and Yancey made repeated demands to Nationwide and Fidelity for payment, but approximately $8 million remains unpaid on Truland’s subcontracts. (Compl. ¶¶ 49, 83, 127.)

         Yancey filed a five-count Complaint in this Court to recover the amounts owed to Truland. Counts I and II allege that Fidelity breached its bond obligations by not paying Truland for labor, materials, and services furnished. (See Compl. ¶¶ 84-101.) Counts III and IV allege that Nationwide breached its subcontracts with Truland by failing and refusing to pay Truland the outstanding balance for work performed. (See Compl. ¶¶ 102-113.) Count V alleges that Herbert and Young retained payments intended for Truland in trust and are personally liable for those payments pursuant to the Maryland Construction Trust Fund Statute, Md. Code Ann., Real Prop. § 9-201. (See Compl. ¶¶ 114-127.)

         On February 25, 2016, Defendant Herbert moved to dismiss for lack of personal jurisdiction. (Herbert’s Mem. in Supp. Dismiss [Dkt. 11-1].) The next day, Defendants Fidelity, Nationwide, and Young moved to dismiss for improper venue or to transfer venue to the U.S. District Court for the District of Maryland. (Mem. in Supp. Transfer [Dkt. 17-1].) Those motions have been fully briefed and argued at an oral hearing. They are now ripe for disposition.

         II. Standard of Review

         Federal Rule of Civil Procedure 12(b)(2) permits dismissal of an action when the court lacks personal jurisdiction over the parties. The plaintiff bears the burden of demonstrating personal jurisdiction by a preponderance of the evidence once its existence is questioned. Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989). When a district court resolves a 12(b)(2) motion without an evidentiary hearing, however, the plaintiff need prove only a prima facie case of personal jurisdiction. Mylan Labs, Inc. v. Akzo, N.V., 2 F.3d 56, 60 (4th Cir. 1993); Combs, 886 F.2d at 676. In deciding whether the plaintiff has proved the prima facie case, the district court must draw all reasonable inferences arising from the proof, and resolve all factual disputes, in the plaintiff’s favor. Combs, 886 F.2d at 676; Wolf v. Richmond Cty. Hosp. Auth., 745 F.2d 904, 908 (4th Cir. 1984). If personal jurisdiction is lacking, the court may dismiss or transfer the case pursuant to 28 U.S.C. § 1406(a). See Saudi v. Northrop Grumman Corp., 427 F.3d 271, 277 (4th Cir. 2005); In re Carefirst of Md., Inc., 305 F.3d 253, 256 (4th Cir. 2002).

         Federal Rule of Civil Procedure 12(b)(3) permits a defendant to challenge the plaintiff’s choice of venue. The plaintiff bears the burden of establishing that venue is proper. T. & B. Equip. Co. v. RI, Inc., No. 3:15-cv-337, 2015 WL 5013875, at *2 (E.D. Va. Aug. 24, 2015). “But if no evidentiary hearing is held, ‘the plaintiff need only make a prima facie showing of venue.’” Id. (quoting Mitrano v. Hawes, 377 F.3d 402, 405 (4th Cir. 2004)). “The court need not accept the pleadings as true, but instead may consider outside evidence. However, the Court must still draw all inferences in favor of the plaintiff.” Id. (citations omitted). If venue is improper, the court may dismiss the case or exercise its discretion to transfer pursuant to 28 U.S.C. § 1406(a). See Quinn v. Watson, 145 F. App’x 799, 800 (4th Cir. 2005).

         Even if personal jurisdiction and venue are proper, the court may transfer pursuant to 28 U.S.C. § 1404(a). Brock v. Entre Computer Ctrs., Inc., 933 F.2d 1253, 1257 (4th Cir. 1991). Section 1404(a) permits a district court to transfer a civil action “[f]or the convenience of parties and witnesses, in the interest of justice.” 28 U.S.C. § 1404(a). The moving party bears the burden of demonstrating that transfer is proper. Intranexus, Inc. v. Siemens Med. Solutions Health Servs. Corp., 227 F.Supp.2d 581, 583 (E.D. Va. 2002). But when a valid forum-selection clause applies, “the plaintiff bears the burden of establishing that transfer to the forum for which the parties bargained is unwarranted.” Atl. Marine Const. Co. v. U.S. Dist. Court for the W. Dist. of Tex., 134 S.Ct. 568, 577 (2013).

         III. Analysis

         The Court will apply the above principles to Defendants’ motions in the following order: (1) motion to dismiss for lack of personal jurisdiction; (2) motion to dismiss for improper venue; (3) motion to transfer for convenience and in the interest of justice. As described below, the Court concludes that personal jurisdiction and venue are proper. None-the-less, the Court will transfer this case to the U.S. District Court for the District of Maryland pursuant to 28 U.S.C. § 1404(a).

         A. Personal Jurisdiction

         This proceeding is ancillary to the Court’s order appointing Yancey as a receiver. Cf. Evans & Assocs., LLC v. Holibaugh, 609 F.3d 359, 362-63 (4th Cir. 2010) (discussing ancillary proceedings in receivership context generally). Accordingly, the Court’s personal jurisdiction analysis turns on an application of 28 U.S.C. §§ 754, 1692, and Federal Rule of Civil Procedure 4(k)(1)(C).[4] It is well recognized that these statutes, working together, allow a court to exercise personal jurisdiction over a defendant without considering the defendants’ minimum contacts with the forum, when doing so complies with due process. See SEC v. Bilzerian, 378 F.3d 1100 (D.C. Cir. 2004); Am. Freedom Train Found. v. Spurney, 747 F.2d 1069 (1st Cir. 1984); Haile v. Henderson Nat’l Bank, 657 F.2d 816 (6th Cir. 1981); Carney v. Lopez, 933 F.Supp.2d. 365, 375 (D. Conn. 2013); Hodgson v. Gilmartin, No. 06-1944, 2006 WL 2707397, at *7 (E.D. Pa. Sept. 18, 2006); Terry v. Modern Inv. Co., No. 3-04cv00085, 2005 WL 1154274, at *1 (W.D. Va. May 11, 2005). Establishing personal jurisdiction under these statutes is a multi-step process. First, a “receiver appointed in any civil action or proceeding involving property, real, personal or mixed, situated in different districts shall . . . be vested with complete jurisdiction and control of all such property with the right to take possession thereof” if the receiver files copies of the complaint and order of appointment in the district where the property is located within ten days of his appointment. 28 U.S.C. § 754. By making those timely filings, the receiver acquires in rem jurisdiction over the receivership property. The receiver may then establish personal jurisdiction over non-forum defendants in the receivership court pursuant to Rule 4(k)(1)(C) because 28 U.S.C. § 1692 authorizes nationwide service of process, provided the assertion of jurisdiction is compatible with due process under the Fifth Amendment of the United States Constitution. See ESAB Grp., Inc. v. Centricut, Inc., 126 F.3d 617, 626 (4th Cir. 1997); Terry, 2003 WL 21738299, at *4.

         Parties do not dispute that Yancey complied with the statutory requirements of sections 754 and 1692. The Court appointed Yancey as receiver on September 9, 2014, and Yancey filed copies of the complaint and appointment order in the District of Maryland within ten days, as required by section 754. (See Mem. in Opp’n to Herbert Ex. A [Dkt. 19-1].) Yancey then affected service of process as to all Defendants and no Defendant has argued that service was improper. (See Summonses [Dkts. 4, 5, 6].) Thus, the statutory requirements for personal jurisdiction in this Court are satisfied.

         Despite the foregoing, the individual Defendants raise two challenges to personal jurisdiction that the Court must address. First, Defendants Herbert and Young argue the claims alleged against them are commercial torts, which are not Yancey’s “property” within the meaning of the Stay Lift and Receiver Orders. Thus, they contend that Yancey may not rely on the receivership statutes to assert personal jurisdiction over them.[5] Defendants’ argument is not persuasive.

         The applicability of the receivership statutes turns on whether Yancey alleges that Herbert and Young possess receivership property. Cf. U.S. SBA v. Cottonwood Advisors, LLC, No. 3:12-cv-1222, 2012 WL 6044843, at *3 (N.D. Tex. Dec. 4, 2012) (considering whether defendant was holding receivership property). Yancey brought this lawsuit to collect payments that are allegedly owed to Truland for subcontractor services rendered and alleges that Herbert and Young “knowingly and/or wrongfully retained” those payments. (Compl. ¶¶ 123, 125.) Payments for subcontract services performed fall within the Stay Lift and Receiver Order[6] definition of property as either accounts, [7] general intangibles, [8] or proceeds thereof.[9] Cf. Cottonwood Advisors, 2012 WL 6044843, at *3 (“The cases uniformly hold that money owed to the entity in receivership is a receivership asset.”). The nature of the property and this proceeding do not change simply because Yancey bases his claim against Herbert and Young on the Maryland Construction Trust Fund Statute. Regardless of the theory of relief, the claims seek only to recover alleged receivership property and are ancillary to Yancey’s role as Receiver. (See Receiver Order ¶ 7 (authorizing Yancey to “institute and prosecute all such claims, actions, suits, insurance matters and the like . . . as may be necessary in his judgment for the proper protection of the Receivership Property”).[10]

         Second, Defendant Herbert argues that exercising personal jurisdiction over him would violate his Fifth Amendment due process rights. (Herbert Reply [Dkt. 21].) Herbert presents this argument through the lens of a multi-factor analysis borrowed from the Court of Appeals for the Tenth Circuit. See Peay v. BellSouth Med. Assistance Plan, 205 F.3d 1206 (10th Cir. 2000). Under that analysis, Herbert emphasizes that he has minimal contacts with Virginia, he was a minor actor regarding the contracts at issue, and it would be inconvenient for him to drive 72.4 miles from his home past Baltimore and Washington, D.C. to reach this courthouse. (See Herbert Reply at 2-5.) The Court finds no need to resort to Tenth Circuit law or to linger on Herbert’s plainly inadequate due process arguments.

         The Fourth Circuit’s standard for Fifth Amendment due process analysis is controlling here. Under that standard, extreme inconvenience or unfairness must outweigh “the congressionally articulated policy of allowing the assertion of in personam jurisdiction” in this forum. ESAB Grp., Inc. v. Centricut, Inc., 126 F.3d 617, 627 (4th Cir. 1997). It is “only in highly unusual cases that inconvenience will rise to a level of constitutional concern.” Id. (quoting Republic of Panama v. BCCI Holdings, 119 F.3d 935, 947 ...

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