Baird v. Meyers, Roman, Friedberg & Lewis, Co.

700 F.Supp.3d 249

Kevin BAIRD; KevGar Holdco, LLC;400 Reily Street LLC; 400 Reily Street Management LLC, Plaintiffs, v. MEYERS, ROMAN, FRIEDBERG & LEWIS, CO., LPA, Defendant

Case No. 2:23-cv-01974

United States District Court, E.D. Pennsylvania

Filed October 27, 2023

Mark S. Haltzman, Malcolm S. Gould, Silverang Rosenzweig & Haltzman LLC, King of Prussia, PA, for Plaintiffs.

Andrew N. Domozick, Andrew J. Dorman, Holly Marie Wilson, Reminger & Reminger Co., LPA, Cleveland, OH, Bryan P. Werley, Jonathan D. Weiss, Zarwin, Baum, DeVito, Kaplan, Schaer & Toddy, P.C., Philadelphia, PA, for Defendant.

MEMORANDUM

Baylson, District Judge

I. Background

Pennsylvania Plaintiffs hired Defendant Ohio law firm to help them qualify for significant tax benefits on a Pennsylvania real estate project. After two years of work, Plaintiffs discovered the project did not meet the criteria for the benefits and scuttled their plans. Upon this revelation, Plaintiffs tried to settle with the law firm for alleged malpractice. During settlement negotiations, the Defendant law firm filed for declaratory judgment in Ohio federal court. Then, Plaintiffs brought this suit. The Ohio law firm asks this Court to dismiss this case for lack of personal jurisdiction in Pennsylvania, improper venue based on a forum selection clause, and/or stay proceedings in deference to the Ohio action. This Court finds it retains personal jurisdiction over the firm and the law firm waived the forum selection clause. Further, the Court will not stay this proceeding.

A. Plaintiffs' Allegations

Kevin Baird, KevGar Holdco, LLC, KRB Opportunity Zone Fund, LLC, 400 Reily Street LLC, and 400 Reily Street Management LLC (collectively "Plaintiffs") bring this action against Defendant Meyers, Roman, Friedberg & Lewis, Co. LPA ("Meyers Roman") for legal malpractice and negligence, breach of contract, and misrepresentation. Pl. Comp. ¶¶ 70-94, ECF No. 1.

Meyers Roman is an Ohio-based law firm with its principal place of business in Cuyahoga County, Ohio. Pl. Comp. ¶ 7. Baird hired Meyers Roman to "form the required structure & entities . . . [to,] in the most efficient tax-compliant manner, deploy capital gains from the sale of the Philadelphia properties" into a real estate development project in Harrisburg. Id. ¶ 34. Seeking to benefit from the federal Tax Cuts and Jobs Act's ("TCJA") tax advantages and defer capital gains from the net proceeds of real estate sales, Baird decided to form a Qualified Opportunity Fund ("QOF") and Qualified Opportunity Zone ("QOZ") businesses. Id. ¶¶ 14-24. The tax benefits were potentially significant, but in order to realize them, Baird needed to invest his gains in areas designated as eligible QOZs. Id. A locality qualified as a QOZ if the federal government determined the area was an "economically distressed community" meriting preferential tax treatment. Id. A section of Harrisburg, Pennsylvania had acquired that designation. Id. ¶¶ 24-27.

Baird partnered with Gary Nalbandian to redevelop portions of Midtown Harrisburg and formed plaintiff KevGar as an operating entity. Id. ¶¶ 25-26. On December 14, 2020, Baird and KevGar entered into a legal services agreement with Meyers Roman for "the development of a mixed-use project in a designated opportunity zone in Harrisburg, Pennsylvania (the "Project") and any future matters which may evolve from it." Leg. Serv. Agreement 1; Ex. 2 to Def. Mot. to Dismiss, ECF No. 11-3. To Baird, the firm held itself out as "expert[ ] in structuring QOZ and QOF investment vehicles." Pl. Comp. ¶ 46. To gain the tax benefit motivating the Project, the QOFs had to meet specific liquidity and financing thresholds outlined in the TCJA. Id. ¶¶ 14-23; 68.

The representation covered three distinct subfields, including (1) assisting in structuring the investment fund between Baird and other equity / debt partners in the Harrisburg project, (2) chartering a new Pennsylvania limited liability corporation to "serve as the opportunity zone vehicle" in Harrisburg, and (3) creating a memorandum for potential equity / debt partners in the Harrisburg project. Leg. Serv. Agreement 1-4. Defendant capped its fees for these services at $45,000. Leg. Serv. Agreement 2.

The contract also included a forum selection clause, requiring that any dispute "arising out of or under this agreement" be litigated "only" in two Ohio state courts. Leg. Serv. Agreement 5. The clause prohibited litigation in federal courts. Id. 5.

For roughly two years, Meyers Roman worked on the Harrisburg project. Pl. Comp. ¶¶ 24-62. During that time, it was the primary firm representing the QOZ businesses and QOF. Id. Meyers Roman created multiple Pennsylvania LLCs during its representation for Baird: plaintiffs KRB Opportunity Zone Fund, LLC; 400 Reily Street LLC, and 400 Reily Street Management. It also filed corporate organization papers with the Pennsylvania Secretary of State and listed a Meyers Roman attorney as the "Organizer" for each LLC. LLC Organizing Papers 3, 7; Ex. 6 to Pl. Resp. to Def. Mot. to Dismiss. Meyers Roman also prepared the operating agreements for each LLC, to be interpreted per Pennsylvania law. KRB Operating Agreement ¶ 13.10; Ex. 7 to Pl. Resp. to Def. Mot. to Dismiss; 400 Reily Street Management Operating Agreement ¶ 16; Ex. 8 to Pl. Resp. to Def. Mot. to Dismiss. Unsurprisingly, Plaintiffs repeatedly communication with their lawyers via email and telephone about the Harrisburg project. Pl. Resp. 10. All actions were remote. Meyers Roman performed its contract entirely while located within Ohio. Dardis Aff. ¶¶ 34-7. Due to economic shocks from the COVID-19 pandemic, development stalled in 2021. Pl. Comp. ¶¶ 37-40. Then, in 2022, Baird reimagined the Project into a "multifamily development [ ] consisting of 142 apartments, 175 parking spaces, and 10,000 square feet of ground floor retail." Id. ¶ 43. He secured three million dollars in non-transferable public funding in early 2022 for the development. Id. ¶ 44.

At the same time in 2022, the IRS assessed Plaintiffs thousands of dollars in penalties for errors in their tax returns, which Meyers Roman had prepared. Pl. Comp. ¶ 46. But the graver consequence followed. After a lengthy back and forth, Baird discovered in the summer/fall 2022 that the corporate structures of the LLCs were not compliant, in their present form, with the TCJA. Id. ¶¶ 46-62; 68. At its core, the membership composition of the LLCs subjected them to greater capital requirements and a shorter timeline to invest those assets into QOZ business than an alternative, more optimal membership structure. Id. ¶ 68. Because of the corporate structure, Plaintiffs claim, they could not receive deferred capital gains, which was Baird's primary motivation for the Harrisburg project from the onset. Id. ¶ 24. Moreover, the Project became far less attractive to outside investors without the conferred tax benefit. Id. ¶ 49. Plaintiffs contend Meyers Roman misrepresented, through phone and email communications, their exposure for several months in late 2022 even after discovering the structural error. Id. ¶¶ 46-62.

II. Procedural History

Believing litigation was imminent, Meyers Roman filed for a declaratory judgement in the Northern District of Ohio against Plaintiffs on March 10, 2023. Meyers, Roman, Friedberg & Lewis, Co., LPA v. Kevin Baird et al., No. 23-CV-00491 (N.D. Oh. 2023) ("Ohio action"); Baird Aff. ¶¶ 44-47. The Ohio action seeks a declaration of judgment:

(1) that Meyers Roman was not negligent in providing legal services to Baird;

(2) that any such lawsuit by Baird would need to be filed in the forum in the contract; and

(3) Meyers Roman's representation was limited to KevGar.

Meyers Roman Comp. ¶ 13; Ex. 4 to Def. Mot. to Dismiss. Plaintiffs filed suit ("the Pennsylvania action") in this Court on May 24, 2023. They allege in Count I that Meyers Roman breached the contract, in Count II that Meyers Roman committed legal malpractice through negligent representation, and in Count III that Meyers Roman intentionally misrepresented the QOZ and QOF deficiencies to Plaintiffs after discovering the errors. Pl. Comp. ¶¶ 70-94.

A. Meyers Roman's Motion to Dismiss

Meyers Roman filed a Motion to Dismiss making three arguments. First, Meyers Roman contends this Court lacks personal jurisdiction over the firm pursuant to Rule 12(b)(2). The briefing lays out the two types of personal jurisdiction: general and specific. Def. Mot. to Dismiss 6. The firm contends general jurisdiction does not lie, and Plaintiffs agree. Regarding specific jurisdiction, Meyers Roman relies on four principal facts for why the Court does not have jurisdiction:

(1) the firm is an Ohio law firm with its sole offices located in Ohio;

(2) the firm did not solicit Plaintiffs or otherwise advertise in the Pennsylvania market;

(3) the firm does not have a physical presence, bank accounts, real property, telephone numbers, employees or staff, or any assets in Pennsylvania; and

(4) the firm completed all of its legal work for Plaintiffs in Ohio.

Def. Mot. to Dismiss 8, ECF No. 11; Dardis Aff. ¶¶ 4-8; Ex. 1 to Def. Mot. to Dismiss. Additionally, Meyers Roman argues for a dismissal or transfer of this cause based on the forum selection clause in the Legal Services Agreement.¹ Def. Mot. to Dismiss 9. The firm contends the clause is valid and binding absent extraordinary circumstances, none of which are presented. Id. 10. Meyers Roman also argues the clause binds the non-signatory LLCs—who are plaintiffs in this action—formed during the firm's representation of Baird. Id.

Meyers Roman makes one argument in the alternative. Should the Court reject the firm's first two arguments, it argues for dismissal or transfer under the first-filed rule. Def. Mot. Dismiss 9-11. When the same action is pending in two federal courts, the first-filed rule encourages the later-filed court to enjoin proceedings in deference to the first-filed court. Id. 11-12. Meyers Roman argues the first-filed...