Bates v. Offit Kurman Attorneys at Law LLP

Background

ACL Computers and Software Inc. retained Offit Kurman Attorneys at Law LLP to represent it in a Maryland state-court action. Theodore P. Stein, an attorney employed by Offit Kurman, served as lead counsel. The representation included opposing a summary-judgment motion, and the plaintiffs alleged that Offit Kurman failed to include documents ACL had provided for that opposition. The Maryland state court granted summary judgment against ACL, and the dismissal was later affirmed on appeal.

ACL, Robert Bates, and Adam Radly sued Offit Kurman, Stein, and Legal Malpractice Insurance Company John Doe. The complaint asserted claims described as negligent failure, breach of fiduciary duty, and breach of contract. The opinion states that the John Doe insurance-company defendant had not been identified or served and had not appeared.

Motion and jurisdictional issue

The defendants moved to dismiss under several theories, including lack of subject-matter jurisdiction, lack of personal jurisdiction, improper service, forum non conveniens, and failure to state a plausible claim. The court addressed subject-matter jurisdiction first because a federal court must establish its authority to hear a case before considering the merits or other grounds for dismissal.

The plaintiffs relied on diversity jurisdiction under 28 U.S.C. § 1332. Diversity jurisdiction generally requires that every plaintiff be a citizen of a different state from every defendant and that the amount in controversy exceed $75,000. For a corporation, citizenship includes its state of incorporation and its principal place of business.

The complaint alleged that Bates was domiciled in California and that Radly was an Australian citizen residing in Melbourne, Australia. It alleged that ACL had offices in Bethesda, Maryland, but that those offices had closed. It also alleged that Offit Kurman “resides” in New York because its main office is there, and it did not allege Stein’s citizenship.

The defendants submitted evidence outside the complaint showing that ACL was incorporated in Maryland and had its principal place of business there, that Offit Kurman was incorporated in Maryland and had its principal place of business there, and that Stein resided in Maryland. The court explained that this was a fact-based challenge under Federal Rule of Civil Procedure 12(b)(1), which permits the court to consider evidence beyond the pleadings when deciding whether it has subject-matter jurisdiction.

Court’s analysis

The plaintiffs conceded that a defendant had Maryland citizenship and did not contest that ACL was incorporated in Maryland. Instead, they argued that ACL’s citizenship should not matter because ACL was inactive or nonexistent. The court rejected that argument. The plaintiffs had not submitted evidence, such as articles of dissolution, proving that ACL no longer existed. The court also relied on precedent stating that a corporation’s inactivity does not eliminate consideration of its citizenship for diversity purposes.

Because ACL remained listed as a plaintiff in the operative complaint, the court treated ACL as a party to the action. ACL’s Maryland citizenship was the same as Offit Kurman’s Maryland citizenship, defeating the complete diversity required for federal jurisdiction. The court therefore concluded that it lacked subject-matter jurisdiction.

Disposition

The court did not decide the legal-malpractice, fiduciary-duty, or contract claims, and it did not decide the defendants’ remaining arguments concerning personal jurisdiction, service, forum non conveniens, or failure to state a claim. The court granted the defendants’ motion to dismiss. It dismissed the complaint without prejudice, directed the Clerk of Court to terminate the pending motions, adjourned the remaining dates, and closed the case.