112 A.3d 534
Md. Ct. Spec. App.2015Background
- In 2008 the Swareys invested about $3.7 million (including funds secured by a $2,000,000 loan on their Maryland home) in various real-estate ventures and entities controlled by Todd Parriott, Phillip Parriott, and Kerry Stephenson; the investments failed and the Swareys sued alleging fraud, RICO, consumer-protection violations, elder abuse, conspiracy, and related claims.
- The Swareys filed a 21-count complaint in St. Mary’s County Circuit Court in May 2011; several defendants were later added or identified across multiple related entities incorporated in different states.
- The Parriott defendants removed to federal court; Stephenson was served with a federal summons and answered in federal court. The federal court dismissed the RICO count and remanded remaining state-law claims to state court.
- On remand, the circuit court held that (a) service on several defendants (including five FUL-related defendants and Stephenson) was insufficient, and (b) the Parriott defendants were not subject to personal jurisdiction; the circuit court also found Desert Capital’s service ineffective due to an automatic bankruptcy stay.
- The Court of Special Appeals held: (1) federal service on Stephenson and his federal-court answer waived the defense of insufficient service on remand (so the circuit court erred to the extent it dismissed on that ground); (2) Stephenson did not waive lack of personal jurisdiction because he had preserved that defense in his federal answer; and (3) the circuit court abused its discretion by dismissing for lack of personal jurisdiction without first permitting targeted discovery into the defendants’ contacts with Maryland. The court vacated/reversed the July 31, 2013 orders and remanded for further discovery and proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of service on Stephenson after removal | Federal service and federal answer constitute effective service on remand; Stephenson waived insufficiency defense | State summons service was defective; state court may require state-process compliance on remand | Federal service satisfied due process and Maryland notice rules; because Stephenson answered in federal court without asserting insufficiency, that defense was waived on remand (dismissal for insufficiency reversed) |
| Preservation of personal-jurisdiction defense by Stephenson | N/A (plaintiff argued jurisdiction existed) | Lack of personal jurisdiction preserved by raising it in federal-court answer | Lack of personal jurisdiction was preserved by federal answer and may be reasserted on remand; raising it was not waived |
| Whether circuit court should have allowed discovery about contacts with Maryland | Needed discovery specifically targeted to defendants’ Maryland contacts to make prima facie jurisdictional determination | Defendants argued contacts insufficient and court could decide on the existing record | Circuit court abused its discretion by dismissing without permitting jurisdictional discovery; remand for discovery and further proceedings required |
| Finality / appealability given some defendants unserved and Desert Capital in bankruptcy | Orders disposing of all claims as to served defendants are final and appealable; Desert Capital was not effectively served (bankruptcy stay) | Appellees contended no final judgment as to all defendants so appeal improper | Judgment was final as to all served defendants; Desert Capital was not served because service after the bankruptcy petition was void under the automatic stay, so appellate jurisdiction was proper |
Key Cases Cited
- Turner v. Kight, 406 Md. 167 (finality where unserved defendant not a party)
- State Highway Admin. v. Kee, 309 Md. 523 (unserved defendant not party for final-judgment purposes)
- Pickett v. Sears, Roebuck & Co., 365 Md. 67 (effect of federal pleadings and waiver principles)
- Ayres v. Wiswall, 112 U.S. 187 (state court determines effect of federal pleadings on remand)
- Himes Assocs., Ltd. v. Anderson, 178 Md. App. 504 (general v. specific jurisdiction analysis)
- Miserandino v. Resort Props., Inc., 345 Md. 43 (due-process standard for sufficiency of notice)
- Int'l Shoe Co. v. Washington, 326 U.S. 310 (minimum contacts / due process foundational test)
- Walden v. Fiore, 134 S. Ct. 1115 (focus on defendant’s forum contacts)
- In re Schwartz, 954 F.2d 569 (accrual/discovery rule and bankruptcy stay implications)