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Civil Procedure: Venue—Defendants Right to be Sued in County of Residence

Posted by Ted A. Schmidt | Mar 12, 2018 | 0 Comments

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The Butler Law Firm, PLC v. Higgins, 785 Ariz. Adv. Rep. 20 (February 22, 2018) (J. Brutinel)

WHERE CONTRACT TO PERFORM LEGAL SERVICES DID NOT REQUIRE THE SERVICES BE PERFORMED IN COUNTY WHERE PLAINTIFF WAS LOCATED AND WHERE DEFENDANT WAS AN LLC AND NOT A CORPORATION, DEFENDANTS WERE ENTITLED TO MOVE VENUE TO COUNTY OF THEIR RESIDENCE

Plaintiff hospital, located in Navajo County sued defendant law firm and individual lawyers, located and residing in Maricopa County, for legal malpractice, breach of fiduciary duty and bad faith in the law firm's drafting of an employment contract for its CEO.  Suit was brought in Navajo County. 

The lawyers moved to change venue to Maricopa County based upon A.R.S. §12-404(A) which provides a defendant has a right to venue in the county of its residence. The trial court denied the motion based upon the statutory exception found in A.R.S. §12-401(5) because "the plaintiff exclusively contracted business in Navajo County." The trial court also found venue proper under A.R.S. §12-401(18), reasoning that because the liability limitations of both limited liability companies ("LLCs") and corporations are susceptible to "veil-piercing," LLCs should be considered corporations for venue purposes.

Defendant brought this special action. Jurisdiction was accepted by the Arizona Supreme Court and the trial court was reversed and remanded. 

Exceptions to the general rule that defendants are entitled to be sued in their county of residence are to be strictly construed. A.R.S. §12-401(5) states: "Persons who have contracted in writing to perform an obligation in one county may be sued in such county or where they reside." The supreme court held that because the contract between the hospital and the lawyers did not “require expressly or by necessary implication” the work in question be performed in Navajo County, this statutory exception to the general rule, did not apply. The fact the plaintiff exclusively contracted business in Navajo County was of no moment. Its the defendants' residence and where it does business that affects proper venue.

A.R.S. §12-401(18) which allows corporations to be sued in any county in which the cause of action arises, or where the defendant conducts business, has an agent or representative, does not apply here because the law firm is a Limited Liability company and not a corporation. LLCs are different from corporations in many respects and the statutory exception makes no mention of LLCs.  Venue and the alter-ego doctrine/veil piercing upon which the trial court relied, reflect different policy considerations. Venue is based on convenience in choosing the site for litigation, whereas the alter-ego doctrine attempts to prevent "fraud," "misuse," and "injustice" arising from misuse of the corporate form of organization.  Here defendants right to be sued in the county where they were located and resided must prevail.

About the Author

Ted A. Schmidt

Ted's early career as a trial attorney began on the other side of the fence, in the offices of a major insurance defense firm. It was there that Ted acquired the experience, the skills and the special insight into defense strategy that have served him so well in the field of personal injury law. Notable among his successful verdicts was the landmark Sparks vs. Republic National Life Insurance Company case, a $4.5 million award to Ted's client. To this day, it is the defining case for insurance bad faith, and yet it is only one of several other multi-million dollar jury judgments won by Ted during his career. He is certified by the State Bar of Arizona as a specialist in "wrongful death and bodily injury litigation".

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