Department 58

Hearing Date: August 29, 2024

Case Name: Perry & Alznauer, P.C. v. City National Bank, et al.

Case No.: 24STCV13168

Motion: Motion to Quash Service of Summons

Moving Party: Defendant Space Coast Credit Union

Responding Party: Plaintiff Perry & Alznauer, P.C.

Tentative Ruling: The Motion to Quash is granted.

On May 24, 2024, Plaintiff Perry & Alznauer, P.C. (“P&A”) filed an action against Defendants City National Bank (“City Bank”), Space Coast Credit Union (“Space Coast”), Wells Fargo Bank, N.A. (“Wells Fargo”), PNC Bank (“PNC”), Raheem Vassall (“Vassall”), Dante Prescott (“Prescott”), Michael Carseli (“Carseli”), and Does 1 through 100.

On July 17, 2024, Defendant Space Coast filed the instant Motion to Quash Service of Summons (“Motion”). On August 15, 2024, Plaintiff filed an Opposition to the Motion and on August 22, 2024, Defendant Space Coast filed a Reply.

On August 6, 2024, Plaintiff filed a First Amended Complaint (“FAC”) for (1) violation of Commercial Code section 11204, (2) negligence, (3) common counts, (4) conversion, and (5) violation of Penal Code section 496 against Defendants.

Legal Standard

“A defendant, on or before the last day of his or her time to plead or within any further time that the court may for good cause allow” may move “to quash service of summons on the ground of lack of jurisdiction of the court over him or her.” (Code of Civ. Proc. § 418.10, subd. (a)(1). A defendant has 30 days after the service of the summons to file a responsive pleading. (Code Civ. Proc., § 412.20, subd. (a)(3).)

“The Due Process clause of the Fourteenth Amendment constrains a State’s authority to bind a nonresident defendant to a judgment of its courts. [Citation.] [A] nonresident generally must have ‘certain minimum contacts . . . such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.” ’ ” (Walden v. Fiore (2014) 571 U.S. 277, 283.) Personal jurisdiction may be either general or specific. For general jurisdiction, a defendant’s forum contacts must be “so ‘continuous and systematic’ as to render [the defendant] essentially at home in the forum State.” (Daimler AG v. Bauman (2014) 571 U.S. 117, 139.) The paradigm of general jurisdiction for a corporation is its state of incorporation or principal place of business. (Ibid. at p. 137.)

Specific or case-linked jurisdiction “‘focuses on ‘the relationship among the defendant, the forum, and the litigation.’’” (Walden, supra, 571 U.S. at 283-284.) In particular, “the defendant’s suit-related conduct must create a substantial connection with the forum State.” (Ibid. at 284.) There are three requirements for a court to exercise specific jurisdiction over a nonresident defendant:

First, the defendant must have purposefully availed himself or herself of forum benefits or purposefully directed activities at forum residents. Second, the controversy must relate to or arise out of the defendant’s forum-related activities. Third, the exercise of jurisdiction must comport with traditional notions of fair play and substantial justice.”

(David L. v. Superior Court (2018) 29 Cal.App.5th 359, 366.) The plaintiff has the initial burden to establish the first two requirements. Only after doing so does the burden shift to the defendant to show that exercising jurisdiction would be unreasonable. (Ibid. at 367.) The plaintiff must do more than merely allege jurisdictional facts. “‘It must present evidence sufficient to justify a finding that California may properly exercise jurisdiction over the defendant.’” (Zehia v. Superior Court (2020) 45 Cal.App.5th 543, 552.)

“‘[P]urposeful availment occurs where a nonresident defendant ‘‘purposefully direct[s]’ ‘[its] activities at residents of the forum” [citation], “ ‘purposefully derive[s] benefit’ from” its activities in the forum [citation], “create[s] a ‘substantial connection’ with the forum” [citation], “ ‘deliberately’ has engaged in significant activities within” the forum [citation], or “has created ‘continuing obligations’ between [itself] and residents of the forum” [citation]. By limiting the scope of a forum’s jurisdiction in this manner, the “ ‘purposeful availment’ requirement ensures that a defendant will not be haled into a jurisdiction solely as a result of ‘random,’ ‘fortuitous,’ or ‘attenuated’ contacts … .” [Citation.] Instead, the defendant will be subject to personal jurisdiction only if “ ‘it has clear notice that it is subject to suit there, and can act to alleviate the risk of burdensome litigation by procuring insurance, passing the expected costs on to customers, or, if the risks are too great, severing its connection with the state.’ ” [Citations.]’ ” (HealthMarkets, Inc. v. Superior Court (2009) 171 Cal.App.4th 1160, 1168.)

In Walden, the U.S. Supreme Court emphasized two important principles underlying the jurisdictional inquiry: “First, the relationship must arise out of contacts that the ‘defendant himself’ creates with the forum State. [Citation.] Due process limits on the State’s adjudicative authority principally protect the liberty of the nonresident defendant – not the convenience of plaintiffs or third parties.” (Walden, supra, 571 U.S. at p. 284.) “Second, our ‘minimum contacts’ analysis looks to the defendant’s contacts with the forum State itself, not the defendant’s contacts with persons who reside there.” (Id. at p. 285.) “[T]he plaintiff cannot be the only link between the defendant and the forum. Rather, it is the defendant’s conduct that must form the necessary connection with the forum State that is the basis for its jurisdiction over him.” (Ibid.) Therefore, “mere injury to a forum resident is not a sufficient connection to the forum.” (Id. at 290.) “The proper question is not where the plaintiff experienced a particular injury or effect but whether the defendant’s conduct connects him to the forum in a meaningful way.” (Ibid.)

Discussion

A. Motion

Defendant Space Coast specially appears to challenge the Court’s personal jurisdiction. (Mot. p. 6.)

Plaintiff alleges that it had personal and business bank accounts with Defendant City Bank. (FAC ¶ 10.) On November 27, 2023, an unauthorized person initiated payment orders from two of Plaintiff’s accounts to various individuals, including certain Defendants. (Id. at ¶¶ 11, 27.) On November 28, 2023, Plaintiff discovered these unauthorized transactions, immediately notified City Bank, and filed a report with the Federal Bureau of Investigations. (Id. at ¶ 12.) While certain transactions were blocked, others were not, causing Plaintiff to incur damages. (Id. at ¶¶ 13-14.) One of these payment orders was allegedly made to an account owned by Defendant Raheem Vassall at Space Coast. (Id. at ¶¶ 11, 27.) Plaintiff filed this action against the individuals whose accounts received funds, City Bank, and the other financial institutions with the accounts where the funds were allegedly transferred, including Space Coast. Plaintiff asserts two causes of action against Space Coast for negligence and common counts, stating that Space Coast breached its duty to non-customer Plaintiff by failing to protect it from the illegal conduct committed by its own customer. (Id. at ¶¶ 26-34.)

Defendant Space Coast presents the declaration of Shane Hoyle, Senior Vice President and Chief Operating Officer, in support of its Motion. According to Hoyle, Space Coast is a Florida state-chartered credit union, with headquarters and a principal place of business located at 8045 N. Wickham Road, Melbourne, Florida, 32940. (Hoyle Decl. ¶ 4.) Space Coast does not and did not, during the time alleged in the Complaint, have branches, offices, or employees in the State of California. (Id. at ¶ 5.) Space Coast does not and did not, during the time alleged in the Complaint, own or lease real or personal property in the State of California. (Id. at ¶ 6.) Moreover, it does not and has not solicited any business in the State of California. (Id. at ¶ 7.) Space Coast requires that a person either work or live in one of the 34 counties in the State of Florida to be a member. (Ibid.) All deposit accounts of Space Coast members are now and were, during the time alleged in the Complaint, maintained and serviced in the State of Florida. (Id. at ¶ 8). Moreover, all funds of Space Coast members deposited into Space Coast accounts are and were, at the time alleged in the Complaint, maintained outside the State of California. (Id. at ¶ 9.) Finally, all records and persons of knowledge of Space Coast’s operations are located in the State of Florida and requiring Space Coast to participate in the instant lawsuit in Los Angeles would be extremely burdensome. (Id. at ¶ 10.)

Based on this evidence, Space Coast argues that it is not subject to general or specific personal jurisdiction in California. (Mot. p. 9.)

First, the State of California is not Space Coast’s place of incorporation or principal place of business as it is a Florida-state chartered credit union headquartered in Florida. (Ibid.) Space Coast also does not have any operations in California. (Ibid.)

Second, none of the requirements for the exercise of specific jurisdiction are met in this case. (Id. at p. 10.) Space Coast did not purposefully direct its activities at California: it has not conducted any business, leased any real or personal property, maintained any branches, offices, or employees, and or service any member accounts in California. (Id. at p. 11.) Since Space Coast does not have any California contacts, it is impossible for any of Plaintiff’s claims to arise from those contacts. (Ibid.) Space Coast contests Plaintiff’s claims that Space Coast owed duties to non-members in California. (Ibid.) Simply accepting a payment order from Plaintiff’s bank account in California is insufficient to establish jurisdiction. (Id. at pp. 11-12.) Finally, the exercise of jurisdiction would be unreasonable because Space Coast has no presence in California, and it would be unreasonable to demand Space Coast to appear in this Court when it lacks any connection to the state and operates on the other side of the country. (Id. at p. 12.)

B. Opposition

Plaintiff opposes the Motion. It states that shortly after the unauthorized wire transfer from City Bank’s account to Space Coast, Space Coast was notified about the transaction. (Perry Decl. ¶ 3.) Space Coast disregarded the notice and gave the money to the third-party, without Plaintiff’s authorization. (Ibid.).

Plaintiff does not dispute that the Court cannot exercise general personal jurisdiction over Defendant Space Coast. (Oppos. p. 2.) However, Plaintiff requests leave to conduct jurisdictional discovery to develop the facts necessary to show that the Court may exercise specific personal jurisdiction over Space Coast. (Id. at p. 3.) Plaintiff argues that the evidence presented by Defendant “does not rule out the possibility that Space Coast does extensive business in California.” (Id. at pp. 3-4.) Like most financial institutions, Space Coast allows its customers to send and receive wire transfers and ACH payments to or from individuals in other states or internationally, including sending and receiving funds from California banks. (Id. at p. 4.) This constitutes an intentional activity in California. (Ibid.) Plaintiff also argues that the facts of the instant case are distinguishable from Resolution Trust Corp. v. First of America Bank and S.H. Silver Co. v. David Morris Int'l, cases cited by Defendant for the proposition that wire transfer activity in the forum jurisdiction is not sufficient to create personal jurisdiction. (Id. at pp. 4-5; Resolution Trust Corp. v. First of America Bank (C.D. Cal. 1992) 796 F.Supp.1333); S.H. Silver Co. v. David Morris Int'l (N.D.Cal. Aug. 28, 2008, No. C 08-03550 CRB) 2008 U.S.Dist.LEXIS 116989.) Here, unlike in Resolution, in which the transfer was from a California bank to a Michigan bank, it is not clear who initiated the transfer as it may have been Space Coast. (Id. at p. 5.) Moreover, unlike S.H. Silver, in which there was no personal jurisdiction because of a few phone calls and two wire transfers, here, as a large credit union, Space Coast may have established continuous activity with the forum state. (Ibid.)

Plaintiff requests leave to conduct discovery to determine the following facts: 1) how the money got transmitted from Plaintiff’s bank account in California to Space Coast in Florida; 2) how the money got transmitted from Space Coast to Vassall and what information Space Coast has about Vassall; 3) how many funds transfers, by wire or through the ACH system, were made from Space Coast to banks in California in 2023, and 4) how many funds transfers, by wire or through the ACH system, were made to Space Coast from banks in California. (Id. at pp. 5-6.)

Plaintiff argues that its claims do arise from forum-related activities as they are based on the same wire transfer or ACH activity that forms the basis for finding minimum contacts. (Id. at p. 6.) Finally, there are other foreign banks involved in the lawsuit and Space Coast has not demonstrated any substantial burden in defending itself. (Ibid.) If City Bank were to blame Space Coast for the loss, it would not make sense to have two separate lawsuits, one in California and one in Florida. (Ibid.)

C. Reply

In its Reply, Space Coast reiterates that it is not subject to specific personal jurisdiction because it does not purposefully direct any activities at California and Plaintiff’s claims do not arise from any such activities. (Reply pp. 4-5.) Space Coast did not purposefully direct any activities at California by offering wire services to its Florida-based members. (Id. at p. 5.). Like most financial institutions that do offer wire services, Space Coast is a member of wire transfer clearinghouses that allow its members to send and receive wires nationwide. (Ibid., Roberts Decl. ¶ 4.) These clearinghouses facilitate the transfer of funds from one financial institution to another by sending secure payment instructions, which the participating financial institutions settle by crediting and debiting funds from their Federal Reserve accounts. (Roberts Decl. ¶¶ 4-5, 7.) Membership in these clearinghouses does not automatically subject a financial institution like Space Coast to national jurisdiction. (Reply p. 5.) Space Coast also states that it does not have control over wire transfers sent to member accounts and when, from whom, or from where the wires are sent. (Roberts Decl. ¶ 8.) The sender of the wire controls where it is sent and Space Coast’s acceptance of wires in Florida from California does not result from any action undertaken by Space Coast. (Reply pp. 5-6.) In this case, Space Coast received wire transfer instructions to credit $40,051.48 to the account of its Florida-based member Vassall from an account held by City Bank. (Roberts Decl. ¶¶ 6-7.) Space Coast did not initiate the wire transfer or have any control over where it came from. (Id. at ¶¶ 7-8.) This single activity does not establish specific personal jurisdiction over Space Coast. (Reply p. 6.)

Space Coast also opposes Plaintiff’s request to conduct jurisdictional discovery because Plaintiff has not made the required showing that any of the requested discovery will likely lead to evidence establishing specific jurisdiction. (Id. at p. 7.) Evidence shows that Space Coast did not send or initiate the wire transfer at issue and wire transfer activity to and from California by third parties is irrelevant to the jurisdictional analysis. (Id. at pp. 7-8.)

D. Analysis

There is no dispute that the Court does not have general jurisdiction over Space Coast. Moreover, based on the evidence presented, Space Coast has shown that it has not purposefully availed itself of forum benefits or purposefully directed activities at California residents. In response, Plaintiff does not offer any facts or arguments to sustain its burden of demonstrating that Space Coast is subject to specific personal jurisdiction of the Court. Instead, it requests additional time to conduct jurisdictional discovery to obtain facts in support of a finding of specific jurisdiction.

A plaintiff seeking to assert jurisdiction over a nonresident defendant is generally entitled to an opportunity to conduct discovery of the facts necessary to sustain its burden of proof. (Magnecomp Corp. v. Athene Co., Ltd. (1989) 209 Cal.App.3d 526, 533.) “In order to prevail on a motion for a continuance for jurisdictional discovery, the plaintiff should demonstrate that discovery is likely to lead to the production of evidence of facts establishing jurisdiction.” (In re Automobile Antitrust Cases I & II (2005) 135 Cal.App.4th 100, 127.) A trial court has discretion to rule on a motion to continue for additional jurisdictional discovery and will not be reversed absent a finding of abuse of discretion. (Ibid.)

The Roberts declaration, at paragraphs 6 and 7, answers question 1. The remaining questions are irrelevant to the jurisdictional issue. Plaintiff fails to demonstrate that discovery of such facts will likely lead to evidence establishing jurisdiction.

In Resolution Trust Corp, the Court found that wire transfers and participation in a national clearinghouse service, which facilitates wire transfers, are not sufficient to demonstrate minimum contacts with a forum, and, thus, are generally insufficient to establish personal jurisdiction on their own. (Resolution Trust Corp., supra, 796 F.Supp.1333). The Court noted that participation in such a clearinghouse system is a “technological necessity of modern banking, similar in some respects to having telephone service” and finding that such participation subject to personal jurisdiction would suggest that every bank in the nation would be subject to jurisdiction in all states. (Id. at 1335.) Thus, additional affirmative actions aimed at the forum, such as evidence of advertising, employees or agents in California, or an intent or purpose to serve the California market, would be necessary to establish that the party had purposefully availed itself of the benefits of the forum or directed its activities at the forum. (Id. at 1336.) Similarly, in S.H. Silver, the Court found that wire transfers to a California bank were not sufficient to establish minimum contacts with the forum state. (S.H. Silver, supra, 2008 U.S.Dist.LEXIS 116989.)

Plaintiff argues that these cases, cited by Defendant, are distinguishable from the facts of the instant case because it is not clear who initiated the wire transfer and whether it was Space Coast. In it Reply, Space Coast’s Vice President of Payment Services and Loss Prevention explains that on November 27, 2023, Space Coast received wire transfer instructions to credit funds to Vassall’s account from City Bank. (Roberts Decl. ¶ 3.) Like all other wire transfers sent to Space Coast member accounts, it did not initiate the wire transfer and had no control over when or from whom wires were sent to its member’s account. (Id. at ¶¶ 5, 7-8.)

The only information Plaintiff seeks through jurisdictional discovery is regarding the transfers between Space Coast and California. First, Space Coast has presented evidence to show that it did not initiate the wire transfer at issue. Second, as in Resolution Trust Corp. and S.H. Silver, the Court finds that mere participation in national clearinghouse systems and transmission of funds through wire transfers or the ACH system, does not demonstrate that Space Coast purposefully availed itself of California benefits or purposefully directed activities at California residents.

Thus, Plaintiff has not established any minimum contacts between Defendant Space Coast and the forum state or shown that its claims relate to or arise out of the Defendant’s forum-related activities. As Plaintiff failed to meet his burden of establishing the first two requirements for specific jurisdiction, the Court need not address whether exercise of jurisdiction would be fair and reasonable.

Because Plaintiff has not demonstrated that the Court has personal jurisdiction over Defendant Space Coast or that jurisdictional discovery will lead to facts likely to sustain its burden in establishing personal jurisdiction, the Court grants Defendant’s Motion to Quash Service of Summons and dismisses it from this case.

Conclusion

The Court grants Defendant Space Coast Credit Union’s Motion to Quash Service of Summons on the basis of lack of personal jurisdiction. Defendant Space Coast Credit Union is dismissed from this case.