Judge: Daniel S. Murphy, Case: 24STCV21549, Date: 2024-11-06 Tentative Ruling

Case Number: 24STCV21549    Hearing Date: November 6, 2024    Dept: 32

BACKGROUND

            On August 23, 2024, Plaintiff Shark Attack, LLC filed this action against Defendants Metcalf Hodges, PS and Jevon Jones, asserting claims for (1) accounting malpractice, (2) fraudulent concealment, (3) breach of fiduciary duty, (4) common count – services rendered, (5) breach of contract, and (6) breach of contract. The dispute arises from the following alleged facts.

            Plaintiff is a record label, and Defendant Jones is a rapper who entered into an agreement with Plaintiff for Plaintiff to provide digital marketing services in exchange for $5,000 per month. Jones never made any payments, although Plaintiff’s QuickBooks accounting software erroneously marked a payment as accepted in September 2022.

Defendant Metcalf Hodges, the accounting services company retained by Plaintiff, made the error which led to the September 2022 payment being marked as accepted. Metcalf denied it had made the error and deleted the record of its mistake. Plaintiff later discovered that Metcalf had made similar errors on at least 39 other occasions. Metcalf admitted that its employee made the errors due to poor training but has refused to compensate Plaintiff for the resulting damage.

            Plaintiff and Metcalf also had another agreement whereby Metcalf was to prepare Plaintiff’s 2021 tax returns. However, Metcalf failed to prepare the tax returns, forcing Plaintiff to retain another accounting firm and causing the IRS to audit Plaintiff.

            On October 1, 2024, Metcalf filed the instant motion to quash service of summons. Plaintiff filed its opposition on October 23, 2024. Metcalf filed its reply on October 28, 2024.

LEGAL STANDARD

“Due process permits the exercise of personal jurisdiction over a nonresident defendant in the following four situations: (1) where the defendant is domiciled in the forum state when the lawsuit is commenced; (2) where the defendant is personally served with process while he or she is physically present in the forum state; (3) where the defendant consents to jurisdiction; and (4) where the defendant has sufficient ‘minimum contacts’ with the forum state, such that the exercise of jurisdiction would not offend ‘traditional notions of fair play and substantial justice.’” (Muckle v. Superior Court (2002) 102 Cal.App.4th 218, 226.)

A defendant may establish sufficient minimum contacts with the forum state in one of two ways. For a court to exercise general jurisdiction, the defendant must have contact with the forum state that is substantial, continuous, and systematic. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 445.) In such a case, the cause of action need not be related to the defendant’s contact with the forum state. (Id. at p. 446.) For a court to exercise specific jurisdiction, the following elements must be met: (1) the defendant has purposefully availed themselves of forum benefits; (2) the controversy is related to or arises out of the defendant’s contacts with the forum; and (3) the assertion of personal jurisdiction would comport with fair play and substantial justice. (Snowney v. Harrah’s Entertainment, Inc. (2005) 35 Cal.4th 1054, 1062.)

When personal jurisdiction is challenged by a nonresident defendant, the burden of proof is upon the plaintiff to demonstrate by a preponderance of the evidence that minimum contacts exist between the defendant and the forum state to justify imposition of personal jurisdiction. (Mihlon v. Sup. Ct. (1985) 169 Cal. App. 3d 703, 710.) Once facts showing minimum contacts with the forum state are established, the court must decide whether the exercise of jurisdiction would comport with fair play and substantial justice. (Vons, supra, 14 Cal. 4th at p. 447.)

DISCUSSION

I. General Jurisdiction

            “For a corporation, its domicile, place of incorporation, and principal place of business within a state constitute the paradigm bases for establishing general jurisdiction.” (Strasner v. Touchstone Wireless Repair & Logistics, LP (2016) 5 Cal.App.5th 215, 222.)

            Metcalf is a corporation formed under Washington law and operates from a single office in Washington. (Wright Decl. ¶ 2.) There is no evidence of Metcalf’s continuous and systematic contacts with California and no dispute that the Court lacks general jurisdiction over Metcalf.

II. Specific Jurisdiction

            a. Purposeful Availment

            “Purposeful availment of forum benefits is only satisfied when the defendant purposefully and voluntarily directs his or her activities toward the forum so that he or she should expect, by virtue of the benefit he or she receives, to be subject to the court's jurisdiction based on his or her contacts with the forum.” (Moncrief v. Clark (2015) 238 Cal.App.4th 1000, 1006, internal citations omitted.) “[W]ith respect to interstate contractual obligations, we have emphasized that parties who ‘reach out beyond one state and create continuing relationships and obligations with citizens of another state’ are subject to regulation and sanctions in the other State for the consequences of their activities.” (Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 473.)

            Here, Metcalf reached out to California by contracting with and providing services to Plaintiff, a California company. (See Wright Decl. ¶ 10, Ex. 2.) The contract, and the services to be provided thereunder, are at the heart of this lawsuit. By voluntarily contracting with and providing services to a California resident, Metcalf “‘purposefully derive[d] benefit’ from [its] interstate activities.” (Burger King, supra, 471 U.S. at p. 473.) “[T]he Due Process Clause may not readily be wielded as a territorial shield to avoid interstate obligations that have been voluntarily assumed.” (Id. at p. 474.)   

Metcalf cites to Bristol-Myers Squibb Co. v. Superior Court (2017) 582 U.S. 255, 257, where the court held that “[t]he bare fact that BMS contracted with a California distributor [McKesson] is not enough to establish personal jurisdiction in the State.” However, the court arrived at this conclusion because BMS’s contract with McKesson was irrelevant to the claims being asserted. (Id. at pp. 256-57.) By contrast, the claims in this case arise directly from the contract between Plaintiff and Metcalf and the services to be provided thereunder.

Metcalf also cites to Burger King, which held that a contract with an out-of-state party, “alone,” is insufficient for minimum contacts. (See Burger King, supra, 471 U.S. at p. 478; see also Goehring v. Superior Court (1998) 62 Cal.App.4th 894, 907 [“a court must evaluate the contract terms and the surrounding circumstances to determine whether the defendant purposefully established minimum contacts within the forum”].) Here, the mere existence of a contract between Plaintiff and Metcalf is not the sole basis for minimum contacts. Instead, Metcalf’s contacts with California are based on Metcalf establishing a relationship with a California resident by performing accounting services for that resident, and the claims arise directly from those services. (See Haddad Decl. ¶ 2 [Plaintiff retained Metcalf to provide bookkeeping and tax preparation, and Metcalf performed such services and collected fees for doing so”].) This is evidence of Metcalf’s relationship with and voluntary assumption of obligations toward a California resident. There is no dispute that the claims arise directly from this relationship and the associated obligations. Neither Bristol-Myers nor Burger King precludes jurisdiction under these circumstances.

            Bristol-Myers is further distinguishable because the claims in that case “involv[ed] no in-state injury and no injury to residents of the forum State.” (Bristol-Myers, supra, 582 U.S. at p. 256.) By contrast, Metcalf’s alleged conduct injured Plaintiff, a California resident. The injuries were sustained in California. (See Goehring, supra, 62 Cal.App.4th at p. 909 [jurisdiction is justified “where the actor committed an out-of-state act intending to cause effects in California or reasonably expecting that effects in California would result”].) Therefore, Metcalf has sufficiently availed itself of California benefits for purposes of minimum jurisdiction.

            b. Fairness

            Metcalf argues that litigating in California would be unfair because its employees are in Washington, along with its documents and other evidence. However, “because ‘modern transportation and communications have made it much less burdensome for a party sued to defend himself in a State where he engages in economic activity,’ it usually will not be unfair to subject him to the burdens of litigating in another forum for disputes relating to such activity.” (Burger King, supra, 471 U.S. at p. 474.)

Metcalf provides no evidence of the burden it would face in having to litigate the case in California. Given the accessibility of remote technology, and the fact that Metcalf chose to contract with a California resident, the Court does not find that it would be unreasonable to make Metcalf litigate in California. Furthermore, California has an interest in adjudicating injuries to its own residents. (See Burger King, supra, 471 U.S. at p. 473 [“A State generally has a ‘manifest interest’ in providing its residents with a convenient forum for redressing injuries inflicted by out-of-state actors”].)

CONCLUSION

            Defendant Metcalf Hodges, PS’s motion to quash service of summons is DENIED.