Judge Ronald F. Frank, Case Number: 23TRCV03285, Date: 2024-03-12 Tentative Ruling

Judge: Ronald F. Frank, Case: 23TRCV03285, Date: 2024-03-12 Tentative Ruling

Case Number: 23TRCV03285 Hearing Date: March 12, 2024 Dept: 8

Tentative Ruling

HEARING DATE: March 12, 2024¿

CASE NUMBER: 23TRCV03285

CASE NAME: Mark Becker; Jennifer Becker v. Pier Escrow, Inc., et al.

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MOVING PARTY: Specially Appearing Defendants, Blue Ridge Bank and Blue Ridge Bankshares, Inc.

RESPONDING PARTY: Plaintiffs, Mark Becker and Jennifer Becker

MOTION:¿ (1) Specially Appearing Defendants’, Blue Ridge Bank and Blue Ridge Bankshares, Inc.’s Motion to Quash Plaintiff’s Complaint.

Tentative Rulings: (1) GRANTED.

I. BACKGROUND¿

A. Factual¿

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On October 5, 2023, Plaintiffs, Mark Becker and Jennifer Becker )collectively, “Plaintiffs”) filed a Complaint against Defendants, Pier Escrow, Inc., Blue Ridge Bank, aka Blue Ridge Bank National Association, aka Blue Ridge Bank and Trust, an unknown Virginia Business Entity, Blue Ridge Bankshares, Inc., and DOES 1 through 50. On November 21, 2023, Plaintiffs filed a First Amended Complaint (“FAC”) alleging causes of action for: (1) Negligence; (2) Negligence; (3) Professional Negligence; (4) Breach of Implied Contract; (5) Breach of Fiduciary Duty; and (6) Violation of Business and Professions Code § 17200, et seq.

The FAC is based on the allegations that Plaintiff contends in April 2023, criminals used a bank account at Blue Ridge Bank to steal hundreds of thousands of dollars from Plaintiffs. Plaintiffs note that the year prior, in August 2022, Blue Ridge Bank had been cited by the Department of the Treasury, specifically, the Office of the Controller of the Currency (“OCC”), for its alleged lack of oversight of new accounts that had allowed criminals to use accounts for criminal activities. As a result of the OCC’s investigation, Plaintiffs contend that Blue Ridge Bank entered into a written agreement whereby Blue Ridge Bank specifically agreed to implement policies and procedures meant to prevent criminals from using its bank accounts for their illicit activities of the type that ensnared Plaintiffs. Nonetheless, Plaintiff contend that Blue Ridge Bank did not comply with the OCC’s agreement, and as a result, in January 2024, the OCC issued a cease-and-desist Consent Order finding that Blue Ridge Bank had failed to implement the policies and procedure required by the August 2022 agreement.

Specially Appearing Defendants, Blue Ridge Bank and Blue Ridge Bankshares, Inc. (collectively, “Blue Ridge”) now move to quash Plaintiffs’ Complaint for Lack of Personal Jurisdiction pursuant to Code of Civil Procedure § 415.10.

B. Procedural

On January 16, 2024, Specially Appearing Defendants, Blue Ridge, filed a Motion to Quash Complaint for Lack of Personal Jurisdiction. On February 28, 2024, Plaintiffs filed an opposition. On March 5, 2024, Blue Ridge filed a reply brief.

II. ANALYSIS ¿

A. Legal Standard

A defendant can file a motion to quash on the grounds the court lacks jurisdiction over him or her. (Code Civ. Proc. § 418.10(a)(1).) “A party cannot be properly joined unless served with the summons and complaint; notice does not substitute for proper service. Until statutory requirements are satisfied, the court lacks jurisdiction over a defendant.” (Ruttenberg v. Ruttenberg (1997) 53 Cal.App.4th 801, 808.) “When a defendant challenges the court's personal jurisdiction on the ground of improper service of process ‘the burden is on the plaintiff to prove the existence of jurisdiction by proving, inter alia, the facts requisite to an effective service.’” (Summers v. McClanahan (2006) 140 Cal.App.4th 403, 413, citing Dill v. Berquist Construction Co. (1994) 24 Cal.App.4th 1426, 1439–1440.)

When a defendant moves to quash service of the summons and complaint, the plaintiff has “the burden of proving the facts that did give the court jurisdiction, that is the facts requisite to an effective service.” (Coulston v. Cooper (1966) 245 Cal.App.2d 866, 868.) The plaintiff must establish the facts of jurisdiction by a preponderance of the evidence. (Aquila, Inc. v. Sup. Ct. (2007) 148 Cal.App.4th 556, 568.) “When a nonresident defendant challenges personal jurisdiction the burden shifts to the plaintiff to demonstrate by a preponderance of the evidence that all necessary jurisdictional criteria are met. [Citation.] This burden must be met by competent evidence in affidavits and authenticated documentary evidence. An unverified complaint may not be considered as an affidavit supplying necessary facts.” (Jewish Defense Organization, Inc. v. Superior Court (1999) 72 Cal.App.4th 1045, 1054-55.)

B. Discussion

General Principles of Personal Jurisdiction in California

California’s long-arm statute authorizes its “courts to exercise jurisdiction over a foreign corporation to the fullest extent consistent with due process.” (Sanders v. CEG Corp (1979) Cal.App.3d 779, 783; see also Code Civ. Proc., § 410.10.) As such, California exercises personal jurisdiction over a nonresident defendant who “has such minimum contacts with the state that the assertion or jurisdiction does not violate ‘traditional notions of fair play and substantial justice.’” (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444.) A defendant’s “minimum contacts” with California must reasonably justify haling it into a California court to conduct a defense. (Pavlovich v. Superior Court (2002) 29 Cal.4th 262, 268.) Typically, Court apply the minimum contacts test on a case-by-case basis, focusing on the nature and quality of the defendant’s activities in the state or with state residents. (Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 474-475.)

Moreover, personal jurisdiction may be either general or specific. If the defendant’s contacts are substantial, continuous, and systematic, the defendant may be subject to California’s general jurisdiction. (Vons, supra, 14 Cal.4th at 445.) However, if general jurisdiction cannot be established, a nonresident defendant may still be subject to California’s specific jurisdiction if a three-prong test is met. (Id. at 446.) “First, the defendant must have purposefully availed itself of the state’s benefits. Second, the controversy must be related to or arise out of the defendant’s contacts with the state. Third, considering the defendant’s contacts with the state and other factors, California’s exercise of jurisdiction over the defendant must comport with fair play and substantial justice.” (Gilmore Bank v. AsiaTrust New Zealand Ltd. (2014) 223 Cal.App.4th 1558, 1568.)

General Jurisdiction

Here, Blue Ridge Defendants argue that this Court does not have general jurisdiction over them because they were only a passive recipient of a contact with California unilaterally made by Plaintiff, Mark Becker, with Blue Ridge when he wired funds to Blue Ridge in Virgina. Blue Ridge further notes that only a small minority of Blue Ridge’s business is with California customers, none of whom are in any way involved or implicated in the transaction at issue in the instant case.

When it comes to general jurisdiction, the claims at issue need not be per se connected with the defendant’s business relationship to the forum, but instead, that defendant is subject to jurisdiction in California courts for all causes of action raised against it. (Vons, supra, 14 Cal.4th at 445-46 (holding “[s]uch a defendant’s contacts with the forum are so wide-ranging that they take the place of physical presence in the forum as a basis for jurisdiction”).) General jurisdiction is only proper where the defendant’s contacts with the forum are continuous and systematic, meaning they include activities such as maintaining an office and employees in the forum, use of forum bank accounts, and the marketing or selling of products in the forum state. (Helicopteros Nacionales de Columbia v. Hall (1984) 466 U.S. 408.)

Here, Blue Ridge Bankshares, Inc. is a bank holding company headquartered in Charlottesville, Virginia. (Declaration of William Callaghan (“Callaghan Decl.”), ¶ 4.) Specially Appearing Defendants further note that Blue Ridge Bankshares, Inc. is a parent company of Blue Ridge Bank, N.A., a client-centered financial services company offering commercial banking services throughout Virginia and North Carolina. (Callaghan Decl., ¶ 4.) Blue Ridge Defendants note that the bank offers mortgage services across the Mid-Atlantic and Southeast, and does not have offices or operations in California. (Callaghan Decl., ¶ 4.) Next, it is noted that the executive and other offices of Blue Ridge are in Luray, Charlottesville and Richmond, Virginia. (Callaghan Decl., ¶ 5.) Blue Ridge Bank has branches in Greensboro, North Carolina, and Richmond, Callao, Charlottesville, Chester, Colonial Heights, Culpeper, Fredericksburg, Gordonsville, Harrisonburg, Hartfield, Kilmarnock, Louisa, Luray, Martinsville, Mineral, Montross, Orange, Petersburg, North Chesterfield, Shenandoah, Suffolk, Virginia Beach, Warsaw and White Stone, Virginia. Blue Ridge has Commercial Loan Production Offices in Charlotte and Durham, North Carolina and Norfolk, Virginia Beach and Winchester, Virginia. (Callaghan Decl., ¶ 5.)

Next, Blue Ridge Defendants note that Blue Ridge has five hundred thirty-six employees, and only two of them work remotely in California as a personal accommodation to them, and not for any business purpose. (Callaghan Decl., ¶ 6.) In fact, Blue Ridge notes that those two remote employees in California are not public facing, do not solicit or do business on behalf of Blue Ridge in California, nor do they have any involvement in the wire transfer described in the FAC. (Callaghan Decl., ¶ 6.) Furthermore, Blue Ridge contends that only 0.16% of its customers (or 88 customers) have physical addresses in California. Blue Ridge also notes that it does processing of wire transfers for its FinTech partners, and that its records show the FinTech partners have 95,306 open accounts showing California addresses. Blue Ridge contends that this only represents 7.75% of the open FinTech accounts. (Callaghan Decl., ¶ 7.) Blue Ridge clarifies it has no offices in California, does not lease real property or other assets in California, and is not qualified to do business in the state of California (Callaghan Decl., ¶¶ 8, 9.) Blue Ridge Defendants note that when it comes to wire transfers, all wire transfers are handled through its offices in Luray, Virginia. (Callaghan Decl., ¶ 10.) While the Court acknowledges that 7.75% of accounts in more than a de minimus number, there is no evidence showing that Blue Ridge selects the accounts or the customers of its FinTech partners.

The Court’s tentative ruling is to find that there is no general jurisdiction between Blue Ridge Defendants and the State of California because their contacts with this state are not so continuous or systematic as to essentially find them “at home” in the State of California.

Specific Jurisdiction

Next, as this Court noted above, if general jurisdiction cannot be established, a nonresident defendant may still be subject to California’s specific jurisdiction if a three-prong test is met. (Id. at 446.) “First, the defendant must have purposefully availed itself of the state’s benefits. Second, the controversy must be related to or arise out of the defendant’s contacts with the state. Third, considering the defendant’s contacts with the state and other factors, California’s exercise of jurisdiction over the defendant must comport with fair play and substantial justice.” (Gilmore Bank, supra, 223 Cal.App.4th at 1568.)

Whether Blue Ridge has Purposefully Availed itself to Jurisdiction in California

For purposes of the purposeful availment prong, the “…United States Supreme Court has described the forum contacts necessary to establish specific jurisdiction as involving variously a nonresident who has ‘purposefully directed’ his or her activities at forum residents, or who has ‘purposefully derived benefit’ from forum activities, or “purposefully avail[ed himself or herself] of the privilege of conducting activities within the forum state, thus invoking the benefits and protections or its laws,” or “ ‘deliberately’ has engaged in significant activities with a State or has created “continuing obligations” between himself and residents of the forum.” (Vons, supra, 14 Cal.4th at 446.)

In Plaintiffs’ opposition here, they argue that this Court should be applying the “effects” test. The effects test was established by the United States Supreme Court in Calder v. Jones (1984) 465 U.S. 783. In Calder, Shirley Jones, “an entertainer whose television career was centered in California” sued a reporter and editor for libel in California in connection with a National Enquirer article. (Calder, supra, 465 U.S. at 785-86.) The Florida defendants moved to quash service of process for lack of personal jurisdiction. (Id. at 784-85.) The Supreme Court in Calder found California was “the focal point both of the story and of the harm suffered” and consequently held that jurisdiction over the Florida resident was proper “based on the ‘effects’ of their Florida conduct in California. (Id. at 789.) The “purposeful availment” requirement ensures that a defendant will not be required to defend a lawsuit solely as a result of “random,” “fortuitous,” or “attenuated” contacts (Keeton v. Hustler Magazine, Inc. (1984) 465 U.S. 770, 774, or of the “unilateral activity of another party or a third person.” (Helicopteros Nacionales de Colombia, S.A. v. Hall (1984) 466 U.S. 408, 417.)

As the Reply correctly recognizes, both Calder and Keeton v Hustler Magazine, Inc. (1984) 465 U.S. 770 apply the effects test in the contest of defamation suits where the defendant purposely directed distribution of their magazines to the forum state with the intention of generating revenue from readership within the forum state, making it reasonable to defend litigation in the forum state because of the defendant’s forum-directed activity. There is no evidence before this Court of anything analogous by Blue Ridge that would give the Court a constitutional basis for requiring a Virginia-based financial institution to defend a lawsuit in California. Calder and Keeton thus appear to be factually distinguishable. Rather, the exercise of jurisdiction over Blue Ridge here seems more akin to the unilateral activity of the hacker as noted in Helicopteros.

Further, the California Supreme Court in Pavlovich v. Superior Court (2002) 29 Cal.4th 262, applied the effects test. In Pavlovich, a trade secrets misappropriation case, the California Supreme Court held that the “…Calder effects test requires intentional conduct expressly aimed at or targeting the forum state in addition to the defendant’s knowledge that his intentional conduct cause harm in the forum.” (Pavlovich, supra, 29 Cal.4th at 271.) Pavlovitch recognized that many courts ahe struggled with the potentially expansive ambit of the effects test, with most courts agreeing that “merely asserting that a defendant knew or should have known that his intentional acts would cause harm in the forum state is not enough to establish jurisdiction under the effects test.” (Id. at pp. 270–271.)

Here, Plaintiffs note that the OCC has cited Blue Ridge Bank for its lack of policies and procedures, including those relating to third-party risk management, Bank Secrecy Act/Anti Money Laundering risk management, suspicious activity reporting, and information technology and risk governance. Plaintiffs also assert that the OCC sent an August 2022 cease and desist order to Blue Ridge Defendants, warning that they should be monitoring their FinTech accounts. Despite this, Plaintiffs contend that Blue Ridge Defendants failed to do so, and thus, engaged in harmful conduct. Mr. Carter’s Declaration in Opposition attaches the OCC order and agreement with Blue Ridge, but neither of those documents indicate any finding or discussion of Blue Ridge’s business dealings with entities in California or the effects of the correctable business practices on California borrowers or other persons. While the OCC documents may provide a basis for a claim of negligence by Blue Ridge, assuming that the Court could take judicial notice of these documents upon a proper Request for Judicial Notice, they do not appear to evidence a basis for the Court to exercise jurisdiction in California.

In Callaghan’s declaration submitted in support of the MTQ, he notes that “Blue Ridge clears transactions in bulk for the FinTech accounts and does not create or maintain the individual transaction records for those accounts.” Plaintiffs argue that a review of the OCC’s cease and desist order and its August 2022 agreement with Blue Ridge suggest that Blue Ridge is being obliged to be monitoring its FinTech accounts. The potential jurisdictional argument is that the alleged failure to manage said accounts per the guidelines of the OCC may tend in reason to show that Defendant may have failed to enact or implement policies and procedures regarding FinTech accounts with the knowledge that such conduct may cause harm to FinTech accounts in California. This is too slender a reed on which to balance the exercise of personal jurisdiction. It is not the intentional or deliberate misconduct that justified the exercise of jurisdiction over actress Shirley Jones’ libel case in the state where the defendant had its largest readership, such that it was reasonable to exercise jurisdiction over the publisher in California.

Reasonableness of Exercising Jurisdiction

Assuming, arguendo, that the effects of Blue Ridges’ contact with the forum state could meet the Calder v Jones test, the Court must then determine whether the exercise of jurisdiction is reasonable. Plaintiffs’ opposition does not discuss the reasonableness of such an exercise. However, Blue Ridge Defendants note that it would be unreasonable for this Court to exercise personal jurisdiction over defendants when the evidence shows Blue Ridge’s involvement originated outside of California. More specifically, Blue Ridge Defendants note the wire transfer initiated by Plaintiffs was received by Blue Ridge at its office in Luray, Virginia, with instructions from Bank of America to credit the wired funds to a FinTech account. Next, Blue Ridge Defendants note that Plaintiffs do not have any account or other relationship of any kind with Blue Ridge, and that one lone contact arising out of the transaction giving rise to this claim was the wire transfer. Finally, Blue Ridge Defendants assert it would be unreasonable to subject banks like Blue Ridge to a suit in forums in which it has not purposefully availed itself.

The Court does not find the exercise to be reasonable here. Plaintiff’s claim arising out of a third party’s hacking of a Blue Ridge or FinTech account, not out of Defendant’s forum-connected conduct or omission. Assuming the truth of Plaintiff’s allegations, the lack of oversight and management, or absence of polices or procedures all occurred in Virginia. The alleged hacking appears to have occurred into a server based in Virginia. While this would deprive Plaintiffs of their choice or forum, the jurisdictional analysis suggests Plaintiffs should re-file in Virginia where jurisdiction over Blue Ridge appears to be unquestionably reasonable and more constitutionally permissible.