1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 NORTHERN DISTRICT OF CALIFORNIA 8 9 CCSAC, INC., et al., Case No. 20-cv-02102-JD
10 Plaintiffs, ORDER RE MOTION TO DISMISS 11 v. AND OTHER PENDING MOTIONS
12 PACIFIC BANKING CORP, et al., Re: Dkt. Nos. 27, 46, 47, 55 Defendants. 13
14 This action arises out of banking services agreements between defendant Pacific Banking 15 Corp. (PBC) and plaintiffs CCSAC, Inc. (CCSAC) and CANN Distributors, Inc. (CANN). 16 Plaintiffs CCSAC and CANN allege that the services were not performed as promised, and they 17 assert against PBC, Justin Costello, and GRN Funds, LLC breach of contract, fraud, negligence, 18 and other claims. Dkt. No. 1. The parties’ familiarity with the record is assumed. The motion to 19 dismiss for lack of jurisdiction, Dkt. No. 27, and the other pending motions, identified below, are 20 denied. 21 DISCUSSION 22 I. SUBJECT MATTER JURISDICTION 23 Defendants PBC, Costello, and GRN Funds ask to dismiss the complaint on the contention 24 that “the plaintiffs have hidden from the Court the fact that they are Marijuana Related Business 25 (‘MRB’s’) and seek to recover for marijuana-related activities that are illegal under federal law 26 and for which the federal courts therefore lack jurisdiction.” Dkt. No. 27; see also id. at 6-7 (“The 27 Court lacks jurisdiction to resolve a dispute involving conduct that is criminal under federal 1 Defendants misapprehend the Court’s subject matter jurisdiction. The case was filed on 2 the basis of diversity jurisdiction. See Dkt. No. 1 ¶ 12 (“Jurisdiction is premised on diversity of 3 citizenship, 28 U.S.C. 1332.”); ¶ 13 (“The amount in controversy in this action substantially 4 exceeds $75,000.”). Defendants do not challenge diversity of citizenship or the amount in 5 controversy. 6 That is effectively the end of the matter because all of the elements of diversity jurisdiction 7 have been adequately alleged. The legality vel non of a contract is not a jurisdictional element, 8 and the possibility that a complaint is based on an event or action that was illegal does not divest 9 the Court of subject matter jurisdiction on diversity grounds. See Bassidji v. Goe, 413 F.3d 928, 10 935-36 (9th Cir. 2005). To be sure, the legality of the banking services contracts stays in play as a 11 question to be addressed later in this case, but it is not a reason to dismiss the complaint for lack of 12 jurisdiction. 13 II. PERSONAL JURISDICTION 14 Defendants also say that they are not subject to personal jurisdiction in California. Dkt. 15 No. 27 at 8. That too is wrong. 16 As the proponents of federal jurisdiction, plaintiffs bear the burden of “demonstrating that 17 jurisdiction is appropriate.” Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th 18 Cir. 2004). Where, as here, the Court has not required an evidentiary hearing, it is enough for 19 plaintiffs to make a prima facie showing of jurisdictional facts. Boschetto v. Hansing, 539 F.3d 20 1011, 1015 (9th Cir. 2008). Plaintiffs cannot rest on the bare allegations of their complaint, but 21 uncontroverted allegations in the complaint must be taken as true, and “[c]onflicts between the 22 parties over statements contained in affidavits must be resolved in the plaintiff’s favor.” 23 Schwarzenegger, 374 F.3d at 800. 24 To stablish specific jurisdiction, “(1) the defendant must have done some act by which he 25 purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking 26 the benefits and protections of its laws; (2) the claim must arise out of the defendant’s forum- 27 related activities; and (3) the exercise of jurisdiction must be reasonable.” Fireman’s Fund Ins. 1 Co. v. Nat’l Bank of Cooperatives, 103 F.3d 888, 894 (9th Cir. 1996); APL Co. Pte, Ltd. v. 2 Intergro Inc, No. 14-cv-00488-JD, 2014 WL 4744410, at *2 (N.D. Cal. Sept. 22, 2014). 3 When evaluating purposeful availment in contract cases, an individual’s contract with an 4 out-of-state party alone cannot automatically establish sufficient minimum contacts in the other 5 party’s home forum; the Court must instead analyze factors such as “prior negotiations and 6 contemplated future consequences, along with the terms of the contract and the parties’ actual 7 course of dealing.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478-79 (1985); APL Co., 2014 8 WL 4744410, at *2. In addition, specific jurisdiction focuses on the defendant’s contacts with the 9 forum state for the claims at issue, Walden v. Fiore, 571 U.S. 277, 284 (2014), and the suit must 10 arise out of or relate to the defendant’s contacts “with the forum” for specific personal jurisdiction 11 to arise. Bristol-Myers Squibb Co. v. Superior Court of California, S.F. Cty., 137 S. Ct. 1773, 12 1780 (2017) (internal quotation omitted; emphasis in original); see also Sharpe v. Puritan’s Pride, 13 Inc., No. 16-cv-06717-JD, 2019 WL 188658, at *4 (N.D. Cal. Jan. 14, 2019). 14 Plaintiffs have plausibly demonstrated these elements. Plaintiff CCSAC is a California 15 corporation with its principal place of business in Alameda, California. Dkt. No. 1 ¶ 7. Plaintiff 16 CANN is a California corporation with its principal place of business in Oakland, California. Id. 17 ¶ 8. The two businesses are affiliated companies. Id. Both companies entered into separate 18 Capital Management Agreements with PBC. Id. ¶¶ 15-16. In those agreements, PBC agreed to 19 “process all transactions including weekly check requests, ACH and wire transfers on behalf of 20 the” contracting counter-party. Id. ¶ 17. For plaintiffs, those transactions included requests for 21 PBC to process payments to 117 vendors, including 112 California-based companies. Dkt. 22 No. 44-1 ¶ 2.1 The California vendors included the California Department of Tax and Fee 23 Administration. Id.; see also Dkt. No. 1 ¶ 21 (“On or about December 5, 2019, plaintiffs directed 24 PBC to remit one million dollars ($1,000,000) to the California Department of Tax and Fee 25 Administration on account for payment of tax liabilities owed by plaintiff CANN to the State of 26
27 1 The Court relies on the corrected declaration of John Oram, which included the attestation that 1 California.”). In February 2020, “the State of California informed plaintiff that no payment for 2 one million dollars ($1,000,000) had been received on account of plaintiff CANN’s tax liabilities.” 3 Dkt. No. 1 ¶ 23. “To date, PBC has neither provided proof of the one million dollar ($1,000,000) 4 payment to the State of California, refunded plaintiff’s money to plaintiffs, nor provided 5 justification as to why such payment was not made as instructed by plaintiffs.” Id. ¶ 25. 6 On these facts, the purposeful availment prong of the specific jurisdiction test is satisfied 7 on the basis of the contemplated future consequences of the contract, the terms of the contract, and 8 the parties’ actual course of dealing. Burger King, 471 U.S. at 479. The contract and the parties’ 9 course of dealing provided for PBC to process payments to plaintiffs’ California vendors, 10 including the California Department of Tax and Fee Administration, as well as to plaintiffs’ 11 employees, at least some of whom must have been located in California given that both plaintiffs 12 have their principal places of business here.
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1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 NORTHERN DISTRICT OF CALIFORNIA 8 9 CCSAC, INC., et al., Case No. 20-cv-02102-JD
10 Plaintiffs, ORDER RE MOTION TO DISMISS 11 v. AND OTHER PENDING MOTIONS
12 PACIFIC BANKING CORP, et al., Re: Dkt. Nos. 27, 46, 47, 55 Defendants. 13
14 This action arises out of banking services agreements between defendant Pacific Banking 15 Corp. (PBC) and plaintiffs CCSAC, Inc. (CCSAC) and CANN Distributors, Inc. (CANN). 16 Plaintiffs CCSAC and CANN allege that the services were not performed as promised, and they 17 assert against PBC, Justin Costello, and GRN Funds, LLC breach of contract, fraud, negligence, 18 and other claims. Dkt. No. 1. The parties’ familiarity with the record is assumed. The motion to 19 dismiss for lack of jurisdiction, Dkt. No. 27, and the other pending motions, identified below, are 20 denied. 21 DISCUSSION 22 I. SUBJECT MATTER JURISDICTION 23 Defendants PBC, Costello, and GRN Funds ask to dismiss the complaint on the contention 24 that “the plaintiffs have hidden from the Court the fact that they are Marijuana Related Business 25 (‘MRB’s’) and seek to recover for marijuana-related activities that are illegal under federal law 26 and for which the federal courts therefore lack jurisdiction.” Dkt. No. 27; see also id. at 6-7 (“The 27 Court lacks jurisdiction to resolve a dispute involving conduct that is criminal under federal 1 Defendants misapprehend the Court’s subject matter jurisdiction. The case was filed on 2 the basis of diversity jurisdiction. See Dkt. No. 1 ¶ 12 (“Jurisdiction is premised on diversity of 3 citizenship, 28 U.S.C. 1332.”); ¶ 13 (“The amount in controversy in this action substantially 4 exceeds $75,000.”). Defendants do not challenge diversity of citizenship or the amount in 5 controversy. 6 That is effectively the end of the matter because all of the elements of diversity jurisdiction 7 have been adequately alleged. The legality vel non of a contract is not a jurisdictional element, 8 and the possibility that a complaint is based on an event or action that was illegal does not divest 9 the Court of subject matter jurisdiction on diversity grounds. See Bassidji v. Goe, 413 F.3d 928, 10 935-36 (9th Cir. 2005). To be sure, the legality of the banking services contracts stays in play as a 11 question to be addressed later in this case, but it is not a reason to dismiss the complaint for lack of 12 jurisdiction. 13 II. PERSONAL JURISDICTION 14 Defendants also say that they are not subject to personal jurisdiction in California. Dkt. 15 No. 27 at 8. That too is wrong. 16 As the proponents of federal jurisdiction, plaintiffs bear the burden of “demonstrating that 17 jurisdiction is appropriate.” Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th 18 Cir. 2004). Where, as here, the Court has not required an evidentiary hearing, it is enough for 19 plaintiffs to make a prima facie showing of jurisdictional facts. Boschetto v. Hansing, 539 F.3d 20 1011, 1015 (9th Cir. 2008). Plaintiffs cannot rest on the bare allegations of their complaint, but 21 uncontroverted allegations in the complaint must be taken as true, and “[c]onflicts between the 22 parties over statements contained in affidavits must be resolved in the plaintiff’s favor.” 23 Schwarzenegger, 374 F.3d at 800. 24 To stablish specific jurisdiction, “(1) the defendant must have done some act by which he 25 purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking 26 the benefits and protections of its laws; (2) the claim must arise out of the defendant’s forum- 27 related activities; and (3) the exercise of jurisdiction must be reasonable.” Fireman’s Fund Ins. 1 Co. v. Nat’l Bank of Cooperatives, 103 F.3d 888, 894 (9th Cir. 1996); APL Co. Pte, Ltd. v. 2 Intergro Inc, No. 14-cv-00488-JD, 2014 WL 4744410, at *2 (N.D. Cal. Sept. 22, 2014). 3 When evaluating purposeful availment in contract cases, an individual’s contract with an 4 out-of-state party alone cannot automatically establish sufficient minimum contacts in the other 5 party’s home forum; the Court must instead analyze factors such as “prior negotiations and 6 contemplated future consequences, along with the terms of the contract and the parties’ actual 7 course of dealing.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478-79 (1985); APL Co., 2014 8 WL 4744410, at *2. In addition, specific jurisdiction focuses on the defendant’s contacts with the 9 forum state for the claims at issue, Walden v. Fiore, 571 U.S. 277, 284 (2014), and the suit must 10 arise out of or relate to the defendant’s contacts “with the forum” for specific personal jurisdiction 11 to arise. Bristol-Myers Squibb Co. v. Superior Court of California, S.F. Cty., 137 S. Ct. 1773, 12 1780 (2017) (internal quotation omitted; emphasis in original); see also Sharpe v. Puritan’s Pride, 13 Inc., No. 16-cv-06717-JD, 2019 WL 188658, at *4 (N.D. Cal. Jan. 14, 2019). 14 Plaintiffs have plausibly demonstrated these elements. Plaintiff CCSAC is a California 15 corporation with its principal place of business in Alameda, California. Dkt. No. 1 ¶ 7. Plaintiff 16 CANN is a California corporation with its principal place of business in Oakland, California. Id. 17 ¶ 8. The two businesses are affiliated companies. Id. Both companies entered into separate 18 Capital Management Agreements with PBC. Id. ¶¶ 15-16. In those agreements, PBC agreed to 19 “process all transactions including weekly check requests, ACH and wire transfers on behalf of 20 the” contracting counter-party. Id. ¶ 17. For plaintiffs, those transactions included requests for 21 PBC to process payments to 117 vendors, including 112 California-based companies. Dkt. 22 No. 44-1 ¶ 2.1 The California vendors included the California Department of Tax and Fee 23 Administration. Id.; see also Dkt. No. 1 ¶ 21 (“On or about December 5, 2019, plaintiffs directed 24 PBC to remit one million dollars ($1,000,000) to the California Department of Tax and Fee 25 Administration on account for payment of tax liabilities owed by plaintiff CANN to the State of 26
27 1 The Court relies on the corrected declaration of John Oram, which included the attestation that 1 California.”). In February 2020, “the State of California informed plaintiff that no payment for 2 one million dollars ($1,000,000) had been received on account of plaintiff CANN’s tax liabilities.” 3 Dkt. No. 1 ¶ 23. “To date, PBC has neither provided proof of the one million dollar ($1,000,000) 4 payment to the State of California, refunded plaintiff’s money to plaintiffs, nor provided 5 justification as to why such payment was not made as instructed by plaintiffs.” Id. ¶ 25. 6 On these facts, the purposeful availment prong of the specific jurisdiction test is satisfied 7 on the basis of the contemplated future consequences of the contract, the terms of the contract, and 8 the parties’ actual course of dealing. Burger King, 471 U.S. at 479. The contract and the parties’ 9 course of dealing provided for PBC to process payments to plaintiffs’ California vendors, 10 including the California Department of Tax and Fee Administration, as well as to plaintiffs’ 11 employees, at least some of whom must have been located in California given that both plaintiffs 12 have their principal places of business here. On the second prong, plaintiffs’ claims arise directly 13 out of defendants’ forum-related activities -- namely, their alleged failure to remit payment to the 14 California Department of Tax and Fee Administration; failures to “make certain of the directed 15 vendor payments to plaintiffs’ vendors”; and delayed payroll payments to plaintiffs’ employees. 16 Dkt. No. 1 ¶¶ 21-30. On the third prong, defendants have wholly failed to meet their burden “to 17 ‘present a compelling case’ that the exercise of jurisdiction would not be reasonable.” 18 Schwarzenegger, 374 F.3d at 802. They make no argument on that point at all, other than to say 19 the reasonableness element is not “present here.” Dkt. No. 27 at 8. 20 III. SERVICE 21 Defendants seek dismissal because “[t]here is no evidence that [they] have been properly 22 served with the physical summons and complaint.” Dkt. No. 27 at 8 (citing Fed. R. Civ. P. 23 12(b)(4), (5)). That is a somewhat disingenuous statement. At the start of the case, plaintiffs 24 made several attempts to serve defendants with the summons and complaint at various physical 25 addresses as well as by email. Dkt. No. 12-2. The Court found those efforts sufficient for service 26 and notice of the case, and partly on that basis granted a temporary restraining order, Dkt. No. 13, 27 and later a preliminary injunction order, Dkt. No. 23. The TRO directed plaintiffs to “continue all 1 preliminary injunction motion.” Dkt. No. 13 at 2-3. The preliminary injunction order directed 2 plaintiffs to “attempt personal and corporate service, and email service, of this order to all known 3 addresses for defendants.” Dkt. No. 23 at 2. Plaintiffs documented their continued attempts at 4 service of court filings in their certificates of service. Dkt. Nos. 19, 25. 5 Defendants’ motion to dismiss, Dkt. No. 27, which was filed through counsel, shows that 6 at least one of these attempts must have been successful. “Rule 4 is a flexible rule that should be 7 liberally construed so long as a party receives sufficient notice of the complaint.” United Food & 8 Commercial Workers Union v. Alpha Beta Co., 736 F.2d 1371, 1382 (9th Cir. 1984). Sufficient 9 notice must be “reasonably calculated, under all the circumstances, to apprise interested parties of 10 the pendency of the action and afford them an opportunity to present their objections.” Rio 11 Properties, Inc. v. Rio Int’l Interlink, 284 F.3d 1007, 1016 (9th Cir. 2002); Mullane v. Central 12 Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950). Here, defendants clearly received 13 sufficient notice of the complaint, and the record is full of documented efforts on plaintiffs’ part to 14 effectuate service. Consequently, dismissal is denied on service grounds. 15 IV. OTHER MATTERS 16 Plaintiffs’ objections to the Costello declaration, Dkt. No. 33-3, are denied as moot, as the 17 Costello declaration was not germane to this order. Defendants’ objections to the Oram and Selna 18 declarations, Dkt. No. 38 at 1-2, are overruled. 19 Plaintiffs’ motion for leave to request clarification, Dkt. No. 55, is denied as moot. The 20 stay that was previously imposed, Dkt. No. 54, is now lifted. 21 Defendants’ administrative motion to postpone ADR deadlines, Dkt. No. 47, is granted. 22 The parties are directed to comply with their initial ADR obligations, and to select an ADR 23 mechanism through a joint filing to be made by March 26, 2021. 24 CONCLUSION 25 This order terminates Dkt. Nos. 27, 46, 47, and 55. 26 // 27 // 1 A case management conference is set for April 8, 2021, with an updated, joint case 2 || management statement to be filed by April 1, 2021. 3 IT IS SO ORDERED. 4 Dated: March 12, 2021 5 6 JAMES PONATO 7 United fftates District Judge 8 9 10 11 12
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