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Dillon v. Hourihane

United States District Court, N.D. California, San Jose Division

July 3, 2014

THOMAS A. DILLON, Plaintiff,



Before the Court is Defendant Murphy & Hourihane, LLC's ("Defendant" or "Murphy") Motion to Dismiss for Lack of Personal Jurisdiction, or, in the alternative, Motion for Transfer of Venue. (ECF 10) Defendant, an Illinois law firm, alleges that Plaintiff Thomas Dillon ("Plaintiff" or "Dillon"), a Receiver appointed by the Northern District of California, has not met his prima facie burden to plead that Defendant has sufficient minimum contacts to support this Court exercising personal jurisdiction over Defendant, and moves to dismiss under Federal Rule of Civil Procedure 12(b)(2). In the alternative, Defendant requests that, should this Court find personal jurisdiction, the Court transfer this case, pursuant to 28 U.S.C. § 1404(a), to the Northern District of Illinois.

Having reviewed the submissions and oral argument of the parties, the Court hereby DENIES Defendant's Motion to Dismiss for Lack of Personal Jurisdiction, finding that Defendant has sufficient minimum contacts with California to justify the exercise of jurisdiction by this Court. The Court further DENIES Defendant's Motion to Transfer Venue.


A. Procedural History

Defendant is a limited liability company, formed under Illinois law, and is a citizen of Illinois. (Compl., ECF 1 ¶ 2) Plaintiff is the court-appointed Receiver of Vesta Strategies, Inc. ("Vesta"), (Compl. ¶ 6), and is a citizen of California. (Compl. ¶ 4) Vesta is a California limited liability company with its principal place of business in Santa Clara County, California. ( Id. ¶ 3)

Plaintiff brought its Complaint for legal malpractice, aiding and abetting breach of fiduciary duty, and fraudulent conveyance against Defendant, Vesta's former law firm, on April 24, 2014. (ECF 1) Defendant filed the instant Motion to Dismiss for Lack of Personal Jurisdiction, or, in the alternative, for Transfer of Venue ("Mot. to Dismiss") on May 20, 2014. (ECF 10) Plaintiff filed its Opposition ("Opp. to Mot. to Dismiss") on June 11, 2014. (ECF 21) Defendant replied on June 17, 2014, (ECF 23), and included with its Reply a Request for Judicial Notice ("RJN"), (ECF 24), to which Plaintiff objected on June 18, 2014. (ECF 25)

B. Factual Allegations

This case arises out of allegations that Defendant improperly accepted $40, 000 for legal services performed on behalf of Vesta. (Compl. ¶10) This $40, 000 was a payout of premiums paid from Vesta's insurance carrier, United States Fire Insurance Company ("U.S. Fire"), which in 2009 rescinded two commercial crime insurance policies held by Vesta. ( Id. ) Plaintiff alleges that Defendant, in accepting this payout, committed malpractice, aided and abetted a breach of fiduciary duty, and received a fraudulent conveyance because it was not "a good faith transferee" for purposes of receiving the payment. (Compl. ¶ 65) A brief description of the legal services rendered by Defendant, and the claims for which it represented Vesta, is helpful to understand the present case.

Vesta acted as a "qualified intermediary... holding exchange funds deposited by clients in trust, " (Compl. ¶ 7), for the purpose of conducting tax-deferred real estate exchanges, pursuant to 26 U.S.C. § 1031. (Compl. ¶¶ 19-22) Vesta's two owners, John Terzakis and Robert Estupanian, were indicted for, and pled guilty to, crimes related to the theft of exchange funds from Vesta, and are now serving prison terms. ( Id. ¶¶ 7, 14-15) Defendant represented Vesta in litigation following Vesta's collapse in June 2008, (Compl. ¶ 46; see also Opp. to Mot. to Dismiss at 3), and continued representing Vesta through 2009. (Opp. to Mot. to Dismiss at 5)

Vesta maintained two "enhanced" first-party commercial crime insurance policies, which were "intended to cover Vesta for the theft of exchange funds by the owners and employees of Vesta." (Opp. to Mot. to Dismiss at 2; see also Compl. ¶¶ 8-9) These policies, which were "loss discovery policies, " were purchased from U.S. Fire, (Compl. ¶ 10), and "required notice to be given to U.S. Fire as soon as possible after discovery of the loss" so as to collect on the policy. ( Id. ) In December 2009, Plaintiff, acting as Receiver, made a claim to U.S. Fire to collect on these policies. ( Id. )

However, Plaintiff's claim to U.S. Fire was rejected, because prior to December 2009, Murphy, acting as counsel for Vesta and Terzakis, accepted an offer from U.S. Fire to return $40, 000 in the premiums it was paid by Vesta in exchange for rescission of the two insurance policies. (Opp. to Mot. to Dismiss at 8; Compl. ¶ 10) Defendant then entered into agreement with Terzakis that it would accept this $40, 000 as payment for legal services rendered "because Terzakis owed it fees." (Compl. ¶ 10) Plaintiff alleges that "[o]n June 1, 2009, [Defendant] rescinded the U.S. Fire Policies on behalf of Vesta to the detriment of Vesta." ( Id. ¶ 13)

Plaintiff brought suit against Defendant for legal malpractice, aiding and abetting breach of fiduciary duty, and fraudulent conveyance. (Compl. ¶¶ 55-65) Plaintiff contends that Defendant's act of accepting the $40, 000 constituted malpractice and a breach of Defendant's fiduciary duty to its client, Vesta, because the acceptance of $40, 000 "damaged Vesta by the loss of the $4 million in coverage for owner theft of Client exchange funds." ( Id. ¶ 48)

Defendant moves this Court to dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(2), for lack of personal jurisdiction. (ECF 10) Defendant alleges that the Court lacks general or specific jurisdiction over it. In the alternative, Defendant asks, if this Court finds jurisdiction, for the Court to transfer the case to the Northern District of Illinois. ( Id. )

Defendant argues that it has taken no action to purposefully direct activities at California such that it would be fair or just to be subject to jurisdiction here. For this proposition, Defendant describes its lack of contact with the forum. Defendant states that it is a law firm with its "office and place of business [] in Chicago, Illinois." (Mot. to Dismiss at 2; see also Declaration of John N. Hourihane ("Hourihane Decl."), ECF 10-1 ¶ 2) None of its lawyers "with knowledge of this matter" are admitted to practice before the California bar. (Mot. to Dismiss at 2; Hourihane Decl. ¶ 4) Defendant has never maintained an office in California. (Mot. to Dismiss at 2; Hourihane Decl. ¶ 3) Further, Defendant alleges that it "never appeared in Court on behalf of Vesta, and never made any Court filings on Vesta's behalf." (Hourihane Decl. ¶ 5) Defendant avers that no lawyers employed by Defendant traveled to California during the pendency of the representation, and that all work it did for Vesta took place in Illinois. (Mot. to Dismiss at 2) Defendant alleges that, in fact, it only drafted letters "to Vesta depositors in an attempt to secure additional time for Mr. Terzakis to sell his personal assets in order to pay back Vesta's depositors." ( Id. )

In response, Plaintiff argues that Defendant directed its activities toward California in three ways. First, it filed declarations in two litigation matters before California courts on behalf of Vesta. Eugene Murphy, one of Defendant's named partners, filed two declarations before the Northern District of California, both executed on October 27, 2008, in which he outlined the activities his law firm undertook on Vesta's behalf to secure local counsel in California, including "spen[ding] innumerable hours interviewing firms" to serve as counsel after Vesta's prior representation withdrew from the case. (ECF 22 Exh. 10 ¶ 10) Mr. Murphy also filed a declaration before the California Superior Court in another matter, in support of Vesta's Motion to Set Aside Entry of Default. (ECF 22 Exh. 12) Second, Plaintiff contends that the letters written to Vesta creditors, including those creditors residing in California were "settlement letters, " (Opp. to Mot. to Dismiss at 12), as they contained within them offers to settle the claims of Vesta creditors and included the phrase "FOR SETTLEMENT PURPOSES ONLY" in bolded lettering on the front of each letter. ( See, e.g., ECF 22 Exh. 14 at 1) Third, Plaintiff alleges that Defendant accepted the $40, 000 in U.S. Fire insurance policy premiums in exchange for the voluntary rescission of the insurance policies, thereby preventing the money from going directly into Vesta's coffers and injuring Vesta and Vesta's exchangers in California. (Compl. ¶ 48 ("[Defendant] damaged Vesta by the loss of the $4 million in coverage...."))

The Court must determine whether these representational activities, undertaken by a Defendant from its location in Illinois, are sufficient to fairly exercise personal jurisdiction over the Defendant here in California. The Court finds that they are, and DENIES the Motion to Dismiss.


A. Rule 12(b)(2)

Plaintiff bears the burden of establishing that the Court has personal jurisdiction over Defendant. See, e.g., Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800-01 (9th Cir. 2004). If a Defendant moves to dismiss under Rule 12(b)(2) for lack of personal jurisdiction, Plaintiff must "come forward with facts, by affidavit or otherwise, supporting personal jurisdiction." Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986). When, as here, the motion is based on written materials, rather than an evidentiary hearing, Plaintiff "need only make a prima facie showing of jurisdictional facts." Schwarzenegger, 374 F.3d 797, 800 (emphasis added). "Uncontroverted allegations in the complaint must be taken as true, " id. at 800, though Plaintiff cannot "simply rest on the bare allegations of its complaint." Amba Mktg. Sys., Inc. v. Jobar Int'l, Inc., 551 F.2d 784, 787 (9th Cir. 1977). Conflicts between facts contained within the declarations or affidavits submitted by the parties are resolved in the plaintiff's favor for purposes of plaintiff's prima facie case. See, e.g., Mattel, Inc. v. Greiner & Hausser GmbH, 354 F.3d 857, 861-62 (9th Cir. 2003).

Federal courts, in the absence of a specific statutory provision conferring jurisdiction, apply the personal jurisdiction laws of the state in which they sit. California's long-arm jurisdictional statute is "coextensive with federal due process requirements." Panavision Int'l, LP v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998). To exercise jurisdiction over a non-resident defendant, the defendant must have "minimum contacts" with the forum state such that the exercise of jurisdiction "does not offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). Jurisdiction can be either general or specific, see Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 415-16 (1984), though Plaintiff argues only that Defendant is subject to specific jurisdiction in California. ( See, e.g., Opp. to Mot. to Dismiss at 10)

B. Request for Judicial Notice ("RJN")

Defendant requests the Court take judicial notice of an order issued March 26, 2014 in Dillon v. Continental Casualty Co., Case No. 5:10-cv-05238-EJD ("Order Granting Continental's Motion for Summary Judgment; Denying Dillon's Motion for Summary Judgment as Moot"). (ECF 24) Plaintiff objects to this Request on the grounds that the judge's "order was in error because the court failed to consider the effect of the subrogation clauses contained in the Continental policies." (Obj. to RJN, ECF 25 at 1)

A court "may judicially notice a fact that is not subject to reasonable dispute." Fed.R.Evid. 201(b). Judicially noticed facts include "matters of public record, such as prior court proceedings." U.S. v. So. Cal. Edison Co., 300 F.Supp.2d 964, 973 (E.D. Cal. 2004). "While a court may take judicial notice of a judicial or administrative proceeding which has a direct relation to the matters at issue, '" it can only take notice of "the existence of those matters of public record... but not the veracity of the arguments and disputed facts contained therein." Id. (citing U.S. ex rel Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992)) (emphasis in original)). Thus, Plaintiff's Objection to the Court taking judicial notice of the Order, because the legal reasoning contained with it is allegedly incorrect, is misguided - the Court will not be taking notice of the legal reasoning contained therein, but rather the fact that a court within this district has filed an order that contains such legal reasoning. Cf. Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001) (permitting a court to take judicial notice of another court's opinion, but not the truth of the facts recited therein).

Thus, the Court takes judicial notice of the Order Granting Continental's Motion for Summary Judgment, pursuant to Federal Rule of Evidence 201.


A. Personal ...

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