CCSAC, Inc. v. Pacific Banking Corp

Background

The case arose from banking-services agreements between Pacific Banking Corp. (PBC) and plaintiffs CCSAC, Inc. (CCSAC) and CANN Distributors, Inc. (CANN). The plaintiffs alleged that PBC did not perform the services as promised. They asserted breach-of-contract, fraud, negligence, and other claims against PBC, Justin Costello, and GRN Funds, LLC.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12, arguing that the federal court lacked subject-matter jurisdiction because the dispute involved marijuana-related businesses and activities that they said were illegal under federal law. They also argued that they were not subject to personal jurisdiction in California and that they had not been properly served with the summons and complaint.

Subject-Matter Jurisdiction

The court held that the case was based on diversity jurisdiction under 28 U.S.C. § 1332. The plaintiffs alleged diversity of citizenship and an amount in controversy exceeding $75,000, and the defendants did not challenge either allegation. The court explained that the legality of a contract is not an element of diversity jurisdiction and that an allegedly illegal event or activity does not eliminate subject-matter jurisdiction on that basis. The court noted that the legality of the banking-services contracts could remain relevant later in the case, but it was not a reason to dismiss for lack of jurisdiction.

Personal Jurisdiction

The court held that the plaintiffs plausibly showed specific personal jurisdiction over the defendants. Specific personal jurisdiction concerns whether the defendant deliberately engaged with the forum state, whether the claims arise from those forum-related activities, and whether exercising jurisdiction would be reasonable.

The court relied on allegations that CCSAC and CANN were California corporations with principal places of business in Alameda and Oakland, respectively; that each entered into a Capital Management Agreement with PBC; and that PBC agreed to process transactions for the plaintiffs. The alleged transactions included payments to 117 vendors, 112 of which were California-based, including a directed $1 million payment to the California Department of Tax and Fee Administration. The plaintiffs alleged that the payment was not received and that PBC neither provided proof of payment nor refunded the money.

The court concluded that these facts satisfied the purposeful-availment requirement because the contracts and the parties’ course of dealing contemplated payments to California vendors and employees. It also concluded that the claims arose directly from the defendants’ California-related activities. The defendants did not present an argument showing that exercising jurisdiction would be unreasonable.

Service

The defendants sought dismissal under Rules 12(b)(4) and 12(b)(5), which concern defects in the summons and service of process. The court observed that the plaintiffs had made several attempts to serve the defendants at physical addresses and by email, and that the defendants’ motion, filed through counsel, showed that at least one attempt had succeeded. Because the defendants clearly received sufficient notice of the complaint and the record documented the plaintiffs’ service efforts, the court denied dismissal on service grounds.

Other Motions and Disposition

The court denied as moot the plaintiffs’ objections to the Costello declaration because that declaration was not relevant to the order. It overruled the defendants’ objections to the Oram and Selna declarations. It denied as moot the plaintiffs’ motion for leave to request clarification and lifted the previously imposed stay.

The court granted the defendants’ administrative motion to postpone alternative-dispute-resolution deadlines. It directed the parties to comply with their initial alternative-dispute-resolution obligations and to select a dispute-resolution process through a joint filing by March 26, 2021. The order terminated Docket Nos. 27, 46, 47, and 55, and set a case-management conference for April 8, 2021.