California Securities Law Claims Founder On Personal Jurisdiction

Establishing personal jurisdiction may seem mundane, but without it a plaintiff may soon find itself out of court, as did the plaintiff in Marshall v. Galvanoni, 2017 U.S. Dist. LEXIS 185530.

In Marshall, the plaintiff sued a half dozen companies and four individuals over failed investments.  Among other things, the plaintiff alleged violations of California Corporations Code Section 25401.  Three of the individual defendants moved to dismiss "because they say all relevant conduct happened outside California, and they live and work outside California".

U.S. District Court Judge Kimberley J. Mueller agreed based on California's test for personal jurisdiction, which she described as follows:

California's specific personal jurisdiction test requires plaintiff to show (1) each defendant purposefully directed his or her activities to California or purposefully availed himself of California's forum, and (2) plaintiff's claims arise from or relate to those activities. Schwarzenegger [v. Fred Martin Motor Co.], 374 F.3d [797,] at 802 [(9th Cir. 2004)]. If plaintiff makes both showings, the burden shifts to defendants to show haling them into court here would be unreasonable.  Id.

In opposing the defendants' motion to dismiss, the plaintiff cited "emails each defendant sent to him in California".  Judge Mueller found that the emails actually contradicted the plaintiff's claims that the three defendants were involved in soliciting the plaintiff's investment.  She did not address the question of where emails are sent.  Unlike a letter, an email isn't delivered to a physical address, raising the question of what it means to send an email to California or anywhere else.  To paraphrase Gertrude Stein, is there any there in the internet?

I also note that Judge Mueller quotes the current text of Section 25401, even though the opinion states that some of the investments were made in 2015, when the text of the statute was different.  This was a point recognized by Judge Gonzolo P. Curiel in the coincidentally captioned case of Mueller v. San Diego Entm’t Partners, LLC, 2017 U.S. Dist. LEXIS 77643 (S.D. Cal. May 22, 2017).  See Scienter in the News Again.