Dillon v. Murphy & Hourihane, LLP

• Decision Date: 22 October 2014
• Docket Number: Case No. 14-cv-01908-BLF
• Court: U.S. District Court — Northern District of California
• Parties: THOMAS A. DILLON, Plaintiff, v. MURPHY & HOURIHANE, LLP, Defendant.

THOMAS A. DILLON, Plaintiff, v. MURPHY & HOURIHANE, LLP, Defendant.

Case No. 14-cv-01908-BLF

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION

October 22, 2014

ORDER AS AMENDED FOLLOWING RECONSIDERATION:

(1) DENYING DEFENDANT'S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION;

(2) DENYING DEFENDANT'S MOTION TO TRANSFER VENUE

[Re: ECF Nos. 10, 28]

On July 3, 2014, this Court denied Defendant Murphy & Hourihane, LLP's Motion to Dismiss for lack of personal jurisdiction and its Motion, in the alternative, to transfer venue to the Northern District of Illinois. On July 30, 2014, Defendant filed with this Court a Motion, pursuant to 28 U.S.C. § 1292(b), to amend the Court's July 3 Order, requesting that this Court certify the Order Denying Defendant's Motion to Dismiss for interlocutory review by the Ninth Circuit Court of Appeals. Defendant contends in this Motion to Certify that the Court relied on Ninth Circuit case law on personal jurisdiction that had be "called into question, and indeed repudiated in part" by a recent, unanimous Supreme Court decision in Walden v. Flore, 134 S. Ct. 1115 (2014). (See Mot. to Certify at 1)

Based on the argument raised in the Motion to Certify, the Court sua sponte requested supplemental briefing on whether the Court should reconsider its prior Order due to the absence of any analysis of the issues presented in Walden. See ECF 31.¹ Having considered that briefing, theCourt hereby determines that reconsideration is appropriate and, pursuant to its inherent power to reconsider interlocutory orders prior to the entry of judgment, the Court issues this Order GRANTING reconsideration and MODIFYING its July 3, 2014 Order. See, e.g., Meas v. City & Cnty. of San Francisco, 681 F. Supp. 2d 1128, 1143 (N.D. Cal. 2010) ("[T]he trial court has the inherent power to reconsider, set aside, or amend interlocutory orders at any time prior to entry of a final judgment.").

This Order hereby SUPERSEDES AND REPLACES the Court's July 3, 2014 Order. The Court DENIES Defendant's Motion to Dismiss for lack of personal jurisdiction and DENIES Defendant's Motion to Transfer Venue.

I. BACKGROUND

A. Procedural History

Murphy & Hourihane, LLP is a law firm organized as 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 approved rescission of twoVesta insurance policies, and wrongfully accepted $40,000 in payment for legal services performed on behalf of one of Vesta's owners, John Terzakis. (Compl. ¶10) This $40,000 was a reimbursement of premiums paid to Vesta's insurance carrier, United States Fire Insurance Company ("U.S. Fire"), which in June 2009, upon receipt of a letter from Defendant as counsel for Vesta, rescinded two commercial crime insurance policies held by Vesta. (Id.; see also Compl. Exh. 3 at 1 (Letter from John N. Hourihane to U.S. Fire (reading, in pertinent part: "We represent Vesta Strategies . . . . Enclosed with this letter is a letter of direction from Vesta accepting the rescission of and refund of the policy premiums for the subject policies. Pursuant to Vesta's instructions, the refund may be paid by check payable to 'Murphy & Hourihane, LLC.'") Plaintiff alleges that Defendant, by facilitating the rescission and 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)

Vesta acted as a § 1031 "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 was engaged in order to represent Vesta's interests in RICO litigation, and to defend Vesta against claims by exchangers with failed exchanges. (Id. ¶¶ 45, 46) Defendant had knowledge that exchange funds were missing from Vesta and that each owner was accusing the other of theft. (Id. ¶ 45) During this time, Terzakis owed Defendant legal fees from other legal services it had rendered. (Id. ¶ 46)

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) The insurance contracts, which were entered into in California (id. ¶ 3), were "loss discovery policies" purchased from U.S. Fire. (Id. ¶ 10) The policies "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 on June 1, 2009, Mr. Hourihane, acting as counsel for Vesta, had 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. (See Compl. Exh. 3)

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 agreeing on Vesta's behalf to rescission of the insurance contracts and personally accepting the $40,000 as payment of fees owed by Terzakis constituted malpractice and a breach of Defendant's fiduciary duty to its client, Vesta, because the rescission and 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; see also 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. (Id. ¶ 6) 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. ¶ 7)

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, 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...