Case Name: BitClave PTE. LTD v. Trofimchuk, et al.
Case No.: 18CV328574

Defendant Astra Studio, OOO (“Defendant” or “Astra Studio”) moves to quash service of summons and complaint, or in the alternative, to dismiss for inconvenient forum.

I. Factual and Procedural Background

This is an action for fraud and conversion, among other things, arising out of a dispute between the two shareholders of plaintiff BitClave PTE. LTD. (“BitClave”). According to the allegations of the operative First Amended Complaint (“FAC”), BitClave is a private company with its principle place of business in San Jose that developed a blockchain-based platform called BitClave Active Search Ecosystem, which allows consumers to control when and how they share data with retail companies. (FAC, ¶ 9.) In exchange, consumers earn Consumer Activity Tokens (‘CAT”). (Id.)

At the time the company was founded in July 2017, it had two shareholders: Alex Bessanov (“Bessanov”), the founder and CEO, and defendant Vasily Trofimchuk (“Vasily”), who was hired as a project manager. (FAC, ¶ 8.) The latter also served as a member of the company’s Board of Directors. (Id.) Bessanov holds 62,000 shares, while Vasily holds 38,000. (Id.) BitClave had a pre-sale for its initial coin offering in July 2017 during which is distributed CAT tokens in exchange for U.S. currency and cryptocurrency, such as Ether or Bitcoin. (Id., ¶ 10.) Since the ICO, BitClave has continued to distribute these tokens in the normal course of business. (Id.) These CAT tokens were worth an estimated $30 million at the time the instant action was filed and said tokens and cryptocurrencies raised in exchange for CAT Tokens are collectively referred to herein as the “BitClave Assets.” (Id.)

Vasily allegedly converted the BitClave Assets by continuing to possess them in personal accounts and refusing to transfer them back to BitClave upon its request. (FAC, ¶¶ 11-21.) He also purportedly used Plaintiff’s cryptocurrency and U.S. currency to enter into more than 200 transactions totaling around $7.5 million, and then transferred some of those funds to his brother, defendant Pavel Trofimchuk (“Pavel”) and defendants Astra, Inc. dba Astra Studio (“Astra, Inc.”) and Astra Studio (collectively, the “Astra Entities”), which are owned and operated by Vasily. (Id., ¶ 24.)

In January 2018, Vasily threatened to create a new company and take BitClave employees with him. (FAC, ¶ 26.) He subsequently transferred additional monies to his brother with no explanation or documentation, and it is alleged on information and belief that these funds were ultimately used by Vasily to form a new venture, Multitoken. (Id., ¶¶ 26-29.) Vasily allegedly disparaged and defamed Bessenov to BitClave employees and contractors in order to entice them to work at his new venture instead. (Id., ¶ 31.)

The Astra Entities handled payroll for BitClave. (FAC, ¶ 35.) In February 2018, Vasily represented to BitClave that he needed a written contract (the “Agreement”) to memorialize the course of dealing between the parties for his personal immigration purposes. (Id., ¶ 36.) Vasily represented that the Agreement was nothing more than a written document to describe the parties’ course of dealing. (Id.) These representations were false, with the Agreement not accurately reflecting the manner in which the parties dealt with one another. (Id., ¶ 37.) Despite Astra, Inc. not meeting any of the milestones in the Agreement or submitting required invoices, Vasily channeled millions of dollars to the Astra Entities.

Based on the foregoing allegations, BitClave initiated the instant action on May 22, 2018. The operative FAC was filed on November 9, 2018, and asserts claims for: (1) declaratory judgment (against Vasily); (2) conversion (against Vasily, Pavel, Astra, Inc. and Astra Studio; (3) breach of fiduciary duty (against Vasily); (4) unfair competition (Bus. & Prof. Code § 17200) (against Vasily); and (5) fraud (against Astra, Inc.).

On April 4, 2018, Astra Studio filed the instant motion to quash service of summons and the complaint, or in the alternative, to dismiss for inconvenient forum. BitClave opposes the motion.

II. Defendant’s Motion to Quash Service of Summons and Complaint

Astra Studio brings the instant motion to quash pursuant to Code of Civil Procedure section 418.10, subdivision (a)(1) and (2), which provides as follows:

(a) A defendant, on or before the last day of his or her time to plead or within any further time that the court may for good cause allow, may serve and file a notice of motion for one or more of the following purposes:

(1) To quash service of summon on the ground of lack of jurisdiction of the court over him or her.

(2) To stay of dismiss the action on the ground of inconvenient forum.

These issues will be addressed separately.

As a general matter, whether a defendant is subject to personal jurisdiction in the forum state involves two separate factors: (1) the existence of a constitutionally-sufficient basis for personal jurisdiction over each defendant; and (2) acquisition of such jurisdiction by service of process in accordance with the statutory and due process requirements. (Ziller Electronics Lab. GmbH v. Superior Court (1988) 206 Cal.App.3d 1222, 1229. Here, Astra Studio maintains that neither of the foregoing factors is satisfied, and therefore service of the summons and complaint should be quashed.
A. Based on Improper Service

Service was purportedly effectuated on Astra Studio by serving copies of the summons and complaint on Vasily Trofimchuk in California. (See Declaration of Pavel Trofimchuk in Support of Motion to Quash (“Pavel Decl.”), Exhibit C.) Astra Studio contends that service was ineffective on it, a foreign corporation.

Effecting service on a corporation requires delivery of summons and complaint to some person on behalf of the corporation. (Code Civ. Proc., § 416.10; Dill v. Berquist Const. Co., Inc. (1994) 24 Cal.App.4th 1426, 1437.) It is undisputed that Astra Studio is a Russian limited liability corporation and thus a foreign corporation for the purposes of determining how service of process is to be effectuated. (See Pavel Decl., ¶ 2.) For foreign corporations, service may be made on “any officer of the corporation or its general manager in this state.” (Corp. Code, § 2110; see In re Title U.S.A. Ins. Corp. (1995) 36 Cal.App.4th 363, 368.) Service is deemed valid if the person charged as “general manager” is apparently in charge of the corporation’s office or headquarters, as long as the person served is of such rank to make it reasonably certain that the corporation will be apprised of service.” (Gibble v. Car-Lene Research, Inc. (1998) 67 Cal.App.4th 295, 302-303.) Service can also be made upon “a person authorized by the corporation to receive service of process; this includes persons who are designated as the corporation’s local agent for service of process in various statements which a foreign (or domestic) corporation is required to file with the Secretary of State under provisions of the Corporations Code. (Code Civ. Proc., § 416.10, subd. (a).) In order to qualify to do business in California, foreign corporations are required to designate a local agent for service of process. (Corp. Code, §§ 2105, subd. (a)(5) and 1502, subd. (b).)

Here, it is BitClave’s contention that Vasily is Astra Studio’s general manager in California. Where, as here, the validity of service of process on a foreign corporation is challenged by a motion to quash, the burden is on the plaintiff to prove the validity of service. (General Motors Corp. v. Superior Court (1971) 15 Cal.App.3d 81, 84.) Thus, the burden is on BitClave to establish that Vasily is Astra Studio’s general manager in this state.

“The term ‘general manager of a corporation’ indicates one who has general direction and control of the business of the corporation as distinguished from one who has the management only of a particular branch of the business; he may do everything which the corporation could do in transaction of its business.” (Bakersfield Haceinda, Inc. v. Superior Court (1962) 199 Cal.App.3d 798, 804.) BitClave maintains that Vasily is a 60% majority shareholder of Astra Studio, hires the company’s developers, and is the only owner present in the United States since at least 2017. Further, it explains, he is the brother and brother-in-law of two of Astra Studio’s officers- Pavel and his wife Tatyana. This is the extent of BitClave’s evidence that Vasily is Astra Studio’s general manager. This Court finds that its fall well short of establishing as much.

First, the extent of Vasily’s role in hiring employees for Astra Studio is not entirely clear. In the deposition testimony cited by BitClave in this regard, Vasily answered “Pavel” when asked who hires and fires employees for Astra Studio and explained that his role in that process was to “pick the developers.” (Declaration of Patrick Thompson in Support of Opposition to Motion to Quash, Exhibit A at 57:9-20.) No further detail is provided regarding what exactly that entitled, e.g., whether he picked prospective developers to be interviewed by Pavel or specifically picked who was to be hired. This testimony can hardly be said to establish that Vasily has “general direction and control” of Astra Studio. Further, in his declaration, Pavel expressly states that Vasily does not manage Astra Studio’s business affairs (see P. Trofimchuk Decl., ¶ 11), a statement that is echoed in the declaration provided by Tatyana Trofimchuk (see Declaration of Tatyana Trofimchuk, ¶ 8).

Second, BitClave offers no authorities which support the propositions that majority shareholder status or maintaining familial relationships with a company’s officers make one the general manager of the company. Thus, facts relating to Vasily’s 60% ownership of Astra Studio and his relationships with Pavel and Tatyana are of no import in determining this issue.

Finally, the case cited by BitClave for the proposition that it need only show that Vasily was “an agent of sufficient character and rank as to make it reasonably certain the corporation would be apprised of the service made” in order to establish that proper service was effectuated under Code of Civil Procedure section 416.10, Gibble v. Car-Lene Research, Inc. (1998) 67 Cal.App.4th 295, is distinguishable. In that case, the court concluded that service was proper after noting that evidence established that the individual upon whom service was effectuated “had sole, unfettered authority to hire and fire employees, to authorize payment of their wages, to authorize or withhold payments to interview subjects, and to conduct [the company]’s core business activities in the San Francisco area, apparently without oversight from any other manager or officer of the corporation.” (Gibble, 67 Cal.App.4th at 313.) Because the plaintiff could reasonably conclude that the aforementioned individual was the general manager given the foregoing facts, the court held that he had substantially complied with Code of Civil Procedure section 416.10 and thus that jurisdiction over the defendant corporation was established. Evidence establishing that Vasily maintained a similar sole in Astra Studio, which has not be shown to even have a physical location in California, simply has not been proffered by BitClave.

Thus, as BitClave has not demonstrated that Vasily serves as Astra Studio’s “general manager” within the meaning of Code of Civil Procedure section 416.10, it has not established that it complied with the applicable service requirements for a foreign corporation. Consequently, service of the summons and complaint on Astra Studio is quashed.

B. Based on Lack of Constitutionally-Sufficient Basis to Assert Personal Jurisdiction

Even if proper service was effectuated, Astra Studio contends that there is no basis to exercise personal jurisdiction over it, a foreign company that does not do business in California.

“[W]here a defendant properly moves to quash service of summons the burden is on the plaintiff to prove facts requisite to the effective service.” (Sheard v. Superior Court (1974) 40 Cal.App.3d 207, 211.) The burden is on the plaintiff to demonstrate by a preponderance of the evidence that all jurisdictional criteria are met. (Ziller Electronics Lab Gmbh v. Superior Court (1988) 206 Cal.App.3d 1222.) “Jurisdictional facts must be proved by competent evidence at the hearing on the motion to quash. This generally requires affidavits or declarations by competent witnesses.” (Id.)

The three “traditional” bases for personal jurisdiction are: (1) service on persons physically present in the forum state; (2) domicile within the state; and (3) consent or appearance in the action. (Weil & Brown, supra, at ¶ 3:131; also see Pennoyer v. Neff (1877) 95 U.S. 714, 733.) If none of the foregoing are implicated, the plaintiff is left with application of the “minimum contracts” doctrine in order to demonstrate jurisdiction. Astra Studio maintains that that is the circumstance at bar.

Pursuant to Code of Civil Procedure section 410.10, California’s long-arm statute, “[a] court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States.” The long-arm statute “manifests an intent to exercise the broadest possible jurisdiction,” limited only by constitutional considerations of due process. (Sibley v. Superior Court (1976) 16 Cal.3d 442, 445; Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th434, 44.) The general rule is that a state may exercise personal jurisdiction over a nonresident defendant “if the defendant has such minimum contacts with the state that the assertion of jurisdiction does not violate ‘traditional notions of fair play and substantial justice.’” (Vons Companies, Inc., supra, 14 Cal.4th at 444, quoting International Shoe Co. v. Washington (1945) 326 U.S. 310, 326.) Stated another way, “the forum state may not exercise jurisdiction over a nonresident unless his [or her] relationship to the state is such as to make the exercise of such jurisdiction reasonable.” (Cornelison v. Chaney (1976) 16 Cal.3d 143, 147.) As these tests suggest, the question of jurisdiction cannot be answered by the application of precise formulas or mechanical rules. Each case must be decided on its own facts. (Id. at 150.)

Personal jurisdiction may be either general or specific. (Helicopteros Nacionales de Columbia, S.A. v. Hall (1984) 466 U.S. 408, 414-415; Vons Companies, supra, 14 Cal.4th at 445.) General jurisdiction may lie for all purposes if a defendant has established a presence in the forum state by virtue of activities in the state which are “extensive or wide-ranging” (Buckeye Boiler Co. v. Superior Court (1969) 71 Cal.2d 893, 898-899) or “substantial … continuous and systematic.” (Cornelison, supra, 16 Cal.3d at 148.) In such case a defendant’s contacts “take the place of physical presence in the forum as a basis for jurisdiction.” (Vons Companies, Inc., 14 Cal.4th at 446.)

If a nonresident defendant’s activities in the state are not sufficient to allow the forum state to exercise general jurisdiction for all purposes, the state may nonetheless exercise specific jurisdiction “if the defendant purposefully availed himself or herself of forum benefits (Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 472-473) and the ‘controversy is related to or “arises out of” the defendant’s contacts with the forum.’ (Helicopteros, supra, 466 U.S. at 414.) Once a court decides that a defendant has purposefully established contacts with the forum state and that the plaintiff’s cause of action arose out of those forum-related contacts, the final step in the analysis involves balancing the convenience of the parties and the interests of the state in order to determine whether the exercise of personal jurisdiction is fair and reasonable under all of the circumstances. (Burger King Corp, supra, 471 U.S. at 477-478; Vons Companies, Inc., 14 Cal.4th at 447-448.)

To reiterate, as the party opposing the instant motion to quash, the burden is on BitClave to demonstrate by a preponderance of the evidence that all jurisdictional criteria are met. (Ziller Electronics Lab Gmbh v. Superior Court (1988) 206 Cal.App.3d 1222.) “Jurisdictional facts must be proved by competent evidence at the hearing on the motion to quash. This generally requires affidavits or declarations by competent witnesses.” (Id.) Here, while BitClave maintains that the Court has specific jurisdiction over Astra Studio, it fails to establish as much by a preponderance of the evidence. The thrust of BitClave’s argument regarding specific jurisdiction appears to be that because Vasily is Astra Studio’s majority shareholder and lives and works in California, “Astra Studio reasonably could expect that [his] actions in California on behalf of the company would subject it to the Court’s jurisdiction.” (BitClave’s Opp. at 6:18-20.) However, it is not clear what the extent of Vasily’s involvement in Astra Studio is and thus whether he conducted any actions on behalf of the company that could be deemed the company purposefully availing itself of the benefits of the state. Further, while BitClave also claims that Astra Studio performed work for it that would provide a basis for the exercise of jurisdiction, it offers no evidence establishing exactly what was performed or that those activities gave rise to the action at bar. Finally, BitClave completely ignores the final component of the showing it is required to make- the reasonableness of exercising jurisdiction over Astra Studio, i.e., that doing so would “comport with fair play and substantial justice.”

Given BitClave’s failure to make the required showing, the Court finds that it lacks a basis to exercise personal jurisdiction over the company.

In accordance with the foregoing, Astra Studio’s motion to quash is GRANTED. Given this ruling, the alternative request to dismiss based on inconvenient forum is moot.