BitClave PTE. LTD. vs Vasily Trofimchuk

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 Background
II.

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.

III. Procedural Background
IV.

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, 2019, Astra Studio filed the instant motion to quash service of summons and the complaint, or in the alternative, to dismiss for inconvenient forum. BitClave filed an opposition on June 5th, followed by a reply from Astra Studio on June 11th. On the day before the original hearing date of June 18th, BitClave filed a declaration attaching documents that purported to show that Vasily was Astra Studio’s CEO. At the hearing the following day, the Court (Hon. Zayner) continued the motion to August 1st and allowed the parties to file supplemental briefing to address BitClave’s June 18th filing.

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

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:
(b)

(1) To quash service of summon on the ground of lack of jurisdiction of the court over him or her.
(2)

(3) To stay of dismiss the action on the ground of inconvenient forum.
(4)

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
B.

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).)

In its initial opposition, BitClave contended that Vasily was Astra Studio’s general manager. “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 maintained as much based on its contentions 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 explained, he is the brother and brother-in-law of two of Astra Studio’s officers- Pavel and his wife Tatyana. This was the extent of BitClave’s evidence that Vasily is Astra Studio’s general manager.

The Court tentatively concluded that BitClave fell well short of establishing that Vasily is Astra Studio’s general manager, as was its burden. (See General Motors Corp. v. Superior Court (1971) 15 Cal.App.3d 81, 84 [where 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 that service].) Specifically, the Court explained that the extent of Vasily’s role in hiring employees for Astra Studio was not entirely clear, BitClave provided no authority for the proposition that majority shareholder status or maintaining familial relationships with a company’s officers make one the general manager of the company and the case BitClave cited for the position 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, was distinguishable. The Court therefore held that BitClave had not established that it complied with the applicable service requirements for a foreign corporation.

In its supplemental opposition, BitClave now argues that Vasily was actually the CEO of Astra Studio during the relevant times in controversy and thus service was properly effectuated on him. As set forth above, for foreign corporations, service may be made on “any officer of the corporation or its general manager in this state.” (Corp. Code, § 2110 [emphasis added]; see In re Title U.S.A. Ins. Corp. (1995) 36 Cal.App.4th 363, 368.) BitClave specifically contends that subsequent to filing its initial opposition to the motion to quash, it located several new documents (via discovery responses) which demonstrate that Astra Studio has not fairly or accurately depicted Vasily’s role in the company. In particular, BitClave cites to the following as demonstrating that Vasily was Astra Studio’s CEO:

 Multiple Russian-language agreements from October 2017 that Vasily purported executed on behalf of Astra Studios as its “general manager” or CEO (Declaration of John Dixon in Support of Supplemental Opposition to Motion to Quash (“Dixon Decl.”), Exhibit C);

 An email dated March 21, 2018, from Pavel to Vasily attaching several documents relating to Vasily’s visa application for a visit to the U.K. which include (as translated from Russian):

o A reference letter from Astra Studio identifying Vasily as CEO (Dixon Dec., Exhibit B at p. 6);
o
o U.K. visa application attesting that Vasily is CEO of Astra Studio, describing Vasily’s work for the business as management, specifying its location in Russian and noting a temporary residence for him in California (Dixon Decl., Exhibit B at pp. 7-19);
o
o Personal income tax statement from 2017 and 2018 showing that Astra Studio paid Vasily 120,000 Russian rubles per month for his work as an employee (Dixon Decl., Exhibit B at p. 2)
o

In its supplemental reply, Astra Studio does not deny that Vasily was at one point the CEO of Astra Studio, but maintains that he was not the CEO when service on the company was purportedly effectuated by serving him on April 5, 2019, and argues that none of the additional materials submitted by BitClave establish as much. In a supplemental declaration by Vasily submitted in support of the supplemental reply, Vasily explains that he was relieved of his position as CEO of Astra Studio on June 8, 2018, with Tatyana appointed his successor the next day. (Declaration of Vasily Trofimchuck in Support of Reply to Supplemental Opposition (“Vasily Decl.”), ¶ 2.) Attached to his declaration is purportedly a copy of the minutes from the shareholder meeting approving the change of CEO, as well as documents publicly filed with the Russian Unified Register of Legal Entities which reflect Tatyana’s position as the CEO of Astra Studio since June 9, 2018. (Id., Exhibits A, B and C.) Vasily concludes his declaration with a statement that since moving to the United States in February 2014, he has not had any management role with Astra Studio. (Vasily Decl., ¶ 6.)

The Court agrees with Astra Studio that the new materials submitted by BitClave do not establish that at the time of service on April 5, 2019, Vasily was an officer of Astra Studio or its general manager, and thus could properly accept service on behalf of the company. They merely establish that Vasily served in that role in 2017 and 2018. Nor does the Court believe that it has been established by BitClave that Vasily had any sort of ostensible authority to accept service on Astra Studio’s behalf.

Thus, as BitClave has not established that it complied with the applicable service requirements for a foreign corporation, the instant motion is GRANTED and service of the summons and complaint on Astra Studio is quashed.

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

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. The Court agrees.

“[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. BitClave does not specifically address this issue in its supplemental opposition. 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. Thus, even if service was properly effectuated on Vasily, there would still be a basis to grant Astra Studio’s motion to quash. Given this ruling, the alternative request to dismiss based on inconvenient forum is moot.