Innovate1 v. First Bridge Merch. Sols.

MEMORANDUM OF DECISION RE: DEFENDANTS' MOTION TO DISMISS OR IN THE ALTERNATIVE TO TRANSFER VENUE (ECF NO. 15)

Kari A. Dooley, United States District Judge

This action arises out of a payment processing dispute between Plaintiffs Innovate1 Services, Inc. ("Innovate1") and Anthony Nwachukwu, its President, and Defendants First Bridge Merchant Solutions, LLC ("FBMS"), Marc Geolina ("Geolina"), an FBMS Member, Ryan Rainey ("Rainey"), an FBMS Member, and Does 1 through 3.¹ Among other allegations, Plaintiffs allege that FBMS failed to remit payments of approximately $1 million in breach of the Merchant Application and Merchant Account Agreement & Program Guide (collectively, the "Account Agreement") entered into by Innovate1 and FBMS in December 2016. On October 4, 2019, Defendants FBMS, Geolina, and Rainey (hereinafter, "Defendants") filed the instant motion to dismiss for lack of personal jurisdiction and improper venue pursuant to Federal Rules of Civil Procedure 12(b)(2) and 12(b)(3) or, in the alternative, to transfer venue to the United States District Court for the Central District of California pursuant to 28 U.S.C. § 1404(a). For the following reasons, Defendants' motion to dismiss is GRANTED in part and this matter is ordered transferred to the Central District of California.

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Background

The following is alleged in Plaintiffs' complaint.² On or about December 15, 2016, Innovate1 and FBMS entered into the Account Agreement by which FBMS "was to process payments for Innovate1's clients, transfer the money to Innovate1 and then to transfer these amounts to its clients. The fee that FBMS charges also includes Innovate1's commissions. In this case, FBMS processed payments but never transferred those payments to Innovate1, and also did not transfer the relevant commission. As a result, the merchants did not receive their money and Innovate1 did not receive its commission. Indeed, Innovate1 was forced to pay certain merchants from its own account because FBMS failed to transfer the funds at issue." Complaint, ECF No. 1 ¶ 11. Specifically, FBMS failed to remit at least $713,000 to Innovate1 in violation of the Account Agreement.

Pursuant to the Account Agreement, FBMS agreed to open "a non-interest bearing secured reserve deposit" account at a bank (hereinafter, "reserve account"). Id. ¶ 16. Despite Plaintiffs reaching out to FBMS to learn the reserve account details, FBMS and Geolina failed to comply with Plaintiffs' requests for information regarding "the name of the bank, name of bank officer(s) in charge of the account, detailed accounting of the transactions and the amount being held, or withheld in the account[,]" or "an accounting, or statements as to the amount in said account that is due and owing to Innovate1 and its clients." Id. ¶¶ 16, 18. Instead, Geolina "repeatedly and fraudulently assured Innovate1 that payment either had been made or was forthcoming, assurance[s] which were false and upon which Innovate1 reasonably and justifiably relied." Id. ¶ 34.

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FBMS, Geolina, and Rainey also conducted a "know your client" ("KYC") review of Innovate1 upon entering into the Account Agreement in December 2016. On or about February 14, 2017, Geolina told Plaintiffs that they were compliant with the bank. Regardless, the funds due to Plaintiffs were never released to Innovate1. Indeed, "Innovate1 complained to the [D]efendants regarding the continuous delays in the funds to their clients being released, the interest deduction being charged, [and] the amount of funds being withheld by the [D]efendants' bank as a reserve." Id. ¶ 39. Despite Plaintiffs advising Rainey on or about December 27, 2017 via e-mail of their complaints, Defendants did not accommodate their requests. Instead, on January 5, 2018, Geolina requested documents "under the guise of KYC by FBMS/Bank Doe." Id. ¶ 41. Thereafter, on or about January 29, 2018, Plaintiffs reached out to Geolina to inquire "why FBMS, or its Bank Doe were arbitrarily withholding funds beyond the agreed upon period under the guise of KYC even though one was performed prior to the start of the contract." Id. ¶ 42. On the same day, Geolina responded that he would resolve the issues with the bank regarding the withholding of funds. However, Geolina never gave Plaintiffs the information they asked for regarding the reserve account or the release of funds.

Eventually, on or about February 24, 2019, Plaintiffs sent a letter to Geolina informing him that Innovate1 and its affiliated companies would no longer conduct business with FBMS or any bank, financial institution, or company affiliated with FBMS. The letter also "demanded an accounting on all merchant accounts processed by Innovate1 through FBMS, name(s) of the bank(s) where the non-interest bearing account holding the reserve funds were being kept, name of the banker(s) and return of the funds to Innovate1." Id. ¶ 49. On March 13, 2019, Geolina responded by letter that the reserve funds, with a balance of $713,980, could be held in escrow until the liability and risk period to FBMS expired on April 6, 2020. Additionally, Geolina, in the

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letter and thereafter, insisted that Plaintiffs give him their bank account where he could make ACH deposits. Geolina told Plaintiffs that he needed an account number "so that the ACH deposits of the reserve can be refunded to Innovate1." Id. ¶ 59. Still, "[n]o refunds from the reserve account have been made to Innovate1[.]" Id. ¶ 61.

Further, according to Geolina's March 13, 2019 letter, the reserve account had been terminated due to laundering risk. Despite the laundering allegation, Geolina continually reached out to Innovate1 for business. Moreover, Plaintiffs believe that the Defendants made false claims to government authorities regarding Innovate1 engaging in transaction and money laundering because Defendants feared losing Innovate1's business after Innovate1 started complaining about FBMS's services. As a result of these false claims, Nwachukwu, a U.S. Citizen, experienced difficulty traveling, including extensive searches and interrogations by U.S. Customs and Border Protection agents.

Procedural History

Based on the foregoing allegations, on July 22, 2019, Plaintiffs filed a complaint consisting of the following seventeen causes of action:

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