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In re Telexfree Securities Litigation

United States District Court, D. Massachusetts

January 29, 2019

In re TELEXFREE SECURITIES LITIGATION

          MEMORANDUM AND ORDER ON DEFENDANT GLOBAL PAYROLL GATEWAY'S MOTION TO DISMISS (DOCKET NO. 167)

          TIMOTHY S. HILLMAN DISTRICT JUDGE

         Global Payroll Gateway (“GPG:), one of numerous defendants in the TelexFree multidistrict securities litigation, moves to dismiss all counts in the Second Consolidated Amended Complaint (“SCAC”) for want of personal jurisdiction, lack of standing, and failure to state a claim. TelexFree, Inc. (TelexFree) was a pyramid scheme that operated from February 2012- April 2014, and involved approximately two million participants worldwide, nearly a million of whom suffered a net financial loss. Several plaintiffs filed actions in district courts across the United States seeking to recover their losses against dozens of defendants, ranging from banks, payment processing companies, (such as GPG) and the principals of the fraudulent scheme. As the actions involved common questions of fact, the Judicial Panel on Multidistrict Litigation joined the actions into a multi-district litigation, and ordered transfer of all actions to the District of Massachusetts for coordinated or consolidated pretrial proceedings.

         GPG's only domestic office and all of its executives and employees are located in California where all of the company's domestic business is conducted and where services are provided to its domestic customers, including TelexFree. During the time that GPG provided services to TelexFree, no employee travelled to Massachusetts to meet with TelexFree or took any other action in Massachusetts in connection with GPG's performance of its contractual obligations. GPG did not solicit TelexFree business in Massachusetts; rather TelexFree reached out to GPG in California to provide services. Finally, anytime GPG or any of its employees communicated with a TelexFree representative, they did so from California.

         Discussion

         GPC asserts that jurisdiction is not proper under the Massachusetts Long-Arm Statute, M.G.L. C. 223A §3, and that GPG lacks sufficient contacts with Massachusetts to satisfy the Constitutional requirements for this Court to exercise personal jurisdiction over it. Plaintiffs contend that this Court has nationwide jurisdiction as transferee court, and that traditional personal jurisdiction also exists.

         While courts have held that the MDL statute, 28 U.S.C. § 1407, “authoriz[es] the federal courts to exercise nationwide personal jurisdiction, ” it is also well established that “[i]n an MDL case, personal jurisdiction is derived from the transferor court.” In re “Agent Orange” Prod. Liab. Litig., 818 F.2d 145, 163 (2d Cir.1987); In re WellNx Mktg. & Sales Practices Litig., No. 07-MD-1861, 2010 WL 3652457, at *1 (D. Mass. Sept. 15, 2010) (emphasis added); see also In re FMC Corp. Patent Litig., 422 F.Supp. 1163, 1165 (J.P.M.L.1976) (“Transfers under Section 1407 are simply not encumbered by considerations of in personam jurisdiction and venue.... Following a transfer, the transferee judge has all the jurisdiction and powers over pretrial proceedings in the actions transferred to him that the transferor judge would have had in the absence of transfer.”)

         GPG was named as a party to the First and Second Consolidated Amended Complaints filed in this District. GPG was never named as a party, nor served process in any of the cases that were transferred to this Court as part of the MDL. Accordingly, there is no basis in 28 U.S.C. § 1407 for this Court to exercise personal jurisdiction over GPG.

         In addition, the Complaint does not allege facts to support either specific or general jurisdiction under the Massachusetts long-arm statute. M.G.L. C. 223A §3 provides in relevant part:

A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action in law or equity arising from the person's
(a) transacting any business in this commonwealth;
(b) contracting to supply services or things in this commonwealth;
(c) causing tortious injury by an act or omission in this commonwealth;
(d) causing tortious injury in this commonwealth by an act or omission outside this commonwealth if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used ...

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