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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 SYNOVUS BANK'S MOTION TO DISMISS (Docket No. 178)

          TIMOTHY S. HILLMAN DISTRICT JUDGE

         Introduction

         Synovus Bank (“Synovus”), 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, and the principals of the fraudulent scheme. As the actions involved common questions of fact, the Judicial Panel on Multi-district 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.

         Synovus is a Georgia Chartered Banking Institution, with offices in Georgia, Alabama, Florida, South Carolina and Tennessee. Synovus serves as a sponsor bank for companies providing credit card processing services. Credit card processing services include collection of credit card data from merchants, encryption of the data, and routing of the data to the customer's issuing bank. Synovus was the sponsor bank for co-defendant Base Commerce, a third party payment processor that provided credit card processing services to TelexFree from June - August 2013.[1]

         Synovus is a party to the SCAC, but was not served in any of the underlying or tag along cases transferred to this District as part of the multidistrict litigation. The SCAC seeks recovery against Synovus for aiding and abetting violations of Mass. Gen. L. ch. 93 §§ 12 and 69 and ch. 93A §§ 2(a) and 11 (Third Claim for Relief), Unjust enrichment, (Fourth Claim for Relief), and tortious aiding and abetting, (Tenth Claim for Relief).

         Discussion

         Synovus asserts that jurisdiction is not proper under the Massachusetts Long-Arm Statute, Mass. Gen. L. ch. 223A §3, and that Synovus 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). Synovus was named as a party to the First and Second Consolidated Amended Complaints filed in this District. Synovus 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 Synovus.

         In addition, the Complaint does not allege facts to support either specific or general jurisdiction under the Massachusetts long-arm statute. The statute, Mass. Gen. L. ch. 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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