# Bhatia v. Silvergate Bank

> District Court, S.D. California · August 1, 2023

URL: https://www.frixlaw.com/law-library/cases/10088167

## Case

- **Court:** District Court, S.D. California
- **Decided:** August 1, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10088167

## How later opinions describe it (automated extraction)

- finding 7 venue was proper and ordering discretionary transfer under § 1404(a), but noting that even if 8 venue were not proper, transfer under § 1406(a) would be in the interest of justice for similar 9 reasons

## Opinion text

1
2
3
4 UNITED STATES DISTRICT COURT
5 NORTHERN DISTRICT OF CALIFORNIA
6
7 SOHAM BHATIA, et al., Case No. 23-cv-00667-JSC

8 Plaintiffs,
ORDER RE: DEFENDANTS’ MOTION
9 v. TO DISMISS, OR, IN THE
ALTERNATIVE, TO TRANSFER
10 SILVERGATE BANK, et al., VENUE
11 Defendants. Re: Dkt. No. 16

12
13 Plaintiffs sue Silvergate Bank, its parent company, Silvergate Capital Corporation and
14 Silvergate CEO Alan J. Lane (collectively, Silvergate), for aiding and abetting a multibillion-
15 dollar fraud scheme orchestrated by Samuel Bankman-Fried (Bankman-Fried) through the
16 cryptocurrency exchange FTX and the cryptocurrency hedge fund Alameda Research LLC
17 (Alameda). (Dkt. No. 14.)1 Before the Court is Silvergate’s motion to dismiss, or, in the
18 alternative, transfer venue. (Dkt. No. 16). Having carefully considered the briefing, the Court
19 concludes oral argument is unnecessary, see Civ. L. R. 7-1(b), and GRANTS the motion to
20 transfer the action to the District Court of the Southern District of California under 28 U.S.C. §
21 1404.
22 COMPLAINT ALLEGATIONS
23 Silvergate went “all-in” on cryptocurrency as a deposit niche and emerged as “the leading
24 provider of innovative financial infrastructure solutions and services to participants in the nascent
25 and expanding digital currency industry” with more than $12 billion in interest-free deposits.
26 (Dkt. No. 14 ¶¶ 1, 46, 50-51.) Crypto customers accounted for as much as 99% of Silvergate
27
1 Bank’s deposits. (Id. ¶ 1.) The cryptocurrency exchange FTX and cryptocurrency trading firm
2 Alameda, both controlled by Bankman-Fried, accounted for nearly 10% of Silvergate’s business.
3 (Id. ¶ 2.)
4 FTX collapsed in November 2022, after which Bankman-Fried admitted to diverting
5 billions in customer money to Silvergate accounts controlled by Alameda, where the funds were
6 dissipated and lost. (Id. ¶ 3.) The revelation of FTX’s diversion prompted a run on Silvergate,
7 leading to a record loss of $1 billion and Silvergate’s voluntary liquidation. (Id. ¶ 4.) Plaintiffs
8 allege Silvergate, “which publicly touted its enhanced proprietary anti-money laundering and
9 ‘Know Your Customer’ systems, knew about the scheme,” but “accepted Plaintiffs’ money and
10 executed transfers by which the money was diverted and dissipated anyway.” (Id. ¶ 3.)
11 I. Silvergate Exchange Network (SEN)
12 “Instrumental to [Silvergate’s] leadership position and growth strategy” was the Silvergate
13 Exchange Network (SEN), a proprietary payment network geared toward crypto customers
14 through which exchanges like FTX could transfer cryptocurrency nearly instantaneously at any
15 time. (Id. ¶¶ 2, 57-58.) Before SEN, transactions involving crypto and fiat currencies were slow
16 and burdensome because transferring currency on traditional banking timelines could take days to
17 complete, and such transactions closed only within business hours to allow for due diligence. (Id.
18 ¶ 58.) Because crypto assets frequently fluctuate in value, transactions considered economically
19 sensible at the time of initiation may not be so sensible at closing days later. (Id. ¶ 59.) Silvergate
20 released SEN in 2017 to eliminate the friction involved in crypto/fiat transactions. (Id. ¶¶ 60-61.)
21 Participating customers could send money instantaneously to other SEN participants at any time,
22 in part by eliminating the due diligence time built into traditional bank transfers. (Id. ¶ 61.) All
23 parties to SEN transactions were required to be SEN members and Silvergate account holders, and
24 each transaction was recorded through a notational entry in Silvergate’s internal ledger without
25 human involvement. (Id. ¶¶ 62-65.)
26 SEN made Silvergate “the go-to bank for the cryptocurrency industry,” and the platform’s
27 ease of on-ramping was critical to FTX’s growth. (Id. ¶¶ 57, 61, 67.) Before SEN, the slowness
1 transactions required both crypto and fiat currency. (Id. ¶ 60, 66.) With the 2017 advent of SEN,
2 new FTX users could begin trading crypto and fiat currency without friction. (Id. ¶ 67.) SEN
3 shared a mutual dependence with FTX—an exchange designed and advertised as being easy to use
4 for crypto newcomers—and other crypto exchanges. (Id. ¶¶ 66, 68.) In September 2018, digital
5 currency exchanges accounted for $729.9 million of the deposits on SEN, as compared to $572.7
6 million from institutional investors and $227.5 million from other customers. (Id. ¶ 68.) From the
7 fourth quarter of 2018 to the fourth quarter of 2019, volume on SEN increased 150% to 14,400
8 transactions, representing $9.6 billion. (Id. ¶ 69.) Annual SEN transactions grew from $32.7
9 billion in 2019 to $787.4 billion in 2021—more than 2,700% in two years. Id.
10 Silvergate acknowledged “SEN is a central element of the operations of our digital
11 currency related customers, which enables us to grow with our existing customers and to attract
12 new customers who can benefit from our innovative solutions and services.” (Id. ¶ 71.) Because
13 deposits from Silvergate’s crypto clients were noninterest-bearing, Silvergate could keep all the
14 returns from investing those deposits. (Id. ¶ 72.) Indeed, SEN provided Silvergate “a distinctive
15 advantage over most traditional financial institutions” because it “allow[ed] [Silvergate] to
16 generate revenue from a conservative portfolio of investments in cash, short term securities and
17 certain types of loans.” Id. Catering to crypto customers drove Silvergate’s funding costs down to
18 among the lowest in the U.S. banking industry, which allowed Silvergate to generate returns on
19 lower risk assets through increased investments in interest-earning deposits. (Id. ¶ 73.) “By the
20 end of September 2022, Silvergate’s crypto-derived, noninterest bearing deposits were 90% of the
21 bank’s overall deposit base, amounting to $11.9 billion. And of that, FTX alone constituted nearly
22 10% of the $11.9 billion in deposits, or about $1.2 billion.” (Id. ¶ 75.)
23 II. FTX, Alameda, and the Scheme
24 Bankman-Fried founded Alameda with Gary Wang in 2017, and the trading firm began
25 banking with Silvergate around 2018. (Id. ¶ 79.) Within a year of its founding, Alameda claimed
26 to be the largest liquidity provider and market maker in the digital asset space, trading between
27 $600 million to $1 billion a day, roughly 5% of global volume in digital asset trading. (Id. ¶ 85.)
1 2019. (Dkt. No. 14 ¶ 89.) Before its 2022 collapse, FTX “operated a multi-billion-dollar mobile
2 application cryptocurrency investment service that offered trading in various options, futures,
3 swaps, and other digital commodity derivative products,” along with various other cryptocurrency
4 trading services. (Id. ¶ 90.) Plaintiffs allege FTX and Alameda moved to Hong Kong in 2019 “in
5 an effort to avoid United States regulatory requirements, including the requirements of the United
6 States securities laws” before relocating to The Bahamas in 2021. (Id. ¶ 95.) Despite the
7 concomitant risks of banking offshore companies, Silvergate banked both FTX and Alameda. (Id.
8 ¶¶ 96-97.)
9 FTX and Alameda executives represented FTX and Alameda were run separately, but the
10 boundary between the two entities was illusory. (Id. ¶¶ 108-20.) Both entities lacked adequate
11 risk management, organizational, and governance structures. (Id. ¶¶ 114-20.) The absence of
12 corporate controls enabled the misappropriation of FTX customer funds. (Id. ¶¶ 121, 155-57.)
13 The Securities and Exchange Commission alleged, and FTX and Alameda executives later
14 admitted, “[f]rom the inception of FTX, [FTX and Alameda] diverted FTX customer funds to
15 Alameda, and continued to do so until FTX’s collapse in November 2022.” Id. The entities
16 diverted FTX customer funds by directing FTX customers to deposit fiat currency into bank
17 accounts controlled by Alameda—often Silvergate accounts—and allowing Alameda to use an
18 FTX “line of credit” funded by FTX customer assets. (Id. ¶ 122.)
19 From 2019 to 2022, at Bankman-Fried and FTX’s direction, FTX customers deposited
20 billions of dollars in fiat currency into bank accounts controlled by Alameda. (Id. ¶ 123.) To
21 facilitate the scheme, Bankman-Fried created Alameda Research Ltd., a British Virgin Islands
22 limited corporation that operated as an alter ego of Alameda and FTX, and opened three Silvergate
23 accounts in its name. (Id. ¶¶ 124-25.) North Dimension Inc., a fully owned and operated shell
24 company owned by Alameda without any legitimate independent business, also received deposits
25 from FTX customers in two Silvergate accounts. (Id. ¶ 126.) Plaintiffs allege “the pattern of
26 North Dimension’s wire transfers—which Silvergate processed—was highly irregular. FTX
27 customers wired money to North Dimension,” where Alameda then commingled the transferred
1 the misappropriated FTX customer funds to subsidize Alameda and FTX’s operations, speculate in
2 cryptocurrencies and related enterprises, make political donations, purchase real estate, pay
3 outside lenders, and support lavish lifestyles, among other things. (Id. ¶ 132.) Several FTX and
4 Alameda executives admitted “[t]he use of customer assets by Alameda was not authorized by
5 FTX customers, and FTX customers were not made aware that their assets were being used by
6 Alameda. To the contrary, FTX’s Terms of Service expressly prohibited such use of customer
7 assets.” (Id. ¶ 133.) The scheme, along with FTX and Alameda, collapsed in November 2022.
8 (Id. ¶¶ 141-42, 147-50.)
9 Silvergate collapsed soon after. In November 2021, Silvergate’s stock price was $219.75
10 per share. (Id. ¶ 159.) By December 2022, it had fallen to $21.43. Id. At the end of the third
11 quarter of 2022, Silvergate had $11.9 billion in crypto-related deposits. (Id. ¶ 160.) After FTX’s
12 collapse, at the end of the fourth quarter of 2022, Silvergate had only $3.8 billion in deposits—a
13 68% drop. Id. In March 2023, Silvergate discontinued SEN, announced its intention to wind
14 down operations and voluntarily liquidate Silvergate Bank, and closed all non-certificate-of-
15 deposit Silvergate accounts. (Id. ¶ 161.)
16 III. Silvergate’s Alleged Complicity in the FTX Scheme
17 a. Silvergate’s Alleged Knowledge of the FTX Fraud
18 Plaintiffs allege, “by virtue of its status as a bank and money transmitter, Silvergate was
19 required to develop, implement, and maintain an effective [anti-money laundering] program.” (Id.
20 ¶¶ 16-29, 162.) Silvergate, according to its public filings with the Securities and Exchange
21 Commission, “invested heavily in its risk management and compliance infrastructure,” and
22 “attracted a talented, dedicated compliance team with substantial experience in regulated financial
23 institutions, including developing, implementing and monitoring systems to detect and prevent
24 financial crimes.” Id. Silvergate claimed to be “highly selective in [its] customer onboarding
25 process to ensure the integrity of the [SEN] platform,” and its onboarding process included
26 extensive regulatory compliance diligence. (Id. ¶ 163.) In December 2022, Silvergate CEO Alan
27 J. Lane said 1) “Silvergate has instituted and consistently updates and improves a robust
1 funds, and the purpose and expected use of funds for each and every account we open,” and 3)
2 Silvergate Bank “monitors transaction activity for every account and identifies activity outside of
3 || the expected usage.” (/d. ¥ 169.)
4 Silvergate hosted numerous accounts for Bankman-Fried’s companies, including eight
5 accounts for Alameda, two accounts for North Dimension, one account for FTX Ventures, and
6 || four accounts for FTX Digital Markets. Ud. 4170.) In onboarding each of Bankman-Fried’s
7 || companies, Silvergate obtained information on their beneficial owners, corporate formalities and
8 organization, business operations, assets under management, anticipated volume of transactions
9 || per month, source of funds, and principals. Gd. 4 171.)
10 The Bank Secrecy Anti-Money Laundering Manual summarizes the applicable anti-money
11 laundering compliance program requirements, expectations for risks and risk management,
« 12 || industry sound practices, and examination procedures. (Dkt. No. 14 § 24.) In Appendix F, the

E 13 manual sets forth “red flags” indicating potential money laundering activities, including

14 (1) funds transfers sent in large, round dollar amounts; (2) funds
2 transfers to or from a financial institution located in a higher risk
Q 15 Jurisdiction distant from the customer’s operations; (3) frequent
involvement of multiple jurisdictions or beneficiaries located in
16 higher-risk offshore financial centers; (4) repetitive or unusual funds
transfer activity; (5) funds transfers sent or received from the same
17 person to or from different accounts; (6) unusual funds transfers
among related accounts or among accounts that involve the same or
2 18 related principals; (7) transactions inconsistent with the account
holder’s business; (8) customer use of a personal account for business
19 purposes; (9) multiple accounts established in various corporate
names that lack sufficient business purpose to justify the account
20 complexities; and (10) multiple high-value payments or transfers
between shell companies without a legitimate business purpose.
22 || Ud. § 26.) Plaintiffs allege FTX/Alameda account activity raised the following red flags:
23 e “Unusual transfers of funds occur among related accounts or
54 among accounts that involve the same or related principals.”
e “Funds transfer activity is unexplained, repetitive, or shows
25 unusual patterns.”
26 e “Many funds transfers are sent in large, round dollar, hundred
57 dollar, or thousand dollar amounts.”
e “Frequent involvement of multiple jurisdictions or
28 beneficiaries located in higher-risk offshore financial

centers.”
e “Funds transfer activity occurs to or from a financial
2 institution located in a higher risk jurisdiction distant from the
3 customer’s operations.”
e “A foreign correspondent bank exceeds the expected volume
4 in its client profile for funds transfers, or an individual
company exhibits a high volume and pattern of funds transfers
5 that is inconsistent with its normal business activity.”
6 e “A business is reluctant, when establishing a new account, to
provide complete information about the nature and purpose of
7 its business, anticipated account activity, prior banking
relationships, the names of its officers and directors, or
8 information on its business location.”
9 e “A customer is a trust, shell company, or Private Investment
Company that is reluctant to provide information on
10 controlling parties and underlying beneficiaries.”
11 e “Purpose of the shell company is unknown or unclear.”
12 e “Payments or receipts with no apparent links to legitimate
contracts, goods, or services are received.”
13
14 || Ud. 4172.)
15 Plaintiffs allege Silvergate and Lane knew Alameda never retained an outside auditor or

Q 16 || generated audited financial statements because Silvergate was obligated to review Alameda and

= 17 || FTX’s financial statements as a part of routine due diligence. (Ud. J 174.) Likewise, Plaintiffs

Z 18 allege Silvergate and Lane knew Alameda and FTX failed to observe ordinary corporate
19 || formalities because routine due diligence includes requesting a list of each entity’s board of
20 || directors, the date of every meeting, and board minutes. (/d. 4.175.) Plaintiffs further allege
21 Silvergate and Lane knew FTX accepted several billion dollars from FTX customers for use in
22 || trading on the FTX exchange but diverted those funds to Alameda accounts because Silvergate
23 could see Alameda accounts amassing incremental small dollar deposits from FTX accounts
24 || without proportional outflows. (/d. § 176.)
25 Defendants could and did see for themselves that numerous wires
earmarked for deposit to FTX for trading on its exchange were
26 ultimately going to Alameda’s trading account. Hedge funds do not
generate high volumes of relatively small deposits from a large
27 number of distinct individuals, such as Alameda received through its
account at Silvergate, particularly when the firm does not have
28 customers or investors (as Alameda did not). There was no legitimate

explanation for any of the transfers, much less transfers of the
1 frequency and size that were apparent to Silvergate and Lane.
Similarly, Defendants observed Alameda’s failure to segregate
2 customer funds on receipt, and the subsequent inexplicable transfers
of these funds once within Alameda’s control in a manner inconsistent
3 with its business.
4 (Id. ¶ 177.) Silvergate continued to bank FTX and Alameda despite the apparent diversion of FTX
5 funds to Alameda; unexplained but frequent transactions between and among FTX, Alameda, and
6 individual executives; absence of internal controls; Alameda’s failure to submit to audits or
7 generate financial statements; repetitive and unexplained transfers of funds from FTX and
8 Alameda-related entities to offshore jurisdictions and vice-versa; FTX’s and Alameda’s move to
9 offshore, lightly regulated jurisdictions; the lack of business experience of FTX and Alameda
10 executives; FTX’s and Alameda’s failure to staff Chief Financial Officer, Chief Compliance
11 Officer, and Chief Risk Control positions; and the commingling of funds among unrelated
12 accounts. (Id. ¶ 179.)
13 b. Silvergate’s Alleged Substantial Assistance of the FTX Fraud
14 Plaintiffs allege Defendants substantially helped FTX, Alameda, and Bankman-Fried
15 perpetuate fraud. (Id. ¶ 181.) Silvergate accepted $8 billion in FTX customer assets, maintained
16 fifteen FTX- and Alameda-related accounts, processed billions in transfers from FTX’s client
17 accounts to Alameda accounts, and accepted deposits from FTX investors directly into the bank
18 accounts of Alameda and North Dimension. (Id. ¶ 184.) Lane represented Silvergate conducted
19 significant due diligence on FTX and its related entities, but in the face of several red flags,
20 Silvergate continued to complete transfers and create accounts for FTX and Alameda and allow
21 FTX to use SEN, which “enabled FTX and Bankman-Fried to continue to on-ramp new customers
22 and allow existing customers to trade cryptocurrency.” (Id. ¶¶ 185-86, 201-02.)
23 * * *
24 Plaintiffs bring claims for 1) aiding and abetting fraud, 2) aiding and abetting breach of
25 fiduciary duty, 3) unjust enrichment, 4) aiding and abetting conversion, 5) violations of Unfair
26 Competition Law under California Business & Professions Code § 17200, and 6) negligence.
27 They seek certification of this action as a class action under Federal Rule of Civil Procedure 23(a)
1 under Federal Rule of Civil Procedure 23(g), an order requiring Defendants to pay the costs of
2 notice to the class, damages, and reasonable attorneys’ fees and costs of litigation.
3 DISCUSSION
4 Defendants seek dismissal of Plaintiffs’ complaint under Federal Rule of Civil Procedure
5 12(b)(3) and 28 U.S.C. § 1406(a) on the grounds this District is the improper venue for the claims.
6 In the alternative, Defendants seek transfer to the District Court for the Southern District of
7 California under 28 U.S.C. § 1404. If the Court does not dismiss the complaint pursuant to
8 Federal Rule of Civil Procedure 12(b)(3) and 28 U.S.C. § 1406(a), or transfer pursuant to 28
9 U.S.C. § 1404, Defendants seek dismissal under Federal Rules of Civil Procedure 9(b) and
10 12(b)(6) on the grounds Plaintiffs fail to state any claim upon which relief can be granted.
11 I. Venue
12 Under 28 U.S.C. § 1391(b)(2), venue is proper in “a judicial district in which a substantial
13 part of the events or omissions giving rise to the claim occurred.” Plaintiffs lay venue in the
14 Northern District under 28 U.S.C. § 1391(b) because “FTX and Alameda were founded in this
15 District and headquartered in this District until 2019,” “[t]he decisions to divert FTX customer
16 funds to Alameda accounts were made in this District and the actions effecting those decisions
17 were taken in this District,” and Defendants’ marketing and provision of banking and SEN
18 services in this District constitutes substantial, continuous, and systematic contact with this
19 District. (Dkt. No. 14 ¶ 7.) Plaintiffs further allege Silvergate opened accounts for Alameda when
20 it was headquartered in Berkeley. (Id. at ¶ 79.)
21 Defendants contest venue in this District on the grounds none of the events or omissions
22 giving rise to Plaintiffs’ claims occurred here, none of the named Plaintiffs reside here, and none
23 of the harms caused by Defendants’ allegedly tortious conduct were felt here. Defendants argue
24 Plaintiffs failed to identify any alleged tortious conduct by Defendants in this District, and instead
25 attempt to establish venue based on conduct by FTX and Alameda, neither of which are party to
26 this action. Even if venue is proper, Defendants request transfer to the Southern District under 28
27 U.S.C. § 1404 because Defendants are located there, Defendants’ alleged misconduct occurred
1 If the Court concludes venue is improper in this District, it can dismiss the action or
2 transfer to the Southern District of California where, as explained below, it could have been filed
3 in the first instance. 28 U.S.C. § 1406(a) (“The district court of a district in which is filed a case
4 laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice,
5 transfer such case to any district or division in which it could have been brought.”); see, e.g.,
6 Kawamoto v. CB Richard Ellis, Inc., 225 F. Supp. 2d 1209, 1212–15 (D. Haw. 2002) (finding
7 venue was proper and ordering discretionary transfer under § 1404(a), but noting that even if
8 venue were not proper, transfer under § 1406(a) would be in the interest of justice for similar
9 reasons). While the Court has serious concerns as to whether venue is proper in this District, it
10 need not finally decide the issue because if venue is improper it would transfer rather than dismiss.
11 And, assuming without deciding venue is proper, the § 1404 convenience factors weigh heavily in
12 favor of transferring this action to the Southern District of California.2
13 II. Transfer Under 28 U.S.C. § 1404
14 The Court may transfer this action “[f]or the convenience of parties and witnesses, in the
15 interest of justice” to the Southern District of California if the action might have been brought
16 there. 28 U.S.C. § 1404(a). Section 1404(a) exists to “prevent the waste of time, energy, and
17 money and to protect litigants, witnesses and the public against unnecessary inconvenience and
18 expense.” Van Dusen v. Barrack, 376 U.S. 612, 616 (1964) (cleaned up). District courts have
19 discretion to adjudicate motions for transfer based on an individualized, case-by-case
20 consideration of convenience and fairness. Jones v. GNC Franchising, Inc., 211 F.3d 495, 498
21 (9th Cir. 2000). The burden lies with Silvergate, as the movant, to demonstrate jurisdiction and
22 proper venue would exist in the district to which transfer is requested and the balance of
23 conveniences favors transfer. Commodity Futures Trading Comm’n v. Savage, 611 F.2d 270, 279
24 (9th Cir. 1979).
25
2 When an action is transferred for improper venue, rather than for convenience, the choice-of-law
26
rules of the transferor district apply. Nelson v. Int’l Paint Co., 716 F.2d 640, 643 (9th Cir. 1983).
Since the issue here is whether to transfer from one California district court to another California
27
district court, there is no issue as to the forum district; in either case California is considered the
1 A. Jurisdiction and Venue in the Southern District of California
2 The court to which a case is transferred must “(1) be able to exercise personal jurisdiction
3 over the defendants, (2) have subject matter jurisdiction over the claim, and (3) be a proper
4 forum.” Karlen v. Wells Fargo Bank, N.A., No. 22-CV-02127-JSC, 2022 WL 2756671, at *2
5 (N.D. Cal. July 14, 2022), appeal dismissed, No. 22-16050, 2022 WL 12040241 (9th Cir. Aug. 18,
6 2022).
7 First, the Southern District of California can exercise personal jurisdiction over each
8 Defendant. A federal court can exercise personal jurisdiction over defendants domiciled within
9 the forum state at the time the action commenced. Milliken v. Meyer, 311 U.S. 457, 462–64
10 (1940). A corporation is domiciled in its state of incorporation and where it has its principal place
11 of business. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 924 (2011). A
12 bank is a citizen of the state in which its main office is located. Rouse v. Wachovia Mortg., FSB,
13 747 F.3d 707, 715 (9th Cir. 2014); see 28 U.S.C.A. § 1348. Silvergate Bank is a California
14 corporation with its principal place of business in La Jolla, California. (Dkt. No. 14 ¶¶ 6, 13.)
15 Silvergate Capital Corporation also has its principal place of business in La Jolla, California. (Id.
16 ¶¶ 6, 14.) Alan J. Lane resides in Temecula, California, and Plaintiffs’ claims against him arise
17 from his conduct as the President, Board Member, and CEO of Silvergate Capital Corporation and
18 CEO of Silvergate Bank. (Id. ¶¶ 6, 15.) Each Defendant is subject to the Southern District of
19 California’s exercise of personal jurisdiction.
20 Second, the Southern District of California has subject matter jurisdiction over Plaintiffs’
21 claims. Plaintiffs assert subject matter jurisdiction pursuant to 28 U.S.C. § 1332(d)(2)(A), the
22 Class Action Fairness Act. (Id. ¶ 5.) Complete diversity of citizenship exists because “at least one
23 member of the proposed plaintiff class is a citizen of a State different than Defendant.” (Id. ¶ 5);
24 28 U.S.C. § 1332(d)(2)(A). Thus, the complaint supports the Southern District of California’s
25 exercise of subject matter jurisdiction over Plaintiffs’ claims based on diversity jurisdiction.
26 Finally, venue would be proper in the Southern District of California because Defendants
27 are subject to personal jurisdiction there. 28 U.S.C. § 1391(b)(1).
1 Plaintiffs’ counsel previously filed three complaints against Silvergate for claims arising from the
2 same alleged conduct in the Southern District of California on behalf of different plaintiffs.3
3 B. Convenience
4 In analyzing convenience, the Court may consider:

5 (1) plaintiffs’ choice of forum, (2) convenience of the parties, (3)
convenience of the witnesses, (4) ease of access to the evidence, (5)
6 familiarity of each forum with the applicable law, (6) feasibility of
consolidation with other claims, (7) any local interest in the
7 controversy, and (8) the relative court congestion and time to trial in
each forum.
8
9 Jones, 211 F.3d at 488-89; see also Avery v. TEKsystems, Inc., No. 22-CV-02733-JSC, 2022 WL
10 3998499, at *4 (N.D. Cal. Aug. 31, 2022) (listing convenience factors).
11 While great weight is generally accorded to a plaintiff’s choice of forum, the forum choice
12 of a named plaintiff seeking to represent a class is given less weight. Lou v. Belzberg, 834 F.2d
13 730, 739 (9th Cir. 1987). The force of Plaintiffs’ forum choice depends on the extent of their
14 contacts with the forum, including those related to the cause of action. Id.; see Pac. Car &
15 Foundry Co. v. Pence, 403 F.2d 949, 954 (9th Cir. 1968) (“Plaintiff’s choice of forum, then, is not
16 the final word. In judging the weight to be given such a choice . . . consideration must be given to
17 the extent both of the defendant’s business contacts with the chosen forum and of the plaintiff’s
18 contacts, including those relating to his cause of action.”). “If the operative facts have not
19 occurred within the forum and the forum has no interest in the parties or subject matter,”
20 Plaintiffs’ forum choice is entitled to only minimal consideration. Lou, 834 F.2d at 739.
21 Because Plaintiffs do not reside in California and seek to represent a class, their choice of
22 forum is granted little to no deference. (Dkt. No. 14 ¶¶ 9-12); Lou, 834 F.2d at 739 (“Although
23 great weight is generally accorded plaintiff’s choice of forum, when an individual brings a
24

25
3 Zuleta v. Silvergate Capital Corp., et al., Case No. 22-cv-1901 (filed Dec. 1, 2022) (voluntarily
dismissed without prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i) on
26
February 9, 2023); Gonzalez v. Silvergate Bank, et al., Case No. 22-cv-1981 (filed Dec. 14, 2022)
(voluntarily dismissed without prejudice pursuant to Federal Rule of Civil Procedure
27
41(a)(1)(A)(i) on February 10, 2023); Husary v. Silvergate Bank, et al., Case No. 23-cv-0038
1 derivative suit or represents a class, the named plaintiff’s choice of forum is given less weight.”
2 (cleaned up)); Easton v. Wells Fargo & Co., No. 20-CV-02193-HSG, 2020 WL 3639934, at *3
3 (N.D. Cal. July 6, 2020) (“Although Plaintiff’s choice of forum is generally entitled to some
4 deference, the degree of deference is substantially diminished in several circumstances. These
5 include where: (1) the named plaintiff represents a class, (2) the plaintiff resides outside of the
6 chosen forum, and (3) the conduct giving rise to the claims occurred in a different forum.”
7 (cleaned up)).
8 Further, Plaintiffs do not allege they had any contacts with the Northern District of
9 California related to their claims. Pac. Car & Foundry Co., 403 F.2d at 954. Plaintiffs accuse
10 Silvergate of tortious conduct arising from Silvergate’s relationship with FTX and Alameda,
11 which were both founded and began banking with Silvergate in this District. But Plaintiffs do not
12 allege they had any contact with either FTX or Alameda when these companies were based in
13 Northern California. Plaintiffs’ earliest alleged interaction with Defendants is November 2021,
14 when Plaintiff Gonzalez began placing funds in an FTX account at Silvergate. Alameda and FTX
15 had moved to Hong Kong years earlier, in November 2019, before relocating to The Bahamas in
16 November 2021. (Dkt. No. 14 ¶ 95.) So, Plaintiffs’ choice of forum is given only minimal
17 consideration.
18 On balance, the other relevant convenience factors favor transfer. Plaintiffs’ convenience
19 is entitled to lesser weight because Plaintiffs chose to sue in a forum where they do not reside.
20 Easton, 2020 WL 3639934, at *3. No defendants reside in the Northern District of California and
21 the entity defendants are located in the Southern District of California. Silvergate’s winding down
22 of its operations and voluntary liquidation is taking place primarily in the Southern District. If
23 anywhere, the “center of gravity” of Plaintiffs’ case is the Southern District of California, where
24 most of Defendants’ alleged misconduct is likely to have occurred, key witnesses and evidence are
25 likely to be found, and where (or closer to where) counsel are located. (See Dkt. No. 16-4 at 2);
26 Easton, 2020 WL 3639934, at *4 (“[L]itigation should proceed where the case finds its center of
27 gravity, which can substantially reduce litigation costs.” (cleaned up)). While convenience of
1 near the district, where most of the attorneys reside. See Shields v. Amerigas Propane, Inc., No.
2 |} 2:15-CV-00754-KJM, 2015 WL 5436772, at *5 (E.D. Cal. Sept. 15, 2015). Plaintiffs do not argue
3 this District is more convenient for them than the Southern District, and only mention, without
4 || identifying by name, Alameda employees who worked in Berkeley as potential nonparty witnesses
5 || whose attendance may need to be compelled at trial.
6 The familiarity of each forum with the applicable law is neutral because both forums are
7 || federal courts located in California equally familiar with California and federal law. The
8 feasibility of consolidation with other claims also weighs neutrally. Because Plaintiffs do not
9 || reside in the Northern District and have not alleged any contacts with this District related to this
10 || cause of action, the local interest in this controversy is minimal. The Southern District’s interest
11 in this controversy is much stronger, as the case involves entities headquartered there.
L CONCLUSION
13 Plaintiffs’ choice of forum weighs against transfer, but is entitled to little or no deference
14 because this is a putative class action, Plaintiffs do not reside in this District, Plaintiffs have not
3 15 alleged contacts with this District related to their case, and Plaintiffs have not suffered any alleged
a 16 || injuries in this District. The Southern District of California is the more appropriate venue for this
17 || action considering the convenience of the parties and witnesses, ease of access to evidence, and
Zz 18 local interest in the controversy. The Court finds that, even if venue is proper here, the factors
19 || under § 1404 favor discretionary transfer to the Southern District of California, where this case
20 || could have been brought. Accordingly, the Court GRANTS Defendants’ motion to transfer to the
21 District Court of the Southern District of California under 28 U.S.C. § 1404.
22
23 This Order disposes of Docket No. 16.
24 IT IS SO ORDERED.
25 || Dated: August 1, 2023
26

(A CQWELINE SCOTT CORLEY,
28 United States District Judge

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10088167. Public record. Not legal advice.