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JP Morgan Chase Bank, N.A. v. Neovi

November 14, 2006


The opinion of the court was delivered by: Judge Graham


This case is before the Court by way of a motion for sanctions and/or to compel discovery filed by plaintiff JPMorgan Chase Bank ("Chase"). The motion asserts that defendant Neovi, Inc. should be sanctioned for providing less than candid responses both to interrogatories concerning the extent to which it does business in Ohio and to requests for admission concerning the authenticity of certain documents. Among other sanctions, Chase has asked the Court to deny Neovi's motion to dismiss for lack of personal jurisdiction because the discovery which is the subject of Chase's motion relates to Neovi's assertion that it does not do business in Ohio and therefore is not subject to personal jurisdiction in this forum. For the following reasons, the motion for sanctions and/or to compel discovery will be substantially granted. However, the Court will not, at this juncture, preclude Neovi from pursuing its motion to dismiss for lack of personal jurisdiction.


Because the motion for sanctions attacks the sufficiency of written discovery responses made by Neovi and involves a detailed understanding of the deposition testimony of Neovi's chief operating officer, James Danforth, a fairly thorough review of the discovery matters at issue is necessary in order to place the motion in its proper context. The following factual background is derived from materials filed with the motion to dismiss for lack of jurisdiction and filings made in connection with the motion for sanctions.

Neovi operates an internet-based check service which permits individuals to transmit checks to third parties. This check service, known as "Qchex," sometimes results in the actual issuance and transmission of a printed check which is then treated as a check signed directly by the Qchex customer. The way in which Neovi operates Qchex is apparently not foolproof. Chase alleges in its complaint that it debited a number of its customers' accounts for checks issued by Neovi, only to discover later that these checks were issued without the authority of Chase's customers. Chase avers that it has sustained losses in excess of $165,000 in connection with the payment of such checks, and asserts that Neovi is responsible for these losses under §3-403(a) of the Uniform Commercial Code.

Neovi disputes that it does sufficient business with Ohio residents to subject it to this Court's jurisdiction. On April 10, 2006, it filed a motion to dismiss for lack of personal jurisdiction or, in the alternative, to change venue. The motion was supported by an affidavit of James Danforth, Neovi's chief operating officer. In his affidavit, Mr. Danforth asserted that Neovi has only one corporate office, located in San Diego, California, that it has neither personal nor physical assets in Ohio, and that its only relationship to Ohio is "a virtual presence through its web site." Danforth Affidavit, ¶ 5. Although Mr. Danforth also stated that Neovi does not target Ohio residents for marketing or business and does not intentionally avail itself of the protections of Ohio's laws, his affidavit did not specifically address the number of persons, whether Neovi's customers or payees of checks issued on behalf of its customers, who have some contact with the State of Ohio such as a residence or bank account within Ohio.

Given the somewhat sparse nature of Mr. Danforth's affidavit, Chase sought leave to conduct discovery prior to filing its response to the motion to dismiss. On May 3, 2006, without opposition from Neovi, the Court granted that request and set a response date to the motion of July 5, 2006.

The discovery did not proceed as rapidly as the parties anticipated. Issues concerning both the sufficiency of Neovi's interrogatory answers and the need to protect its customer information through an appropriate protective order arose. After conferring with counsel, the Court subsequently issued an order extending the date for the filing of a responsive memorandum to July 27, 2006, and directing Neovi to provide supplemental interrogatory answers by July 6, 2006. The parties were also directed to agree on an appropriate protective order.

The protective order was signed on July 5, 2006. However, additional issues arose, necessitating a second conference with counsel on July 14, 2006. The Court subsequently vacated the date for the filing of Chase's memorandum on the personal jurisdiction issue and directed the parties to work out the details of additional discovery and to agree on a new filing date for the response. Approximately two months later, Chase filed its motion for sanctions. In that motion, Chase detailed the progress of the discovery and the extent of its dissatisfaction with Neovi's efforts to provide Chase information concerning the contacts between Neovi and any customers or payees who may reside or conduct business in Ohio.

Chase's first set of interrogatories consisted of eleven questions, all of which asked Neovi about any business contacts between Neovi and the State of Ohio or Ohio residents. For purposes of the present motion, the most significant interrogatories are the first seven, all of which Neovi responded to with the word "unknown."

As Neovi stated in response to Interrogatory No. 8, any new Qchex customer is required to sign up for service (presumably on an internet site) and enter certain information in order to create a customer account. Neovi did not indicate in its response to Chase's interrogatories whether the information requested from the customer on the registration page included an address for the customer, for payees designated by the customer, or for any bank accounts being used by the customer. The first seven interrogatories, which appear to have been premised upon the assumption that Neovi had acquired and retained such information from its customers, asked Neovi to identify from 2002 through the present the number of persons with Ohio addresses who registered for any Qchex service, who issued checks through that service, or to whom a Qchex check was transmitted. Other interrogatories asked for similar information about persons who had accepted a Qchex "End User License Agreement" and obtained a Qchex user ID and/or password. Chase also asked Neovi to compare fees or revenues generated from Ohio customers and the number of its Ohio customers to the total of Neovi's fees or revenues generated through the Qchex service and to the total number of its customers. Neovi denied knowing any of this information, but provided no explanation for its lack of knowledge. Mr. Danforth verified Neovi's responses.

Not convinced that Neovi simply did not know any information responsive to these interrogatories, Chase's counsel wrote a letter to Neovi's counsel asking for a detailed explanation of why Neovi was unable to answer the interrogatories. As a result of that letter and a conference with the Court, Neovi served supplemental responses to interrogatories. Those answers indicated that Qchex customers were not required to provide an address in their account profile and they were also not required to provide addresses for payees. Mr. Danforth also verified the supplemental answers. The supplemental answers did not indicate whether customers, despite not being required to provide their addresses' or their payees' addresses to Neovi, had actually done so, or whether customer or payee addresses were available to Neovi in its customer database.

Frustrated by this second set of answers, which provided little additional information about the reasons Neovi could not determine the number or percentage of Ohio customers or payees with whom it dealt, Chase noticed the deposition of Mr. Danforth. That deposition was taken in San Diego, California on August 11, 2006. A transcript of that deposition was filed with the Court as Exhibit I to Chase's motion for sanctions. Mr. Danforth's deposition testimony is quite revealing concerning the manner in which Neovi responded to Chase's discovery requests.

First, Mr. Danforth testified that on or about July 3, 2006, Neovi changed the registration page on its website to require its customers to provide an address. However, he acknowledged that prior to that date, customers were requested to provide an address, although an address was not required for them to register, and that many did so. The same was true with respect to payees of checks, and was also true at one time for persons who paid Qchex fees with their credit cards. In fact, Mr. Danforth admitted that he personally searched Neovi's databases to determine whether any of its customers or their payees provided Neovi with an Ohio mailing address. He also prepared documents indicating the results of that search. Although he had been asked to produce any such documents in his deposition, he did not, stating that although he was aware that the deposition notice called for him to bring documents, he "must have forgot" about the request. (Tr. 86). Mr. Danforth testified that the only reason Neovi indicated in sworn interrogatory responses that it did not know any information about whether it had dealt ...

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