Memorandum Opinion and Order
This putative class action, brought by Illinois resident Gregory Greene and California resident Joseph Lack, seeks to hold Mizuho Bank, Ltd. and Mark Karpeles liable for financial losses arising from the demise of the Mt. Gox Bitcoin exchange. Doc. 146. Plaintiffs bring only state law claims, and subject matter jurisdiction lies under the Class Action Fairness Act, 28 U.S.C. § 1332(d). Mizuho has moved to dismiss under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction. Doc. 148. The motion is denied, but the denial is conditioned on putative class counsel replacing Greene with a named plaintiff from Illinois who is a member of the Deposit Subclass (of which more later). If a substitute named plaintiff is not named by April 4, 2015, this suit will be transferred to the Central District of California, where Lack resides and, as shown below, where Mizuho is subject to personal jurisdiction.
Background
On a Rule 12(b)(2) motion, the relevant background includes the complaint’s well-pleaded allegations and the evidentiary materials submitted by both sides. No party has requested an evidentiary hearing, so the court must accept Plaintiffs’ factual averments and resolve all genuine factual disputes in Plaintiffs’ favor. See Felland v. Clifton,
Bitcoin is a digital payment system, and bitcoins are the system’s unit of account. See Beyond Silk Road: Potential Risks, Threats and Promises of Virtual Currencies: Hearing Before the S. Comm. on Homeland Sec. & Governmental Affairs, 113th Cong. 3-4 (2013) (statement of Jennifer Shasky Calvery), https://perma.cc/2 TFX-6BCQ (noting that the Treasury Department classifies Bitcoin as a “decentralized virtual currency”). Bitcoins can be bought and sold on exchanges.
Prior to its collapse and bankruptcy, Mt. Gox was a Bitcoin exchange based in Tokyo, Japan. Doc. 146 at ¶¶ 11, 40. Karpeles was Mt. Gox’s President, CEO, and majority shareholder. Id. at ¶¶ 6, 17. To fund their activities on the exchange, Mt. Gox users could either (1) transfer bitcoins directly into their accounts at Mt. Gox or (2) wire fiat currency (government-issued money, like dollars and euros), to Mizuho Bank, which would deposit the money into a bank account it held on behalf of Mt. Gox. Id. at ¶¶ 14, 23. Mizuho, which is headquartered in Tokyo, earned service fees from processing those wire deposits. Id. at ¶¶ 7, 16. To withdraw fiat currency, a Mt. Gox user would make a request through her account at Mt. Gox, which would send the request, along with the user’s banking details, to Mizuho, which in turn would transfer the requested amount to the user’s bank. Id. at ¶ 24.
Greene, an Illinois resident, opened a Mt. Gox account in 2012 and began trading and selling bitcoins. Id. at ¶¶4, 46. For over a year, Greene traded bitcoins without problem. Id. at ¶¶ 47-49. In November 2013, Greene contacted Mt. Gox customer service after experiencing delays with his transactions. Id. at ¶ 49.
Unbeknownst to Greene, Mt. Gox had for several months been under pressure on two fronts. First, exploiting security vulnerabilities that dated from as early as 2011, Karpeles was stealing bitcoins belonging to Mt. Gox users. Id. at ¶¶ 19-21. Second, and of particular relevance here, Mizuho was attempting to end its relationship with Mt. Gox. Id. at ¶¶ 26-27 (citing Takashi Mochizuki et al., “Recording Shows Mizuho Pushed to End Dealings with Mt. Gox,” Wall St. J., Mar. 5, 2014, https://perma.cc/8YDX-V95S). Concerned about a reported U.S. investigation into money laundering on Mt. Gox and wary of potential legal liability or reputational harm, Mizuho pressed Karpeles to close the Mt: Gox bank account at Mizuho. Doc. 146 at ¶¶ 27-28. When Karpeles refused, Mizuho unilaterally took several measures designed to make the banking relationship
By mid-2013, Mizuho was no longer processing any international wire withdrawals for Mt. Gox, meaning that Mt. Gox users who had wired fíat currency to Mizuho for deposit in Mt. Gox’s bank account could not withdraw their money. Id. at ¶¶ 29, 31. Mizuho’s qualms about handling Mt. Gox’s business did not extend, however, to receiving fíat currency from Mt. Gox users for deposit into the Mt. Gox account. Even as it limited and then barred withdrawals, Mizuho continued to accept deposits from Mt. Gox users, earning revenue from the associated service fees. Id. at ¶¶ 31-32. Mizuho prohibited Mt. Gox from disclosing that the withdrawal difficulties were attributable to Mizuho or that Mizuho wanted to terminate its relationship with Mt. Gox. Id. at ¶¶ 36, 123, 125. Mizuho knew that if Mt. Gox’s members learned of its prohibition on withdrawals of fiat currency from Mt. Gox’s Mizuho account, members would stop making deposits and Mizuho would stop collecting the associated fees. Id. at ¶ 122.
Lack, a California resident, did not join Mt. Gox until January 22, 2014, about six months after Mizuho had barred all withdrawals from its Mt. Gox account. Id. at ¶ 56. He wired $40,000 in fiat currency from his local Wells Fargo branch to Mizu-ho on February 3, 2014, and Mizuho accepted the transfer. Id. at ¶¶ 57, 65. On the wire transfer instructions, Lack listed his individual Mt. Gox account number, and when Mizuho received the wire, it was given Lack’s address. Id. at ¶ 57; Doc. 151 at 6, 8 & n.6. At the time, Mizuho had not publicly disclosed that it had halted all international wire transfers out of its Mt. Gox account. Doc. 146 at ¶¶ 63-64.
On February 7, 2014, Karpeles halted all Mt. Gox users’ ability to withdraw bitcoins from the Mt. Gox Bitcoin exchange. Id. at ¶ 37. On February 24, the Mt. Gox website became inaccessible, and on February 28, Mt. Gox filed for bankruptcy protection in Japan. Id. at ¶1¶ 39-40. Greene was unable to access approximately $25,000 in bitcoins from his Mt. Gox account. Id. at ¶ 54. Lack was unable to recover his $40,000 in fiat currency from Mizuho, and that sum was not reflected in his Mt. Gox account. Id. at ¶¶ 62, 65-66.
Greene filed this suit against various Mt. Gox entities and Karpeles, Doc. 1, and then in an amended complaint added Lack as a plaintiff and Mizuho (among others) as a defendant, Doc. 37. The case was stayed for some time, Docs. 95, 129, and after a settlement attempt failed, Plaintiffs voluntarily dismissed all defendants other than Mizuho and Karpeles. Doc. 147.
The operative complaint has seven counts. Counts I-III name only Karpeles and need not be discussed. Doc. 146 at ¶¶ 73-99. Count IV is brought by Greene and Lack on behalf of the entire putative class; it alleges that Mizuho, in limiting withdrawals from Mt. Gox’s bank account, tortiously interfered with Plaintiffs’ agreements with Mt. Gox by undermining Mt. Gox’s ability to do business. Id. at ¶¶ 100-108. Counts V-VII are brought on behalf only of Lack and the “Deposit Subclass,” defined as those class members who deposited fiat currency into their Mt. Gox accounts through Mizuho after Mizuho had stopped processing withdrawals. Id. at ¶ 67. The Deposit Subclass does not include those individuals, like Greene, whose Mt. Gox assets consisted solely of bitcoins and who therefore did not deposit fiat currency at Mizuho. Ibid. Count V alleges that Mizuho unjustly enriched itself by accepting transaction fees in connection with incoming wire transfers from Deposit
Discussion
“District courts exercising diversity jurisdiction apply the personal jurisdiction rules of the state in which they are located.” Philos Techs., Inc. v. Philos & D, Inc.,
“Under the Fourteenth Amendment’s Due Process Clause, a court may exercise personal jurisdiction over an out-of-state defendant when that defendant has ’minimum contacts with the [forum state] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.’” Philos,
“For a court to exercise specific jurisdiction, the lawsuit must ’result[ ] from alleged injuries that arise out of or relation to’ the defendant’s contacts with the forum.” Philos,
Under these precedents, Mizuho would be subject to personal jurisdiction in California, where Lack resides. Like the Illinois long-arm statute, “California’s long-arm statute allows the exercise of personal jurisdiction to the full extent permissible under the U.S. Constitution.” Picol v. Weston,
Cir.2015) (citing Daimler AG v. Bauman,
— U.S. -,
Although the evidence may prove inaccurate some or all of these alleged facts, and while the alleged facts, assuming their truth, may not add up to an actionable tort, Plaintiffs have made a prima facie case for personal jurisdiction in California. See Philos,
Felland’s complaint alleges that Clifton’s repeated communications to his Wisconsin home were part of a deliberate attempt to lull him into a false sense of security and to induce him to make the installment payments. While these communications might not be directly relevant to a simple breach-of-contract claim, they are critical to Felland’s claim of intentional misrepresentation. Clifton was aware that Felland lived in Wisconsin, directed multiple communications to him there, and knew that the harm would be felt in Wisconsin. These allegations are sufficient to establish the minimum contacts necessary to satisfy the due-process requirements for jurisdiction over Clifton in Wisconsin.
Id. at 670. The Seventh Circuit added that “[i]t is well established that such ‘lulling’ communications can be considered part of a larger scheme to defraud” and also “are relevant to the evaluation of the defendant’s minimum contacts with the forum state for purposes of establishing personal jurisdiction in a case alleging a fraud.” Id. at 675-76.
It is true that this suit differs from Felland in that Clifton directed communications to Felland in Wisconsin, while Mi-zuho remained silent when knowingly accepting Lack’s deposits from California, but that distinction does not warrant a different result. As Felland makes clear, “the nature of the purposeful-direction/purposeful-availment inquiry depends in large part on the type of claim at issue.” Id. at 674. Lack’s claim is that Mizuho defrauded him not by making false statements to him, but the opposite — by remaining silent and thereby concealing the truth about Mizuho’s “you can deposit to your heart’s content, but we won’t let you withdraw” policy regarding its Mt. Gox bank account — and then by accepting his deposit (and reaping the associated service fee) with the knowledge of the deposit’s California origin and Lack’s presence in California. The specific jurisdiction analysis must account for the nature of the torts alleged, unjust enrichment and fraudulent concealment, and the conduct here alleged is sufficient to establish that Mizu-ho purposefully directed its conduct to California, given’that the torts were completed only when Mizuho knowingly accepted a deposit from a California branch from
The court has no doubt that Mizuho did not care that Lack resided in California as opposed to, say, Nebraska or North Carolina. That does not change the fact that Mizuho created the necessary relationship with California by accepting Lack’s deposit, knowing that it arrived from a California branch and a California resident, and profiting from the associated fees. See J. McIntyre Machinery, Ltd. v. Nicastro,
Nor would exercising personal jurisdiction over Mizuho in California offend traditional notions of fair play and substantial justice. “The following factors are relevant in making this determination: ‘the burden on the defendant, the forum State’s interest in adjudicating the dispute, the plaintiffs interest in obtaining convenient and effective relief, the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and the shared interest of the several States in furthering fundamental substantive social policies.’ ” Felland,
In any event, Mizuho has forfeited any argument based on notions of fair
Contrary to Mizuho’s submission, Doc. 189, subjecting it to personal jurisdiction in California is not inconsistent with Noboa v. Barcelo Corporacion Empresarial, supra. In that case, Noboa used the Orbitz website to book and pay for a stay at a hotel in Mexico owned by Barcelo, a Spanish company.
Only intentional contacts by the defendant with the forum jurisdiction can support specific jurisdiction. Plaintiffs’ complaint does not allege that Rancho Carisuva, the supposedly culpable party, had any accident-related contacts with Illinois. Instead plaintiffs rely on No-boa's contacts with Illinois, and then with Orbitz, which had a contract with Barceló (or one of its subsidiaries or licensees), which led her to a hotel lobby in Baja California, where she met a representative of Rancho Carisuva, which provided defective equipment (or deficient supervision) on a motorized tour. Such contacts are even more attenuated than those deemed insufficient in Walden, in which the Court held that Nevada could not exercise jurisdiction over a claim by one of its citizens that a resident of Georgia should have known that his activity in Georgia would injure the Nevadan.
Ibid. Here, by contrast, Mizuho is alleged to have had tort-related contacts with California: it knowingly accepted a deposit from a bank it knew to be in California and from somebody it knew to be a California resident, knowing that it would not allow that money to be withdrawn, despite having concealed the no-withdrawal policy for the purpose of enticing such deposits. These facts evidence the requisite contacts with California.
Equally incorrect is Mizuho’s contention that the result reached here is inconsistent with Advanced Tactical Ordnance Systems v. Real Action Paintball, supra. In that case, Advanced Tactical, an Indiana-based
Unlike Real Action’s conduct in Advanced Tactical, Mizuho’s litigation-specific conduct here was directed at California. As noted, the alleged fraudulent concealment and unjust enrichment torts were completed only when Mizuho accepted a deposit from Lack, whom it knew to be in California, from the California branch of his bank. This contrasts with Real Action, whose only contact with Indiana was that a competitor alleging trademark infringement happened to be based there, and whose alleged infringement did not rely on transactions originating in Indiana. Mizu-ho’s alleged fraudulent concealment became grounds for a legal claim only once Mizuho received Lack’s deposit from California and unjustly enriched itself from the deposit that its fraudulent concealment had induced Lack to send.
So Mizuho is subject to personal jurisdiction in California, at least under Seventh Circuit precedent. This case, however, was filed in Illinois. That is important, for Mizuho’s relationship with Greene, and thus with Illinois, is considerably less involved than its relationship with Lack, and thus with California. Unlike Lack, Greene does not allege that he sent any wire transfers to Mizuho or that Mizu-ho received any transaction fees from Greene. Greene concedes this, but retorts that had he known that Mizuho had placed restrictions on Mt. Gox’s Mizuho account, he would have withdrawn his bitcoins from Mt. Gox before its demise rendered them inaccessible. Doc. 146 at ¶ 55; Doc. 151 at 10. Greene’s sole claim against Mizuho is that the bank tortiously interfered with his consumer agreement with Mt. Gox with “policies designed to undermine Mt. Gox’s ability to do business.” Id. at ¶ 103. Yet Mizuho had no transactional contacts with Greene of the type that it had with Lack; in fact, it had no transactional contacts with Greene at all. The alleged harm to Greene is Mizuho’s only contact with Illinois, and that harm is insufficient to establish personal jurisdiction, as “mere injury to a forum resident is not a sufficient connection to the forum.” Walden,
Plaintiffs’ contrary arguments fail to persuade. First, Plaintiffs observe that Mi-zuho operates a branch in Illinois. Doc. 146 at ¶ 3; Doc. 151 at 7. But they do not allege that any of Mizuho’s suit-related conduct occurred at on account of that branch. The mere fact that Mizuho operates a branch in Illinois therefore does not confer specific jurisdiction over Mizuho. See Advanced Tactical,
Second, Plaintiffs observe that many absent members of the Deposit Subclass are Illinois residents. Doc. 151 at 12-16. One such individual, Anthony Motto, avers that he wired money to Mizuho intended for use on Mt. Gox and that Mizuho earned service fees from accepting the deposit. Doc. 151-3. However, “absent class members are not ’parties’ before the court in the sense of being able to direct the litigation,” Williams v. Gen. Elec. Capital Auto Lease, Inc.,
Having concluded under Seventh Circuit precedent that personal jurisdiction lies over Mizuho in California but not Illinois because Lack (a California resident) is a Deposit Subclass member while Greene (an Illinois resident) is not, the court must decide what to do next. The appropriate course is to transfer this case under 28 U.S.C. § 1631 to the Central District of California, where Lack appears to reside, Doc. 17 at 3 (showing that Lack executed his affidavit in Los Angeles), and where Mizuho is subject to personal jurisdiction. Section 1631 provides:
Whenever a civil action is filed in a court ... and that court finds that there is a want of jurisdiction, the court shall, if it is in the interest of justice, transfer such action or appeal to any other such court in which the action or appeal could have been brought at the time it was filed or noticed, and the action or appeal shall proceed as if it had been filed in or noticed for the court to which it is transferred on the date upon which it was actually filed in or noticed for the court from which it is transferred.
28 U.S.C. § 1631. The statute has been held to apply not only where subject matter jurisdiction lies in the transferee court but not the transferor court, but also where, as here, the defendant is subject to personal jurisdiction not in the transferor court but in the transferee court. See Shrader v. Biddinger,
Before transferring the case to California, however, the court will give putative class counsel three weeks to amend the complaint to add an Illinois member of the Deposit Subclass as a named plaintiff. Counsel is being given this opportunity because the Seventh Circuit has long and repeatedly held that if a named plaintiff falls short as a class representative, counsel should be allowed, if it can, to designate a new named plaintiff who fits the bill. See Phillips v. Asset Acceptance, LLC,
Conclusion
For the foregoing reasons, Mizuho’s motion to dismiss for want of personal jurisdiction is conditionally denied, with the condition being that putative class counsel file by April 4, 2016 a third amended complaint naming as a putative class representative an Illinois resident who is a member of the Deposit Subclass. If counsel fails to do so, this case will be transferred to the Central District of California.