Greene v. Mizuho Bank, Ltd.

• Decision Date: 26 August 2016
• Docket Number: 14 C 1437
• Citation: 206 F.Supp.3d 1362
• Parties: Gregory GREENE, Joseph Lack, and Anthony Motto, individually and on behalf of all others similarly situated, Plaintiffs, v. MIZUHO BANK, LTD. and Mark Karpeles, Defendants.
• Court: U.S. District Court — Northern District of Illinois

206 F.Supp.3d 1362

Gregory GREENE, Joseph Lack, and Anthony Motto, individually and on behalf of all others similarly situated, Plaintiffs,

v.MIZUHO BANK, LTD. and Mark Karpeles, Defendants.

14 C 1437

United States District Court, N.D. Illinois, Eastern Division.

Signed August 26, 2016

Alicia Elaine Hwang, Ari Jonathan Scharg, Christopher Lillard Dore, Jay Edelson, Alexander T.H. Nguyen, Benjamin Scott Thomassen, John Aaron Lawson, Edelson P.C., Robert A. Clifford, Shannon Marie McNulty, Clifford Law Offices, P.C., Chicago, IL, Steven Lezell Woodrow, Woodrow & Peluso, LLC, Denver, CO, Scott Bennett Kitei, Honigman Miller Schwartz and Cohn LLP, Detroit, MI, for Plaintiffs.

Mark Karpeles, pro se.

Jason A. Frye, Jonathan Stuart Quinn, Neal, Gerber & Eisenberg, Chicago, IL, Jeffrey Resetarits, Jerome Steven Fortinsky, John A. Nathanson, Shearman & Sterling LLP, New York, NY, for Defendants.

MEMORANDUM OPINION AND ORDER

Gary Feinerman, United States District Judge

In this putative class action, Plaintiffs Gregory Greene, Joseph Lack, and Anthony Motto allege that Mizuho Bank, Ltd. and Mark Karpeles are liable for financial losses arising from the demise of the Mt. Gox Bitcoin exchange. Doc. 205. Plaintiffs bring only state law claims, and subject matter jurisdiction lies under the Class Action Fairness Act, 28 U.S.C. § 1332(d). Earlier in the litigation, Mizuho moved to dismiss under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction, and the court denied the motion. Docs. 199-200 (reported at Greene v. Mizuho Bank, Ltd. , 169 F.Supp.3d 855, 2016 WL 946921 (N.D.Ill. Mar. 14, 2016) ). Mizuho now moves to dismiss for failure to state a claim under Rule 12(b)(6) or, alternatively, for forum non conveniens. Doc. 172. The motion is granted as to Greene's tortious interference claim and Plaintiffs' accounting claim, and otherwise is denied.

Background

In resolving a Rule 12(b)(6) motion, the court assumes the truth of the operative complaint's well-pleaded factual allegations, though not its legal conclusions. See Zahn v. N. Am. Power & Gas, LLC , 815 F.3d 1082, 1087 (7th Cir.2016). The court must also consider "documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice," along with additional facts set forth in Plaintiffs' brief opposing dismissal, so long as those facts "are consistent with the pleadings." Phillips v. Prudential Ins. Co. of Am. , 714 F.3d 1017, 1020 (7th Cir.2013) (internal quotation marks omitted); see also Defender Sec. Co. v. First Mercury Ins. Co. , 803 F.3d 327, 335 (7th Cir.2015). The facts are set forth as favorably to Plaintiffs as those materials allow. See Pierce v. Zoetis , 818 F.3d 274, 277 (7th Cir.2016). In setting forth those facts at the pleading stage, the court does not vouch for their accuracy. SeeJay E. Hayden Found. v. First Neighbor Bank, N.A., 610 F.3d 382, 384 (7th Cir.2010).

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/2TFX-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. 205 at ¶ 12. Karpeles was Mt. Gox's President, CEO, and majority shareholder. Id. at ¶¶ 7, 18. 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, such as dollars and euros) to Mizuho, which would deposit the money into a bank account it held on behalf of Mt. Gox. Id. at ¶¶ 15, 24. Mizuho is headquartered in Tokyo and earned service fees from processing those wire deposits. Id. at ¶¶ 8, 17. 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 ¶ 25.

Greene, an Illinois resident, opened a Mt. Gox account in 2012 and began trading and selling bitcoins. Id. at ¶¶ 4, 49. For over a year, Greene traded bitcoins without incident. Id. at ¶¶ 49-51. In November 2013, Greene contacted Mt. Gox customer service after experiencing delays with his transactions. Id. at ¶ 51.

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 that belonged to Mt. Gox users. Id. at ¶¶ 20-22. Second, and of particular relevance here, Mizuho was attempting to end its relationship with Mt. Gox. Id. at ¶¶ 27-28 & n.8. 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. Id. at ¶¶ 28-29. When Karpeles refused, Mizuho unilaterally took several measures designed to make the banking relationship untenable for Mt. Gox. Id. at ¶¶ 29-30, 32. Those measures included limiting the number and amount of Mt. Gox customer withdrawals and refusing to process some wire transfers. Ibid.

By mid-2013, Mizuho was no longer processing any international wire withdrawals for Mt. Gox, meaning that Mt. Gox users who had wired fiat currency to Mizuho for deposit in Mt. Gox's account could not withdraw their money. Id. at ¶¶ 30, 32. Mizuho's qualms about handling Mt. Gox's business did not extend, however, to receiving fiat currency from Mt. Gox users for deposit into Mt. Gox's 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 ¶¶ 17, 32-33. Plaintiffs allege that 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 ¶¶ 37, 136. 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 ¶ 133. By August 2013, press reports indicated that Mt. Gox users were suffering significant delays in withdrawing fiat currency, but those reports indicated only that withdrawals were slow, not that they were barred. Id. at ¶¶ 27 n.8 (citing Romain Dillet, "Feds Seize Another $2.1 Million from Mt. Gox, Adding Up to $5 Million," TechCrunch (Aug. 23, 2013), https://perma.cc/4NUG-XPDC), 31 & n.11 (citing Daniel Cawrey, "Withdrawals from Mt. Gox: Growing Pains or Banking Bottleneck?," CoinDesk (Aug. 12, 2013), https://perma.cc/ERP8-GB8F; Peter N. Steinmetz, "Mt. Gox USD Withdrawals to Take Up to 22 Months," Bitcoin Mag. (Sept. 21, 2013), https://perma.cc/TH33-24QC).

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 ¶¶ 5, 58. At the time, Mizuho had not publicly disclosed that it had halted all international wire transfers out of the Mt. Gox account. Id. at ¶¶ 65-66. On February 3, 2014, Lack wired $40,000 in fiat currency from his local Wells Fargo branch to Mizuho, and Mizuho accepted the transfer. Id. at ¶¶ 59, 67. On February 7, 2014, Karpeles halted all Mt. Gox users' ability to withdraw bitcoins from the Mt. Gox Bitcoin exchange. Id. at ¶ 38. On February 20, 2014, after Mt. Gox indicated that it had not yet received his deposit, Lack went to his local bank branch to attempt to trace the wire transfer and recall his deposit. Id. at ¶ 64.

Motto, an Illinois resident, joined Mt. Gox in early 2014. Id. at ¶¶ 6, 69. On February 15, 2014, eight days after Karpeles halted bitcoin withdrawals, Motto wired $1,000 in fiat currency from his local Chase bank account to Mizuho, and Mizuho accepted the deposit. Id. at ¶¶ 70, 72. When the money did not appear in Motto's Mt. Gox account, Mt. Gox asked Motto to confirm that wire transfer listed the correct bank name ("Mizuho"), which Motto confirmed. Id. at ¶ 73. Mt. Gox indicated that it had not yet received Motto's deposit. Ibid.

On February 24, 2014, the Mt. Gox website became inaccessible, and on February 28, Mt. Gox filed for bankruptcy protection in Japan. Id. at ¶¶ 40-41. Greene was unable to access approximately $25,000 in bitcoins from his Mt. Gox account. Id. at ¶ 56. 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 ¶¶ 67-68. Motto was unable to recover his $1,000 in fiat currency from Mizuho, and his Mt. Gox account continued to reflect a balance of $0.00. Id. at ¶ 77. All three Plaintiffs allege that had they known that Mizuho had barred all outgoing wire transfers for Mt. Gox users, they would not have made their deposits. Id. at ¶¶ 57, 66, 76, 137.

Greene filed this suit against various Mt. Gox entities and Karpeles on February 27, 2014, Doc. 1, and in an amended complaint he added Lack as a plaintiff and Mizuho (among others) as a defendant, Doc. 37. The case was stayed by agreement for some time, Docs. 95, 129, and after a settlement attempt failed, Plaintiffs voluntarily dismissed all defendants other than Mizuho and Karpeles. Doc. 147. A new amended complaint, adding Motto, was filed on April 4, 2016. Doc. 205.

The operative complaint has seven counts. Counts I-III name only Karpeles and need not be discussed. Doc. 205 at ¶¶ 84-110. Count IV is brought by Plaintiffs on behalf of the entire putative class; it alleges that Mizuho, in limiting withdrawals from Mt....