Greene v. Mizuho Bank, Ltd.

• Decision Date: 14 March 2016
• Docket Number: 14 C 1437
• Citation: 169 F.Supp.3d 855
• Parties: Gregory Greene and Joseph Lack, 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

169 F.Supp.3d 855

Gregory Greene and Joseph Lack, 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 March 14, 2016

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

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.

Mark Karpeles, pro se.

MEMORANDUM OPINION AND ORDER

Gary Feinerman

, United States District Judge

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 , 682 F.3d 665, 672 (7th Cir.2012) (“[W]here, as here, the issue [of personal jurisdiction] is raised on a motion to dismiss, the plaintiff need only make a prima facie showing of jurisdictional facts. We therefore accept as true all well-pleaded facts alleged in the complaint and resolve any factual disputes in ... in favor of the plaintiff.”) (citation omitted); Purdue Research Found. v. Sanofi – Synthelabo, S.A. , 338 F.3d 773, 782–83 (7th Cir.2003)

. 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

Meade v. Moraine Valley Cmty. Coll. , 770 F.3d 680, 682 (7th Cir.2014). In so doing, the court does not vouch for the accuracy of those facts. See

Jay 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. 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 untenable for Mt. Gox. Id . at ¶¶ 28-29, 31. Those measures included limiting the number and amount of Mt. Gox customer withdrawals and refusing to process some wire transfers. Id . at ¶¶ 28-29, 31.

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 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 fiat 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 Mizuho 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 ¶¶ 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 Subclass members after it had halted Mt. Gox withdrawals without disclosing that it had done so. Id . at ¶¶ 109-116. Count VI alleges that Mizuho fraudulently concealed from Lack...