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Greene v. Mizuho Bank, Ltd.

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

August 26, 2016

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.

          MEMORANDUM OPINION AND ORDER

          Gary Feinerman 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 ___ F.Supp.3d ___, 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. 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. 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. Gox's bank account, tortiously interfered with Plaintiffs' contracts with Mt. Gox. Id. at ¶¶ 111-119. Counts V-VII are brought on behalf only of Lack, Motto, and the putative “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 ¶ 78. 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 ¶¶ 120-127. Count VI alleges that Mizuho fraudulently concealed from the Deposit Subclass that it had halted such withdrawals. Id. at ¶¶ 128-139. Count VII seeks an order “requiring Mizuho to provide a full and complete accounting of all transactions or records relating to the deposit, transfer, and processing of” the Deposit Subclass's assets. Id. at ¶¶ 140-143.

         Discussion

         Mizuho moves to dismiss Counts IV-VII. Doc. 172. Although, as discussed below, Mizuho has raised a choice-of-law issue with regard to forum non conveniens, Doc. 183 at 36-38; Doc. 207 at 23, and has given notice pursuant to Rule 44.1 that it intends to raise foreign law at a later stage in the litigation, Doc. 183 at 36 n.18; Doc. 207 at 8, it has not raised the issue as to its Rule 12(b)(6) motion and seeks dismissal of Counts IV-VII under Illinois law. Id. at 9 (“Mizuho applies Illinois … law solely for the convenience of effectively resolving its motion to dismiss.”). Because Plaintiffs also do not raise a conflict-of-law issue, Illinois law governs the Rule 12(b)(6) motion. See Fednav Int'l v. Cont'l Ins. Co., 624 F.3d 834, 838 (7th Cir. 2010) (“When neither party raises a conflict of law issue in a diversity case, the applicable law is that of the state in which the federal court sits.”) (internal quotation marks omitted).

         I. Tortious Interference with Contract (Count IV)

         “To state a claim under Illinois law for tortious interference with contracts, a plaintiff must demonstrate: (1) the existence of a valid and enforceable contract between the plaintiff and another; (2) the defendant's awareness of this contractual relation; (3) the defendant's intentional and unjustified inducement of a breach of the contract; (4) a subsequent breach by the other, caused by the defendant's wrongful conduct; and (5) damages.” Healy v. Met. Pier & Exposition Auth., 804 F.3d 836, 842 (7th Cir. 2015). Mizuho challenges the third and fourth elements. Doc. 183 at 18-26; Doc. 207 at 9-15.

         As to the third element, intentional and unjustified inducement of a breach, Mizuho makes two arguments, which largely fail at the pleading stage. First, Mizuho contends that the complaint's allegations reveal that Mizuho did not induce Mt. Gox to breach its contracts with Plaintiffs, since Mt. Gox ultimately went dark as a result of Karpeles's actions and alleged theft, not Mizuho's barring of outbound transfers. Doc. 183 at 18-20; Doc. 205 at ¶¶ 20-21, 38, 40; Doc. 207 at 9-10. The court agrees that Plaintiffs have not pleaded “sufficient factual matter” to claim, as the complaint does, id. at ¶ 117, that Mizuho's barring of outbound wire transfers forced Karpeles to steal bitcoins, caused Mt. Gox to suffer security vulnerabilities, and led Karpeles to close Mt. Gox. See Stapleton v. Advocate Health Care Network, 817 F.3d 517, 521 (7th Cir. 2016) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). That particular charge does not comport with “common sense, ” which must be applied when determining whether a complaint states a claim. Thulin v. Shopko Stores Operating Co., LLC, 771 F.3d 994, 997 (7th Cir. 2014) (quoting Iqbal, 556 U.S. at 679).

         But that particular charge is not necessary for Plaintiffs' tortious interference claim. “Under Illinois law, liability for tortious interference may … be premised on acts immediately directed at a third party which cause that party to breach its contract with the plaintiff.” George A. Fuller Co. v. Chi. Coll. of Osteopathic Med., 719 F.2d 1326, 1331 (7th Cir. 1983); see also Havoco of Am., Ltd. v. Sumitomo Corp. of Am., 971 F.2d 1332, 1344-45 (7th Cir. 1992) (noting that tortious interference “encompasses the situation in which the defendant prevents the plaintiff from performing the contract”) (internal quotation marks omitted). Here, for several months between its mid-2013 decision to bar outgoing withdrawals from its Mt. Gox bank account and Mt. Gox's February 2014 collapse, Mizuho made it impossible for Mt. Gox to perform on its contracts with its U.S.-based users because, with Mizuho refusing to process outbound wire transfers, U.S. users could not withdraw fiat currency from Mt. Gox. Mizuho retorts that Mt. Gox's performance was not impossible because Mt. Gox maintained upwards of forty accounts at different banks and payment processors, and also because Mt. Gox could have closed its account with Mizuho, withdrawn the money, and then used the funds to pay U.S. depositors either via check or through one of its other bank accounts. Doc. 183 at 21; Doc. 207 at 11-12. That argument fails; accepting at the pleading stage that Mt. Gox could have serviced Lack and Motto through those other accounts, even though nothing in the complaint suggests that it could have, would require drawing factual inferences against Plaintiffs, which on a Rule 12(b)(6) motion the court cannot do. See Zahn, 815 F.3d at 1087.

         Mizuho next argues that even if it did induce Mt. Gox to breach its contracts with Plaintiffs, Mizuho's conduct was neither intentional nor unjustified. “In our legal system, every person is presumed to intend the natural consequences of his acts.” In re Sentinel Mgmt. Grp., Inc., 728 F.3d 660, 667 (7th Cir. 2013) (internal quotation marks omitted); see also Trzcinski v. Am. Cas. Co., 953 F.2d 307, 313 (7th Cir. 1992) (“[T]he law presumes every man to intend the natural consequences of his acts.”) (internal quotation marks omitted); Miller v. Washington, 2013 WL 1340590, at *6 (N.D. Ill. Mar. 30, 2013) (“It is a basic principle of Illinois tort law that a person is considered to intend the natural and probable consequences of his actions.”). Plaintiffs allege that Mizuho knew that barring outbound wire transfers “would render Mt. Gox incapable of fulfilling its contractual obligations to its American users, ” Doc. 197 at 17-18, and that is sufficient to plead intent.

         Mizuho protests that this is a conclusory assertion, and it enumerates several possibly relevant facts that are absent from the complaint. Doc. 207 at 13 & n.6. But to survive a Rule 12(b)(6) motion, Plaintiffs need not plead every conceivable fact to support a claim; the complaint need only “contain sufficient factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.'” Stapleton, 817 F.3d at 521 (quoting Iqbal, 556 U.S. at 678). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Roberts v. City of Chicago, 817 F.3d 561, 564-65 (7th Cir. 2016) (quoting Iqbal, 556 U.S. at 678). “[A]ll this means is that the plaintiff must include enough details about the subject-matter of the case to present a story that holds together.” Runnion ex rel. Runnion v. Girl Scouts of Greater Chi. & Nw. Ind., 786 F.3d 510, 526 (7th Cir. 2015) (internal quotation marks omitted).

         This, Plaintiffs have done. The complaint alleges that “Mizuho facilitated all international cash wire transfers into the [Mt. Gox] Exchange and processed user requests to withdraw cash from the Exchange”; that it “exclusively processed all bank deposits and withdrawals made by Mt. Gox users located in the United States”; and that it “knew that if U.S. customers found about … the fact that withdrawals were no longer allowed … they would no longer continue making deposits into the Exchange.” Doc. 205 at ¶¶ 23, 26, 32. This factual predicate supports the reasonable inference that Mizuho at the very least knew or expected that its barring of outgoing wire transfers would severely disrupt Mt. Gox's contractual relationships with its American users, including Lack and Motto. See Hudson Ins. Co. v. City of Chicago Heights, 48 F.3d 234, 238 (7th Cir. 1995) (“[E]ven if Chicago Heights did not intend the destruction of the buildings through vandalism by third parties, it should have expected the destruction of the buildings and the ultimate damages suffered by the … plaintiffs as the likely consequence of that action.”). Indeed, disrupting those relationships was the point of Mizuho's conduct; otherwise, Mizuho's policy of barring withdrawals would not have served its conceded purpose of inducing Mt. Gox to terminate its banking relationship with Mizuho, for, as Mizuho notes, on a strictly financial basis Mizuho's actions arguably enriched Mt. Gox by preventing users from withdrawing their money. Doc. 207 at 9. For these reasons, Plaintiffs have adequately pleaded that Mizuho's conduct was intentional.

         As for justification, “Illinois recognizes a conditional privilege to interfere with contracts where the defendant was acting to protect an interest which the law deems to be of equal or greater value than the plaintiff's contractual rights.” Nation v. Am. Capital, Ltd., 682 F.3d 648, 651 (7th Cir. 2012) (internal quotation marks omitted); see also TABFG, LLC v. Pfeil, 746 F.3d 820, 825 (7th Cir. 2014) (“The Illinois Supreme Court has recognized a privilege in tortious interference cases where the interest which the defendant was acting to protect is one which the law deems to be of equal or greater value than the plaintiff's contractual rights.”). The privilege can include situations in which “a party acts to enhance its own business interests, ” Fidelity Nat'l Title Ins. Co. of N.Y. v. Westhaven Props. P'ship, 898 N.E.2d 1051, 1067-68 (Ill.App. 2007) (internal quotation marks omitted), a category into which Mizuho contends that its efforts to inoculate itself from legal liability and reputational harm from its association with Mt. Gox fall. Doc. 183 at 22-23; Doc. 207 at 14-15. “Illinois courts have been unclear about whether the issue of conditional privilege is part of the plaintiff's claim-that is, an aspect of the plaintiff's burden to prove that the defendant's interference with his contract was unjustified-or an affirmative defense to be proved by the defendant, ” Nation, 682 F.3d at 651 n.2, and the parties here dispute the issue, Doc. 197 at 22-23; Doc. 207 at 14. But the burden issue is irrelevant on this motion, because the privilege is contingent on the interference being incidental, not intentional. See Curt Bullock Builders, Inc. v. H.S.S. Dev., Inc., 586 N.E.2d 1284, 1290 (Ill.App. 1992) (“If the interference which results is of an incidental nature rather than an intentional nature, no tort occurs.”) (emphasis added).

         Here, Mizuho's interference was not incidental; to the contrary, and as noted, Mizuho intended to disrupt Mt. Gox's relationships with its U.S. users, including Plaintiffs. Further, as discussed below, Mizuho's alleged conduct was inherently wrongful, as it was founded on a tort: fraudulently concealing the fact that Plaintiffs' money, once deposited, could not be recovered. That is more than sufficient to show that Mizuho “committed some impropriety” in interfering with Plaintiffs' contracts with Mt. Gox, which is all that Plaintiffs must plead to allege unjustified conduct. See Dowd & Dowd, Ltd. v. Gleason, 639 ...


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